Download MS-206 STRATEGIC MANAGEMENT - IV SEMESTER SOLUTION SET 2013

NORTHERN INDIA ENGINEERING COLLEGE
MBA DEPARTMENT
SOLUTION SET
MS-206 STRATEGIC MANAGEMENT
JUNE 2013
PREPARED BY
MS. KAMAYNI
ASST.PROFESSOR
Q1. Explain the term (i) Vision and Mission and (iii) Goals and Objectives in the
context of strategic management process. Illustrate your answer with suitable
examples.
Ans.1.
(i) VISION: An aspirational description of what an organization would like to
accomplish in the mid-term or long-term future. It is intended to serves as a clear guide
for choosing current and future courses of action.
A corporate vision statement sets a dynamic and compelling view of the corporation at
some point in the future. It is an emotional driver to some “big idea” or challenge that
drives those in the corporation toward it. It is the end result of what you want to have
done. It’s a future oriented, detailed description of outcomes a corporate want to
accomplish.
Characteristics of a Good Vision Statement:
1)
2)
3)
4)
It should be clear and easily understood
It should be inspiring, motivating and challenging
It should harmonize with company’s culture and values
It should be realistic, credible, attractive and future oriented.
Example: Vision statement of NTPC” To be one of the largest and world’s best power
utilities, powering India’s growth.”
MISSION: A written declaration of an organization's core purpose and focus that
normally remains unchanged over time. Properly crafted mission statements (1) serve
as filters to separate what is important from what is not, (2) clearly state
which markets will be served and how, and (3) communicate a sense of intended
direction to the entire organization.
A mission is different from a vision in that the former is the cause and the latter is the
effect; a mission is something to be accomplished whereas a vision is something to be
pursued for that accomplishment.
A mission statement defines the basic reason for the existence of that organization.
Such a statement reflects the corporate philosophy, identity, character, and image of an
organization. It may be defined explicitly or could be deduced from the management’s
actions, decisions, or the chief executive’s press statements. When explicitly defined it
provides enlightenment to the insiders and outsiders on what the organization stand for.
Characteristics of an effective mission statement:
1. It should be feasible. It should be realistic and achievable its followers must find it to
be credible.
2. It should be precise. A mission statement should not be so narrow as to restrict the
organization’s activities nor should it be too broad to make itself meaningless.
3. It should be clear. A mission should be clear enough to lead to action.
4. It should be motivating. A mission statement should be motivating for members of the
organization and of society, and they should feel it worthwhile working for such an
organization or being its customers.
5. It should be distinctive.
6. It should indicate major components of strategy.
7. It should indicate how objectives are to be accomplished.
Example: Mission statement of Ranbaxy- Our mission is to become a research based
international pharmaceutical co.
(ii) GOALS: Big steps towards accomplishing the company’s mission/vision, What an
orgn hopes to accomplish in the future?. It is a future state or an outcome of the effort
put in now.
Goals are usually called as events or milestones. They are not necessarily quanified..
In order for the goals to be effective they should be SMART,i.e., Specific, Measurable,
Attainable, Rewarding and Time Bound.
OBJECTIVES: These are the end results which an organization strives for. These are
those smaller steps you need to take in order to accomplish your goals. They form the
basis for functioning of an organization and seeks to achieve by its existence and
operations.
Objectives should embody mission. The objectives are usually in quantitative terms and
set within a time frame.
Objectives should be:
1) Objectives should be understandable- to those who have to achieve them.
2) Concrete and specific
3) Related to time frame
4) Measurable and controllable
5) Challenging
6) Correlate to each other
Q2. Briefly explain the steps for conducting the external environment audit of a
firm with suitable examples.
Ans 2.
The external environment is the context in which a business operates. This takes in
various factors including those outside its control, for example, laws or standards. The
external environment is the context in which a business operates. Each factor can have
an effect on the business positive or negative and so companies make plans and
strategies to try to anticipate these effects. If a company does not plan for external
environment changes or ignores them, then it may miss opportunities to grow or suffer
setbacks, for example, losing business to a competitor.
External Strategic Management Audit Is also called Environmental scanning.
The benefits of conducting an external analysis are that it helps to generate profits,
helps to support change, helps to cut costs, and increases knowledge and supports
learning.
An external analysis can be defined as “the process of scanning and evaluating an
organization’s various external environmental sectors to determine positive and
negative trends that could impact organizational performance”
Tools for conducting External AnalysisThere are several tools you can use to conduct an external analysis, some of them are:
 SWOT ANALYSIS
 PESTEL ANALYSIS
 PORTER’S FIVE FORCE MODEL
An external audit focuses on identifying and evaluating trends and events beyond
the control of
a single firm. Anexternal audit reveals key opportunities and threats confronting an
organization so that managers can formulate strategies to take advantage of the
opportunities and avoid or reduce the impact of threats.
Key External Forces
External forces can be divided into five broad categories:
 Economic forces
 Social, cultural, demographic, and environmental forces;
 Political, governmental, and legal forces;
 Technological forces; and
 Competitive forces.
Relationships among these forces and an organization are depicted in
Figure External trends and events
significantly affect all products, services, markets, and organizations in the world
SWOT ANALYSIS
A SWOT analysis (alternatively SWOT matrix) is a structured planning method
used to evaluate the strengths, weaknesses,opportunities, and threats involved
in a project or in a business venture. A SWOT analysis can be carried out for a
product, place, industry or person. It involves specifying the objective of the
business venture or project and identifying the internal and external factors that
are favorable and unfavorable to achieve that objective.

Strengths: characteristics of the business or project that give it an advantage
over others.

Weaknesses: characteristics that place the business or project at a
disadvantage relative to others

Opportunities: elements that the project could exploit to its advantage

Threats: elements in the environment that could cause trouble for the
business or project
PESTEL ANALYSIS:
PESTEL analysis stands for "Political, Economic, Social, and Technological,
Environmental and Legal analysis". It is a part of the external analysis when conducting
a strategic analysis or doing market research and gives a certain overview of the
different macroenvironmental factors that the company has to take into consideration.
Political factors, or how and to what degree a government intervenes in the economy.
Specifically, political factors include areas such as tax policy, labour law, environmental
law, trade restrictions, tariffs, and political stability. Political factors may also include
goods and services which the government wants to provide or be provided (merit
goods) and those that the government does not want to be provided (demerit goods or
merit bads). Furthermore, governments have great influence on the health, education,
and infrastructure of a nation.
Economic factors include economic growth, interest rates, exchange rates and the
inflation rate. These factors have major impacts on how businesses operate and make
decisions. For example, interest rates affect a firm's cost of capital and therefore to what
extent a business grows and expands. Exchange rates affect the costs of exporting
goods and the supply and price of imported goods in an economy
Social factors include the cultural aspects and include health consciousness,
population growth rate, age distribution, career attitudes and emphasis on safety.
Trends in social factors affect the demand for a company's products and how that
company operates. For example, an ageing population may imply a smaller and lesswilling workforce (thus increasing the cost of labor). Furthermore, companies may
change various management strategies to adapt to these social trends (such as
recruiting older workers).
Technological factors include ecological and environmental aspects, such as R&D
activity, automation, technology incentives and the rate of technological change. They
can determine barriers to entry, minimum efficient production level and influence
outsourcing decisions. Furthermore, technological shifts can affect costs, quality, and
lead to innovation.
Environmental factors include weather, climate, and climate change, which may
especially affect industries such as tourism, farming, and insurance.Furthermore,
growing awareness to climate change is affecting how companies operate and the
products they offer--it is both creating new markets and diminishing or destroying
existing ones.
Legal factors include discrimination law, consumer law, antitrust law, employment law,
and health and safety law. These factors can affect how a company operates, its costs,
and the demand for its products.
PORTER’S FIVE FORCE MODEL:
Michael Porter had outlined the following 5 key external market forces: Supplier and
Buyer Powers, Threat of New Entry, Threat of Substitutes and Industry Rivalry.
The structured analysis of external forces within an industry allows for identifying weak
links in company's strategy going forward. At the same time, it allows for strengthening
company's positions and developing a new strategy, better equipped to withstand
external pressures. Moreover, it is essential to track the dynamics of these forces
through time. For instance, industry rivalry in one's market may seem low at the moment
but may increase in the future due to a high threat of new entry.
Industry Rivalry encompasses market concentration, diversity of competitors, product
differentiation, excess capacity and exit barriers and cost conditions. The analysis of the
above factors should lead to development of sound recommendations. For instance, a
company operating in an industry with little product differentiation may decide to create
a unique product line to capture a bigger share of the market. Excess capacity and high
exit barriers (e.g. in the pulp and paper industry) may lead to higher competition and
price dumping by existing players. A company may choose to diversify or horizontally
integrate to safeguard itself from intensifying industry rivalry.
Threat of Substitutes relates to the existence of alternative products that have a
similar utility as company's products but do not directly compete with them. The two
important considerations are buyer's propensity to substitute and relative prices and
performance of substitutes.
In the case of the courier delivery industry, regular mail and email are powerful
substitutes. Although, the two services do not directly compete in the same market, they
nevertheless have a significant impact on the industry. With the increasing importance
of email and other electronic media types, sending original documents often becomes
irrelevant as it is much easier and quicker to send a file by email at no cost.
Threat of Entry is a powerful force, predictor of future industry rivalry. When analyzing
the threat from new entrants, one should consider the following factors: economies of
scale, absolute cost advantages, capital requirements, product differentiation, access to
distribution channels, government and legal barriers, retaliation by established
producers. High economies of scale and various legal barriers prevent new players from
entering the industry. It may be in the power of an incumbent company to increase
these barriers, utilizing government lobbying for protectionist measures or for increasing
relevant licensing fees.
Online-based businesses often operate in a low entry barrier environment and are often
vulnerable in face of new entrants who can easily copy their business model. At the
same time, such companies as Facebook can maintain their dominances by leveraging
economies of scale and network effects associated with serving a vast customer base.
Buyer Power has two main components: 1) Price sensitivity and 2) Bargaining Power.
Price sensitivity is dependent on cost of product relative to the total cost of the project
(e.g. a buyer would not pay attention to the cost of new doorknobs when completing a
major home renovation project), product differentiation (how differentiated is one's
product in the market place), competition between buyers (is the product demanded and
rare OR widely-available?).
Bargaining Power is dependent on the size and concentration between buyers relative
to producers (the bargaining power lies with more powerful market players), buyer's
switching costs (e.g. high costs of retraining personnel in the airline industry when
carriers switch between Boeing and Airbus). Other factors that increase buyer's
bargaining power are availability of information and buyer's ability to backward integrate
(e.g. grocery chains entering food production). The Supplier's Power is generally the
same as Buyer's Power only in reverse.
Addressing factors presented in the Porter's five forces model should result in
strengthening of company's positions in its industry.
Q3. Describe the Porter’s five forces model to identify the sources of competition
for a strategic business unit. Explain with suitable examples.
Ans.3.
Five Forces model of Michael Porter is a very elaborate concept for evaluating
company's competitive position. Michael Porter provided a framework that models an
industry and therefore implicitly also businesses as being influenced by five
forces. Michael Porter's Five Forces model is often used in strategic planning.
Porter's competitive five forces model is probably one of the most commonly used
business strategy tools and has proven its usefulness in numerous situations.
Need for Porter’s Five Force Model:
In general, any CEO or a strategic business manager is trying to steer his or her
business in a direction where the business will develop an edge over rival firms. Michael
Porter's model of Five Forces can be used to better understand the industry context in
which the firm operates. Porter's Five Forces model is a strategy tool that is used to
analyze attractiveness of an industry structure.
Porter has the ability to represent complex concepts in relatively easily accessible
formats. His book about the Five Forces model is written in a very easy and
understandable language. Even though his model is backed up by some complex
model, the model itself is simple and easily comprehensible at all levels.
Porter's Five Forces model provides suggested points under each main heading, by
which you can develop a broad and sophisticated analysis of competitive position.
This can be then used when creating strategy, plans, or making investment decisions
about your business or organization.
The basic idea behind Porter's Five Forces model
Porter's Five Forces model is made up by identification of 5 fundamental competitive
forces:
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



Barriers to entry
Threat of substitutes
Bargaining power of buyers
Bargaining power of suppliers
Rivalry among the existing players
When putting all these points together in a graphical representation, we get Porter's
Five Forces model which looks like this:
Force 1: Barriers to entry
Barriers to entry measure how easy or difficult it is for new entrants to enter into the
industry. This can involve for example:
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




Cost advantages (economies of scale, economies of scope)
Access to production inputs and financing,
Government policies and taxation
Production cycle and learning curve
Capital requirements
Access to distribution channels
Patents, branding, and image also fall into this category.
Force 2: Threat of substitutes
Every top decision makes has to ask: How easy can our product or service be
substituted? The following needs to be analyzed:



How much does it cost the customer to switch to competing products or
services?
How likely are customers to switch?
What is the price-performance trade-off of substitutes?
If a product can be easily substituted, then it is a threat to the company because it can
compete with price only.
Force 3: Bargaining power of buyers
Now the question is how strong the position of buyers is. For example, can your
customers work together to order large volumes to squeeze your profit margins? The
following is a list of other examples:

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





Buyer volume and concentration
What information buyers have
Can buyers corner you in negotiations about price
How loyal are customers to your brand
Price sensitivity
Threat of backward integration
How well differentiated your product is
Availability of substitutes
Having a customer that has the leverage to dictate your prices is not a good position.
Force 4: Bargaining power of suppliers
This relates to what your suppliers can do in relationship with you.

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
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How strong is the position of sellers?
Are there many or only few potential suppliers?
Is there a monopoly?
Do you take inputs from a single supplier or from a group? (concentration)
How much do you take from each of your suppliers?
Can you easily switch from one supplier to another one? (switching costs)
If you switch to another supplier, will it affect the cost and differentiation of your
product?
Are there other suppliers with the same inputs available? (substitute inputs)
The threat of forward integration is also an important factor here.
Force 5: Rivalry among the existing players
Finally, we have to analyze the level of competition between existing players in the
industry.



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Is one player very dominant or all equal in strength/size?
Are there exit barriers?
How fast does the industry grow?
Does the industry operate at surplus or shortage?

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How is the industry concentrated?
How do customers identify themselves with your brand?
Is the product differentiated?
How well are rivals diversified?
Rivalry is the fifth factor in the Five Forces model but probably the one with the most
attention.
EXAMPLE – THE COCA-COLA COMPANY
The following is a Five Forces analysis of The Coca-Cola Company in relationship to
its Coca-Cola brand.
Threat of New Entrants/Potential Competitors: Medium Pressure


Entry barriers are relatively low for the beverage industry: there is no consumer
switching cost and zero capital requirement. There is an increasing amount of new
brands appearing in the market with similar prices than Coke products
Coca-Cola is seen not only as a beverage but also as a brand. It has held a very
significant market share for a long time and loyal customers are not very likely to try
a new brand.
Threat of Substitute Products: Medium to High pressure

There are many kinds of energy drink s/soda/juice products in the market. Cocacola doesn’t really have an entirely unique flavor. In a blind taste test, people can’t
tell the difference between Coca-Cola and Pepsi.
The Bargaining Power of Buyers: Low pressure


The individual buyer no pressure on Coca-Cola
Large retailers, like Wal-Mart, have bargaining power because of the large order
quantity, but the bargaining power is lessened because of the end consumer brand
loyalty.
The Bargaining Power of Suppliers: Low pressure


The main ingredients for soft drink include carbonated water, phosphoric acid,
sweetener, and caffeine. The suppliers are not concentrated or differentiated.
Coca-Cola is likely a large, or the largest customer of any of these suppliers.
Rivalry Among Existing Firms: High Pressure


Currently, the main competitor is Pepsi which also has a wide range of beverage
products under its brand. Both Coca-Cola and Pepsi are the predominant
carbonated beverages and committed heavily to sponsoring outdoor events and
activities.
There are other soda brands in the market that become popular, like Dr. Pepper,
because of their unique flavors. These other brands have failed to reach the success
that Pepsi or Coke have enjoyed.
Q4. What are the various strategic choices available to an organization for its
growth? Explain briefly giving examples.
Ans.4.
Strategic choices concern the “decisions about an organization’s future and the way in
which it needs to respond to pressures and influences”
Strategic choice is a part of the strategic process and involves elements like the
identification and evaluation of alternatives which then leads to a choice. Once you have
conducted the external and internal analyses the different alternatives available to you
should be clear. Identifying them is however not always easy, and asking yourself
questions like what the future focus is and what the expansion plans are might facilitate
the identification process of these alternatives. There are three aspects that you should
consider when you choose a strategy. Porter’s generic strategies help you identify the
grounds you stand on, then the possible directions that should be considered, and
possible methods. Strategic choices also occur at different levels, at the business level,
at the corporate and at the international level. The available options can develop into
different directions and different methods can be of relevance when evaluating them. A
great challenge is to get choices on different levels to be consistent with each other.
The company needs to determine its competitive position (i.e. choice of generic
strategy) and choose its future path or strategic direction (i.e. grand strategy options). In
terms of grand strategy the company may pursue multiple options simultaneously.
Generic strategies
The generic strategies function as a foundation when you choose a future strategy.
There are three generic strategies; overall cost leadership, differentiation, and focus.
These strategies can be used to develop the future strategy.

If you follow the cost leadership strategy, basically you sell your products
cheaper than your competitors. This requires that the overall cost level in the
organization is kept at a minimum. Cost leaders that you probably have heard
about are companies like IKEA and Wal-Mart.

Differentiation involves the offering of a unique product, where the brand or
service offering makes the product unique. These two strategies are usually not
compatible.

Focus is about focusing on a single segment or market. This strategy can be
combined with the other two and create a focused cost leadership or focused
differentiation.
Directions
The tool for determining this is Ansoff’s Matrix.
A company can choose four different directions that can be based on the productmarket grid.

The market penetration is for companies who are already present with a product
in a market who wish to penetrate the market more and turn more customers into
regular customers.

The market development focuses on breaking new grounds for existing products.
Exporting is one option.

Product development is about offering new or improved products in existing
markets.

Diversification is the last direction available where a company offers new
products in new markets.
Methods
There are two ways to get the company started in the strategic direction you choose,
either through internal development or through cooperation. Internal development has
usually been preferred by companies since it gives more control and lower risk, and
gives the opportunity for internal development. Cooperation on the other hand might be
necessary in order to gain new knowledge and access into new markets.
In terms of choices the company will determine whether to undertake:

horizontal integration (i.e. acquire a rival);

vertical integration (i.e. acquire a supplier or a buyer)

joint ventures (i.e. partner with a company that possesses what you lack, and vice
versa)

strategic alliances (i.e. informal arrangement to enhance individual member's
competitiveness);

divestment and sell off assets (i.e. product(s), brand(s), division(s) that are now
deemed surplus to requirements);

turnaround (i.e. try and stop the erosion of competitiveness and often results in job
losses and a major change in the organization's scope and spread);

liquidation (i.e. simply terminate a business line without even seeking to sell it).
The Grand Strategy matrix offers a framework that suggest suitable options based
upon the company's competitive position (i.e. strong vs weak?). This might be
somewhat simplistic but is nonetheless worthy of consideration.
Evaluation
Evaluation of alternatives can be made based on three criteria; the consequent criterion,
the acceptable criterion, and the possible criterion. The consequent criterion is about
making sure that the decision is consistent with previous decisions and the company’s
objectives in order to avoid conflicts. The acceptable criterion makes sure that the
choice is acceptable economically as well as politically, both internally and externally.
Other possible criteria might also be relevant, like if the company has the right
resources.
Making a choice
Choice can be made analytically-rationally, intuitively-emotionally, or politicallybehaviorally.
Decision support tools can be very useful where certain criteria are given certain
weights of importance and thereafter a ranking of the alternatives is made.
As was mentioned in the beginning, strategic choices can be made at different levels.

At the business level there are several choices that a manager has to make in
order to attain competitive advantage. A company is usually made up of a
number of business units where each unit is responsible for its own competitive
strategy since they often compete in different markets under different conditions.
A competitive strategy can be viewed in different ways and there are usually
several options available.

There are strategies based on price, on product differentiation, a mixture of the
two, or more focused strategies, and some strategies that are just doomed to
fail.

At the corporate level the choice is about product and market diversity. There
are different diversification strategies as has already been touched upon, as well
as different types of integration.
Q5. Explain the concept of Value Chain. How can value-chain analysis help
identify a company’s strengths and weaknesses? Illustrate.
Ans.5.
A value chain is the whole series of activities that create and build value at every step.
The total value delivered by the company is the sum total of the value built up all
throughout the company.
The value chain concept separates useful activities (which allow the company as a
whole to gain competitive advantage) from the wasteful activities (which hinder the
company from getting a lead in the market). Focusing on the value-creating activities
could give the company many advantages. For example, the ability to charge higher
prices; lower cost of manufacture; better brand image, faster response to threats or
opportunities
Porter defines the value chain as made of primary activities and support
activities:
PRIMARY ACTIVITIES
1. Inbound Logistics - involve relationships with suppliers and include all the
activities required to receive, store, and disseminate inputs.
2. Operations - are all the activities required to transform inputs into outputs
(products and services).
3. Outbound Logistics - include all the activities required to collect, store, and
distribute the output.
4. Marketing and Sales - activities inform buyers about products and services,
induce buyers to purchase them, and facilitate their purchase.
5. Service - includes all the activities required to keep the product or service
working effectively for the buyer after it is sold and delivered.
SUPPORT ACTIVITES
1. Procurement - is the acquisition of inputs, or resources, for the firm.
2. Human Resource management - consists of all activities involved in recruiting,
hiring, training, developing, compensating and (if necessary) dismissing or laying
off personnel.
3. Technological Development - pertains to the equipment, hardware, software,
procedures and technical knowledge brought to bear in the firm's transformation
of inputs into outputs.
4. Infrastructure - serves the company's needs and ties its various parts together,
it consists of functions or departments such as accounting, legal, finance,
planning, public affairs, government relations, quality assurance and general
management.
Both these allow the firm to charge a margin, which partly comes from the value
addition of the primary and support functions and partly from the advantage that
the company gains due to communication of the value addition to the consumer
(brand image, faith, trust and so on).
EXAMPLE: STARBUCKS Value-Chain Analysis 2014
Value-chain analysis is an analytical framework that is used to analyse relationships
between various parts of operations and the manner in which each part adds value to
contribute to the level of revenues. Company value-chain can be divided into two
groups: primary and support activities.
Business’s inbound logistics, operations, marketing and sales, outbound logistics, and
service are considered as primary activities in value-chain as they are involved in value
creation in a direct manner. Support activities in value creation, on the other hand,
include infrastructure, human resources management, and procurement.
The following figure represents Starbucks Value-Chain analysis for the UK market:
Importance of Value Chain to identify a company’s strengths and weaknesses:
Value chain analysis looks at a company’s operations as a chain of related activities
transforming inputs such as labor and raw materials into outputs such as products and
services. A large portion of the value chain is evaluating how the business’ inputs can
add value to the finished product.
Value chain analysis also looks into what the consumer values. Consumers value
assorted product features, including those that are different from competitors, lower-cost
products and products that meet customer needs quickly.
A company’s cost competitiveness depends on how well it manages its value chain
relative to competitors
Three areas contribute to cost differences
1. Suppliers’ activities - Suppliers’ value chains are relevant because costs, quality,
and performance of inputs provided by suppliers influence a firm’s own costs and
product performance
2. The company’s own internal activities
3. Forward channel activities - Forward channel allies’ costs and margins are part of
price paid by ultimate end-user. The activities performed affect end-user satisfaction
Assessing a company’s cost competitiveness involves comparing costs along the
industry’s value chain
A company can create competitive advantage by managing its value chain so as to
–
Integrate the knowledge and skills of employees in competitively valuable
ways
–
Leverage economies of learning or experience curve effects
–
Coordinate related activities in ways that build valuable capabilities
–
Build dominating expertise in a value chain activity critical to customer
satisfaction or market success
The strategy-making lesson of value chain analysis is that sustainable competitive
advantage can be created by:
(1). Managing the value chain activities better than competitors; and
(2). Developing distinctive capabilities to serve the needs of customers better
The Relationship Between SWOT and Value Chain
In many cases, the SWOT method is an inadequate analysis of the internal business
environment. Simply stating strengths and weakness gives a brief explanation of what
the company does best and where there’s room for improvement, but the SWOT leaves
out many of the details of the company’s operations. The value chain fills in some of the
internal analysis gaps that SWOT leaves. Conversely, value chain analysis virtually
ignores the external environment by examining only the needs and desires of
customers. In many ways, SWOT analysis and the value chain give a more complete
picture of the business environment when used together.
Combined Analysis
The value chain and SWOT can be combined in different ways. The value chain
analyses the business’s internal environment so it can be used in place of the strengths
and weakness portion of the SWOT. Most often, the value chain is used in conjunction
with SWOT, creating a comprehensive business analysis that incorporates both internal
and external evaluation. Business managers can take elements of the value chain and
apply the elements of opportunities and trends part of the SWOT analysis.
Q6. What are the various considerations in the implementation of strategy?
Illustrate giving examples.
Ans.6.
Strategy implementation is the translation of chosen strategy into organizational
action so as to achieve strategic goals and objectives. Strategy implementation is
also defined as the manner in which an organization should develop, utilize, and
amalgamate organizational structure, control systems, and culture to follow strategies
that lead to competitive advantage and a better performance. Organizational structure
allocates special value developing tasks and roles to the employees and states how
these tasks and roles can be correlated so as maximize efficiency, quality, and
customer satisfaction-the pillars of competitive advantage. But, organizational structure
is not sufficient in itself to motivate the employees.
An organizational control system is also required. This control system equips managers
with motivational incentives for employees as well as feedback on employees and
organizational performance. Organizational culture refers to the specialized collection of
values, attitudes, norms and beliefs shared by organizational members and groups.
Follwoing are the main steps in implementing a strategy:
Developing an organization having potential of carrying out strategy successfully.
Disbursement of abundant resources to strategy-essential activities.
Creating strategy-encouraging policies.
Employing best policies and programs for constant improvement.
Linking reward structure to accomplishment of results.
Making use of strategic leadership.
Excellently formulated strategies will fail if they are not properly implemented. Also, it is
essential to note that strategy implementation is not possible unless there is stability
between strategy and each organizational dimension such as organizational structure,
reward structure, resource-allocation process, etc.
Strategy implementation poses a threat to many managers and employees in an
organization. New power relationships are predicted and achieved. New groups (formal
as well as informal) are formed whose values, attitudes, beliefs and concerns may not
be known. With the change in power and status roles, the managers and employees
may employ confrontation behaviour.
Three keys to keep in mind while implementing a Strategy:
 Execution is a discipline, and integral to strategy.
 Execution is the major job of the business leader.
 Execution must be a core element of an organization’s culture.
Among other things, implementation has to do with;
 Rigorously discussing ‘hows’ and ‘whats’, questioning, tenaciously
following through.
 Ensuring accountability
 Making assumptions about the business environment
 Assessing the organization’s capabilities
 Linking strategy to operations and the people who are going to
implement
 Linking rewards to outcomes
 Changing assumptions as the environment changes
 Upgrading the company’s capabilities to meet the challenges of an
ambitious strategy.
Q7. Explain the various corporate level strategies adopted by Indian firms. Give
examples.
Ans.7.
Corporate level strategies are most closely associated with translating organization’s
mission statement into action. It is the top management plan to direct and conduct the
business of the corporate group. They represent long term direction for the organization.
They specify the actions a firm takes to gain a competitive advantage by selecting and
managing a group of different businesses competing in different product markets.
The three main types of corporate strategies are growth, stability, and renewal.
1). Growth - A growth strategy is when an organization expands the number of markets
served or products offered, either through its current business(es) or through new
business(es). Because of its growth strategy, an organization may increase revenues,
number of employees, or market share. Organizations grow by using concentration,
vertical integration, horizontal integration, or diversification.
2). Stability - A stability strategy is a corporate strategy in which an organization
continues to do what it is currently doing. Examples of this strategy include continuing to
serve the same clients by offering the same product or service, maintaining market
share, and sustaining the organization's current business operations. The organization
does not grow, but does not fall behind, either.
3). Retrenchement - When an organization is in trouble, something needs to be done.
Managers need to develop strategies, called renewal strategies, that address declining
performance. The two main types of renewal strategies are retrenchment and
turnaround strategies.
1) BUSINESS GROWTH STRATEGIES
Growth Strategy- An organization substantially broadens the scope of one or more of
its business in terms of their respective customer group, customer functions and
alternative technologies to improve its overall performance.
Types of Growth Strategies
 Internal
 External
Intensive/Internal
Growth
External/Integrative
Growth
Expansion
Merger
Modernisation
Acquisition
Diversification
Joint Ventures
Strategic
Alliance
Internal growth strategies relate to the following actions:





Designing and developing new products/services
Building on existing products/services for new opportunities
Increase sales of products/services through better market reach
Expanding existing product lines and service offerings
Reaching out for new markets
Expansion into foreign markets
Ansoff’s Product-Market Expansion Grid

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Market Penetration - Increase sales through effective marketing strategies
within the current target market
Market Development - Expand sales in new markets through expanding
geographic representation. An organization's current product can be changed
improved and marketed to the existing market
Product Development - Increase sales through new products/services. An
organization that already has a market for its products might try and follow a
strategy of developing additional products, aimed at it's current market.
Diversification - Diversification Strategy is the development of new products in
the new market. Diversification strategy is adopted by the company if the current
market is saturated due to which revenues and profits are lower.
It is of two types:- Concentric and Conglomerate

Merger - In merger two firms, agree to move ahead and exist as a single new
company. Merger can be
merger of equals : both companies are of equal sizes.
merger of unequal's : large company merge with smaller one



Acquisition - Acquisition is a deal when one company takes over another
company and buyer becomes sole proprietor. In legal terms, the target company
ceases to survive. The buyer swallows the company and the buyer's stock
continues to be traded. Unlike mergers which are friendly, acquisitions can be
friendly or hostile.
Joint Ventures - A joint venture is an entity created when two or more firms pool
a portion of their resources to create a separate, jointly owned organization. All
involved will have an equity stake in the new venture. It is a legal partnership
between two(or more) companies where in they both make a new (third) entity for
competitive advantage. Unlike mergers and acquisitions, in joint venture the
parent companies does not cease to exist.
Strategic Alliance - A Strategic Alliance is a formal relationship between two or
more parties to pursue a set of agreed upon goals or to meet a critical business
need while remaining independent organizations.
A business growth strategy starts with market insights. The source of insights lies within
and across your market ecosystem. While research firms and strategic marketing
consultants can bring these insights to bear on an ad-hoc basis, companies committed
to growth will serve themselves well by developing systems and processes to ensure a
continuous flow of market insights into their business. This is a key strategy for
developing the demand side of your business
2) STABILITY OR CONSOLIDATION STRATEGY
A firm following stability strategy maintains its current business and product portfolios;
maintains the existing level of effort; and is satisfied with incremental growth. It focuses
on fine-tuning its business operations and improving functional efficiencies through
better deployment of resources. In other words, a firm is said to follow stability/
consolidation strategy if:
1. It decides to serve the same markets with the same products;
2. It continues to pursue the same objectives with a strategic thrust on incremental
improvement of functional performances; and
3. It concentrates its resources in a narrow product-market sphere for developing a
meaningful competitive advantage.
Adopting a stability strategy does not mean that a firm lacks concern for business
growth. It only means that their growth targets are modest and that they wish to
maintain a status quo. Since products, markets and functions remain unchanged,
stability strategy is basically a defensive strategy. A stability strategy is ideal in stable
business environments where an organization can devote its efforts to improving its
efficiency while not being threatened with external change. In some cases,
organizations are constrained by regulations or the expectations of key stakeholders
and hence they have no option except to follow stability strategy.
Generally large firms with a sizeable portfolio of businesses do not usually depend on
the stability strategy as a main route, though they may use it under certain special
circumstances. They normally use it in combination with the other generic strategies,
adopting stability for some businesses while pursuing expansion for the others.
However, small firms find this a very useful approach since they can reduce their risk
and defend their positions by adopting this strategy. Niche players also prefer this
strategy for the same reasons.
3) RETRENCHEMENT STRATEGIES.
Different Types of Retrenchment Strategies of Business are given below:
Retrenchment can be divided into the following categories:
1. Turn around Strategies
Turnaround strategy means backing out, withdrawing or retreating from a decision
wrongly taken earlier in order to reverse the process of decline.
There are certain conditions or indicators which point out that a turnaround is needed if
the organization has to survive. These danger signs are as follows:
a) Persistent negative cash flow
b) Continuous losses
c) Declining market share
d) Deterioration in physical facilities
e) Over-manpower, high turnover of employees, and low morale
f) Uncompetitive products or services
g) Mismanagement
2. Divestment Strategies
Divestment strategy involves the sale or liquidation of a portion of business, or a major
division, profit centre or SBU. Divestment is usually a restructuring plan and is adopted
when a turnaround has been attempted but has proved to be unsuccessful or it was
ignored. A divestment strategy may be adopted due to the following reasons:
a) A business cannot be integrated within the company.
b) Persistent negative cash flows from a particular business create financial problems
for the whole company.
c) Firm is unable to face competition
d) Technological up gradation is required if the business is to survive which company
cannot afford.
e) A better alternative may be available for investment
3. Liquidation Strategies
Liquidation strategy means closing down the entire firm and selling its assets. It is
considered the most extreme and the last resort because it leads to serious
consequences such as loss of employment for employees, termination of opportunities
where a firm could pursue any future activities, and the stigma of failure.
Generally it is seen that small-scale units, proprietorship firms, and partnership,
liquidate frequently but companies rarely liquidate. The company management,
government, banks and financial institutions, trade unions, suppliers and creditors, and
other agencies do not generally prefer liquidation.
Liquidation strategy may be unpleasant as a strategic alternative but when a "dead
business is worth more than alive", it is a good proposition. For instance, the real estate
owned by a firm may fetch it more money than the actual returns of doing business.
Liquidation strategy may be difficult as buyers for the business may be difficult to find.
Moreover, the firm cannot expect adequate compensation as most assets, being
unusable, are considered as scrap.
Reasons for Liquidation include:
(i) Business becoming unprofitable
(ii) Obsolescence of product/process
(iii) High competition
(iv) Industry overcapacity
(v) Failure of strategy
Q8. What are the major issues in Strategic Evaluation and Control? Illustrate your
example with suitable examples.
Ans.
The final stage in strategic management is strategy evaluation and control. All strategies
are subject to future modification because internal and external factors are constantly
changing. In the strategy evaluation and control process managers determine whether
the chosen strategy is achieving the organization's objectives. The fundamental strategy
evaluation and control activities are: reviewing internal and external factors that are the
bases for current strategies, measuring performance, and taking corrective actions.
1. Determine what to measure:
Top managers and operational managers must specify implementation process and
results to be monitored and evaluated. The processes and results must be
measurable in a reasonably objective and consistent manner. The focus should be
on the most significant elements in a process – the ones that account for the
highest proportion of exposure or the greatest no. of problems.
2. Establish standards of Performance:
Standards used to measure performance are detailed expressions of strategic
objectives. They are measures of acceptable performance results. Each standard
can be usually includes a tolerance range, which defines any acceptable
deviations. Standards can be set not only for final output, but also for intermediate
stages of production output.
3. Measure actual performance. Measurements must be made at predetermined
times.
4. Compare actual performance with the standard – if the actual performance
results are within the desired tolerance range, the measurement process stops
here.
5. Take corrective action: If the actual results fall outside the desired tolerance
range, action must be taken to correct the deviation. The action must not only
correct the deviation but also prevent its recurrence. The following issues must
be resolved:
• Is the deviation only a chance fluctuation?
• Are the processes being carried out in correctly?
• Are the processes appropriate for achieving the desired standards?
Objectives of Strategy Evaluation and Control
 Organizations are most vulnerable when they are at the peak of their success
 Erroneous strategic decisions can inflict severe penalties and can be
exceedingly difficult, if not impossible, to reverse.
 Strategy evaluation is vital to an organization’s well-being; timely evaluations
can alert management to problems or potential problems before a situation
becomes critical.
Through evaluation and Control process, corporate activities and Performance
results are monitored so that actual performance can be compared with desired
performance.
Strategic evaluation operates at two levels:
 Strategic Level - Wherein we are concerned more with the consistency of
strategy with the environment.
 Operational Level – Wherein the effort is directed at assessing how well the
organisation is pursuing a given strategy.
The purpose of strategic evaluation is to evaluate the effectiveness of strategy in
achieving organisational objectives.
Nature of Strategic Evaluation
 Nature of the strategic evaluation and control process is to test the effectiveness
of strategy.
 During the two proceedings phases of the strategic management process, the
strategists formulate the strategy to achieve a set of objectives and then
implement the strategy.
 There has to be a way of finding out whether the strategy being implemented will
guide the organisation towards its intended objectives.
 Strategic evaluation and control, therefore, performs the crucial task of keeping
the organisation on the right track.
 In the absence of such a mechanism, there would be no means for strategists to
find out whether or not the strategy is producing the desired effect.
Participants in Strategic Evaluation





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


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Shareholders
Board of Directors
Chief executives
Profit-centre heads
Financial controllers
Company secretaries
External and Internal Auditors
Audit and Executive Committees
Corporate Planning Staff or Department
Middle-level managers
Barriers in Evaluation




Limits of control
Difficulties in measurement
Resistance to evaluation
Rely on short-term implications of activities
STRATEGIC CONTROL
 The types of strategic controls are:
• Premise control
• Implementation control
• Strategic surveillance
• Special alert control
 Premise Control

Premise control is necessary to identify the key assumptions, and keep
track of any change in them so as to assess their impact on strategy and
its implementation.



Premise control serves the purpose of continually testing the assumptions
to find out whether they are still valid or not.
This enables the strategists to take corrective action at the right time
rather than continuing with a strategy which is based on erroneous
assumptions.
The responsibility for premise control can be assigned to the corporate
planning staff who can identify key asumptions and keep a regular check
on their validity.
 Implementation Control
Implementation control may be put into practice through the identification and
monitoring of strategic thrusts such as an assessment of the marketing success
of a new product after pre-testing, or checking the feasibility of a diversification
programme after making initial attempts at seeking technological collaboration
 Strategic Surveillance
Strategic surveillance can be done through a broad-based, general monitoring on
the basis of selected information sources to uncover events that are likely to
affect the strategy of an organisation.
 Special Alert Control
 Special alert control is based on trigger mechanism for rapid response and
immediate reassessment of strategy in the light of sudden and
unexpected events.
 Crises are critical situations that occur unexpectedly and threaten the
course of a strategy.
 Organisations that hope for the best and prepare for the worst are in a
vantage position to handle any crisis.
 Crisis management follows certain steps:
 Signal detection
 Preparation/prevention,
 Damage limitation,
 Recovery leading to organisational learning.
 The first step of signal detection can be performed by the special alert
control systems.
Q9. Write short notes on:
A) STRATEGIC ALLIANCE
An arrangement between two companies that have decided to share resources to
undertake a specific, mutually beneficial project. A strategic alliance is less involved and
less permanent than a joint venture, in which two companies typically pool resources to
create a separate business entity. In a strategic alliance, each company maintains its
autonomy while gaining a new opportunity. A strategic alliance could help a company
develop a more effective process, expand into a new market or develop an advantage
over a competitor, among other possibilities.
Advantages
The advantages of forming a strategic alliance include:

Allowing each partner to concentrate on their competitive advantage.

Learning from partners and developing competencies that may be more widely
exploited elsewhere.

Adequate suitability of the resources and competencies of an organization for it to
survive.

To reduce political risk while entering into a new market.
Disadvantages

Risk of losing control over proprietary information, especially regarding complex
transactions requiring extensive coordination and intensive information sharing.

Coordination difficulties due to informal cooperation settings and highly costly
dispute resolution.

Agency costs: As the benefit of monitoring the alliance's activities effectively is not
fully captured by any firm, a free rider problem arises (the free rider problem seems
to be less pronounced in settings with multiple strategic alliances due to reputational
effects).

Influence costs because of the absence of a formal hierarchy and administration
within the strategic alliance.
Example:

Pfizer and Biocon to market Biocon’s insulin biosimilar products in world market.

Chrysler-Fiat partnership to build compact and subcompact jeeps
B) STRATEGIC MANAGEMENT PROCESS
It is a process of formulating, implementing and evaluating strategies to accomplish long
term goals and sustain competitive advantage.It is a continuous process of relating the
organization with its environment by suitable courses of action involving strategy
formulation and ensuring that the strategy is implemented effectively.
The strategic management process is more than just a set of rules to follow. It is a
philosophical approach to business. Upper management must think strategically first,
then apply that thought to a process. The strategic management process is best
implemented when everyone within the business understands the strategy. The five
stages of the process are goal-setting, analysis, strategy formation, strategy
implementation and strategy monitoring.
 Strategic Intent
 Analysis- Internal and External
 Strategy Formulation
 Strategy Implementation
 Strategy Review, Evaluation and Control

Strategic Intent
Strategic intent is the organization’s picture, vision, or bet on how it will develop
temporary competitive advantages.
The purpose of Strategic Intent is to clarify the vision for your business. This
stage consists of identifying three key facets: First, define both short- and longterm objectives. Second, identify the process of how to accomplish your
objective. Finally, customize the process for your staff, give each person a task
with which he can succeed. Keep in mind during this process your goals to be
detailed, realistic and match the values of your vision. Typically, the final step in
this stage is to write a mission statement that succinctly communicates your
goals to both your shareholders and your staff.

Analysis – Internal & External
Analysis is a key stage because the information gained in this stage will shape
the next two stages. In this stage, gather as much information and data relevant
to accomplishing your vision. The focus of the analysis should be on
understanding the needs of the business as a sustainable entity, its strategic
direction and identifying initiatives that will help your business grow. Examine any
external or internal issues that can affect your goals and objectives. Make sure to
identify both the strengths and weaknesses of your organization as well as any
threats and opportunities that may arise along the path.

Strategy Formulation
The first step in forming a strategy is to review the information gathered from
completing the analysis. Determine what resources the business currently has
that can help reach the defined goals and objectives. Identify any areas of which
the business must seek external resources. The issues facing the company
should be prioritized by their importance to your success. Once prioritized, begin
formulating the strategy. Because business and economic situations are fluid, it
is critical in this stage to develop alternative approaches that target each step of
the plan.

Strategy Implementation
Successful strategy implementation is critical to the success of the business
venture. This is the action stage of the strategic management process. If the
overall strategy does not work with the business' current structure, a new
structure should be installed at the beginning of this stage. Everyone within the
organization must be made clear of their responsibilities and duties, and how that
fits in with the overall goal. Additionally, any resources or funding for the venture
must be secured at this point. Once the funding is in place and the employees
are ready, execute the plan.

Evaluation and Control
Strategy evaluation and control actions include performance measurements,
consistent review of internal and external issues and making corrective actions
when necessary. Any successful evaluation of the strategy begins with defining
the parameters to be measured. These parameters should mirror the goals set in
Stage 1. Determine your progress by measuring the actual results versus the
plan. Monitoring internal and external issues will also enable you to react to any
substantial change in your business environment. If you determine that the
strategy is not moving the company toward its goal, take corrective actions. If
those actions are not successful, then repeat the strategic management process.
Because internal and external issues are constantly evolving, any data gained in
this stage should be retained to help with any future strategies.
C) MERGERS & ACQUISITIONS
A Merger happens when two firms, often of about the same size, agree to go forward as
a single new company rather than remain separately owned and operated. This kind of
action is more precisely referred to as a “Merger of equals." Both companies' stocks are
surrendered and new company stock is issued in its place.
For example, both Daimler-Benz and Chrysler ceased to exist when the two firms
merged, and a new company, DaimlerChrysler, was created.
When one company takes over another and clearly established itself as the new owner,
the purchase is called an Acquisition. From a legal point of view, the Target company
ceases to exist, the buyer "swallows" the business and the buyer's stock continues to be
traded.
A purchase deal will also be called a merger when both CEOs agree that joining
together is in the best interest of both of their companies. But when the deal is
unfriendly and is hostile, i.e. the Target Company does not want to be purchased, then it
regarded as Acquisition.
•
Horizontal merger - Two companies that are in direct competition and share the
same product lines and markets.
•
Vertical merger - A customer and company or a supplier and company. Think of
a cone supplier merging with an ice cream maker. Vertical mergers occur when
two firms, each working at different stages in the production of the same good,
combine.
•
Market-extension merger - Two companies that sell the same products in
different markets.
•
Product-extension merger - Two companies selling different but related
products in the same market.
•
Congeneric Merger / Concentric Mergers occur where two merging firms are
in the same general industry, but they have no mutual buyer/customer or supplier
relationship, such as a merger between a Bank and a Leasing company.
Example: Prudential's acquisition of Bache & Company.
•
Accretive mergers are those in which an acquiring company's earnings per
share (EPS) increase. An alternative way of calculating this is if a company with
a high price to earnings ratio (P/E) acquires one with a low P/E & Dilutive
mergers are the opposite of above, whereby a company's EPS decreases. The
company will be one with a low P/E acquiring one with a high P/E.
•
Conglomerate - When two companies that have no common business areas.
There are two types of mergers that are distinguished by how the merger is
financed. Each has certain implications for the companies involved and for
investors:
Purchase Mergers - As the name suggests, this kind of merger occurs
when one company purchases another. The purchase is made with cash or
through the issue of some kind of debt instrument; the sale is taxable. Acquiring
companies often prefer this type of merger because it can provide them with a
tax benefit. Acquired assets can be written-up to the actual purchase price, and
the difference between the book value and the purchase price of the assets can
depreciate annually, reducing taxes payable by the acquiring company.
Consolidation Mergers - With this merger, a brand new company is formed
and both companies are bought and combined under the new entity. The tax
terms are the same as those of a purchase merger
In some of the merger deals, a company can buy another company with cash,
stock or a combination of the two. In smaller deals, one company acquires all the
assets of another company. Company X buys all of Company Y's assets for
cash, which means that Company Y will have only cash (and debt, if they had
debt before). Thus, Company Y becomes merely a shell and will eventually
liquidate or enter another area of business.

Reverse merger is an another type of acquisition is a deal that enables a private
company to get publicly-listed in a relatively short time period. A reverse merger
occurs when a private company that has strong prospects and is eager to raise
financing buys a publicly-listed shell company, usually one with no business and
limited assets. The private company reverse merges into a “Shell” public
company, and together they become an entirely new public corporation with
tradable shares.
•
Takeover : An Acquisition where the Target Firm did not solicit the bid of
acquiring firm.
EXAMPLES:

TATA STEEL acquired 100% stake in CORUS GROUP in 2007.

HINDALCO purchased Canada based firm Novelis Inc. in February 2007.
D) CORPORATE GOVERNANCE
Corporate governance refers to the set of systems, principles and processes by which a
company is governed. They provide the guidelines as to how the company can be
directed or controlled such that it can fulfil its goals and objectives in a manner that adds
to the value of the company and is also beneficial for all stakeholders in the long term.
Stakeholders in this case would include everyone ranging from the board of directors,
management, shareholders to customers, employees and society. The management of
the company hence assumes the role of a trustee for all the others.
Corporate governance is based on principles such as conducting the business with all
integrity and fairness, being transparent with regard to all transactions, making all the
necessary disclosures and decisions, complying with all the laws of the land,
accountability and responsibility towards the stakeholders and commitment to
conducting business in an ethical manner. Another point which is highlighted in the
SEBI report on corporate governance is the need for those in control to be able to
distinguish between what are personal and corporate funds while managing a company.
The framework of rules and practices by which a board of Directors ensures
accountability, fairness, and transparency in a company's relationship with its all
stakeholders (financiers, customers, management, employees, government, and
the community).
The corporate governance framework consists of
(1) explicit and implicit contracts between the company and the stakeholders
for distribution of responsibilities, rights, and rewards,
(2) procedures for reconciling the sometimes conflicting interests of stakeholders in
accordance with their duties, privileges, and roles, and
(3) procedures for proper supervision, control, and information-flows to serve as
a system ofchecks-and-balances. Also called corporation governance.
EXAMPLE:
ITC defines Corporate Governance as a systemic process by which companies are
directed and controlled to enhance their wealth generating capacity. Since large
corporations employ vast quantum of societal resources, we believe that the
governance process should ensure that these companies are managed in a manner
that meets stakeholders aspirations and societal expectations.
E) BALANCED SCORECARD
A performance metric used in strategic management to identify and improve various
internal functions and their resulting external outcomes. The balanced scorecard
attempts to measure and provide feedback to organizations in order to assist in
implementing strategies and objectives.
This management technique isolates four separate areas that need to be analyzed: (1)
learning and growth, (2) business processes, (3) customers, and (4) finance. Data
collection is crucial to providing quantitative results, which are interpreted by managers
and executives and used to make better long-term decisions.
The Balanced Scorecard is a strategic planning and management system used to align
business activities to the vision and strategy of the organization by monitoring
performance against strategic goals.
 Was first published in 1992 by Kaplan and Norton, a book followed in 1996.
 Traditional performance measurement that only focus on external accounting
data are obsolete.
 The approach is to provide 'balance' to the financial perspective.
 The Balanced Scorecard model suggests that we view the organization from 4
perspectives.
 Then Develop metrics, collect data and analyze it relative to each of these
perspectives
In the industrial age, most of the assets of a firm were in property, plant, and equipment,
and the financial accounting system performed an adequate job of valuing those assets.
In the information age, much of the value of the firm is embedded in innovative
processes, customer relationships, and human resources. The financial accounting
system is not so good at valuing such assets.
The Balanced Scorecard goes beyond standard financial measures to include the
following additional perspectives: the customer perspective, the internal process
perspective, and the learning and growth perspective.

Financial perspective - includes measures such as operating income, return on
capital employed, and economic value added.

Customer perspective - includes measures such as customer satisfaction,
customer retention, and market share in target segments.

Business process perspective - includes measures such as cost, throughput,
and quality. These are for business processes such as procurement, production,
and order fulfillment.

Learning & growth perspective - includes measures such as employee
satisfaction, employee retention, skill sets, etc.
These four realms are not simply a collection of independent perspectives. Rather,
there is a logical connection between them - learning and growth lead to better business
processes, which in turn lead to increased value to the customer, which finally leads to
improved financial performance.
Objectives, Measures, Targets, and Initiatives
Each perspective of the Balanced Scorecard includes objectives, measures of those
objectives, target values of those measures, and initiatives, defined as follows:

Objectives - major objectives to be achieved, for example, profitable growth.

Measures - the observable parameters that will be used to measure progress
toward reaching the objective. For example, the objective of profitable growth
might be measured by growth in net margin.

Targets - the specific target values for the measures, for example, +2% growth in
net margin.

Initiatives - action programs to be initiated in order to meet the objective.
These can be organized for each perspective in a table as shown below.
Balanced Scorecard as a Strategic Management System
The Balanced Scorecard originally was conceived as an improved performance
measurement system. However, it soon became evident that it could be used as a
management system to implement strategy at all levels of the organization by facilitating
the following functions:
1. Clarifying strategy - the translation of strategic objectives into quantifiable
measures clarifies the management team's understanding of the strategy and
helps to develop a coherent consensus.
2. Communicating strategic objectives - the Balanced Scorecard can serve to
translate high level objectives into operational objectives and communicate the
strategy effectively throughout the organization.
3. Planning, setting targets, and aligning strategic initiatives - ambitious but
achievable targets are set for each perspective and initiatives are developed to
align efforts to reach the targets.
4. Strategic feedback and learning - executives receive feedback on whether the
strategy implementation is proceeding according to plan and on whether the
strategy itself is successful ("double-loop learning").
These functions have made the Balanced Scorecard an effective management system
for the implementation of strategy. The Balanced Scorecard has been applied
successfully to private sector companies, non-profit organizations, and government
agencies.