Management Consulting/strategic managent

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Question
Explain in what sense the top management takes strategic decisions in an organization? Illustrate with suitable examples.

Answer














1. Explain in what sense the top management takes strategic decisions in an organization? Illustrate with suitable examples.



Primary objective Develop, direct and control the corporate planning and development activities of the organisation. Prepare and monitor business plans  and advise the Chief Executive and/or Board as appropriate.

Specific accountabilities

Develop short, medium and long range corporate strategies and business plans for the achievement of overall business objectives.

Direct the organization's forecasting and business analysis activities.

Assist management in the preparation of business plans, reports, budgets and forecasts.

Assist the Chief Executive and senior management in defining and implementing corporate strategy.

Provide advice to management in developing business planning and forecasting techniques.

Ensure management are informed of political and economic factors which may influence business plans.

Direct internal business research and review present programmes and planning projects with the Chief Executive and other relevant executives.

Review proposals for major capital expenditures to ensure their conformity with corporate plans and justification on economic grounds.

Evaluate existing and proposed major investments and provide the Chief Executive and/or Board with detailed statistical and financial data to thoroughly assess such projects.

Investigate and assess business opportunities appropriate to the organization, including licences, patents, joint ventures and possible mergers.

Review the operating results of all divisions, activities and investments in light of budget objectives and corporate plans.

Maintain necessary contact with key customers, industry associations or government representatives.

Select and train subordinate staff. Consult with subordinate staff and review recommendations and reports.

Ensure activities related to the function comply with relevant Acts, legal demands and ethical standards.

HERE  IS  AN EXAMPLE  WHAT  THE  PLANNING/STRATEGIST   WOULD  DO  REGULARLY
AND  GUIDE   THE  SENIOR  MANAGEMENT.

PESTEL  ANALYSIS

-is  also known as   PEST  in some  places

IT  IS   A  MATTER  OF  HOW  MUCH   DEPTH  YOU WANT  TO  REACH.
 


The Analysis   includes:

-Social/demographic,[S]
-Technological,          [T]
-Economic,          [E]
-Environmental (natural),[E]
-Political,          [P]
-Legal          [L]
-and Ethical factors.      [E]




The  STEEPLE    factors play an important role in the value creation opportunities of a strategy. However they are usually outside the control of the corporation and must normally be considered as either threats or opportunities.



Below    you  will  find examples of each of these factors.


Political (incl. Legal)   [ [Poltical] EST[Environment][Legal] ]

-Environmental regulations and protection
[what  are  the  government regualtions/ protection laws  that  must be  observed ]

-Tax policies
what tax  hinder the business and what  taxes  incentives  are available]

-International trade regulations and restrictions
[ does  the  government    encourage  exports / with  high tariffs  on  imports]

-Contract enforcement law/Consumer protection
[does  the  government  enforce  on  consumer  protection ]

-Employment laws]
[ is the  government    encouraging  skilled  immigrants  with  temp. permits]

-Government organization / attitude
[ does  the  government  have  a   very  positive  attitude  towards  this   industry]

-Competition regulation
[ are  there   regulation  for  limiting  competition]

-Political Stability
[ politically ,  does the   government    have   a  very   stable  government ]

-Safety regulations
[ has  the  government      adopted  some  of  the  modern  safety regulations]
=================================================================
Economic     [P[Economics][STEL ]

-Economic growth
[  what  is  the economic growth rate  /  what  are  the  reasons ]

-Interest rates & monetary policies
[ are  the  interest  rates    under control /  is there   a  sound  monetary  policies]

-Government spending
[is  government  spending  is  significant   and  is it   under control ]

-Unemployment policy
[what  is  the  employment / unemployment  policies  of the government ]

-Taxation
[  has  the  taxation    encouraged  the  industry ]

-Exchange rates
[ is   there  well  managed   exchange  controls  and  is it  helping  the  industry]

-Inflation rates
[ is  the  inflation  well   under  control ]

-Stage of the business cycle
[ is  your    industry  is  on  the   growth  pattern]

-Consumer confidence
[ is  the  consumer  confidence   is   high/ strong and  if  not, why ]

==================================================
Social  [ PE[Social]TEL ]

-Income distribution
[is there   balanced   income  distribution   policy ]

-Demographics, Population growth rates, Age distribution
[ what  is   population   growth  and  why ]

-Labor / social mobility
[ what   are the  labor  policies  and  is  there  labor  mobility]

-Lifestyle changes
[ are  there  significant  lifestyle   changes     taking  place--more  modernization/ why  ]

-Work/career and leisure attitudes
[ are  the  population      career  minded  and  are  seeking  better  lifestyle]

-Education
[ what  are  the  education  policies /  is  it  successful ]

-Fashion, hypes
[are  the   people    becoming  fashion  conscious ]

-Health consciousness & welfare, feelings on safety
[ are  the  people     becoming  health  consciousness]

-Living conditions
[ is the  living  conditions   improving  fast  and  spreading  rapidly]

=========================================================
Technological  [  PES [Technology] EL]

Government research spending
[is  the  government    spending  on research  and  development]

Industry focus on technological effort
[are  the   industries    focused  on  using  improved  technology]

New inventions and development
[ are  new  inventions     being   encouraged  for  developments]

Rate of technology transfer
[ is  the  rate  of  technology  transfer  is  speeding  up ]

(Changes in) Information Technology
[ is  the   information  technology    rapidly  moving  and  is  there  government  support]

(Changes in) Internet
[ is the   internet  usage    rapidly  increasing   and  why]

(Changes in) Mobile Technology
[is  the   Mobile   technology    rapidly developing  and  is there  government  support]


FOR  EACH  OF  THE  ELEMENTS,  YOU CAN  ASK  MORE  QUESTIONS
AND  SEEK  THE  FACTUAL  SITUATION.
===========================================================
Below    you  will  find examples of each of these factors,
the  impact  on   the  HUMAN  RESOURCE  DEPARTMENT.


Political (incl. Legal)   [ [Poltical] EST[Environment][Legal] ]

==========================================
-Tax policies
what tax  hinder the business and what  taxes  incentives  are available]

[ if  the  tax  policies are  liberal / incentivated,  businesses  will  add
expansion ,  which means  the  impact  on   HR  

-MORE RECRUITMENT/ SELECTION
-MORE  INDUCTION / ORIENTATION
-MORE TRAINING
========================================

-International trade regulations and restrictions
[ does  the  government    encourage  exports / with  high tariffs  on  imports]

[ if  the  exports  policies  are  liberal / incentivated,  businesses  will  add
expansion ,  which means  the  impact  on   HR  

-MORE RECRUITMENT/ SELECTION
-MORE  INDUCTION / ORIENTATION
-MORE TRAINING
------------------------------------------------------------------------------------------
[ if  the import  policies  are  liberal / incentivated,  local  mfg. businesses  will  
contract ,  which means  the  impact  on   HR  

-less  RECRUITMENT/ SELECTION
-MORE TRAINING  to improve  efficiency / productivity  

======================================================
-Employment laws]
[ is the  government    encouraging  skilled  immigrants  with  temp. permits]

[if the government  relaxes the  rules on  skilled  migrants,
which  means  the impact  on  HR

-EMPHASIS  WILL  BE   ON FOREIGN   RECRUITMENTS.
-DEVELOPMENT  OF  OVERSEAS  CONTRACTS
-TRAINING  FOR THE  INCOMING  STAFF  ON   LOCAL CULTURE.
-TRAINING  FOR  MANAGERS   TO  MANAGE  DIVERSITY

=======================================================


Economic     [P[Economics][Social]TEL ]

-Economic growth
[  what  is  the economic growth rate  /  what  are  the  reasons ]

[ if  the  economy  is on growth path,  businesses  will  add
expansion ,  which means  the  impact  on   HR  

-MORE RECRUITMENT/ SELECTION
-MORE  INDUCTION / ORIENTATION
-MORE TRAINING
-COMPENSATION  NEEDS  REVISION
--------------------------------------------------------------------------------
[ if  the  economy  contracts/demand  drops,  businesses  will  reduce
volume ,  which means  the  impact  on   HR  

-less  RECRUITMENT/ SELECTION
-MORE TRAINING   TO  IMPROVE  EFFICIENCY/PRODUCTIVITY
-MORE INCENTIVATES   FOR   PRODUCTIVITY  GAIN

===================================================
-Interest rates & monetary policies
[ are  the  interest  rates    under control /  is there   a  sound  monetary  policies]

[ if  the  interest  rate  goes down/ the monetary  policies  are liberal,  
as the  demand  goes  up, businesses  will  add
expansion ,  which means  the  impact  on   HR  

-MORE RECRUITMENT/ SELECTION
-MORE  INDUCTION / ORIENTATION
-MORE TRAINING
----------------------------------------------------------------------------
[ if  the  interest  rate  goes  up ,  the demand  will  go  down
 businesses   will  downsize / cut cost  
 which means  the  impact  on   HR  

-less  RECRUITMENT/ SELECTION
-MORE TRAINING  for   efficiency / productivity  improvements
-EMPHASIS   WILL  BE  FOR  ''PAY  FOR  PERFORMANCE''.

===================================================
-Government spending
[is  government  spending  is  significant   and  is it   under control ]

[ if  the  government  increases  the  spending  on  infrastructures etc,
the  demand  goes  up  , businesses  will  add
expansion ,  which means  the  impact  on   HR  

-MORE RECRUITMENT/ SELECTION
-MORE  INDUCTION / ORIENTATION
-MORE TRAINING
==================================================
-Unemployment policy
[what  is  the  employment / unemployment  policies  of the government ]
=====================================================
-Taxation
[  has  the  taxation    encouraged  the  industry ]

[ if  the  taxation policies encouraged  the  industry,  businesses  will  add
expansion ,  which means  the  impact  on   HR  

-MORE RECRUITMENT/ SELECTION
-MORE  INDUCTION / ORIENTATION
-MORE TRAINING
=======================================================


-Consumer confidence
[ is  the  consumer  confidence   is   high/ strong and  if  not, why ]

[ as  the  consumer  confidence  goes up, more jobs are created,
demand  for  product/services   will go  up, businesses  will  add
expansion ,  which means  the  impact  on   HR  

-MORE RECRUITMENT/ SELECTION
-MORE  INDUCTION / ORIENTATION
-MORE TRAINING

==================================================

Social  [ PE[Social]TEL ]

-Income distribution
[is there   balanced   income  distribution   policy ]

[ as  the  income level  goes  up and  income  distribution  improves,  
demand  for  product/services   will go  up, businesses  will  add
expansion ,  which means  the  impact  on   HR  

-MORE RECRUITMENT/ SELECTION
-MORE  INDUCTION / ORIENTATION
-MORE TRAINING
==================================================

-Demographics, Population growth rates, Age distribution
[ what  is   population   growth  and  why ]

[ as  the  population  level  goes  up and  age  distribution  improves,  
demand  for  product/services   will go  up, businesses  will  add
expansion ,  which means  the  impact  on   HR  

-MORE RECRUITMENT/ SELECTION
-MORE  INDUCTION / ORIENTATION
-MORE TRAINING
====================================================

-Lifestyle changes
[ are  there  significant  lifestyle   changes     taking  place--more  modernization/ why  ]

[ as  the  life style   goes  up and  more modernization   improvements,  
demand  for  product/services   will go  up, businesses  will  add
expansion ,  which means  the  impact  on   HR  

-MORE RECRUITMENT/ SELECTION
-MORE  INDUCTION / ORIENTATION
-MORE TRAINING
=========================================================

-Work/career and leisure attitudes
[ are  the  population      career  minded  and  are  seeking  better  lifestyle]

[ as  the  income level  goes  up and   workers  attitudes  changes,  
demand  for  product/services   will go  up, businesses  will  add
expansion ,  which means  the  impact  on   HR  

-MORE RECRUITMENT/ SELECTION
-MORE  INDUCTION / ORIENTATION
-MORE TRAINING
==================================================
-Education
[ what  are  the  education  policies /  is  it  successful ]

[ as  the  education level  goes  up and  income  distribution  improves,  
demand  for  product/services   will go  up, businesses  will  add
expansion ,  which means  the  impact  on   HR  

-MORE RECRUITMENT/ SELECTION
-MORE  INDUCTION / ORIENTATION
-MORE TRAINING
=======================================================

-Living conditions
[ is the  living  conditions   improving  fast  and  spreading  rapidly]

[ as  the  income level  goes  up and  living  conditions  improves,  
demand  for  product/services   will go  up, businesses  will  add
expansion ,  which means  the  impact  on   HR  

-MORE RECRUITMENT/ SELECTION
-MORE  INDUCTION / ORIENTATION
-MORE TRAINING
=========================================================
Technological  [  PES [Technology] EL]

==================================================
Industry focus on technological effort
[are  the   industries    focused  on  using  improved  technology]

[ as  the  industry  focuses  on  technology, more jobs are created,
demand  for  product/services   will go  up, businesses  will  add
expansion ,  which means  the  impact  on   HR  

-MORE RECRUITMENT/ SELECTION
-MORE  INDUCTION / ORIENTATION
-MORE TRAINING
========================================================
New inventions and development
[ are  new  inventions     being   encouraged  for  developments]

[ as  more  inventions are brought  out, more jobs are created,
demand  for  product/services   will go  up, businesses  will  add
expansion ,  which means  the  impact  on   HR  

-MORE RECRUITMENT/ SELECTION
-MORE  INDUCTION / ORIENTATION
-MORE TRAINING
======================================================
Rate of technology transfer
[ is  the  rate  of  technology  transfer  is  speeding  up ]

[ as  the  rate of  technology  transfer  speeds up, more jobs are created,
demand  for  product/services   will go  up, businesses  will  add
expansion ,  which means  the  impact  on   HR  

-MORE RECRUITMENT/ SELECTION
-MORE  INDUCTION / ORIENTATION
-MORE TRAINING
=======================================================
(Changes in) Information Technology
[ is  the   information  technology    rapidly  moving  and  is  there  government  support]

[ as  the  IT  usage  increases, more jobs are created,
demand  for  product/services   will go  up, businesses  will  add
expansion ,  which means  the  impact  on   HR  

-MORE RECRUITMENT/ SELECTION
-MORE  INDUCTION / ORIENTATION
-MORE TRAINING
===========================================================
FOR  EACH  OF  THE  ELEMENTS,  

-I HAVE  SHOWN  THE  POSITIVE   SIDE  OF  THE  POLICIES,
THE  BUSINESS  POSITIVE  IMPACT

-THE  POSITIVE   HR   REACTIONS.


IN   THE   SAME  MANNER,

-ALL   NEGATIVE   SIDE OF  THE  POLICIES,  WILL HAVE
THE  BUSINESS  NEGATIVE  IMPACT

WHICH  MEAN  HRM   WILL  HAVE  TAKE   RATIONAL
ACTION PLAN  TO  SUIT   THE  SITUATIONS,  WHICH  COULD  INCLUDE

-downsizing  of  employees  nos.
-restructuring  of  the  organization
-re training
-multiskilling
-jobs   re  organization
-more  skill  training
-pay  for  performance
etc   etc   etc.

========================================
strategy
Itís about winning. Itís not about just playing the game. Itís about winning, and you need to be very clear what winning means. In our view, it means three things ó uniquely positioning a firm in its industry, creating sustainable advantage and delivering superior value versus the competition. Itís important that you make the necessary choices to get all three elements right.

THREE ASPECTS OF STRATEGY FORMULATION

The following three aspects or levels of strategy formulation, each with a different focus, need to be dealt with in the formulation phase of strategic management.  The three sets of recommendations must be internally consistent and fit together in a mutually supportive manner that forms an integrated hierarchy of strategy, in the order given.

Corporate Level Strategy:  In this aspect of strategy, we are concerned with broad decisions about the total organization's scope and direction.  Basically, we consider what changes should be made in our growth objective and strategy for achieving it, the lines of business we are in, and how these lines of business fit together.  It is useful to think of three components of corporate level strategy: (a) growth or directional strategy (what should be our growth objective, ranging from retrenchment through stability to varying degrees of growth - and how do we accomplish this), (b) portfolio strategy (what should be our portfolio of lines of business, which implicitly requires reconsidering how much concentration or diversification we should have), and (c) parenting strategy (how we allocate resources and manage capabilities and activities across the portfolio -- where do we put special emphasis, and how much do we integrate our various lines of business).

Competitive Strategy (often called Business Level Strategy):   This involves deciding how the company will compete within each line of business (LOB) or strategic business unit (SBU).

Functional Strategy:  These more localized and shorter-horizon strategies deal with how each functional area and unit will carry out its functional activities to be effective and maximize resource productivity.


CORPORATE LEVEL STRATEGY

This comprises the overall strategy elements for the corporation as a whole, the grand strategy, if you please.  Corporate strategy involves four kinds of initiatives:
  *   Making the necessary moves to establish positions in different businesses and achieve an appropriate amount and kind of diversification.  A key part of corporate strategy is making decisions on how many, what types, and which specific lines of business the company should be in.  This may involve deciding to increase or decrease the amount and breadth of diversification.  It may involve closing out some LOB's (lines of business), adding others, and/or changing emphasis among LOB's.
  *   Initiating actions to boost the combined performance of the businesses the company has diversified into:  This may involve vigorously pursuing rapid-growth strategies in the most promising LOB's, keeping the other core businesses healthy, initiating turnaround efforts in weak-performing LOB's with promise, and dropping LOB's that are no longer attractive or don't fit into the corporation's overall plans.  It also may involve supplying financial, managerial, and other resources, or acquiring and/or merging other companies with an existing LOB.
  *   Pursuing ways to capture valuable cross-business strategic fits and turn them into competitive advantages -- especially transferring and sharing related technology, procurement leverage, operating facilities, distribution channels, and/or customers.
  *   Establishing investment priorities and moving more corporate resources into the most attractive LOB's.

  It is useful to organize the corporate level strategy considerations and initiatives into a framework with the following three main strategy components:  growth, portfolio, and parenting.  These are discussed in the next three sections.

What Should be Our Growth Objective and Strategies?

Growth objectives can range from drastic retrenchment through aggressive growth.
  Organizational leaders need to revisit and make decisions about the growth objectives and the fundamental strategies the organization will use to achieve them.  There are forces that tend to push top decision-makers toward a growth stance even when a company is in trouble and should not be trying to grow, for example bonuses, stock options, fame, ego.  Leaders need to resist such temptations and select a growth strategy stance that is appropriate for the organization and its situation.  Stability and retrenchment strategies are underutilized.
  Some of the major strategic alternatives for each of the primary growth stances (retrenchment, stability, and growth) are summarized in the following three sub-sections.

Growth Strategies

All growth strategies can be classified into one of two fundamental categories:  concentration within existing industries or diversification into other lines of business or industries.  When a company's current industries are attractive, have good growth potential, and do not face serious threats, concentrating resources in the existing industries makes good sense.  Diversification tends to have greater risks, but is an appropriate option when a company's current industries have little growth potential or are unattractive in other ways.  When an industry consolidates and becomes mature, unless there are other markets to seek (for example other international markets), a company may have no choice for growth but diversification.
  There are two basic concentration strategies, vertical integration and horizontal growth. Diversification strategies can be divided into related (or concentric) and unrelated (conglomerate) diversification.  Each of the resulting four core categories of strategy alternatives can be achieved internally through investment and development, or externally through mergers, acquisitions, and/or strategic alliances -- thus producing eight major growth strategy categories.
  Comments about each of the four core categories are outlined below, followed by some key points about mergers, acquisitions, and strategic alliances.

1. Vertical Integration:  This type of strategy can be a good one if the company has a strong competitive position in a growing, attractive industry.  A company can grow by taking over functions earlier in the value chain that were previously provided by suppliers or other organizations ("backward integration").  This strategy can have advantages, e.g.,  in cost, stability and quality of components, and making operations more difficult for competitors.  However, it also reduces flexibility, raises exit barriers for the company to leave that industry, and prevents the company from seeking the best and latest components from suppliers competing for their business.
  A company also can grow by taking over functions forward in the value chain previously provided by final manufacturers, distributors, or retailers ("forward integration").  This strategy provides more control over such things as final products/services and distribution, but may involve new critical success factors that the parent company may not be able to master and deliver.  For example, being a world-class manufacturer does not make a company an effective retailer.
  Some writers claim that backward integration is usually more profitable than forward integration, although this does not have general support.  In any case, many companies have moved toward less vertical integration (especially backward, but also forward) during the last decade or so, replacing significant amounts of previous vertical integration with outsourcing and various forms of strategic alliances.

2. Horizontal Growth:  This strategy alternative category involves expanding the company's existing products into other locations and/or market segments, or increasing the range of products/services offered to current markets, or a combination of both.  It amounts to expanding sideways at the point(s) in the value chain that the company is currently engaged in.  One of the primary advantages of this alternative is being able to choose from a fairly continuous range of choices, from modest extensions of present products/markets to major expansions -- each with corresponding amounts of cost and risk.

3. Related Diversification (aka Concentric Diversification):  In this alternative, a company expands into a related industry, one having synergy with the company's existing lines of business, creating a situation in which the existing and new lines of business share and gain special advantages from commonalities such as technology, customers, distribution, location, product or manufacturing similarities, and government access.  This is often an appropriate corporate strategy when a company has a strong competitive position and distinctive competencies, but its existing industry is not very attractive.

4. Unrelated Diversification (aka Conglomerate Diversification):  This fourth major category of corporate strategy alternatives for growth involves diversifying into a line of business unrelated to the current ones.  The reasons to consider this alternative are primarily seeking more attractive opportunities for growth in which to invest available funds (in contrast to rather unattractive opportunities in existing industries), risk reduction, and/or preparing to exit an existing line of business (for example, one in the decline stage of the product life cycle).  Further, this may be an appropriate strategy when, not only the present industry is unattractive, but the company lacks outstanding competencies that it could transfer to related products or industries.  However, because it is difficult to manage and excel in unrelated business units, it can be difficult to realize the hoped-for value added.

Mergers, Acquisitions, and Strategic Alliances:  Each of the four growth strategy categories just discussed can be carried out internally or externally, through mergers, acquisitions, and/or strategic alliances.  Of course, there also can be a mixture of internal and external actions.
  Various forms of strategic alliances, mergers, and acquisitions have emerged and are used extensively in many industries today.  They are used particularly to bridge resource and technology gaps, and to obtain expertise and market positions more quickly than could be done through internal development.  They are particularly necessary and potentially useful when a company wishes to enter a new industry, new markets, and/or new parts of the world.
  Despite their extensive use, a large share of alliances, mergers, and acquisitions fall far short of expected benefits or are outright failures.  For example, one study published in Business Week in 1999 found that 61 percent of alliances were either outright failures or "limping along."  Research on mergers and acquisitions includes a Mercer Management Consulting study of all mergers from 1990 to 1996 which found that nearly half "destroyed" shareholder value; an A. T. Kearney study of 115 multibillion-dollar, global mergers between 1993 and 1996 where 58 percent failed to create "substantial returns for shareholders" in the form of dividends and stock price appreciation; and a Price-Waterhouse-Coopers study of 97 acquisitions over $500 million from 1994 to 1997 in which two-thirds of the buyer's stocks dropped on announcement of the transaction and a third of these were still lagging a year later.
  Many reasons for the problematic record have been cited, including paying too much, unrealistic expectations, inadequate due diligence, and conflicting corporate cultures; however, the most powerful contributor to success or failure is inadequate attention to the merger integration process.  Although the lawyers and investment bankers may consider a deal done when the papers are signed and they receive their fees, this should be merely an incident in a multi-year process of integration that began before the signing and continues far beyond.

Stability Strategies

There are a number of circumstances in which the most appropriate growth stance for a company is stability, rather than growth.  Often, this may be used for a relatively short period, after which further growth is planned.  Such circumstances usually involve a reasonable successful company, combined with circumstances that either permit a period of comfortable coasting or suggest a pause or caution.  Three alternatives are outlined below, in which the actual strategy actions are similar, but differing primarily in the circumstances motivating the choice of a stability strategy and in the intentions for future strategic actions.
         
1. Pause and Then Proceed:  This stability strategy alternative (essentially a timeout)  may be appropriate in either of two situations:  (a) the need for an opportunity to rest, digest, and consolidate after growth or some turbulent events - before continuing a growth strategy, or (b) an uncertain or hostile environment in which it is prudent to stay in a "holding pattern" until there is change in or more clarity about the future in the environment.

2. No Change:  This alternative could be a cop-out, representing indecision or timidity in making a choice for change.  Alternatively, it may be a comfortable, even long-term strategy in a mature, rather stable environment, e.g., a small business in a small town with few competitors.

3. Grab Profits While You Can:  This is a non-recommended strategy to try to mask a deteriorating situation by artificially supporting profits or their appearance, or otherwise trying to act as though the problems will go away. It is an unstable, temporary strategy in a worsening situation, usually chosen either to try to delay letting stakeholders know how bad things are or to extract personal gain before things collapse.  Recent terrible examples in the USA are Enron and WorldCom.

Retrenchment Strategies

Turnaround:  This strategy, dealing with a company in serious trouble, attempts to resuscitate or revive the company through a combination of contraction (general, major cutbacks in size and costs) and consolidation (creating and stabilizing a smaller, leaner company).  Although difficult, when done very effectively it can succeed in both retaining enough key employees and revitalizing the company.

Captive Company Strategy:  This strategy involves giving up independence in exchange for some security by becoming another company's sole supplier, distributor, or a dependent subsidiary.

Sell Out:  If a company in a weak position is unable or unlikely to succeed with a turnaround or captive company strategy, it has few choices other than to try to find a buyer and sell itself (or divest, if part of a diversified corporation).

Liquidation:  When a company has been unsuccessful in or has none of the previous three strategic alternatives available, the only remaining alternative is liquidation, often involving a bankruptcy.  There is a modest advantage of a voluntary liquidation over bankruptcy in that the board and top management make the decisions rather than turning them over to a court, which often ignores stockholders' interests.

What Should Be Our Portfolio Strategy?

This second component of corporate level strategy is concerned with making decisions about the portfolio of lines of business (LOB's) or strategic business units (SBU's), not the company's portfolio of individual products.
  Portfolio matrix models can be useful in reexamining a company's present portfolio.  The purpose of all portfolio matrix models is to help a company understand and consider changes in its portfolio of businesses, and also to think about allocation of resources among the different business elements.  The two primary models are the BCG Growth-Share Matrix and the GE Business Screen (Porter, 1980, has a good summary of these).  These models consider and display on a two-dimensional graph each major SBU in terms of some measure of its industry attractiveness and its relative competitive strength
  The BCG Growth-Share Matrix model considers two relatively simple variables:  growth rate of the industry as an indication of industry attractiveness, and relative market share as an indication of its relative competitive strength.  The GE Business Screen, also associated with McKinsey, considers two composite variables, which can be customized by the user, for (a) industry attractiveness (e.g, one could include industry size and growth rate, profitability, pricing practices, favored treatment in government dealings, etc.) and (b) competitive strength (e.g., market share, technological position, profitability, size, etc.)
  The best test of the business portfolio's overall attractiveness is whether the combined growth and profitability of the businesses in the portfolio will allow the company to attain its performance objectives.  Related to this overall criterion are such questions as:
  *   Does the portfolio contain enough businesses in attractive industries?
  *   Does it contain too many marginal businesses or question marks?
  *   Is the proportion of mature/declining businesses so great that growth will be sluggish?
  *   Are there some businesses that are not really needed or should be divested?
  *   Does the company  have its share of industry leaders, or is it burdened with too many businesses in modest competitive positions?
  *   Is the portfolio of SBU's and its relative risk/growth potential consistent with the strategic goals?
  *   Do the core businesses generate dependable profits and/or cash flow?
  *   Are there enough cash-producing businesses to finance those needing cash
  *   Is the portfolio overly vulnerable to seasonal or recessionary influences?
  *   Does the portfolio put the corporation in good position for the future?

  It is important to consider diversification vs. concentration while working on portfolio strategy, i.e., how broad or narrow should be the scope of the company.  It is not always desirable to have a broad scope.  Single-business strategies can be very successful (e.g., early strategies of McDonald's, Coca-Cola, and BIC Pen).  Some of the advantages of a narrow scope of business are:  (a) less ambiguity about who we are and what we do; (b) concentrates the efforts of the total organization, rather than stretching them across many lines of business; (c) through extensive hands-on experience, the company is more likely to develop distinctive competence; and (d) focuses on long-term profits.  However, having a single business puts "all the eggs in one basket," which is dangerous when the industry and/or technology may change.  Diversification becomes more important when market growth rate slows.  Building stable shareholder value is the ultimate justification for diversifying -- or any strategy.

What Should Be Our Parenting Strategy?

This third component of corporate level strategy, relevant for a multi-business company (it is moot for a single-business company), is concerned with how to allocate resources and manage capabilities and activities across the portfolio of businesses. It includes evaluating and making decisions on the following:
  *   Priorities in allocating resources (which business units will be stressed)
  *   What are critical success factors in each business unit, and how can the company do well on them
  *   Coordination of activities (e.g., horizontal strategies) and transfer of capabilities among business units
  *   How much integration of business units is desirable.


COMPETITIVE (BUSINESS LEVEL) STRATEGY

In this second aspect of a company's strategy, the focus is on how to compete successfully in each of the lines of business the company has chosen to engage in.  The central thrust is how to build and improve the company's competitive position for each of its lines of business.  A company has competitive advantage whenever it can attract customers and defend against competitive forces better than its rivals.  Companies want to develop competitive advantages that have some sustainability (although the typical term "sustainable competitive advantage" is usually only true dynamically, as a firm works to continue it).  Successful competitive strategies usually involve building uniquely strong or distinctive competencies in one or several areas crucial to success and using them to maintain a competitive edge over rivals.  Some examples of distinctive competencies are superior technology and/or product features, better manufacturing technology and skills, superior sales and distribution capabilities, and better customer service and convenience.

Competitive strategy is about being different.  It means deliberately choosing to perform activities differently or to perform different activities than rivals to deliver a unique mix of value. (Michael E. Porter)

The essence of strategy lies in creating tomorrow's competitive advantages faster than competitors mimic the ones you possess today. (Gary Hamel & C. K. Prahalad)

We will consider competitive strategy by using Porter's four generic strategies (Porter 1980, 1985) as the fundamental choices, and then adding various competitive tactics.

Porter's Four Generic Competitive Strategies

He argues that a business needs to make two fundamental decisions in establishing its competitive advantage:  (a) whether to compete primarily on price (he says "cost," which is necessary to sustain competitive prices, but price is what the customer responds to) or to compete through providing some distinctive points of differentiation that justify higher prices, and (b) how broad a market target it will aim at (its competitive scope).  These two choices  define the following four generic competitive strategies. which he argues cover the fundamental range of choices.  A fifth strategy alternative (best-cost provider) is added by some sources, although not by Porter, and is included below:
1. Overall Price (Cost) Leadership:  appealing to a broad cross-section of the  market by providing products or services at the lowest price.  This requires being the overall low-cost provider of the products or services (e.g., Costco, among retail stores, and Hyundai, among automobile manufacturers).  Implementing this strategy successfully requires continual, exceptional efforts to reduce costs -- without excluding product features and services that buyers consider essential.  It also requires achieving cost advantages in ways that are hard for competitors to copy or match.  Some conditions that tend to make this strategy an attractive choice are:
  *   The industry's product is much the same from seller to seller
  *   The marketplace is dominated by price competition, with highly price-sensitive buyers
  *   There are few ways to achieve product differentiation that have much value to buyers
  *   Most buyers use product in same ways -- common user requirements
  *   Switching costs for buyers are low
  *   Buyers are large and have significant bargaining power

2. Differentiation:  appealing to a broad cross-section of the market through offering differentiating features that make customers willing to pay premium prices, e.g., superior technology, quality, prestige, special features, service, convenience (examples are Nordstrom and Lexus).  Success with this type of strategy requires differentiation features that are hard or expensive for competitors to duplicate.  Sustainable differentiation usually comes from advantages in core competencies, unique company resources or capabilities, and superior management of value chain activities.  Some conditions that tend to favor differentiation strategies are:
  *   There are multiple ways to differentiate the product/service that buyers think have substantial value
  *   Buyers have different needs or uses of the product/service
  *   Product innovations and technological change are rapid and competition emphasizes the latest product features
  *   Not many rivals are following a similar differentiation strategy

3. Price (Cost) Focus:  a market niche strategy, concentrating on a narrow customer segment and competing with lowest prices, which, again, requires having lower cost structure than competitors (e.g., a single, small shop on a side-street in a town, in which they will order  electronic equipment at low prices, or the cheapest automobile made in the former Bulgaria). Some conditions that tend to favor focus (either price or differentiation focus) are:
  *   The business is new and/or has modest resources
  *   The company lacks the capability to go after a wider part of the total market
  *   Buyers' needs or uses of the item are diverse; there are many different niches and segments in the industry
  *   Buyer segments differ widely in size, growth rate, profitability, and intensity in the five competitive forces, making some segments more attractive than others
  *   Industry leaders don't see the niche as crucial to their own success
  *   Few or no other rivals are attempting to specialize in the same target segment

4. Differentiation Focus: a second market niche strategy, concentrating on a narrow customer segment and competing through differentiating features (e.g., a high-fashion women's clothing boutique in Paris, or Ferrari).

Best-Cost Provider Strategy:  (although not one of Porter's basic four strategies, this strategy is mentioned by a number of other writers.)  This is a strategy of trying to give customers the best cost/value combination, by incorporating key good-or-better product characteristics at a lower cost than competitors.  This strategy is a mixture or hybrid of low-price and differentiation, and targets a segment of value-conscious buyers that is usually larger than a market niche, but smaller than a broad market.  Successful implementation of this strategy requires the company to have the resources, skills, capabilities (and possibly luck) to incorporate up-scale features at lower cost than competitors.
  This strategy could be attractive in markets that have both variety in buyer needs that make differentiation common and where large numbers of buyers are sensitive to both price and value.
  Porter might argue that this strategy is often temporary, and that a business should choose and achieve one of the four generic competitive strategies above.  Otherwise, the business is stuck in the middle of the competitive marketplace and will be out-performed by competitors who choose and excel in one of the fundamental strategies.  His argument is analogous to the threats to a tennis player who is standing at the service line, rather than near the baseline or getting to the net.  However, others present examples of companies  (e.g., Honda and Toyota) who seem to be able to pursue successfully a best-cost provider strategy, with stability.

Competitive Tactics

Although a choice of one of the generic competitive strategies discussed in the previous section provides the foundation for a business strategy, there are many variations and elaborations.  Among these are various tactics that may be useful (in general, tactics are shorter in time horizon and narrower in scope than strategies).  This section deals with competitive tactics, while the following section discusses cooperative tactics.
  Two categories of competitive tactics are those dealing with timing (when to enter a market) and market location (where and how to enter and/or defend).
  Timing Tactics:  When to make a strategic move is often as important as what move to make.  We often speak of first-movers (i.e., the first to provide a product or service), second-movers or rapid followers, and late movers (wait-and-see).  Each tactic can have advantages and disadvantages.
  Being a first-mover can have major strategic advantages when: (a) doing so builds an important image and reputation with buyers; (b) early adoption of new technologies, different components, exclusive distribution channels, etc. can produce cost and/or other advantages over rivals; (c) first-time customers remain strongly loyal in making repeat purchases; and (d) moving first makes entry and imitation by competitors hard or unlikely.
  However, being a second- or late-mover isn't necessarily a disadvantage.  There are cases in which the first-mover's skills, technology, and strategies are easily copied or even surpassed by later-movers, allowing them to catch or pass the first-mover in a relatively short period, while having the advantage of minimizing risks by waiting until a new market is established.  Sometimes, there are advantages to being a skillful follower rather than a first-mover, e.g., when:  (a) being a first-mover is more costly than imitating and only modest experience curve benefits accrue to the leader (followers can end up with lower costs than the first-mover under some conditions); (b) the products of an innovator are somewhat primitive and do not live up to buyer expectations, thus allowing a clever follower to win buyers away from the leader with better performing products; (c) technology is advancing rapidly, giving fast followers the opening to leapfrog a first-mover's products with more attractive and full-featured second- and third-generation products; and (d) the first-mover ignores market segments that can be picked up easily.
  Market Location Tactics:  These fall conveniently into offensive and defensive tactics. Offensive tactics are designed to take market share from a competitor, while defensive tactics attempt to keep a competitor from taking away some of our present market share, under the onslaught of offensive tactics by the competitor.  Some offensive tactics are:
  *   Frontal Assault:  going head-to-head with the competitor, matching each other in every way.  To be successful, the attacker must have superior resources and be willing to continue longer than the company attacked.
  *   Flanking Maneuver:  attacking a part of the market where the competitor is weak.  To be successful, the attacker must be patient and willing to carefully expand out of the relatively undefended market niche or else face retaliation by an established competitor.
  *   Encirclement:  usually evolving from the previous two, encirclement involves encircling and pushing over the competitor's position in terms of greater product variety and/or serving more markets.  This requires a wide variety of abilities and resources necessary to attack multiple market segments.
  *   Bypass Attack:  attempting to cut the market out from under the established defender by offering a new, superior type of produce that makes the competitor's product unnecessary or undesirable.
  *   Guerrilla Warfare:  using a "hit and run" attack on a competitor, with small, intermittent assaults on different market segments.  This offers the possibility for even a small firm to make some gains without seriously threatening a large, established competitor and  evoking some form of retaliation.
         
  Some Defensive Tactics are:
  *   Raise Structural Barriers:  block avenues challengers can take in mounting an offensive
  *   Increase Expected Retaliation:  signal challengers that there is threat of strong retaliation if they attack
  *   Reduce Inducement for Attacks:  e.g., lower profits to make things less attractive (including use of accounting techniques to obscure true profitability).  Keeping prices very low gives a new entrant little profit incentive to enter.

  The general experience is that any competitive advantage currently held will eventually be eroded by the actions of competent, resourceful competitors.  Therefore, to sustain its initial advantage, a firm must use both defensive and offensive strategies, in elaborating on its basic competitive strategy.

Cooperative Strategies

  Another group of "competitive" tactics involve cooperation among companies.  These could be grouped under the heading of various types of strategic alliances, which have been discussed to some extent under Corporate Level growth strategies.  These involve an agreement or alliance between two or more businesses formed to achieve strategically significant objectives that are mutually beneficial. Some are very short-term; others are longer-term and may be the first stage of an eventual merger between the companies.
  Some of the reasons for strategic alliances are to:  obtain/share technology, share manufacturing capabilities and facilities, share access to specific markets, reduce financial/political/market risks, and achieve other competitive advantages not otherwise available.  There could be considered a continuum of types of strategic alliances, ranging from:  (a) mutual service consortiums (e.g., similar companies in similar industries pool their resources to develop something that is too expensive alone), (b) licensing arrangements, (c) joint ventures (an independent business entity formed by two or more companies to accomplish certain things, with allocated ownership, operational responsibilities, and financial risks and rewards), (d) value-chain partnerships (e.g., just-in-time supplier relationships, and out-sourcing of major value-chain functions).


FUNCTIONAL STRATEGIES

Functional strategies are relatively short-term activities that each functional area within a company will carry out to implement the broader, longer-term corporate level and business level strategies.  Each functional area has a number of strategy choices, that interact with and must be consistent with the overall company strategies.
  Three basic characteristics distinguish functional strategies from corporate level and business level strategies:  shorter time horizon, greater specificity, and primary involvement of operating managers.
  A few examples follow of functional strategy topics for the major functional areas of marketing, finance, production/operations, research and development, and human resources management.  Each area needs to deal with sourcing strategy, i.e., what should be done in-house and what should be outsourced?
  Marketing strategy deals with product/service choices and features, pricing strategy, markets to be targeted, distribution, and promotion considerations.  Financial strategies include decisions about capital acquisition, capital allocation, dividend policy, and investment and working capital management.  The production or operations functional strategies address choices about how and where the products or services will be manufactured or delivered, technology to be used, management of resources, plus purchasing and relationships with suppliers.  For firms in high-tech industries, R&D strategy may be so central that many of the decisions will be made at the business or even corporate level, for example the role of technology in the company's competitive strategy, including choices between being a technology leader or follower.  However, there will remain more specific decisions that are part of R&D functional strategy, such as the relative emphasis between product and process R&D, how new technology will be obtained (internal development vs. external through purchasing, acquisition, licensing, alliances, etc.), and degree of centralization for R&D activities.  Human resources functional strategy includes many topics, typically recommended by the human resources department, but many requiring top management approval.  Examples are job categories and descriptions; pay and benefits; recruiting, selection, and orientation; career development and training; evaluation and incentive systems; policies and discipline; and management/executive selection processes.


CHOOSING THE BEST STRATEGY ALTERNATIVES

Decision  making is a complex subject, worthy of a chapter or book of its own.  This section can only offer a few suggestions.  Among the many sources for additional information, I recommend Harrison (1999), McCall & Kaplan (1990), and Williams (2002).  Here are some factors to consider when choosing among alternative strategies:
  *   It is important to get as clear as possible about objectives and decision criteria (what makes a decision a "good" one?)
  *   The primary answer to the previous question, and therefore a vital criterion, is that the chosen strategies must be effective in addressing the "critical issues" the company faces at this time
  *   They must be consistent with the mission and other strategies of the organization
  *   They need to be consistent with external environment factors, including realistic assessments of the competitive environment and trends
  *   They fit the company's product life cycle position and market attractiveness/competitive strength situation
  *   They must be capable of being implemented effectively and efficiently, including being realistic with respect to the company's resources
  *   The risks must be acceptable and in line with the potential rewards
  *   It is important to match strategy to the other aspects of the situation, including:  (a) size, stage, and growth rate of industry; (b) industry characteristics, including fragmentation, importance of technology, commodity product orientation, international features; and (c) company position (dominant leader, leader, aggressive challenger, follower, weak, "stuck in the middle")
  *   Consider stakeholder analysis and other people-related factors (e.g., internal and external pressures, risk propensity, and needs and desires of important decision-makers)
  *   Sometimes it is helpful to do scenario construction, e.g., cases with optimistic, most likely, and pessimistic assumptions.


SOME TROUBLESOME STRATEGIES TO AVOID OR USE WITH CAUTION

Follow the Leader:  when the market has no more room for copycat products and look-alike
competitors.  Sometimes such a strategy can work fine, but not without careful consideration of the company's particular strengths and weaknesses.  (e.g., Fujitsu Ltd. was driven since the 1960s to catch up to IBM in mainframes and continued this quest even into the 1990s after mainframes were in steep decline; or the decision by Standard Oil of Ohio to follow Exxon and Mobil Oil into conglomerate diversification)

Count On Hitting Another Home Run:  e.g., Polaroid tried to follow its early success with instant photography by developing "Polavision" during the mid-1970s.  Unfortunately, this very expensive, instant developing, 8mm, black and white, silent motion picture camera and film was displayed at a stockholders' meeting about the time that the first beta-format video recorder was released by Sony.  Polaroid reportedly wrote off at least $500 million on this venture without selling a single camera.

Try to Do Everything:  establishing many weak market positions instead of a few strong ones

Arms Race:  Attacking the market leaders head-on without having either a good competitive advantage or adequate financial strength;  making such aggressive attempts to take market share that rivals are provoked into strong retaliation and a costly "arms race."  Such battles seldom produce a substantial change in market shares; usual outcome is higher costs and profitless sales growth

Put More Money On a Losing Hand:  one version of this is allocating R&D efforts to weak products instead of strong products  (e.g., Polavision again, Pan Am's attempt to continue global routes in 1987)

Over-optimistic Expansion:  Using high debt to finance investments in new facilities and equipment, then getting trapped with high fixed costs when demand turns down, excess capacity appears, and cash flows are tight

Unrealistic Status-Climbing:  Going after the high end of the market without having the reputation to attract buyers looking for name-brand, prestige goods (e.g., Sears' attempts to introduce designer women's clothing)

Selling the Sizzle Without the Steak:  Spending more money on marketing and sales promotions to try to get around problems with product quality and performance.  Depending on cosmetic product improvements to serve as a substitute for real innovation and extra customer value.


Strategy Evaluation is as significant as strategy formulation because it throws light on the efficiency and effectiveness of the comprehensive plans in achieving the desired results. The managers can also assess the appropriateness of the current strategy in todays dynamic world with socio-economic, political and technological innovations. Strategic Evaluation is the final phase of strategic management.
The significance of strategy evaluation lies in its capacity to co-ordinate the task performed by managers, groups, departments etc, through control of performance. Strategic Evaluation is significant because of various factors such as - developing inputs for new strategic planning, the urge for feedback, appraisal and reward, development of the strategic management process, judging the validity of strategic choice etc.
The process of Strategy Evaluation consists of following steps-
1.   Fixing benchmark of performance - While fixing the benchmark, strategists encounter questions such as - what benchmarks to set, how to set them and how to express them. In order to determine the benchmark performance to be set, it is essential to discover the special requirements for performing the main task. The performance indicator that best identify and express the special requirements might then be determined to be used for evaluation. The organization can use both quantitative and qualitative criteria for comprehensive assessment of performance. Quantitative criteria includes determination of net profit, ROI, earning per share, cost of production, rate of employee turnover etc. Among the Qualitative factors are subjective evaluation of factors such as - skills and competencies, risk taking potential, flexibility etc.
2.   Measurement of performance - The standard performance is a bench mark with which the actual performance is to be compared. The reporting and communication system help in measuring the performance. If appropriate means are available for measuring the performance and if the standards are set in the right manner, strategy evaluation becomes easier. But various factors such as managers contribution are difficult to measure. Similarly divisional performance is sometimes difficult to measure as compared to individual performance. Thus, variable objectives must be created against which measurement of performance can be done. The measurement must be done at right time else evaluation will not meet its purpose. For measuring the performance, financial statements like - balance sheet, profit and loss account must be prepared on an annual basis.
3.   Analyzing Variance - While measuring the actual performance and comparing it with standard performance there may be variances which must be analyzed. The strategists must mention the degree of tolerance limits between which the variance between actual and standard performance may be accepted. The positive deviation indicates a better performance but it is quite unusual exceeding the target always. The negative deviation is an issue of concern because it indicates a shortfall in performance. Thus in this case the strategists must discover the causes of deviation and must take corrective action to overcome it.
4.   Taking Corrective Action - Once the deviation in performance is identified, it is essential to plan for a corrective action. If the performance is consistently less than the desired performance, the strategists must carry a detailed analysis of the factors responsible for such performance. If the strategists discover that the organizational potential does not match with the performance requirements, then the standards must be lowered. Another rare and drastic corrective action is reformulating the strategy which requires going back to the process of strategic management, reframing of plans according to new resource allocation trend and consequent means going to the beginning point of strategic management process.
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Leo Lingham

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management consulting process, management consulting career, management development, human resource planning and development, strategic planning in human resources, marketing, careers in management, product management etc

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18 years working managerial experience covering business planning, strategic planning, corporate planning, management service, organization development, marketing, sales management etc

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24 years in management consulting which includes business planning, strategic planning, marketing , product management,
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PRINCIPAL -- BESTBUSICON Pty Ltd

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