Strategic Management PDF

C op yr ig ht IM T C D L C op yr ig ht IM T C D L EGMC004 Strategic Management INDEX L UNIT 1 D Strategic Management and Compe veness 1 UNIT 2 C The External Environment Opportuni es 25 UNIT 3 The Internal Environment 52 T UNIT 4 Business Level Strategy 72 IM UNIT 5 Competi ve Rivalry and Dynamics 88 UNIT 6 Corporate Level Strategy 107 ht UNIT 7 Strategic Acquisi on and Restructuring 129 ig UNIT 8 Global Strategy 148 yr UNIT 9 Coopera ve Implica ons for Strategy 165 UNIT 10 op Corporate Governance and Ethics 178 UNIT 11 Structure and Controls with Organiza ons 196 C UNIT 12 Leadership Implica ons for Strategy 217 UNIT 13 Entrepreneurial Implica ons for Strategy 235 C op yr ig ht IM T C D L EXPERT COMMITTEE Prof. (Dr.) S. R. Musanna Prof. (Dr.) Swapnil Garg IMT CDL, Ghaziabad IIM, Indore Prof. (Dr.) Ravindra Kumar Dr. Bibek Ray Chaudhuri IMT CDL, Ghaziabad IIFT, Kolkata Prof. (Dr.) Subhajit Bha acharya Mr. Suranjan Upadhyay IMT, Ghaziabad Bhilosa Industries Pvt. Ltd., Mumbai Prof. (Dr.) A. H. Kalro (Retd.) Prof. (Dr.) Asif Zameer L IIM, Kozhikode IMT CDL, Ghaziabad D Prof. (Dr.) P. K. Jain IIT, Delhi C Prof. (Dr.) B. B. Chakrabor (Retd.) IIM, Kolkata SLM PREPARATION TEAM T Dr. Bhar Singh Prof. (Dr.) Ashok Sharma IMT CDL, Ghaziabad JIMS, Kalkaji IM Dr. Vivek Singh Tomar Prof. (Dr.) Lalit Kumar Sharma IMT CDL, Ghaziabad Vishveshwarya Group of Ins tu ons Gp Capt. (Dr.) R. M. Saxena (Retd.) Dr. Swa Priya Visi ng Faculty, IMT CDL, Ghaziabad Amity University-UP, Greater Noida ht Dr. M. C. Rashid Galgo a University, Greater Noida ig COURSE COORDINATOR EXPERT REVIEW yr Dr. Bhar Singh & Dr. Vivek Singh Tomar Prof. (Dr.) Muqbil Burhan IMT CDL, Ghaziabad IIM, Jammu op PUBLISHER & PRINTER Published by: Ins tute of Management Technology, Centre for Distance Learning, Ghaziabad Publisher Address: A-16, Site 3, UPSIDC Industrial Area, Meerut Road, Ghaziabad C Printed by: Sai Blessings Press, FF Kh.No.1 K-36/1/ETC/82, Street No. 12, Brahampuri, Delhi-110053, Phone No: 011-44720453 ; E-mail: [email protected] Edi on First (2021) © Ins tute of Management Technology, Centre for Distance Learning, Ghaziabad ISBN: 978-81-951960-7-4 All rights reserved. No part of this work may be reproduced in any form, by mimeography or any other means, without permission in wri ng from Ins tute of Management Technology, Centre for Distance Learning. Further informa on on Ins tute of Management Technology, Centre for Distance Learning may be obtained from Ins tute’s Head Oﬃce at Ghaziabad or www.imtcdl.ac.in C op yr ig ht IM T C D L EGMC004 Strategic Management UNIT 1 NOTES STRATEGIC MANAGEMENT AND COMPETITIVENESS L D STRUCTURE C 1.0 Objec ves 1.1 Introduc on 1.2 Strategy: Deﬁni on and Importance T 1.3 Sustainable Compe ve Advantage 1.4 Strategic Management: Meaning and Evolu on 1.5 1.6 Need for Strategic Management Basic Model of Strategic Management IM 1.7 Let Us Sum Up 1.8 Key Words ht 1.9 References and Suggested Addi onal Readings 1.10 Self-Assessment Ques ons 1.11 Check Your Progress – Possible Answers ig 1.12 Answers to Self-assessment Ques ons 1.13 Appendix yr 1.0 OBJECTIVES A er comple on of this unit, you will be able to: op understand the characteris cs of strategy know the stages of evolu on of strategic management appreciate the beneﬁts derived by the organisa ons by adop ng strategic C management appreciate the need and importance of strategic decision-making understand the mode and mechanism of applying the basic model of strategic management 1 UNIT 1 Strategic Management and Compe veness NOTES 1.1 INTRODUCTION A comparison of the Fortune 500 list of year 1995 and 2019 reveals interes ng features – it shows that some companies have maintained their posi ons while some others have registered a consistent decline in their posi ons on the list over all these years.1 For instance, General Electric (GE), Interna onal Business Machines (IBM), Proctor and Gamble (P&G), Toyota and Walmart have maintained their posi on among the top 50 ﬁrms consistently. But, Motorola Solu ons and Xerox, for instance have registered a con nuous decline since L 1995. In another case again Amazon founded in 1994, became a member of Fortune 500 in 2001 and improved its posi on consistently achieving ﬁ h rank in 2019. Similarly, Comcast D Corpora on, an American Telecommunica ons conglomerate set up in 1963 improved its posi on and entered among top 50 in 2012 and has retained posi on in the top league. C A comparison with the Indian situa on gives similar results. A study conducted by Gita Piramal in 2016 showed that on the basis of the assets owned by a company only three business groups – Tata, Birla (AV) and Mahindra were eligible for a place among top 20 business houses since 1951. At the same me business houses that were among the top 20 in T 1951 (viz. Shriram, Mafatlal, Singhania and Thapar) could not withstand the temporal changes of business environment. Interes ngly new business groups like Bhar , Adani, HDFC IM and GMR that had appeared in the emerged post-liberalisa on era are among the top business groups today.2 The scenario detailed above gives rise to following queries: Why are some companies more successful than others? ht What role, if any does sustainable compe ve advantage play in this see-saw occurrence? ig How can a company gain and sustain compe ve advantage over others? What role does strategy play in the performance of a company? yr What is then the strategic management process? This unit shall give you an overview of strategic management revolving around the queries raised above and will suitably enlighten you with possible answers to the queries. op 1.2 STRATEGY: DEFINITION AND IMPORTANCE The term strategy is derived from a Greek word 'strategia' that means 'generalship'. In literal C sense it refers to the art of generalship. It is interes ng to note that military and business strategy are similar in their concep on as both involve deployment of resources in most favourable channels. There is no single generally acceptable meaning of strategy. Management thinkers and prac oners have put forward their perspec ve of the term strategy. Let us consider explana ons put forward by some prominent thinkers. Alfred Chandler (1962) deﬁned strategy as 'determinator of the basic long-term goals of an enterprise and the adop on of courses of ac on and the alloca on of resources necessary to carry out these goals.' On the other hand, Peter Drucker (1980) stressed that 'strategy aims 2 EGMC004 Strategic Management to exploit the new and diﬀerent opportuni es of tomorrow, in contrast to long range NOTES planning which tries to op mise for tomorrow the trends of today.' He further elaborated that 'strategy is not about achieving results in a known and foreseeable environment, but in an environment that is unknown and unforeseeable.' It is about decisions to be made today about a future that is unpredictable. Later, Henry Mintzberg (1987) stated that strategy 'is a media ng force between the organiza on and its environment: consistent pa erns in streams of organiza onal decisions L to deal with the environment.'He iden ﬁed 5 P's of strategy. (i) a Plan of ac ons to meet intended goals, D (ii) a Pa ern emerging out of strategic ac ons realized in past. (iii) a Posi on that reﬂects the decisions of the ﬁrm to oﬀer products or services in C target markets, (iv) a Ploy or maneuver intended to outwit a compe tor, and T (v) a Perspec ve of the businesses the company would pursue basis the ideology. Gary Hamel and C. K. Prahalad (1993) opined, 'Strategy is more than just ﬁt and alloca on of IM resources. It is stretch and leveraging of resources.' Tradi onal thinking of strategic ﬁt that aims to align the resources of the company to pursue opportuni es in the environment was challenged by Hamel and Prahlad. They gave an alterna ve approach of strategy as a “stretch" and “leverage”, that is, crea ng a gap between ambi on of the company and resources. Ambi ous goals can be achieved by less resource-intensive ways. Five basic ways by which ht managers in compe ve companies can leverage resources were enumerated by them: (i) by concentra ng resources around strategic goals, ig (ii) by accumula ng resources more eﬃciently, (iii) by complemen ng one kind of resource with another, yr (iv) by conserving resources whenever they can, and (v) by recovering resources from the marketplace as quickly as possible. op According to Michael Porter (1996),'Strategy is about being diﬀerent. It deliberately means choosing a diﬀerent set of ac vi es to deliver a unique mix of values.' He emphasized on three principles that shape a strategy: (i) crea ng a unique and valuable posi on, C (ii) making trade-oﬀs by choosing “what not to do”, and (iii) cra ing “ﬁt” by aligning the ac vi es of the company to support the chosen strategy. You may conclude that strategy is a dis nc ve ac on taken by a ﬁrm to a ain the goals of the organiza on and gain sustainable compe ve advantage. It is unique, value-crea ng, direc onal, integra ve, ongoing and adaptable to changes in environment. Many prac oners lay emphasis on value-crea ng strategy – a strategy pursued by a company that 3 UNIT 1 Strategic Management and Compe veness NOTES compe tors cannot duplicate or ﬁnd it costly to imitate. Companies achieve strategic compe veness – an edge a company has over its compe tors, due to formula on and implementa on of a value-crea ng strategy. Each company may have its unique strategy to survive in the industry. During 2020s two aluminum majors Hindalco Industries and Vedanta have adopted diﬀerent strategies to gain compe veness. To insulate itself from input price ﬂuctua ons on London Metal Exchange (LME) Hindalco Industries planned to enrich product-mix and evaluate downtream investments. It aimed to use 75 percent of its domes c aluminum output for the downstream segment to make can body-sheets. It may L look to enhance the poten al in sectors like housing transporta on and semi-rigid containers and foils in India. Meanwhile, Vedanta focused on moving product por olio into D value-added products to increase shareholder value for the company. C CHECK YOUR PROGRESS - I Q.1 Value-crea ng strategy is - (a) unique T (b) costly to imitate IM (c) unique and costly to imitate (d) not adaptable to changes in environment Q.2 'Strategy is more than just ﬁt and alloca on of resources. It is stretch and leveraging of resources.' Meaning of the statement is - ht (a) goals of the company may not match the available resources (b) goals of the company are aligned to the available resources (c) to align available resources of the company with opportuni es in the external ig environment (d) none of these yr 1.3. SUSTAINABLE COMPETITIVE ADVANTAGE The sustainable compe ve advantage is a combina on of two elements, the element of op sustainability and the element of compe veness. The two elements are not mutually exclusive and in prac cal terms add value to each other. In the following sub-sec ons we will explain their nature and func onal details. C 1.3.1 COMPETITIVE ADVANTAGE Compe ve advantage refers to superior performance of a company compared to the other compe tors in the industry or above average returns compared to the industry average. Higher proﬁtability of a company is considered as an indicator of superior performance. If a company has greater proﬁtability compared to the average proﬁtability of all other companies in the industry, it is said to have compe ve advantage. 4 EGMC004 Strategic Management 1.3.2 SUSTAINABLE COMPETITIVE ADVANTAGE NOTES A company has sustainable compe ve advantage if it has superior performance or higher returns than industry average compared to the rivals for a long period of me. How can a company know whether it has sustainable compe ve advantage? Return on Invested Capital (RoIC) is increasingly being adopted by companies to assess their long-term performance. RoIC measures how much proﬁt a company generates from every dollar invested in the company. A company with high ROIC [RoIC = Net opera ng proﬁt/Average L invested capital]3 compared to the industry average is said to have compe ve advantage. If RoIC of a company con nues to be higher than the compe tors for a long-term, the company D is considered to have sustainable compe ve advantage. Companies that focus on RoIC can survive in all markets, but they especially outperform in C phases of recession. It also prevents alloca on of capital in low return projects. Misalloca on of capital in low return projects is reﬂected with low proﬁtability during the periods of the slowdown in the industry or economy. Core Laboratories (CLB) a service provider to the T petroleum industry, started tying compensa on to RoIC since 2010 and improved its RoIC from 24 percent to 40 percent between 2009-2014, a period of recovery post global ﬁnancial crisis of 2008. Similarly, General Motors (GM) was able to outperform its compe tors in the IM industry due to emphasis on RoIC. Between 2010-2014 GM and Ford had almost iden cal stock price returns. But ll 2018 GM was up by 5% and Ford down by 42%. GM linked execu ve compensa on to RoIC in 2014 and appointed CEO Mary Barra who was focused on RoIC. The company had increased its invested capital by 30% since 2013. It made key long- ht term investments in areas like produc on of electric vehicles and acquisi on of self-driving startup cruise. Barra reallocated capital away from low return segments. She sold or closed 13 plants and underperforming brand like Opel/Vauxhall and cut back exposure to ig unproﬁtable markets like Russia, South Africa and Australia. GM earned a cumula ve $15.8 billion economic earnings between 2014-2018, more than triple of Ford's $5.1 billion.4 yr A study by McKinsey (2012)5 shows that companies who reallocate their capital to more proﬁtable businesses have higher returns to shareholders and have lower risk of falling into bankruptcy. According to the study two companies A and B are considered. Company A op allocates capital, talent and research rupees consistently every year with minor changes. Company B con nuously evaluates performance of business units, acquires and divests assets, and adjusts resource alloca ons based on each division's market opportuni es. A er 15 years, worth of company B would be 40 percent more than company A. Companies that C tap market opportuni es by alloca ng the scarce resources to proﬁtable and new businesses shall have more RoIC. How can strategic management process guide the companies to allocate resources eﬀec vely and enhance their worth? You will now be made conversant with the meaning and process of strategic management. 5 UNIT 1 Strategic Management and Compe veness NOTES CHECK YOUR PROGRESS – II Q.1 A compe ve advantage (a) exist when compe ng ﬁrms cannot ﬁnd investors. (b) involve reducing the investors' risk to near zero. (c) can be recognized only if it had been unsuccessfully challenged by compe tors. (d) can be permanent if the ﬁrm is successful in implementa on of the strategic L management process. Q.2 RoIC can be improved by alloca on of capital D (a) consistently to similar projects with minor changes (b) to proﬁtable and new projects to tap market opportuni es C (c) low return projects (d) all of these T 1.4 STRATEGIC MANAGEMENT: MEANING AND EVOLUTION IM 1.4.1 MEANING OF STRATEGIC MANAGEMENT Strategic management refers to the process of formula on, implementa on and evalua on of strategies for compe ve advantage and superior performance of a company. Harvard Business School ini ally introduced a course in 1911 to hone general management skills with ht the help of case studies. However, strategic management gained relevance as an important part of curriculum in business schools in the 1950s. It aims to answer a host of ques ons faced by the organiza ons. Generally, the list may include ques ons as men oned below. ig What businesses are we in? Who are our customers? yr What products and services will we oﬀer? At what prices? On what terms? op How will we do this eﬃciently? Who are the compe tors of my organiza on? On what basis shall we compete? C What type of organiza on should we have to support our choices? Is the implementa on of my strategy eﬀec ve? Are we able to meet our goals? Strategic management gives a direc on to the organiza on to face the complexi es in business environment. It is a pa ern of decisions of a company that determine its objec ves and goals leading to policy formula on and ac ons to harness core competencies and/or external opportuni es to gain and sustain compe ve advantage. Roles are assigned at 6 EGMC004 Strategic Management various levels of the organiza on that gives focus to employees and thereby improves NOTES performance at all levels of management. The primary tasks of strategic management are to understand the environment, deﬁne organiza onal goals, iden fy op ons, make and implement decisions, and L monitor and evaluate actual performance. D 1.4.2 EVOLUTION OF STRATEGIC MANAGEMENT To give a direc on to the organiza on and achieve proﬁtability business corpora ons have C evolved prac ces that can be useful. With the passage of me, new ideologies have been put in prac ce to deal with complexity in environment. Let us consider the stages of evolu on. Corporate Planning or long-term planning was undertaken in the 1950s to achieve future T goals and capital budge ng for project appraisal. Economic forecast like market demand, revenue and cost of company was used for eﬀec ve planning. Many companies in US ll the IM 1960s had established corporate planning departments to mi gate the risk of the complex an environment. Later, Alfred Chandler (1962) put forward the need for long-term coordinated perspec ve to give direc on to goals of the company. Igor Ansoﬀ (1965) laid emphasis on market penetra on and product development to ﬁll the gap between the current reality and goals of ht the organiza on. PIMS (Proﬁt Impact of Marke ng Strategies) approach was adopted by General Electric (GE) in the 1960s to a ain long-term proﬁtability. It was believed that a ig larger market share shall lead to greater proﬁts due to economies of scale and experience curve advantages. However, in 1970s plans failed due to an unpredictable environment. Oil shocks of 1974 and yr 1979 disturbed the conﬁdence of corporate planners. Strategic management as a process to build strategies and achieve proﬁtability started gaining relevance in the 1970s. Pioneering works of thinkers like Richard Rumelt (1974) Henry Mintzberg (1978), and Igor Ansoﬀ (1979) op developed the concept. Value chain analysis gained importance as a technique for strategic decision-making. Later, industrial organiza on (I/O) view of strategy developed to explain strategic behavior of companies. I/O is an analysis of factors that contribute to the overall C strategy of the company and product placement. Transac on cost theory put forward by Williamson (1979) stated that an op mum organiza onal structure achieves economic eﬃciency by minimising the transac on cost. Eﬀec ve and eﬃcient conduct of an individual transac on was given importance for strategy formula on. Conversely the agency theory focuses on the protec on of ownership rights of shareholders. Michael Porter (1980) professed compe ve forces approach that shi ed focus to strategy making considering the ﬁve forces model. Organiza ons realized the need for industry analysis, market segmenta on and planning of product por olio. The 1980s witnessed the acceptance of posi oning theory that speciﬁed on strategy formula on by considering the compe ve 7 UNIT 1 Strategic Management and Compe veness NOTES strength of the organiza on in the industry. An alternate view was put forward by Gary Hamel and C. K. Prahlad (1990). They laid emphasis on the core competencies of the organiza on to gain a compe ve edge. J. B. Barney(1991) elaborated the concept by proposing the Resource-Based View (RBV). The theory states that resources are key to superior performance of the ﬁrm. An organiza on can a ain sustainable advantage by integra ng and building their resources and capabili es. There was a shi to cra ing strategies based on internal strength of the organiza on. L Other approaches specifying internal features of the company have been put forward. D. J. Teece et.al. (1997) stated that a company should build dynamic capabili es that focus on D how to con nuously renew and improve resources. R. M. Grant (1996) stressed on knowledge-based view (KBV): crea on of intangible knowledge based on people and C rela onships with them. 'Resource orchestra on' by H. A. Simon et. al, (2011) relates to crea on of valuable capabili es and resources. Behavioural strategy stated by M. Powell et. al.(2011) applies cogni ve and social psychology to strategic management. From micro- founda ons perspec ve it considers the role of conscious and unconscious biases of T execu ves, managers, teams and organiza ons in strategic decision-making. IM 1.4.3 STRATEGIC MANAGEMENT: RECENT PERSPECTIVES Anoop Madhok and Rogerio Marques (2014) talked of agility of the company in strategic compe veness. They emphasized on Ac on-Based Perspec ve (ABP) of compe on. Compared to the posi on and possession of resources, the ABP relates to ac on orienta on. ht The agility to spot and seize an opportunity before others or adap ng in real me to the environmental and technological shi s. The focus of ABP is on assembly of resources in ways that create value. The company organizes and coordinates its system of ac vi es to deliver ig value to the customers. Role of ins tu ons in strategic management was stressed by Elisabet Garrido et.al. (2014). The Ins tu on-based view states that formal ins tu ons play a signiﬁcant role in compe veness. Diversiﬁca on, modes of entry in foreign markets and yr corporate governance were iden ﬁed as some metrics by Garrido that are important in strategic management. Gallardo-Vazquez and Sanchez-Hernandez (2014) consider corporate social responsibility towards society and natural environment as a dimension of op strategic management. Focus of strategic management has been shi ing between: the internal factors and external environment C macro level analysis i. e. the company and its environment and a micro analysis i.e. individuals and their rela ons within the ﬁrm. 8 EGMC004 Strategic Management NOTES Fig. 1.1: Evolu on of Strategic Management. L D C T IM ht Source: Adapted from Mar n, L.A.G., Madhok, A. and Sanchez, A. M.: The evolu on of strategic management research: Recent trends and current direc ons. BRQ Business Research Quarterly. Vol. 17. Issue 2 (April-June ig 2014) Elsevier pp. 69-76. CHECK YOUR PROGRESS – III yr Q.1 Development of strategies for the company is the only objec ve of strategic management. op True/False Q.2 The new CEO of Stark Enterprises wants to make the long-established ﬁrm strategically ﬂexible. The CEO believes that the employees have the ability, training and resources to engage in con nuous learning. The main obstacle is iner a. C True/False 1.5 NEED FOR STRATEGIC MANAGEMENT In the current highly unpredictable environment, ﬂexibility in making strategic decisions coupled with agility in eﬀec vely implemen ng them is of utmost importance. The primary objec ve of a company should be on building sustainable business that are shock-proof and/or adaptable to the constantly changing business landscape. Strategic thinking is required to align the goals of the company with the exis ng business environment. It 9 UNIT 1 Strategic Management and Compe veness NOTES involves examina on of the assump ons on which future mission, goals and strategy of the company is based and their evalua on with reality. The current business world is generally described as Vola le, Uncertain, Complex and Ambiguous (VUCA). The concept that was originally used by the students of U.S. Army War College is used to describe the prevailing business environment. Let us consider major reasons for emergence of VUCA environment. L 1.5.1 EMERGENCE OF GLOBAL ECONOMY Wave of globaliza on since the 1980s has integrated world economies and made the globe D a marketplace. Product, services and ﬁnancial markets of all the countries are largely lintegrated. There are no barriers in movement of intellectual capital and technology C across borders. Integra on of economies generates opportuni es and puts forward complexi es as well in conduc ng business. Poli co-economic changes in one economy can impact a host of countries across the world. Economic events and changes in policies in an economy tend to have implica ons on the global economy. T US-China trade war that began in March, 2018 with imposi on of high tariﬀs by US on imports from China created opportuni es for tex le exports by South Asian countries to US. IM In this me period plas c, co on, inorganic chemicals and ﬁsh exports were made by several Indian companies to China.6 The sub-prime mortgage crisis of the United States (2007-08) that transformed into a global ﬁnancial crisis by September 2008 led to global recession. Majority of the economies registered a slowdown though some like India, China, Poland and ht Australia compara vely had lesser impact. A er their integra on with the rest of the world since mid-1990s economies of Central America, Panama and the Dominican Republic have become more strongly inﬂuenced by the cyclical ﬂuctua ons in the United States and ig exposed to external shocks. Frequent occurrence of natural calami es like tsunami, ﬂoods, earthquakes, hurricanes and yr drought in diﬀerent parts of the world may lead to economic loss in integrated companies. Global supply chains and consumer markets are disrupted due to such natural disasters. Businesses in both developed and emerging economies are indirectly aﬀected by them. op Japan, United States, Mexico, China and Thailand are some of the major countries that have borne economic costs due to natural calami es in the last three decades.7 Outbreak of COVID-19 (corona virus disease 2019) in China that later aﬀected two hundred countries of the world created an economic upheaval. Instantly avia on, tourism, C travel, hotel and oil industry went into a state of disarray due to corona virus pandemic. Later business ac vity reduced worldwide across almost all industries. IMF projected the global economy to contract by 3 per cent in 2020 compared to less than 1 per cent contrac on between 2008 and 2009. Global integra on has made businesses vulnerable to economic and poli cal changes coupled with natural upheavals in diﬀerent parts of the world. 10 EGMC004 Strategic Management 1.5.2 ERA OF INFORMATION AGE NOTES Transforma on from industrial age to informa on age has expanded the horizons of business organiza ons. Informa on Communica on Technology (ICT) has shrunk me and distance. Evolu on of internet and wireless networks coupled with prolifera on of communica ons satellites has led to real- me informa on sharing. Availability of laptops, mobile phones, tablets and smartphones since1980s - 1990s has also given this accessibility. Emergence of internet as an online 'informa on superhighway' revolu onized the method L of doing business. Suppliers, producers/service providers can exchange informa on easily. Businesses are more connected through online brainstorming, video conferencing and D online mentoring. Markets for both products and services as well as for inputs of produc on have increasingly become online. C Search Engine Op miza on (SEO) can increase visibility of the website or web page of companies. Customers can be targeted at the click of a mouse any me and anywhere. Loca ng new markets and distribu on channels can be done by si ng in the oﬃces. Outsourcing of services to low cost regions and improving eﬃciency can be done easily. T Availability of real me tracking of movement of products has resulted in inventory cost reduc on. IM Use of social networking pla orms like Linkedin (2002), skype (2003), Facebook (2004), YouTube (2005), Twi er (2006), WhatsApp (2009), Instagram (2010), Snapchat (2011) and Discord (2015) has made sharing of informa on easy and almost real me. The pulse of a consumer can be tapped through these pla orms. ht Use of 'big data' is now the hallmark for crea on and sustenance of digital business. Customer experience can be enhanced from data derived from sources like social media, web sales, mobile data and customer contact centre. Data Analy cs can be used to develop ig new product and services, reduce costs, improve distribu on channel and select target market. yr New age companies have framed business models that harness the ICT. Startup ﬁrms in India have aimed at visualizing and oﬀering niche products and services with use of internet. Travelling has been made convenient by the launch of online travel portal 'Make My Trip' by op Deep Kalra (2000). Bus cke ng in India was revolu onized by the launch of 'RedBus by Phanindra, Sudhakar and Charan (2006). Sachin Bansal and Binny Bansal (2007) started online pla orm 'Flipkart' to deliver products through online mode. 'Zomato' (2008) an online restaurant pla orm with home delivery launched by Deepinder Goyal and Pankaj Chaddah C has enamoured the palate of both the foodie and minimalist. Bhavish Aggarwal and Ankit Bha (2010) oﬀered transparency and convenience with the launch of 'Ola Cabs' a taxi service with the online booking. 1.5.3 PREVALENCE OF DISRUPTIVE INNOVATIONS Pace of innova ons has been rapid in the twenty-ﬁrst century. Innova on is more about discovering new ways to create value rather than crea ng new products and services. Microso that ini ally started as a company for “devices and services” is now known for 11 UNIT 1 Strategic Management and Compe veness NOTES “mobile and cloud.” Launches are made frequently by Microso to keep abreast in the industry as shown in Fig. 1.2. Fig. 1.2: Superior performance of Microso Vs Compe tors L D C T IM Source: h ps://economic mes.india mes.com/tech/so ware/we-measure-our-success-by-economic-impact- not-market-capitalisa on-satya-nadella-ceo-microso /ar cleshow/74310615.cms Bombay Dyeing Company has been able to survive for over a century due to its quest for innova on and moderniza on. O s Elevators has remained aﬂoat since 1892 due to its quest to launch smarter elevators to meet speed and safety requirements of consumers. ht Disrup ve technologies displace the exis ng technology and shake up the industry or create a new industry with a launch of new products. Xerox Corpora on a virtual monopolist in ig copier business in US ll 1970s lost ground ll early 1980s with its share declined to 13 percent. It gave the world one of the greatest inven on of the 20th century. However, the company leaders missed on the new technologies that could supplant Xerox's copier yr technology. Ar ﬁcial Intelligence (AI) and Machine Learning (ML) is being used increasingly to generate value-crea ng businesses. Amazon has harnessed technology to provide the desired op products to the consumer at right price by use of technology. Automa on and computerisa on helped the company reduce delivery cost and me. Case 1.1 highlights the use of technology for superior performance of Amazon. C In view of VUCA environment, a ﬁrm should adapt itself to changing the business scenario and formulate value-crea ng strategies. This requires speed in making and implemen ng strategic decisions. CHECK YOUR PROGRESS – IV Q.1 Emergence of _______ and________ are the two main reasons for hyper- compe on. 12 EGMC004 Strategic Management (a) protec onism and technology NOTES (b) global economy and new compe tors (c) protec onism and new compe tors (d) global economy and technology Q.2 Disrup ve technologies may shake up the industry or create a new industry with launch of new products. True/False L 1.6 BASIC MODEL OF STRATEGIC MANAGEMENT D Most thinkers accept a model of strategic management comprising of four phases. Phase I: Strategic Intent – Scanning of external environment and assessment of C internal capabili es is followed by se ng up of vision and mission. Phase II: Strategy Formula on – Strategies are formulated at each level – corporate, business and func onal. Strategic planning is done in this stage. T Phase III: Strategy Implementa on – Administra ve and managerial ac ons are taken to put strategy in ac on at each level. IM Phase IV: Strategy Evalua on – Eﬀec veness of strategies is assessed in this phase. Modiﬁca on or a change in strategy is done to “close the loop.” Fig. 1.3: Model of Strategic Management ht Strategic Intent Strategy Formula on Strategy Implementa on Strategy Evalua on Scanning of external Strategies are Administra ve and Eﬀec veness of environment and formulated at each managerial ac ons are strategies is assessed ig assessment of → level – corporate, → taken to put strategy in → in this phase. internal capabili es business and ac on at each level Modiﬁca on or a is followed by se ng func onal change in strategy is up of vision and done to “close the mission loop.” yr 1.6.1 STRATEGIC INTENT op Environmental scanning is done by monitoring the trends and events in the external and internal environment to iden fy strategic factors that may inﬂuence the organiza on. Philip Selznick in 1957 ini ally put forward the need to gain 'dis nc ve competence” by aligning the internal factors with external environment. Later this concept was developed as SWOT C analysis by Kenneth Andrews in 1963. Opportuni es and threats to the organiza on are iden ﬁed from the external environments. While strengths and weaknesses of the organiza on are analysed considering the core competencies. Vision, mission and objec ves of the organiza on are decided basis the environmental scanning. Established and well managed companies may not retain their compe ve posi ons due to lack of envisioning and adaptability. Nokia lost its leadership posi on due to complacency in decision-making coupled with a failure to envision the importance of lifestyle products like the iPhone.8 13 UNIT 1 Strategic Management and Compe veness NOTES VISION Vision is a long-term perspec ve of what is the ﬁnal des na on of the organiza on. It challenges and mo vates workforce. It arousas a strong sense of organiza onal purpose. Vision statement provides a broad aspira onal image of the organiza on of the future maybe ﬁve years or more. It gives clarity on following ques ons: Who are we? What do we want to become? L Where are we headed? D A properly framed vision statement: Resolves conﬂicts in percep ons, C Is a basis for iden ﬁca on and performance, Is precise and prac cal, T Is easily understood, and Is ambi ous MANAGEMENT FOCUS 1.1 IM Strategic Intent of HINDALCO Our Vision ht “To be a premium metals major, global in size and reach, excelling in everything we do, and crea ng value for its stakeholders.” ig Our Mission To relentlessly pursue the crea on of superior shareholder value, by exceeding customer expecta on proﬁtably, unleashing employee poten al, while being a responsible yr corporate ci zen, adhering to our values Our values op 1. Integrity - Honesty in every ac on 2. Commitment - On the founda on of integrity, doing what it takes to deliver, as promised C 3. Passion - Missionary zeal arising out of an emo onal engagement with work 4. Seamlessness - Thinking and working together across func onal silos, hierarchy levels, businesses and geographies 5. Speed - Responding to stakeholders with a sense of urgency Strategic Intent of Samsung 14 EGMC004 Strategic Management Vision NOTES “To inspire the world with our innova ve technologies, products, and design that enrich people's lives and contribute to social prosperity by crea ng a new future.” Mission “We will devote our human resources and technology to create superior products and services, thereby contribu ng to a be er global society.” L Values “People, excellence, change, integrity and co-prosperity.” D Source: Websites of company C Mission Vision statement is futuris c while mission speciﬁes what an organiza on is and why does it exist. It gives answer to ques ons listed below: T What is the func on of our organiza on? What is the value addi on? IM How should we want to be posi oned in the market and minds of customers? What business are we in? Mission statement speciﬁes the purpose and func on of the organiza on. It iden ﬁes the ht key market and contribu on of the organiza on. Mission statements generally have following features: Enable management to iden fy the boundary between what to do and what not ig to do. Crystallize views of top management regarding long-term direc on of yr organiza on. Convey organiza onal purpose as mo va on to employees to do their very best. op Help keep direc on related ac ons at all levels in the organiza on on a common path. Give a yards ck to measure the present performance and plans against our aspira ons. C Consider the examples of vision and mission statement in Management Focus 1.1 1.6.2 STRATEGY FORMULATION Strategy of an organiza on deﬁnes the ac ons that would be taken to achieve the mission of the organiza on. Strategies are framed at three levels - corporate, business and func onal. Corporate Strategy provides a guideline of Where to compete? Chief Execu ve Oﬃcer and other senior level execu ves deﬁne the industries and markets to 15 UNIT 1 Strategic Management and Compe veness NOTES compete. Assigning of ac vi es, coordina on of staﬀ, developing synergies and inves ng in ﬁnancial resources takes place at this level. Decisions on corporate por olio is taken at this level. In 2019 Tata Group holding company Tata Sons restructured the $104-billion conglomerate into ten ver cals (IT, Steel, Automo ve, Consumer & Retail, Infrastructure, Financial Services, Aerospace and Defence, Tourism and Travel, Telecom and Media and Trading and Investments). The crea on of ver cals under Tata Sons chairman N Chandrasekaran was done to help about 100 companies synergise opera ons and cut costs. The move was a process of simplifying, synergising and scaling (3S) to create an agile, L powerful pla orm to compete aggressively in the marketplace. Some clusters were focused on simpliﬁca on, while others on building on scale. Tata Sons had spent over Rs 70,000 D crores ($10 billion) in 2018 to deleverage and restructure Tata companies, consolidate cross holdings, acquire strategic assets and infuse much needed capital. The new structure will C help it be er manage core businesses and exit non core smaller companies. The decision was cri cal for the Tata Group to improve eﬃciencies and increase proﬁts. Business Strategy gives a direc on on How to compete? T A business unit can be a division, product line or proﬁt centre that can be planned independently from other business units. The General Managers of the ten ver cals of Tata IM Group are responsible for transla ng the strategic intent into concrete strategies for their respec ve businesses. General Managers of the business unit formulate strategy to: Posi on against business rivals An cipate changes in demand and technologies to adapt strategy accordingly ht Taking strategic ac ons to get an edge in compe ve dynamics Business level strategies can either be compe ve or coopera ve. Michael Porter iden ﬁed ig three generic strategies (cost leadership, diﬀeren a on and focus) to gain compe ve advantage. In the decade of 1990s Toyota was able to outperform General Motors by pursuing cost leadership strategy. Proﬁt per vehicle of Toyota was $900 while of General yr Motors it was $176. Walt Disney Company creates unique products for media and entertainment (The Walt Disney Studio, Disney ABC Television Group, Disney Music Group, Disney Cruise Lines, Disney Theatrical Group, Disney Music Group and Marvel op Entertainment) for compe ve advantage. Func onal/Departmental Level Strategy speciﬁes on How to allocate resources produc vely? C Func on-level managers are responsible for opera ons or speciﬁc business func ons. Strategies for marke ng, ﬁnance, opera ons, human resources and research and development departments are formulated by the func onal level managers. Coordina on between all these departments is done to execute business unit level strategies eﬀec vely. Ground reality is shared by the func on-level managers with the general managers that may be useful for crea on of top-level strategies. Analysis of business processes and value chain is undertaken to increase proﬁtability. For instance, the manufacturing manager of Tata Steel may develop manufacturing strategy to achieve the objec ves of the company. 16 EGMC004 Strategic Management Strategy-making involves How to: NOTES - achieve desired strategic and ﬁnancial objec ves - outperform rivals and win a compe ve edge - respond to changing industry and compe ve condi ons - defend against threats to organiza ons' well-being - grow the business L Features of a strategic plan: It should address cri cal performance issues: D Gap Analysis – What is the organiza on doing vs. capable of doing? Time bound - How and ll when to close the performance gap C Visionary – Should convey a desired end state Flexible – Allow and accommodate change Guide decision-making at lower level – Opera onal, tac cal and individual T 1.6.3 STRATEGY IMPLEMENTATION IM Strategy implementa on is an internal, opera ons - driven ac vity involving organizing, budge ng, mo va ng, culture-building, supervising and leading to “make the strategy work” as intended. Implemen ng strategy involves crea ng ﬁts between way things are done currently and what is required for eﬀec ve strategy execu on so that excellent results ht are produced in a mely manner. Most important 'ﬁts' are between strategy and Organiza onal structure ig Organiza onal culture Structure follows strategy. The structure of the organiza on should be aligned with the strategy for eﬀec ve implementa on. Strategic and ﬁnancial controls should be tuned with yr the chosen strategy of the business unit. Organiza onal culture acts as a guide for eﬀec ve implementa on of strategy. Findings of a study conducted by Tata Strategic Management Group depict that organiza ons with a strong strategy-culture alignment have ﬁve per cent op more proﬁtability compared to those with li le alignment. 1.6.4 STRATEGY EVALUATION C Evalua ng performance is the ﬁnal task of strategic management. None of the tasks of strategic management are a one- me exercise since business scenarios change with me. Events unfold, be er ways to do things become evident and new managers with diﬀerent ideas take over. Managers must Constantly evaluate performance Monitor situa on and decide how well things are going Make necessary adjustments 17 UNIT 1 Strategic Management and Compe veness NOTES Success of the strategy is dependent on the leadership of the organiza on. Flexibility should be maintained to make changes with the change in the environment. CHECK YOUR PROGRESS – V Q.1 An eﬀec ve vision statement speciﬁes the market that is to be served. True/False Q.2 A business level strategy describes L (a) a ﬁrm's resources, intent and mission. D (b) a ﬁrm's ac ons to exploit its compe ve advantage over rival. (c) the businesses in which the ﬁrm intends to compete. C (d) all the policies and procedures used in func onal departments. 1.7 LET US SUM UP T To gain a compe ve edge a company should frame strategy that is unique, value-crea ng, direc onal, integra ve, ongoing and adaptable to changes in environment. The basic aim of IM the strategy is to achieve compe ve edge or superior performance. Sustainable superior performance of a company depends on the return on the invested capital (RoIC) of the company. Strategic management helps the company to achieve sustainable compe ve advantage. ht The concept of strategic management has evolved in last century with contribu ons of thinkers and prac oners. The process strategic management can be explained by considering two perspec ves (a) internal and external environment of the organiza on and ig (b) macro and micro factors. The former lays stress on internal factors - resources and capabili es of organiza on and external environmental factors - threats and opportuni es that shape business strategies. Industrial organiza on model, resource-based view, yr knowledge-based view and behavioural theory are some approaches put forward by thinkers based on the former perspec ve. The macro and micro founda ons of strategic decision-making in the new millennium focus on corporate social responsibility, ethical op prac ces and global strategies. Ac on-based perspec ve and ins tu on-based view are some explana on for later perspec ve. Conduc ng business responsibly and ethically has gained signiﬁcance. Organiza ons build strategies to conduct business that has lesser C footprint on an environment. Globaliza on, emergence of Informa on Age and disrup ve technologies have made the business environment vola le, uncertain, complex and ambiguous. In view of VUCA environment, a ﬁrm should adapt itself to changing the business scenario and formulate value-crea ng strategies. Strategic management process comprises of four stages: strategic intent, strategy formula on, strategy implementa on and strategy evalua on. Strategic intent involves scanning of the external environment to frame the vision and mission of the company. This is 18 EGMC004 Strategic Management followed by cra ing strategy at diﬀerent levels of the organiza on: corporate level, business NOTES level and func onal level. The organiza on structure and organiza on culture are aligned to implement the strategy eﬀec vely. Finally, the strategy is evaluated with con nuous monitoring and controls and modiﬁca ons are done as required. 1.8 KEY WORDS Strategy: It is a dis nc ve ac on taken by a ﬁrm to a ain the goals of organiza on to gain L sustainable compe ve advantage. Compe ve advantage: It refers to superior performance of a company compared to the D other compe tors in the industry or the industry average. Sustainable compe ve advantage: A company is said to have sustainable compe ve C advantage if it has superior performance or higher returns than industry average compared to the rivals for a long period of me. Return on Invested Capital (RoIC): ROIC is the ra o of net opera ng proﬁt and average T invested capital. Posi oning strategy: Strategy formula on by considering the compe IM ve strength and weakness of the organiza on. Industrial organiza on view of strategy: This view of strategic management states that the external factors determine the strategy of the company. Resource Based View (RBV): The theory states that an organiza on can gain and sustain ht compe ve advantage by integra ng and building its resources and capabili es. Knowledge based view (KBV): The theory states that organiza onal learning provides the ig companies with strategies to achieve compe ve advantage. Behavioural Strategy: It applies cogni ve and social psychology to strategic management. yr Disrup ve innova ons: Technologies displace the exis ng technology and shake up the industry or create a new industry with a launch of new products. Strategic management: refers to the process of formula on, implementa on and op evalua on of strategies for compe ve advantage and superior performance of a company. Vision - It is a long-term perspec ve of what is the ﬁnal des na on of the organiza on. Mission: It speciﬁes what an organiza on is and why does it exist. C Corporate level strategy: This strategy deﬁnes the industries and markets the organiza on would compete. Business level strategy: It states the strategy pursued by company to posi on and compete against business rivals. Func onal level strategy: It refers to alloca on of resources to diﬀerent departments of the organiza on. 19 UNIT 1 Strategic Management and Compe veness NOTES 1.9 REFERENCES 1. h ps://fortune.com/fortune500/visualiza ons/?iid=recirc_f500landing-zone1 2. Kant K., 2016, In India 15 of the top business groups are family-owned. h ps://www.rediﬀ.com/money/report/special-in-india-15-of-the-top-20-business-groups- are-family-owned/20160818.htm L 3. Tishkowski, T, Sutherland, G. and Trainer, D., 2018 Ge ng ROIC right: How an accurate view o f R O I C c a n d r i v e i m p r o v e d s h a r e h o l d e r v a l u e. F e b r u a r y , 2 0 1 8 D h ps://www.newconstructs.com/ge ng-roic-right/ C 4. Trainer, D.,2018, CEOs who focus on ROIC (Return on Invested Capital) Outperform. September,h ps://www.forbes.com/sites/greatspecula ons/2018/09/12/ceos-that-focus- on-roic-outperform/#7ebe589f567b T 5. Hall, S., and Lovallo, D., and Musters, R., 2012 How to put your money where the strategy is. McKinsey Quarterly. h ps://www.mckinsey.com/business-func ons/strategy-and- IM corporate-ﬁnance/our-insights/how-to-put-your-money-where-your-strategy-is 6. Suneja, K.,2019, Trade war impact: Indian exports rise more to China than to US, says SBI. The Economic Times. ht 7. (h ps: // economic mes.india mes. com/ news/economy / foreign-trade/ trade-war- impact-indian-exports-rise-more-to-china-than-to-us-says-sbi/ar cleshow/70438112.cms) ig 8. Report on Reinsurance market outlook by of Aon Benﬁeld. January, 2015 h p://thoughtleadership.aonbenﬁeld.com/Documents/20150102_ab_analy cs_reinsura yr nce_market_outlook_january2015.pdf 9. Cord, D J., 2014 The Decline and Fall of Nokia, Schildts & Soder stroms. op Suggested Additional Reading Hill, C. W. L. and Jones, G. R. 2013, Strategic Management: An integrated Approach, 10th C edi on, Cengage Learning Wheelen, T. L. and Hunger, J. D., 2012, Concepts in Strategic Management and Business Policy, 13th edi on, Pearson Educa on. 1.10 SELF-ASSESSMENT QUESTIONS Q.1 The strategic management process is- a. a process directed by the top management with input from other shareholders that makes eﬀec ve use of the organiza on's resources in order to achieve above 20 EGMC004 Strategic Management average returns for its investors. NOTES b. a set of ac vi es that will guarantee a sustainable compe ve advantage and above average returns for the organiza on. c. a decision-making ac vity involving the organiza on's internal resources, capabili es and competencies, independent of external environment condi ons. d. a complete set of commitments, strategies, ac ons, monitoring and control required by the organiza on to achieve above average returns and strategic L compe veness. D Q.2 Corporate level strategy in a diversiﬁed company is concerned with- a. coordina ng the vision and mission of each subsidiary ﬁrm. C b. determining the opera ons of each func onal department. c. determining in which businesses to compete and how the resources will be allocated between businesses. T d. opera ng each individual business under the corporate umbrella. Q.3 XYZ Mining is making a strategic decision whether to shut down a coal mine in Jharia. IM The decision a. should be based solely on the impact on proﬁtability. b. will have ethical implica ons for organiza onal stakeholders. ht c. need not be socially responsible if the ﬁrm is making below average returns from the mine. d. all of the above choices are important to consider. ig Q.4 A ﬁrm is said to have created a(n) ___________ when resources and capabili es serve as a source of compe ve advantage for the ﬁrm. yr a. inspiring vision b. strategic mission op c. core competence d. sustainable market niche Q.5 Which of the following is typically involved in the development of a ﬁrm's mission? C a. Both CEO and top managers b. Only top managers c. Only the CEO d. None of the above 21 UNIT 1 Strategic Management and Compe veness NOTES Q.6 Which of the following statement about organiza onal knowledge is most appropriate? a. Knowledge is an intangible resource. b. The importance of knowledge is rising. c. The value of knowledge as a propor on of shareholder value is rising. d. All of the these L 1.11 CHECK YOUR PROGRESS - POSSIBLE ANSWERS D CHECK YOUR PROGRESS - I C Q.1 (c) Q.2 (a) CHECK YOUR PROGRESS - II T Q.1 (c) Q.2 (b) IM CHECK YOUR PROGRESS - III Q.1 False Q.2 True ht CHECK YOUR PROGRESS - IV Q.1 (d) ig Q.2 True CHECK YOUR PROGRESS - V yr Q.1 False Q.2 (b) op 1.12 ANSWERS TO SELF-ASSESSMENT QUESTIONS Q.1 d Q.2 c C Q.3 c Q.4 c Q.5 A Q.6 d 22 EGMC004 Strategic Management APPENDIX NOTES Case 1.1 Jeﬀ Bezos' Big Tech Bets: A case of Amazon Amazon Inc, the world's largest online retailer, is being known these days as more of a technology company, and rightly so. Technology is at the core of whatever Amazon does — from algorithms that forecast demand and place orders from brands, and robots that sort and pack items in warehouses to drones that will soon drop packages oﬀ at homes. At its new L Go Stores, for instance, advances in computer vision have made it possible to iden fy the people walking in and what products they pick up, helping add them to their online shopping D carts. Jeﬀ Bezos, the founder of Amazon and the world's richest man, is always pulling new rabbits C out of his hat, like next-day or same-day shipping and cashier-less stores. Besides, there is Blue Origin the aerospace company privately owned by Bezos, which is on a mission to make spaceﬂight possible for everyone. T Be that as it may, a lot more disrup on aimed at reaching the common man is on the anvil. IM The most far-reaching and impac ul technologies being developed today are for Amazon's own use, but some others have the poten al to disrupt every sector. The technology marvels that Amazon Web Services (AWS) — the largest proﬁt driving unit in Bezos' stable — is working on could jolt several industries, including in India, in the same way that Amazon once disrupted retail. “In retail, while things like the size of the catalogue, adver sing and ht other stuﬀ might play a role in success, at Amazon, I think success is largely technology driven,” said Chief Technology Oﬃcer Werner Vogels. ig The e-commerce giant is using advances in technology to disrupt several sectors outside of retail, though — medicine, banking, logis cs, robo cs, agriculture and much more. yr Interes ngly, some of that work is happening in India. Ini ally, the thinking was around allowing enterprises in these sectors to grow by using its cloud storage and compu ng capabili es. Now, Amazon's reach has become more nuanced, and it has moved up the value op chain. For example, no longer is Amazon oﬀering banks a place to securely store informa ons, it is going beyond by oﬀering tools to detect fraud making it unnecessary for the lenders to build expensive data science teams in-house. It is a similar story in other industries, made possible due to the massive amounts of data that Amazon collects and C processes. “We give people the so ware capability, so they no longer need to worry about that side of things. Most of our services are machine learning under the covers (and) that's possible mostly because there's so much data available for us to do that,” Vogels said. Ar ﬁcial Intelligence/Machine learning Amazon is moving up the value chain in oﬀering services backed by ar ﬁcial intelligence and machine learning to automate repe ve tasks done by human beings. Enterprise customers 23 UNIT 1 Strategic Management and Compe veness NOTES will simply be able to buy into these services with minimal customiza on and without a large data science and ar ﬁcial intelligence team. In December, 2019 AWS launched its Fraud Detector service that makes it easy to iden fy poten ally fraudulent ac vity online, such as payment fraud and crea on of fake accounts. Even large banks in India have struggled to put together teams to build machine learning models for fraud detec on, but with such a service they can train their systems easily. Code Guru is another service that uses machine learning to do code reviews and spit out applica on performance recommenda ons, giving speciﬁc recommenda ons to ﬁx code. Today, this is largely done manually, with several non- L technology companies struggling to build great so ware for themselves due to bad code. Transcribe Medical is a service that uses Amazon's voice technology to create accurate D transcrip ons from medical consulta ons between pa ents and physicians. Medical transcrip on as a service is a big industry in India, and India's IT service giants hire thousands C to review code. These services are expected to replace mundane manual tasks, freeing up resources for sophis cated tasks, and could lead to disrup on in several sectors in the country. T Enterprise Technology IM AWS might be a behemoth in the cloud compu ng space, but cloud s ll makes up just 3% of all IT in the world. The rest remains on-premise. While a lot migrates to the cloud, some will not. In order to get into the ac on in the on-premise market, Amazon has innovated on services that run on a customer's data centre, oﬀering capabili es as if the data is stored on ht the cloud. With Outposts, which was announced in January 2020 AWS infrastructure, AWS services, APIs, and tools will be able to run on a customer's data centre. Essen ally, this will allow enterprises to run services on data housed within their own data centres, just like how ig they would if it had been stored on AWS. The other big problem that AWS is looking to solve is not having its own data centres close enough to customers who require extremely low- latency compu ng. For this, the company has introduced a new service called Local Zones, yr where it deploys own hardware closer to a large popula on, industry, and IT centre where no AWS Region exists today. Both these new services from AWS could be valuable in India given the lower reach of cloud compu ng among enterprises as well as stricter data localisa on op requirements. Source: Adapted from Economic Times: Alnoor Peermohamed ET Bureau December 27, 2019 C h ps://economic mes.india mes.com/tech/ites/from-retail-to-robo cs-jeﬀ-bezos-is-be ng-big-on- technology/ar cleshow/72987800.cms 24 EGMC004 Strategic Management UNIT 2 NOTES THE EXTERNAL ENVIRONMENT L D STRUCTURE 2.0 Objec ves C 2.1 Introduc on 2.2 The External Environment 2.3 External Environment Scanning: PESTLE Analysis T 2.4 Industry Analysis : Porter’s Five Forces Model 2.5 2.6 Interpre ng Industry analysis External Factor Evalua on (EFE) Matrix IM 2.7 ETOP Analysis 2.8 Strategic Group 2.9 Compe ve Intelligence ht 2.10 Compe tor Analysis 2.11 Compe tor Proﬁle matrix ig 2.12 Let Us Sum Up 2.13 Key Words yr 2.14 References and suggested addi onal readings 2.15 Self-Assessment Ques ons 2.16 Check Your Progress – Possible Answers op 2.17 Answers to Self-Assessment Ques ons 2.0 OBJECTIVES C A er comple on of this unit, you will be able to: understand the environment in which the business operates understand how environmental scanning is done by firms learn about various environmental analysis tools iden fy environmental opportuni es and threats understand the compe ve landscape in which the industry operates 25 UNIT 2 The External Environment NOTES analyze the compe tor's environment using Competitor proﬁle matrix 2.1 INTRODUCTION Now that you are clear about what the strategy is and why it is important for the survival of any organiza on, let us quickly refresh the Strategic management process and its diﬀerent phases. The strategic management process can be expressed in simple ﬁve steps L 1. Iden ﬁca on of the corporate vision, mission, and major corporate goals. D 2. Iden ﬁca on and then analysis of factors from the external environment which aﬀect the business, which in turn gives opportuni es and threats. Iden ﬁca on and then analysis of internal factors opera ng within the organiza on C 3. that give the organiza on's strengths and weaknesses. 4. Formulate strategies based on the strengths and weaknesses of the organiza on to exploit the opportunity oﬀered by the environment or thwart the threats perceived T keeping consistency with the stated vision and mission of the organiza on. 5. IM Implementa on and control of the strategies. These steps can be combined down into three phases like strategy analysis (step 1 to 3), strategy formula on (step 4), and implementa on (Step 5). Now, before developing any strategy the analysis of the forces aﬀec ng the business needs ht to be done. This analysis tells us about the opportuni es and threats confron ng the organiza on. As already it has been discussed that role of strategy is to outsmart compe tors so the understanding of the environment goes a long way to develop suitable strategies. This ig unit will give you an understanding of the environment in which the organiza on operates and develop a perspec ve about the way in which environmental forces aﬀect the industry structure and create opportuni es or threats. It will give insights about the tools yr available to analyze the compe ve structure within an industry and its implica ons for the stakeholders. op By the end of the chapter, you will understand that to succeed, a company must ﬁt its strategy to the external environment in which it operates and must be able to reshape the organiza onal environment to its advantage through its chosen strategy. C 2.2 THE EXTERNAL ENVIRONMENT Every business operates within an environment. It cannot exist in isola on. So ﬁrst let us deﬁne business environment. According to Keith Davis “Environment of the busines means the aggregate of all condi ons, events, and inﬂuences that surround and affect it". Further in opinion of Arthur M. Weimers, “Business environment encompasses the climate or set of condi ons, economic, social, poli cal or ins tu onal in which business opera ons are conducted.” 26 EGMC004 Strategic Management The prominent features of any business environment are that it is dynamic in nature, it is an NOTES integral part of any business, with a direct bearing on business decisions and it is mul - dimensional in nature. Business environment can be classiﬁed, as a general environment that comprises the economic, social, cultural, technological and poli cal environment. Then there is an industry environment since the business operates within an industry where there would be a number of diﬀerent players who would be opera ng within the same general environment and L producing or delivering similar products or services. This industry environment aﬀects all the players in the industry which means whether there is growth or slowdown it would be D there for all though the intensity of impact may vary. Lastly there is a compe ve environment in which all the companies within the industries compete with each other. They inﬂuences each other's strategy and try to grab the market share from each other. C Successful companies are able to understand the dynamics of the environment. The environment is ever-changing which makes it quite uncertain. The old pa erns get destroyed and replaced by new pa erns. The organiza on needs to develop a system where T environmental changes are monitored. This system should give them insights into the emerging opportuni es and possible threats faced by the organiza on. IM Here consider the example of Nokia which was the market leader in the mobile phone and handset market. They had a stronghold in the push-bu on mobile phone category. They followed market penetra on and expanded market in rural areas and launched products with speciﬁc features like a torch and long ba ery life for rural markets. In this process they ht somehow ignored the environmental changes happening in the market where touch screen phones were catching up fast. This new technology caught the fascina on of the market and soon they were everywhere. Nokia launched certain models but they were not able to ig capture a substan al market share. And ﬁnally due to the coming up of an open-source opera ng system for mobiles the en re market landscape changed forever. The companies which were more adop ve like Samsung captured a huge market share. yr So, the organiza on needs to scan the external environment before formula ng any strategy. This scanning involves con nuous monitoring, collec ng, and analyzing the informa on op from various sources to give it a meaning full shape, so that the strategist iden fy the possible opportuni es or threats in their planning. CHECK YOUR PROGRESS - I C Q.1 What do you understand by the term Business environment? Q.2 Why it is important to scan the Business Environment before developing a strategy?

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