STRATEGIC MANAGEMENT & ENTREPRENEURSHIP

STUDY MATERIAL

MODULE: 1-4

Module –I

Concept

Vision and Mission

Understanding Vision
A vision is more dreamt of than it is articulated. This is the reason why it is difficult to say what
vision an organization has. Sometimes it is not even evident to the entrepreneur who usually thinks of
the vision.
Defining Vision
“description of something (an organization, corporate culture, a business, a technology, an activity) in
the future”.- Kotter(1990).
“mental perception of the kind of environment an individual, or an organization, aspires to create
within a broad time horizon and the underlying conditions for the actualization of this perception”.-
El-Namaki(1992)
“category of intentions that are broad, all-inclusive, and forward thinking”.- Miller and Dess(1996).

The benefits of having a vision

1. Good visions are inspiring and exhilarating.
2. Visions represent a discontinuity.
3. Good visions help in the creation of a common identity and a shared sense of purpose
4. Good visions are competitive, original and unique.
5. Good visions foster risk-taking and experimentation
6. Good visions foster long-term thinking
7. Good visions represent integrity, they are truly genuine and can be used for the benefit of people.

The process of envisioning

According to Collins and Porras, a well-conceived vision consists of two major components: Core
ideology and Envisioned future.
Core ideology: Core ideology defines the enduring character of an organization that remains
unchangeable as it passes through the vicissitudes of vectors, such as, technology, competition, or
management fads. The core ideology rests on the core values and core purposes.
Envisioned future: The envisioned future too consists of two components: a 10-30 years audacious
goal, and a vivid description of what it will be like to achieve that goal.

Understanding Mission
Mission is a statement which defines the role that an organization plays in a society. It refers to the
particular needs of that society, for instance, its information needs.
Defining Mission
“essential purpose of the organization, concerning particularly why it is in existence, the nature of the
business(es) it is in, and the customers it seeks to serve and satisfy”-Thompson(1997)
“ purpose or reason for the organistion’s existence”- Hunger & Wheelen(1999)

How are Mission Statements formulated

Mission Statements could be formulated either formally or informally. Mission Statements could be
formulated on the basis of the vision that an entrepreneur decides on in the initial stages of an
organisation’s growth.

Characteristics of a Mission Statement

1. It should be feasible.
2. It should be precise.
3. It should be clear.
4. It should be motivating.
5. It should be distinctive.
6. It should indicate major components of strategy.
7. It should indicate how objectives are to be accomplished.
 Objectives and Goals
Goals and Objectives
Goals denote what an organization hopes to accomplish in a future period of time. They represent a
future state or an outcome of the effort put in now. A broad category of financial and non-financial
issues are addressed by the goals that a firm sets for itself.
Objectives are the ends that state specifically how the goals shall be achieved. They are concrete and
specific in contrast to goals which are generalized.
Role of Objectives
Objectives define the organisation’s relationship with its environment.
1. Objectives help an organization to pursue its vision and mission.
2. Objectives provide the basis for strategic decision-making.
3. Objectives provide the standards for performance appraisal.
Characteristics of Objectives
Objectives should be understandable.
1. Objectives should be concrete and specific.
2. Objectives should be related to a time frame.
3. Objectives should be measurable and controllable.
4. Objectives should be challenging
5. Different objectives should correlate with each other.
6. Objectives should be set within constraints
Issues in Objective setting
1. Specificity
2. Multiplicity
3. Periodicity
4. Verifiability
5. Reality
6. Quality
What Objectives are set
According to Drucker, objectives need to be set in the 8 vital areas of market standing, innovation,
productivity, physical and financial resources, profitability, manager performance and development,
worker performance and attitude, and public responsibility.
According to B R Singh, objectives were set in areas like:
 Profit
  Marketing
 Growth
 Employees
 Social responsibility
How are Objectives Formulated?
4 factors should be considered for objective-setting
 The forces in the environment
 Realities of enterprise’s resources and internal power relationships
 The value system of the top executive
 Awareness by management

Strategies and Tactics

Understanding Strategy
The concept of strategy is central to understanding the process of strategic management. The term
strategy is derived from the Greek word strategos, which means generalship-the actual direction of
military force, as distinct from the policy governing its deployment. Therefore, the word strategy
literally means the art of the general.
Defining & Explaining Strategy
“the determination of the basic long-term goals and objectives of an enterprise and the adoption of the
courses of action and the allocation of resources necessary for carrying out these goals”-Chandler.
“The pattern of objectives, purpose, goals, and the major policies and plans for achieving these goals
stated in such a way so as to define what business the company is in or is to be and the kind of
company it is or is to be”-Andrews
Levels at which Strategy operates
 Corporate Levels
 SBU Level or Business Strategy Level
 Functional Strategy Level
Tactics
 A Tactics is a sub strategy. It is “a specific operating plan detailing how a strategy is to be
implemented in terms of when and where it is to be put into action. By their nature, tactics are
narrower in their scope and shorter in their time horizon than are strategies”.

Timing Tactics

When to make a business strategy move is often as important as what move to make. It is here that
the timing of the application of a business strategy becomes important. A business strategy of low-
cost or differentiation may be essentially a right move but only if it is made at the right time.

Market location Tactics

Market location tactics could be 4 types:

 Market leaders

 Market challengers

 Market followers

 Market nichers

Concept and Process of Strategic Management

The Process of Strategic Management

Definitions of Strategic Management

1. Definitions of Strategic Management

2. Phases in Strategic Management

3. Elements in the Strategic Management Process

4. Models of the Strategic Management Process

“ A stream of decisions and actions which leads to the development of an effective strategy or
strategies to help achieve corporate objectives”-Glueck

“the process which deals with the fundamental organizational renewal and growth with the
development of strategies, structures, and systems necessary to achieve such renewal and growth,
 and with the organizational systems needed to effectively manage the strategy formulation and
implementation processes”-Hofer and others.

Phases in Strategic Management

Phases in Strategic Management-four

1. Establishing the hierarchy of strategic intent

2. Formulation of strategies

3. Implementation of strategies and

4. Performing strategic evaluation and control

Elements in the Strategic Management Process

 Establishing the hierarchy of strategic intent

1. Creating and communicating a vision

2. Designing a mission statement

3. Defining the business

4. Setting objectives

 Formulation of strategies

1. Performing environmental appraisal

2. Doing organizational appraisal

3. Considering corporate level strategies

4. Considering business level strategies

5. Undertaking strategic analysis

6. Exercising strategic choice

 7. Formulating strategies

8. Preparing a strategic plan

 Implementation of strategies

1. Activating strategies

2. Designing structures and systems

3. Managing behavioral implementation

4. Managing functional implementation

5. Operationalising strategies

 Performing strategic evaluation and control

1. Performing strategic evaluation

2. Exercising strategic control

3. Reformulating strategies

Models of the Strategic Management Process

Strategic Business Unit (SBU)

Strategic Business Unit (SBU)

A Strategic Business Unit is a grouping of business subsidiaries based on some important

strategic elements common to each.

Role of SBU Level executives

SBU Level executives (profit-center heads or divisional heads) are considered the chief executives
of a defined business unit for the purpose of strategic management. An SBU Level executives
wields considerable authority within the SBU.
 Module –II

Company Resources and Capabilities

Environmental Scanning

Environmental Scanning

The process by which organizations monitor their relevant environment to identify opportunities
and threats affecting their business is known as environmental scanning.

Factors to be considered for Environmental Scanning

1. Events

2. Trends

3. Issues

4. Expectations

Approaches to Environmental Scanning

1. Systematic approach

2. Ad hoc approach

3. Processed-form approach

Sources of information for Environmental Scanning

1. Documentary or secondary sources of information like different types of publications. These

could be newspapers, journals, books, trade and industry association newsletters, government
publications, annual reports of competitors, companies and so on.

2. Mass Media such as radio, television and the internet

 3. Internal sources like company files and documents, management information systems,
databases, company employees and so on

4. External agencies like customers, marketing intermediaries, suppliers, trade associations,

government agencies and so on

5. Formal studies conducted by employees, market research agencies, consultants and

educational institutions

6. Spying and surveillance through ex-employees of competitors, industrial espionage agencies

Methods & Techniques used for Environmental Scanning

1. Expert opinion

2. Trend extrapolation

3. Trend correlation

4. Dynamic modeling

5. Cross-impact analysis

6. Multiple scenarios

7. Demand/hazard forecasting

SWOT Analysis/ Internal and External environmental analysis/

Competition Analysis

SWOT Analysis

Business firms undertake SWOT analysis to understand their external and internal environments,
SWOT, which is the acronym for strengths, weaknesses, opportunities and threats, is also known
as WOTS-UP or TOWS analysis.

Internal and External environment

The external environment includes all the factors outside the organizations which provide
opportunities or pose threats to the organization. The internal environment refers to all the factors
within the organization which impart strengths or cause weaknesses of a strategic nature.

The four environmental influences could be described as follows:

1. An opportunities

2. A threat

3. A strength

4. A weakness

Competitor Analysis

Competitor analysis deals with the actions and reactions of individual firms within an industry or
strategic group. It becomes specially important in the case of oligopolistic industries where there
are a few powerful competitors and each needs to keep track of the strategic moves of the others.

Components of Competitor Analysis

Four components of competitor Analysis:

1. Future goals of competitor

2. Current strategy of competitor

3. Key assumptions made by the competitor

4. Capabilities of competitor

Generic Strategies

Generic Business Strategies

As suggested by Porter, Business Strategies could classify into three types:

1. Cost leadership (lower cost/broad target)

2. Differentiation (differentiation/ broad target)

3. Focus(lower cost or differentiation/narrow target)

Cost leadership Business Strategy

When the competitive advantage of a firm lies in a lower cost of products or services relative to
what the competitors have to offer, it is termed as cost leadership. The firm outperforms its
competitors by offering products or services at a lower cost then they can. Customers prefer a
lower cost product particularly if it offers the same utility to them as the comparable products
available in the market have to offer. When all firms offer products at a comparable price, then
the cost leader firm earns a higher profit owing to the low cost of its products. Cost leadership
offers a margin of flexibility to the firm to lower price if the competition becomes stiff and yet
earn more or less the same level of profit.

Several actions could be taken for achieving cost leadership:

1. Accurate demand forecasting and high capacity utilization is essential to realize cost
advantages
2. Attaining economics of scale leads per unit cost of product/service

3. High level of standardization of products and offering uniform services packages using mass
production techniques yields lower per unit costs

4. Aiming at the average customer makes it possible to offer a generalized set of utilities in a
product/service to cover a greater number of customers

5. Investments in cost-saving technologies can help a firm to squeeze every extra paisa out of
the cost, making the product/service competitive in the market

6. Withholding differentiation till it becomes absolutely necessary is another way to realize cost-
based competitiveness

Conditions under which cost-leadership is used:

1. The markets for the product/service operate in such a way that price-based competition is
vigorous making costs an important factor.
2. The product/service is standardized and its consumption taken place in such a manner that
differentiation is superfluous
3. The buyers may numerous and possess a significant bargaining power to negotiate a price
reduction from the supplying firm

4. There is lesser customer loyalty and the cost of switching from one seller to another is low.
This is often seen in the case of commodities or products that are highly standardized

5. There might be few ways available for differentiation to take place. Alternatively, whatever
ways for differentiation are possible do not matter much to the customers

Benefits associated with cost leadership strategy:

1. Cost advantage is possibly the best insurance against industry competition. A firm is
protected against the ill effects of competition if it has a lower-cost structure for its products
and services.
2. Powerful suppliers possess a higher bargaining power to negotiate price increase for inputs.
Firms that possess cost advantage are less affected in such a scenario as they can absorb the
price increases to some extent

3. Powerful buyers possess a higher bargaining power to effect price reduction. Firms that
possess cost advantage can offer price reduction to some extent in such a case

4. The threat of cheaper substitutes can be offset to some extent by lowering prices

5. Cost advantage acts as an effective entry barrier for potential entrants who cannot offer the
product/service at a lower price

Risks faced under cost-leadership strategy:

1. Cost advantage is ephemeral. It does not remain for long as competitors can initiate the cost
reduction techniques easily. The duplication of cost reduction techniques makes the position
of the cost leader vulnerable from competitive threats.
2. Cost leadership is obviously not a market-friendly approach. Often, severe cost reduction can
dilute customer focus and limit experimentation with product attributes. This may create a
situation where cost reduction is done for its own sake and the interests of the customers are
ignored.

3. Depending on the industry structure, sometimes less efficient producers may not choose to
remain in the market owing to the competitive dominance of the cost leader. In such a
 situation the scope for product/ service may get reduced, affecting even the cost leader
adversely.

4. Technological shifts are a great threat to a cost leader as these may change the ground rules
on which an industry operates.

Differentiation Business Strategy

When the competitive advantage of a firm lies in special features incorporated into the
product/service, which are demanded by the customers who are willing to pay for those, then the
strategy adopted is the differentiation business strategy.

Porter's Approach

Porter's Five-Forces Model

A model consisting of five competitive forces has been proposed:

1. Threat of new entrants

2. Rivalry among competitors

3. Bargaining power of suppliers

4. Bargaining power of buyers

5. Threat of substitute products

A cost leadership strategy may help to remain profitable even with: rivalry, new entrants,
suppliers' power, substitute products, and buyers' power.

 Rivalry – Competitors are likely to avoid a price war, since the low cost firm will continue to earn
profits after competitors compete away their profits (Airlines).
 Customers – Powerful customers that force firms to produce goods/service at lower profits may
exit the market rather than earn below average profits leaving the low cost organization in a
monopoly positions. Buyers then loose much of their buying power.
  Suppliers – Cost leaders are able to absorb greater price increases before it must raise price to
customers.

 Entrants – Low cost leaders create barriers to market entry through its continuous focus on
efficiency and reducing costs.

 Substitutes – Low cost leaders are more likely to lower costs to entice customers to stay with their
product, invest to develop substitutes, purchase patents.

Module –III Strategy Choice, Formulation and Control

Business-Level Strategy

An organization's core competencies should be focused on satisfying customer needs or preferences in order to
achieve above average returns. This is done through Business-level strategies. Business level strategies detail
actions taken to provide value to customers and gain a competitive advantage by exploiting core competencies in
specific, individual product or service markets. Business-level strategy is concerned with a firm's position in an
industry, relative to competitors and to the five forces of competition.
Customers are the foundation or essence of a organization's business-level strategies. Who will be served, what
needs have to be met, and how those needs will be satisfied are determined by the senior management.
Who are the customers?
Demographic, geographic, lifestyle choices (tastes and values), personality traits, consumption patterns (usage rate
and brand loyalty), industry characteristics, and organizational size.
What are the goods and/or services that potential customers need?
Knowing ones customers is very import in obtaining and sustaining a competitive advantage. Being able to
successfully predict and satisfy future customer needs is important. (Perhaps one of Compaq's mistakes was not
understanding who their real customer was and what that customer -- end user -- wanted.)
How to satisfy customer needs?
Organizations must determine how to bundle resources and capabilities to form core competencies and
then use these core competencies to satisfy customer needs by implementing value-crating strategies.
Business-Level Strategies

There are four generic strategies that are used to help organizations establish a competitive advantage
over industry rivals. Firms may also choose to compete across a broad market or a focused market. We
also briefly discuss a fifth business level strategy called an integrated strategy.

1. Cost Leadership – Organizations compete for a wide customer based on price. Price is based on
internal efficiency in order to have a margin that will sustain above average returns and cost to the
customer so that customers will purchase your product/service. Works well when product/service is
standardized, can have generic goods that are acceptable to many customers, and can offer the lowest
price. Continuous efforts to lower costs relative to competitors is necessary in order to successfully be a
cost leader. This can include:

 Building state of art efficient facilities (may make it costly for competition to imitate)
 Maintain tight control over production and overhead costs

 Minimize cost of sales, R&D, and service.

Porter's 5 Forces Model

A cost leadership strategy may help to remain profitable even with: rivalry, new entrants, suppliers'
power, substitute products, and buyers' power.

 Rivalry – Competitors are likely to avoid a price war, since the low cost firm will continue to earn
profits after competitors compete away their profits (Airlines).
 Customers – Powerful customers that force firms to produce goods/service at lower profits may
exit the market rather than earn below average profits leaving the low cost organization in a
monopoly positions. Buyers then loose much of their buying power.

 Suppliers – Cost leaders are able to absorb greater price increases before it must raise price to
customers.

 Entrants – Low cost leaders create barriers to market entry through its continuous focus on
efficiency and reducing costs.

 Substitutes – Low cost leaders are more likely to lower costs to entice customers to stay with their
product, invest to develop substitutes, purchase patents.
How to Obtain a Cost Advantage?

 Determine and Control Cost

 Reconfigure the Value Chain as Needed

Risks

 Technology
 Imitation

 Tunnel Vision

Value Chain – A framework that firms can use to identify and evaluate the ways in which their resources
and capabilities can add value. The value of the analysis lays in being able to break the organization's
operations or activities into primary (such as operations, marketing & sales, and service) and support
(staff activities including human resources management & procurement) activities. Analyzing the firm's
value-chain helps to assess your organizations to what you perceive your competitors value-chain,
uncover ways to cut costs, and find ways add value to customer transactions that will provide a
competitive advantage.
2. Differentiation - Value is provided to customers through unique features and characteristics of an
organization's products rather than by the lowest price. This is done through high quality, features, high
customer service, rapid product innovation, advanced technological features, image management, etc.
(Some companies that follow this strategy:Rolex,Intel,RalphLauren)
Create Value by:

 Lowering Buyers' Costs – Higher quality means less breakdowns, quicker response to problems.
 Raising Buyers' Performance – Buyer may improve performance, have higher level of enjoyment.

 Sustainability – Creating barriers by perceptions of uniqueness and reputation, creating high

switching costs through differentiation and uniqueness.

Risks of Using a Differentiation Strategy

 Uniqueness
 Imitation

 Loss of Value
Porter's Five Forces Model – Effective differentiators can remain profitable even when the five forces
appear unattractive.

 Rivalry – Brand loyalty means that customers will be less sensitive to price increases, as long as
the firm can satisfy the needs of its customers (audiofiles).
 Suppliers – Because differentiators charge a premium price they can more afford to absorb higher
costs and customers are willing to pay extra too.

 Entrants – Loyalty provides a difficult barrier to overcome. Substitutes (trans. 4-26) – Once again
brand loyalty helps combat substitute products.

3. Focused Low Cost- Organizations not only compete on price, but also select a small segment of the
market to provide goods and services to. For example a company that sells only to the U.S. government.

4. Focused Differentiation - Organizations not only compete based on differentiation, but also select a
small segment of the market to provide goods and services.
Focused Strategies - Strategies that seek to serve the needs of a particular customer segment (e.g., federal
gov't).

Companies that use focused strategies may be able serve the smaller segment (e.g. business travelers)
better than competitors who have a wider base of customers. This is especially true when special needs
make it difficult for industry-wide competitors to serve the needs of this group of customers. By serving a
segment that was previously poorly segmented an organization has unique capability to serve niche.

Risks of Using Focused Strategies:

 Maybe out focused by competitors (even smaller segment)

 Segment may become of interest to broad market firm(s)

5. Using an Integrated Low-Cost/Differentiation Strategy

This new strategy may become more popular as global competition increases. Firms that use this strategy
may see improvement in their ability to:

 Adaptability to environmental changes.

 Learn new skills and technologies
  More effectively leverage core competencies across business units and products lines which
should enable the firm to produce produces with differentiated features at lower costs.

Thus the customer realizes value based both on product features and a low price. Southwest airlines is one
example of a company that does uses this strategy.

However, organizations that choose this strategy must be careful not to: becoming stuck in the middle i.e.,
not being able to manage successfully the five competitive forces and not achieve strategic
competitiveness. Must be capable of consistently reducing costs while adding differentiated features.

Porter's Generic Strategies.

Harvard Business School's Michael Porter developed a framework of generic strategies that can be
applied to strategies for various products and services, or the individual business-level strategies within a
corporate portfolio. The strategies are (1) overall cost leadership, (2) differentiation, and (3) focus on a
particular market niche. The generic strategies provide direction for business units in designing incentive
systems, control procedures, operations, and interactions with suppliers and buyers, and with making
other product decisions.

Cost-leadership strategies require firms to develop policies aimed at becoming and remaining the lowest
cost producer and/or distributor in the industry. Note here that the focus is on cost leadership, not price
leadership. This may at first appear to be only a semantic difference, but consider how this fine-grained
definition places emphases on controlling costs while giving firms alternatives when it comes to pricing
(thus ultimately influencing total revenues). A firm with a cost advantage may price at or near competitors
prices, but with a lower cost of production and sales, more of the price contributes to the firm's gross
profit margin. A second alternative is to price lower than competitors and accept slimmer gross profit
margins, with the goal of gaining market share and thus increasing sales volume to offset the decrease in
gross margin. Such strategies concentrate on construction of efficient-scale facilities, tight cost and
overhead control, avoidance of marginal customer accounts that cost more to maintain than they offer in
profits, minimization of operating expenses, reduction of input costs, tight control of labor costs, and
lower distribution costs. The low-cost leader gains competitive advantage by getting its costs of
production or distribution lower than the costs of the other firms in its relevant market. This strategy is
especially important for firms selling unbranded products viewed as commodities, such as beef or steel.
Cost leadership provides firms above-average returns even with strong competitive pressures. Lower costs
allow the firm to earn profits after competitors have reduced their profit margin to zero. Low-cost
production further limits pressures from customers to lower price, as the customers are unable to purchase
cheaper from a competitor. Cost leadership may be attained via a number of techniques. Products can be
designed to simplify manufacturing. A large market share combined with concentrating selling efforts on
large customers may contribute to reduced costs. Extensive investment in state-of-the-art facilities may
also lead to long run cost reductions. Companies that successfully use this strategy tend to be highly
centralized in their structure. They place heavy emphasis on quantitative standards and measuring
performance toward goal accomplishment.

Efficiencies that allow a firm to be the cost leader also allow it to compete effectively with both existing
competitors and potential new entrants. Finally, low costs reduce the likely impact of substitutes.
Substitutes are more likely to replace products of the more expensive producers first, before significantly
harming sales of the cost leader unless producers of substitutes can simultaneously develop a substitute
product or service at a lower cost than competitors. In many instances, the necessity to climb up the
experience curve inhibits a new entrants ability to pursue this tactic.

Differentiation strategies require a firm to create something about its product that is perceived as unique
within its market. Whether the features are real, or just in the mind of the customer, customers must
perceive the product as having desirable features not commonly found in competing products. The
customers also must be relatively price-insensitive. Adding product features means that the production or
distribution costs of a differentiated product will be somewhat higher than the price of a generic, non-
differentiated product. Customers must be willing to pay more than the marginal cost of adding the
differentiating feature if a differentiation strategy is to succeed.

Differentiation may be attained through many features that make the product or service appear unique.
Possible strategies for achieving differentiation may include warranty (Sears tools have lifetime guarantee
against breakage), brand image (Coach handbags, Tommy Hilfiger sportswear), technology (Hewlett-
Packard laser printers), features (Jenn-Air ranges, Whirlpool appliances), service (Makita hand tools), and
dealer network (Caterpillar construction equipment), among other dimensions. Differentiation does not
allow a firm to ignore costs; it makes a firm's products less susceptible to cost pressures from competitors
because customers see the product as unique and are willing to pay extra to have the product with the
desirable features.
Differentiation often forces a firm to accept higher costs in order to make a product or service appear
unique. The uniqueness can be achieved through real product features or advertising that causes the
customer to perceive that the product is unique. Whether the difference is achieved through adding more
vegetables to the soup or effective advertising, costs for the differentiated product will be higher than for
non-differentiated products. Thus, firms must remain sensitive to cost differences. They must carefully
monitor the incremental costs of differentiating their product and make certain the difference is reflected
in the price.

Focus, the third generic strategy, involves concentrating on a particular customer, product line,
geographical area, channel of distribution, stage in the production process, or market niche. The
underlying premise of the focus strategy is that the firm is better able to serve its limited segment than
competitors serving a broader range of customers. Firms using a focus strategy simply apply a cost-leader
or differentiation strategy to a segment of the larger market. Firms may thus be able to differentiate
themselves based on meeting customer needs through differentiation or through low costs and competitive
pricing for specialty goods.

A focus strategy is often appropriate for small, aggressive businesses that do not have the ability or
resources to engage in a nation-wide marketing effort. Such a strategy may also be appropriate if the
target market is too small to support a large-scale operation. Many firms start small and expand into a
national organization. Wal-Mart started in small towns in the South and Midwest. As the firm gained in
market knowledge and acceptance, it was able to expand throughout the South, then nationally, and now
internationally. The company started with a focused cost-leader strategy in its limited market and was able
to expand beyond its initial market segment.

Firms utilizing a focus strategy may also be better able to tailor advertising and promotional efforts to a
particular market niche. Many automobile dealers advertise that they are the largest-volume dealer for a
specific geographic area. Other dealers advertise that they have the highest customer-satisfaction scores or
the most awards for their service department of any dealer within their defined market. Similarly, firms
may be able to design products specifically for a customer. Customization may range from individually
designing a product for a customer to allowing the customer input into the finished product. Tailor-made
clothing and custom-built houses include the customer in all aspects of production from product design to
final acceptance. Key decisions are made with customer input. Providing such individualized attention to
customers may not be feasible for firms with an industry-wide orientation.
Functional-Level Strategies.

Functional-level strategies are concerned with coordinating the functional areas of the organization
(marketing, finance, human resources, production, research and development, etc.) so that each functional
area upholds and contributes to individual business-level strategies and the overall corporate-level
strategy. This involves coordinating the various functions and operations needed to design, manufacturer,
deliver, and support the product or service of each business within the corporate portfolio. Functional
strategies are primarily concerned with:

 Efficiently utilizing specialists within the functional area.

 Integrating activities within the functional area (e.g., coordinating advertising, promotion, and
marketing research in marketing; or purchasing, inventory control, and shipping in
production/operations).

 Assuring that functional strategies mesh with business-level strategies and the overall corporate-
level strategy.

Functional strategies are frequently concerned with appropriate timing. For example, advertising for a
new product could be expected to begin sixty days prior to shipment of the first product. Production could
then start thirty days before shipping begins. Raw materials, for instance, may require that orders are
placed at least two weeks before production is to start. Thus, functional strategies have a shorter time
orientation than either business-level or corporate-level strategies. Accountability is also easiest to
establish with functional strategies because results of actions occur sooner and are more easily attributed
to the function than is possible at other levels of strategy. Lower-level managers are most directly
involved with the implementation of functional strategies.

Strategies for an organization may be categorized by the level of the organization addressed by the
strategy. Corporate-level strategies involve top management and address issues of concern to the entire
organization. Business-level strategies deal with major business units or divisions of the corporate
portfolio. Business-level strategies are generally developed by upper and middle-level managers and are
intended to help the organization achieve its corporate strategies. Functional strategies address problems
commonly faced by lower-level managers and deal with strategies for the major organizational functions
(e.g., marketing, finance, production) considered relevant for achieving the business strategies and
supporting the corporate-level strategy. Market definition is thus the domain of corporate-level strategy,
market navigation the domain of business-level strategy, and support of business and corporate-level
strategy by individual, but integrated, functional level strategies.

Corporate-level strategy

Corporate-level strategies address the entire strategic scope of the enterprise. This is the "big picture"
view of the organization and includes deciding in which product or service markets to compete and in
which geographic regions to operate. For multi-business firms, the resource allocation process—how
cash, staffing, equipment and other resources are distributed—is typically established at the corporate
level. In addition, because market definition is the domain of corporate-level strategists, the responsibility
for diversification, or the addition of new products or services to the existing product/service line-up, also
falls within the realm of corporate-level strategy. Similarly, whether to compete directly with other firms
or to selectively establish cooperative relationships—strategic alliances—falls within the purview
corporate-level strategy, while requiring ongoing input from business-level managers.

Table 1
Corporate, Business, and Functional Strategy

Level of
Definition Example
Strategy

Corporate
Market definition Diversification into new product or geographic markets
strategy

Business Market navigation Attempts to secure competitive advantage in existing product or

Level of
Definition Example
Strategy

strategy geographic markets

Support of corporate Information systems, human resource practices, and production

Functional
strategy and business processes that facilitate achievement of corporate and business
strategy
strategy strategy

Critical questions answered by corporate-level strategists thus include:

1. What should be the scope of operations; i.e.; what businesses should the firm be in?
2. How should the firm allocate its resources among existing businesses?

3. What level of diversification should the firm pursue; i.e., which businesses represent the
company's future? Are there additional businesses the firm should enter or are there businesses
that should be targeted for termination or divestment?

4. How diversified should the corporation's business be? Should we pursue related diversification;
i.e., similar products and service markets, or is unrelated diversification; i.e., dissimilar product
and service markets, a more suitable approach given current and projected industry conditions? If
we pursue related diversification, how will the firm leverage potential cross-business synergies? In
other words, how will adding new product or service businesses benefit the existing
product/service line-up?

5. How should the firm be structured? Where should the boundaries of the firm be drawn and how
will these boundaries affect relationships across businesses, with suppliers, customers and other
constituents? Do the organizational components such as research and development, finance,
marketing, customer service, etc. fit together? Are the responsibilities or each business unit clearly
identified and is accountability established?

6. Should the firm enter into strategic alliances—cooperative, mutually-beneficial relationships with
other firms? If so, for what reasons? If not, what impact might this have on future profitability?

As the previous questions illustrate, corporate strategies represent the long-term direction for the
organization. Issues addressed as part of corporate strategy include those concerning diversification,
acquisition, divestment, strategic alliances, and formulation of new business ventures. Corporate
strategies deal with plans for the entire organization and change as industry and specific market
conditions warrant.

Top management has primary decision making responsibility in developing corporate strategies and these
managers are directly responsible to shareholders. The role of the board of directors is to ensure that top
managers actually represent these shareholder interests. With information from the corporation's multiple
businesses and a view of the entire scope of operations and markets, corporate-level strategists have the
most advantageous perspective for assessing organization-wide competitive strengths and weaknesses,
although as a subsequent section notes, corporate strategists are paralyzed without accurate and up-to-date
information from managers at the business-level.

Corporate Grand Strategies

As the previous discussion implies, corporate-level strategists have a tremendous amount of both latitude
and responsibility. The myriad decisions required of these managers can be overwhelming considering the
potential consequences of incorrect decisions. One way to deal with this complexity is through
categorization; one categorization scheme is to classify corporate-level strategy decisions into three
different types, or grand strategies. These grand strategies involve efforts to expand business operations
(growth strategies), decrease the scope of business operations (retrenchment strategies), or maintain the
status quo (stability strategies).

Growth Strategies

Growth strategies are designed to expand an organization's performance, usually as measured by sales,
profits, product mix, market coverage, market share, or other accounting and market-based variables.
Typical growth strategies involve one or more of the following:

1. With a concentration strategy the firm attempts to achieve greater market penetration by becoming
highly efficient at servicing its market with a limited product line (e.g., McDonalds in fast foods).
2. By using a vertical integration strategy, the firm attempts to expand the scope of its current
operations by undertaking business activities formerly performed by one of its suppliers
(backward integration) or by undertaking business activities performed by a business in its channel
of distribution (forward integration).

3. A diversification strategy entails moving into different markets or adding different products to its
mix. If the products or markets are related to existing product or service offerings, the strategy is
 called concentric diversification. If expansion is into products or services unrelated to the firm's
existing business, the diversification is called conglomerate diversification.

Stability Strategies

When firms are satisfied with their current rate of growth and profits, they may decide to use a stability
strategy. This strategy is essentially a continuation of existing strategies. Such strategies are typically
found in industries having relatively stable environments. The firm is often making a comfortable income
operating a business that they know, and see no need to make the psychological and financial investment
that would be required to undertake a growth strategy.

Retrenchment Strategies

Retrenchment strategies involve a reduction in the scope of a corporation's activities, which also generally
necessitates a reduction in number of employees, sale of assets associated with discontinued product or
service lines, possible restructuring of debt through bankruptcy proceedings, and in the most extreme
cases, liquidation of the firm.

 Firms pursue a turnaround strategy by undertaking a temporary reduction in operations in an effort

to make the business stronger and more viable in the future. These moves are popularly called
downsizing or rightsizing. The hope is that going through a temporary belt-tightening will allow
the firm to pursue a growth strategy at some future point.
 A divestment decision occurs when a firm elects to sell one or more of the businesses in its
corporate portfolio. Typically, a poorly performing unit is sold to another company and the money
is reinvested in another business within the portfolio that has greater potential.

 Bankruptcy involves legal protection against creditors or others allowing the firm to restructure its
debt obligations or other payments, typically in a way that temporarily increases cash flow. Such
restructuring allows the firm time to attempt a turnaround strategy. For example, since the airline
hijackings and the subsequent tragic events of September 11, 2001, many of the airlines based in
the U.S. have filed for bankruptcy to avoid liquidation as a result of stymied demand for air travel
and rising fuel prices. At least one airline has asked the courts to allow it to permanently suspend
payments to its employee pension plan to free up positive cash flow.
 Liquidation is the most extreme form of retrenchment. Liquidation involves the selling or closing
of the entire operation. There is no future for the firm; employees are released, buildings and
equipment are sold, and customers no longer have access to the product or service. This is a
strategy of last resort and one that most managers work hard to avoid.

DIVERSIFICATION
Beyond a certain point, it is no longer possible for a firm to expand in the basic product market. So
the firm seeks increased sales by developing new products for new markets. This strategy towards
growth is called diversification. The diversification does not simply involve adding variety in a
product but adding entirely different types of products. Products added may be complementary.
Diversification is a much talked about and widely used strategy for growth. Many companies have
opted for this. For example, LIC, an insurance concern initially, diversified into mutual funds.
State Bank of India diversified into merchant banking and mutual funds. Similarly, Larsen and
Toubro, an engineering company diversified into cement.

A firm may choose the strategy of diversification under the following situations:

(a) When diversification promises greater profitability than expansion.

(b) When the firm cannot attain its growth target by the strategy of expansion alone.

(c) When the financial resources of the firm are much in excess of the requirements of expansion.

The distinction between intensive growth strategy and diversification strategy must be carefully
noted. In the case of intensive growth, the firm increases the production and sales of its existing
products. But in case of diversification, there is addition of new products and new markets.

Advantages of Diversification

Companies have increasingly adopted diversification strategy due to the following reasons:

(i) Better use of its resources. By adding up related products to its existing product portfolio, a
company can more effectively utilize its managerial personnel, marketing network, research and
development facilities, etc.

(ii) Reduce the decline in sales. By developing new products the sales revenue and earnings can be
maintained or even increased. For example, Bajaj Scooters India Ltd. entered in the field of
mopeds.

(iii) More competitive With greater resources, more products and higher profits, the diversified
firm is more competitive than a single product firm.
(iv) Minimize risk. When one line of business faces recession, another line may be in high growth
stage. For example, a well-diversified engineering firm like Larsen and Toubro did well even
when the engineering industry was facing recession.

(v) Use of cash surplus of one business to finance another business having good potential for
growth.

(vi) Economies of scale Diversification adds to size of business which improves the
competitiveness of a firm. It offers a lot of economy in operations because common facilities can
be used for several products.

Limitations of Diversification. The limitations of diversification are as given below:

(I) Huge funds are required for diversification. The internal savings of the business may not be
sufficient to finance growth.

(ii) The functions and responsibilities of top executives increase because of need to handle new
product, technology and markets. They may find problems in coordination which may lead to
inefficient operations.

(iii) Diversification may involve new technology and new markets and the present staff may face
problems in adjusting to this growth pattern.

(iv) Diversification may lead to unknown products and markets leading to more risk.

Types of Diversification:

1. Horizontal Integration,

2. Vertical Integration,

3. Concentric, and

4. Conglomerate

Horizontal Integration: It involves addition of parallel new products to the existing product line.
This may happen internally or externally, internally, a company may decide to enter a parallel
product market in addition to the existing product line. Externally, a company combines with a
competing firm. For example, Sparta Ceramics India Ltd. took over Neyveli Ceramics and
Refractories Ltd. (Neycer). Both the companies are in sanitary ware and tiles business. Two or
more competing firms are brought together under single ownership and control. Seven small
cement firms combined and formed Associated Cement Companies (ACC).

Advantages. Horizontal integration has the following advantages:

(i) Wasteful competition among the combining firms is removed.

(ii) It provides economies of large-scale production and distribution.

(iii) It provides better control over the market and increases the competitiveness of the company.

(iv) The firm gets better control over supply and prices of the product.

Disadvantages. Horizontal integration has the following limitations:

(I) The firm is not confident of supply of raw materials.

(ii) If many firms combine to form horizontal integration, there is a risk of over- capitalisation.

(iii) The management of the firm may become bureaucratic and inflexible.

(iv) The firm may acquire exploit consumers and labour by becoming a monopoly.

Vertical Integration

In vertical integration new products or services are added which are complementary to the present
product line or service. New products fulfill the firm’s own requirements by either supplying
inputs or by serving as a customer for its output. In vertical integration the firm moves backward
or forward from the present product or service. Vertical integration may be of two types—
backward and forward.

Backward integration. It involves moving toward the input of the present product. It is aimed at
moving lower on the production process so that the firm is able to supply its own raw materials or
basic components. For example, a Car manufacturer may start producing tire tubes; Reliance
Industries Ltd. Has been able to grow largely through backward integration. It started business
with textiles and went for backward integration to produce PFY and PSF critical raw materials for
textiles, PTA and MEG raw materials for PFY and PSF, propylene raw materials for PTA and
MEG, and finally naphtha for producing propylene.

Advantages. Backward integration has the following advantages:

(i) Regular supply It ensures regular supply of raw materials or components.

(ii) High return on investment It facilitates higher return on investment for the company as a whole
through better use of overhead facilities

(iii) Competitiveness It improves the competitive power of the company.

As it controls more elements of the production process, it has advantages over the uninterested
firms in the form of lower costs, lower prices and lower risks.

(iv) Quality control It improves quality control over imports for the final product.

(v) Bargaining power It improves the company's power of negotiation with suppliers on the basis
of known costs.

(vi) Tax saving It saves indirect taxes payable on the purchase of inputs.

Disadvantages. Backward integration has the following limitations:

(a) If an existing input producing unit is taken over, it may involve large investment

(b) By investing heavily in backward integration the developments of the final products nay get
hampered. This in turn may lead to undue pressure on pricing and sales effort.

(c) In the absence of backward integration the firm may purchase at a lower cost from technically
more efficient suppliers. With backward integration, this opportunity gets lost.

(d) Any adverse Changes in the economy affecting the present product market will also affect
adversely the production of inputs.

(e) When the divisions using the inputs do not have the freedom of comparing market conditions
of supply, the problem of transfer pricing may become acute.

Forward integration. Forward integration means the firm entering into the business of
distributing or selling its present products. It refers to moving upwards in the
production/distribution process towards the ultimate consumer. The firm sets up its own retail
outlets for the sale of its own products. For example, many companies like Bata, DCM, Bombay
Dyeing, Raymonds and Reliance have set up their own retail outlets to sell their fabrics.

Advantages. Forward integration has the following advantages:

(i) The firm can exercise greater control over sales and prices of its products. This is very useful in
an oligopolistic market.

(ii) The firm's own retail stores serve as better source of customer feedback. Thus the firm gets
better control over quality

(iii) The firm can improve its profits by reducing the costs of distribution and the costs of
middlemen.

(iv) The firm can secure the economies of integration. Handling and transportation costs can be
reduced.

Disadvantages. Forward integration suffers form the following drawbacks:

(a) The proportion of fixed costs in the firm’s costs increases. As a result the firm is exposed to
greater cyclical changes in earnings. Moreover, the fortunes of business are tied to the in-house
distribution system. From this point of view, forward Integration increases business risk.

(b) Since its processes are interdependent, a slight interruption in one process may dislocate the
entire production system.

(c) In the absence of proper balance between up-stream and down-stream units, the firm has to buy
from or sell in the open market. The firm may be competing with its own customers.

(d) It is very difficult to efficiently manage an integrated firm because every business has its own
structure, technology and problems.

Concentric Diversification

When a firm diversifies into some business which is related with its present business in terms of
marketing, technology, or both, it is called concentric diversification. When in concentric
diversification new product or service is provided with the help of existing or similar technology it
is called technology-related concentric diversification. For example, Mother dairy has added 'curd
and Lassi’ to its range of milk products. In marketing-related concentric diversification, the new
product or service is sold through the existing distribution system. For instance, a bank may start
providing mutual fund services to its customers.

Concentric diversification is suitable for the following purposes:

(a) When cyclical fluctuations in the present products or services are to be counteracted;

(b) When the cash flows generated by the existing product or service are in surplus;

(c) When demand for present product or service has reached saturation point;

(d) To gain managerial expertise in new field of business; and

(e) When reputation of present product or service is high and can be used for new products or
service.

Conglomerate Diversification

When a firm diversifies into business which is not related to its existing business both in terms of
marketing and technology it is called conglomerate diversification. Several Indian companies have
adopted this strategy.Reliance, Sahara, DCM, Essar group, ITC, Godrej, HMT are examples of
conglomerate diversification.

Conglomerate diversification strategy is suitable for the following purposes:

(i) To grow faster than the growth realized through expansion;

 (ii) To avail of potential opportunities for profitable investment;

(iii) To achieve competitive edge and greater stability;

(iv) To make better use of cash surplus of present products or service;

(v) To allocate the risks.

MERGER & ACQUISITIONS

Merger is an external growth strategy. When different companies combine together into new corporate
organizations, such a process is known as mergers. Merger can occur in two ways: (a) Acquisition of
takeover and (b) amalgamation.
Takeover or acquisition takes place when a company offers cash or securities in exchange for the majority
shares of another company. It involves one company taking over control of another. Amalgamation takes
place when two or more companies of equal size or strength formally submerge their corporate identities
into a single one in a friendly atmosphere.
Advantages
The mergers take place with a number of motivations. Some of the benefits of merger are:
(i) A merger provides economies of large-scale operations.
(ii) Better utilization of funds can be made to increase profits.
(iii) There is possibility of diversification.
(iv) More efficient use of resources can be made.
(v) Sick firms can be rehabilitated by merging them with strong and efficient concerns.
(vi) It is often cheaper to acquire an existing unit than to set up a new one.
(vii) It is possible to gain quick entry into new lines of business.
(viii) It can provide access to scarce raw materials and distribution network and managerial expertise.
Disadvantages. Mergers are not always successful due to the following drawbacks:

(a) The combined enterprise may be unwieldy. Effective co-ordination and control becomes difficult. As a

result efficiency and profitability may decline.

(b) Mergers give rise to monopoly and concentration of economic power which often operate against the

interest of the society and the country.

Guidelines for Successful Mergers

Willard Rockwell, based on his experience, has given the following guidelines to make the merger
successful:
(i) Identify the merger objectives, especially economic objectives.
(ii) Specify gains for the shareholders of both the joining companies.
(iii) Be convinced that the acquired company's management is or can be made competent.
(iv) Report the existence of important dovetailing resources; but do not expect perfect compatibility.
(v) Start the process of merger with active involvement of the top executives.
(vi) Define clearly the business that the company is in.
(vii) Analyze and identify the strengths, weaknesses and key performance factors for both the combining
units,
(viii) Foresee possible problems and discuss them at the initial stage with the other company so as to
create a climate of trust.
(ix) Don't threaten the management to be acquired.
(x) Human considerations should be of prime importance in planning for merger and designing the
organisation structure for the new set up.

JOINT VENTURE

When two or more firms mutually decide to establish a new enterprise by participating in equity capital
and in business operations, it is known as joint venture. A joint venture is a business partnership between
two or more companies for a specific business operation. Joint venture can be with a firm in the same
country or a foreign country. For example, Birla Yamaha Ltd. is a joint venture of Birla and Yamaha
Motor Co. of Japan, DCM and Daewoo Corporation of Korea established DCM Daewoo Motors Ltd.
Hindustan Computers Ltd. and Hewlett - Packard of USA formed HCL-HP Ltd, a joint venture company.

Divestment
Refers to the sale of an asset for financial, legal or personal reasons. For corporations, divestment can
refer to a company selling off a portion of its assets, such as a subsidiary, to raise capital or to focus the
business on a smaller core of goods and services. For investors, divestment can be used as a social tool to
protest particular corporate policies, such as a company trading with a country known for child labor
abuses. Divestment can also be required of companies by the Federal Trade Commission in order to have
a merger approved. A famous example of this is the breakup of Bell System (Ma Bell) into AT&T and the
Baby Bells in 1984, opposite of investment.

Boston Consulting Group (BCG) matrix

The Boston Consulting Group (BCG) matrix is a relatively simple technique for assessing the
performance of various segments of the business. The BCG matrix classifies business-unit performance
on the basis of the unit's relative market share and the rate of market growth as shown in Figure 1.

Figure 1
BCG Model of Portfolio Analysis

Products and their respective strategies fall into one of four quadrants. The typical starting point for a new
business is as a question mark. If the product is new, it has no market share, but the predicted growth rate
is good. What typically happens in an organization is that management is faced with a number of these
types of products but with too few resources to develop all of them. Thus, the strategic decision-maker
must determine which of the products to attempt to develop into commercially viable products and which
ones to drop from consideration. Question marks are cash users in the organization. Early in their life,
they contribute no revenues and require expenditures for market research, test marketing, and advertising
to build consumer awareness.

If the correct decision is made and the product selected achieves a high market share, it becomes a BCG
matrix star. Stars have high market share in high-growth markets. Stars generate large cash flows for the
business, but also require large infusions of money to sustain their growth. Stars are often the targets of
large expenditures for advertising and research and development to improve the product and to enable it
to establish a dominant position in the industry.

Cash cows are business units that have high market share in a low-growth market. These are often
products in the maturity stage of the product life cycle. They are usually well-established products with
wide consumer acceptance, so sales revenues are usually high. The strategy for such products is to invest
little money into maintaining the product and divert the large profits generated into products with more
long-term earnings potential, i.e., question marks and stars.
Dogs are businesses with low market share in low-growth markets. These are often cash cows that have
lost their market share or question marks the company has elected not to develop. The recommended
strategy for these businesses is to dispose of them for whatever revenue they will generate and reinvest
the money in more attractive businesses (question marks or stars).

Despite its simplicity, the BCG matrix suffers from limited variables on which to base resource allocation
decisions among the business making up the corporate portfolio. Notice that the only two variables
composing the matrix are relative market share and the rate of market growth. Now consider how many
other factors contribute to business success or failure. Management talent, employee commitment,
industry forces such as buyer and supplier power and the introduction of strategically-equivalent
substitute products or services, changes in consumer preferences, and a host of others determine ultimate
business viability. The BCG matrix is best used, then, as a beginning point, but certainly not as the final
determination for resource allocation decisions as it was originally intended. Consider, for instance, Apple
Computer. With a market share for its Macintosh-based computers below ten percent in a market
notoriously saturated with a number of low-cost competitors and growth rates well-below that of other
technology pursuits such as biotechnology and medical device products, the BCG matrix would suggest
Apple divest its computer business and focus instead on the rapidly growing iPod business (its music
download business). Clearly, though, there are both technological and market synergies between Apple's
Macintosh computers and its fast-growing iPod business. Divesting the computer business would likely
be tantamount to destroying the iPod business.

A more stringent approach, but still one with weaknesses, is a competitive assessment. A competitive
assessment is a technique for ranking an organization relative to its peers in the industry. The advantage
of a competitive assessment over the BCG matrix for corporate-level strategy is that the competitive
assessment includes critical success factors, or factors that are crucial for an organizational to prevail
when all organizational members are competing for the same customers. A six-step process that allows
corporate strategist to define appropriate variables, rather than being locked into the market share and
market growth variables of the BCG matrix, is used to develop a table that shows a businesses ranking
relative to the critical success factors that managers identify as the key factors influencing failure or
success. These steps include:

1. Identifying key success factors. This step allows managers to select the most appropriate variables
for its situation. There is no limit to the number of variables managers may select; the idea,
however, is to use those that are key in determining competitive strength.
 2. Weighing the importance of key success factors. Weighting can be on a scale of 1 to 5, 1 to 7, or 1
to 10, or whatever scale managers believe is appropriate. The main thing is to maintain
consistency across organizations. This step brings an element of realism to the analysis by
recognizing that not all critical success factors are equally important. Depending on industry
conditions, successful advertising campaigns may, for example, be weighted more heavily than
after-sale product support.

3. Identifying main industry rivals. This step helps managers focus on one of the most common
external threats; competitors who want the organization's market share.

4. Managers rating their organization against competitors.

5. Multiplying the weighted importance by the key success factor rating.

6. Adding the values. The sum of the values for a manager's organization versus competitors gives a
rough idea if the manager's firm is ahead or behind the competition on weighted key success
factors that are critical for market success.

A competitive strength assessment is superior to a BCG matrix because it adds more variables to the mix.
In addition, these variables are weighted in importance in contrast to the BCG matrix's equal weighting of
market share and market growth. Regardless of these advantages, competitive strength assessments are
still limited by the type of data they provide. When the values are summed in step six, each organization
has a number assigned to it. This number is compared against other firms to determine which is
competitively the strongest. One weakness is that these data are ordinal: they can be ranked, but the
differences among them are not meaningful. A firm with a score of four is not twice as good as one with a
score of two, but it is better. The degree of "betterness," however, is not known.

GE Matrix
GE Matrix is a strategic tool for portfolio analysis. It is similar to the BCG Matrix and actually the GE is
an extension of the BCG Matrix - multifactor portfolio analysis tool. This tool compares different
businesses on "Business Strength" and "Market Attractiveness" variables, plus the size of the bubbles
represents the market size instead of business sales used in the BCG Matrix, and the share of the market
or business sales vs. market size is represented as pie chart inside the bubbles. This allows the business
user to compare business strength, market attractiveness, market size, and market share for different
strategic business units (SBUs) or different product offerings.

This strategic portfolio analysis tool has been initially developed by GE and McKinsey.
GE Matrix Positions and Strategy

The GE is divided into nine cells - nine alternatives for positioning of any SBU or product offering. Based
on the strength of the business and its market attractiveness each SBU will have a different position in the
matrix. Further, the market size and the current sales will distinguish each SBU. Based on clear
understanding of all of these factors decision makers are able to develop effective strategies.

The nine cells in the matrix can be grouped into three major segments:

Segment 1: This is the best segment. The business is strong and the market is attractive. The company
should allocate resources in this business and focus on growing the business and increase market share.

Segment 2: The business is either strong but the market is not attractive or the market is strong and the
business is not strong enough to pursue potential opportunities. Decision makers should make judgment
on how to further deal with these SBUs. Some of them may consume to much resources and are not
promising while others may need additional resources and better strategy for growth.

Segment 3: This is the worst segment. Businesses in this segment are weak and their market is not
attractive. Decision makers should consider either repositioning these SBUs into a different market
segment, develop better cost-effective offering, or get rid of these SBUs and invest the resources into
more promising and attractive SBUs.
 Strategic evaluation and Strategic control

There is no shortage of terms used to describe different elements of project work and it is easy to get lost
in a sea of jargon. When conducting a strategic evaluation, however, there are a few terms and concepts
worth knowing. Most projects will have the following distinguishable elements:

• Project Inputs which are the resources and revenues invested in running the project. Depending on the
particular project, project inputs may include volunteer time, skills, funds received, in-kind
contributions, matching funds, income generated revenue and capital assets.

• Project Activities which are the things the project does with its resources and revenues. Projects engage
in a vast range of activities, of which a few of the possibilities are listed below:

o providing services to people;

o running educational and training courses;

o providing opportunities for people from different backgrounds to interact;

o organising festivals, sporting and cultural events;

o enabling civic engagement and participation;

o providing services to specific types of organisation;

o providing leisure opportunities and;

o producing publications.

• Project Outputs are the immediate results achieved by the project. As with project activities, projects
can deliver a huge variety of outputs. A few possibilities are listed below:

o people gaining qualifications;

o new participants in cultural and other sporting activities;

o improved access to information and resources;

o people and organisations receiving services;

o number of new jobs created;

o number of people engaged in challenging discrimination and prejudice;

o increase in the proportion of people who say that they regularly meet and talk with people from different
ethnic backgrounds.

• Project Outcomes are the project’s long-term goals and desired improvements. Within Oldham
Borough, the project’s long-term goals and desired improvements may link with priorities in the Local
Area Agreement, the Community Cohesion Strategy, the Community Strategy and Oldham Beyond.
These might include things such as:

o developing a highly-skilled and well-educated local population;

o eliminating health inequalities;

o eliminating discrimination and harassment;

o good community relations throughout the Borough;

o eliminating poverty;

o avoidance of a low wage economy.

• Project Impacts on community cohesion include the project’s effects on:

o inequalities;

o community relations across various domains of difference

including age, sexuality, disability, social background and ethnic group;

o opportunities for meaningful social interaction between people from similar and from different
backgrounds;

o engagement in local democracy;

o involvement in social, political and cultural life;

o the fairness and transparency (and perceived fairness and transparency) of service provision, access to
services and resource allocation.

Evaluating Causal Connections between Activities,

Outputs and Outcomes

The purpose of evaluating causal connections between activities, outputs and outcomes, is to explore
whether or not the project’s assumptions about the likely outcomes and effects of its activities and outputs
are well-founded. By identifying places where the causal chain between activity, output and outcome may
potentially break down, the evaluator may play a role in identifying supplementary activities which may
improve the likelihood of the project contributing to its desired outcomes. To do this, the evaluator should
consider:

• May the project’s activities have unplanned but predictable adverse effects that impact on its ability to
reach the desired outcome?

• Are there other factors that are likely to intervene between achievement of outputs and the desired
outcome? Asking such questions will sometimes lead the project to broaden its remit or examine
possibilities for liaison and joint working with other organizations and institutions.

Evaluating Strategic Impact on Community Cohesion

The purpose of evaluating strategic impact on community cohesion is to examine the impact of the
project’s outputs and desired outcomes (as distinct from its planned activities and actual practice) on
community cohesion. If the Oldham M.B.C definition of community cohesion is used, relevant questions
may include:

• Who are the intended project participants or beneficiaries? Are some groups within the project’s remit
under-represented or likely to be under-represented within the project?

• Does the project provide opportunities for people from different backgrounds (socio-economic, ethnic
group, age) to meet, talk and interact?

• Does the project provide opportunities for people with similar experiences or backgrounds to come
together to build confidence and challenge discrimination, harassment and prejudice?

• Does the project provide opportunities for people to learn about each other?

• Is the project likely to increase or decrease existing tensions between different groups of people (for
example, intergenerational tensions, interethnic tensions, social tensions)? Why? Remember that
sometimes an increase in community tensions is related to the efforts of people who have experienced
discrimination or prejudice to achieve social justice and may not be a bad thing!

• Do the outputs and outcomes tend to reduce or increase existing inequalities?

• Do the outputs and outcomes tend to accept or challenge existing inequalities?

• Will the project’s outputs or outcomes address racism or other forms of prejudice and discrimination?

• Will the project’s outputs or outcomes broaden access to decision making and engagement in local
democracy?

• Will the project’s outputs or outcomes enable more people to participate fully in cultural, social or
economic life?

• How does the project connect with other projects and agencies in the same area or the same field?

It is not necessary (or even necessarily desirable) for a project to seek to be all things to all aspects of
community cohesion. It is important, however, that the project should have a clear understanding of
potentially adverse impacts on community cohesion, so that it is well-prepared to address these
effectively. Conversely, a clear description of potential benefits of the project to community cohesion may
enhance its value to potential funder.

Module –IV

Entrepreneurship Development

Concept, Growth and Characteristic of Entrepreneur

Evolution of the concept of Entrepreneurship

Definition of Entrepreneurship
Researchers have been inconsistent in their definitions of entrepreneurship (Brockhaus & Horwitz, 1986,
Sexton & Smilor, Wortman, 1987; Gartner, 1988). Definitions have emphasized a broad range of
activities including the creation of organizations (Gartner, 1988), the carrying out of new combinations
(Schumpeter, 1934), the exploration of opportunities (Kirzner, 1973), the bearing of uncertainty (Knight
1921), the bringing together of factors of production (Say, 1803), and others (See Long, 1983). The
outline below presents some authors definitions of entrepreneurship and attempts to summarize these
viewpoints into a more meaningful whole.
Richard Cantillon (1730); Entrepreneurship is defined as self-employment of any sort. Entrepreneurs buy
at certain prices in the present and sell at uncertain prices in the future. The entrepreneur is a bearer of
uncertainty.
Jean Baptiste Say (1816); The entrepreneur is the agent "who unites all means of production and who
finds in the value of the products...the reestablishment of the entire capital he employs, and the value of
the wages, the interest, and rent which he pays, as well as profits belonging to himself."
Frank Knight (1921); Entrepreneurs attempt to predict and act upon change within markets. Knight
emphasize the entrepreneur's role in bearing the uncertainty of market dynamics. Entrepreneurs are
required to perform such fundamental managerial functions as direction and control.
Joseph Schumpeter (1934); The entrepreneur is the innovator who implements change within markets
through the carrying out of new combinations. The carrying out of new combinations can take several
forms; 1) the introduction of a new good or quality thereof, 2) the introduction of a new method of
production, 3) the opening of a new market, 4) the conquest of a new source of supply of new materials or
parts, 5) the carrying out of the new organization of any industry. Schumpeter equated entrepreneurship
with the concept of innovation applied to a business context. As such, the entrepreneur moves the market
away from equilibrium. Schumpter's definition also emphasized the combination of resources. Yet, the
managers of already established business are not entrepreneurs to Schumpeter.
Penrose (1963); Entrepreneurial activity involves identifying opportunities within the economic system.
Managerial capacities are different from entrepreneurial capacities.
Harvey Leibenstein (1968, 1979); the entrepreneur fills market deficiencies through input-completing
activities. Entrepreneurship involves "activities necessary to create or carry on an enterprise where not all
markets are well established or clearly defined and/or in which relevant parts of the production function
are not completely known.
Israel Kirzner (1979); The entrepreneur recognizes and acts upon market opportunities. The entrepreneur
is essentially an arbitrageur. In contrast to Schumpeter's viewpoint, the entrepreneur moves the market
toward equilibrium.
Gartner (1988);The creation of new organizations.
The Entrepreneurship Center at Miami University of Ohio has an interesting definition of
entrepreneurship: "Entrepreneurship is the process of identifying, developing, and bringing a vision to
life. The vision may be an innovative idea, an opportunity, or simply a better way to do something. The
end result of this process is the creation of a new venture, formed under conditions of risk and
considerable uncertainty."
In summary, entrepreneurship is often viewed as a function which involves the exploitation of
opportunities which exist within a market. Such exploitation is most commonly associated with the
direction and/or combination of productive inputs. Entrepreneurs usually are considered to bear risk while
pursuing opportunities, and often are associated with creative and innovative actions. In addition,
entrepreneurs undertake a managerial role in their activities, but routine management of an ongoing
operation is not considered to be entrepreneurship. In this sense entrepreneurial activity is fleeting. An
individual may perform an entrepreneurial function in creating an organization, but later is relegated to
the role of managing it without performing an entrepreneurial role. In this sense, many small-business
owners would not be considered to be entrepreneurs. Finally, individuals within organizations (i.e. non-
founders) can be classified as entrepreneurs since they pursue the exploitation of opportunities. Thus
intrepreneurship is appropriately considered to be a form of entrepreneurship.
Characteristics of an Entrepreneur
1. Good health. Successful entrepreneurs must work long hours for extended periods of time. When they
get sick, they recover quickly.

2. A Need to Control and Direct. They prefer environments where they have maximum authority and
responsibility and do not work well in traditionally structured organizations. This is not about power,
though. Entrepreneurs have a need to create and achieve by having control over events.

3. Self-confidence. Findings showed that as long as entrepreneurs were in control, they were relentless in
pursuit of their goals. If they lost control, they quickly lost interest in the undertaking.

4. Sense of Urgency. They have a never-ending sense of urgency to do something. This corresponds
with a high energy level. Many enjoy individual sports rather than team sports. Inactivity makes them
impatient.

5. Comprehensive Awareness. They have a comprehensive awareness of a total situation and are aware
of all the ramifications involved in a decision.

6. Realistic Outlook. There is a constant need to know the status of things. They may or may not be
idealistic, but they are honest and straightforward and expect others to be the same.

7. Conceptual Ability. They have superior conceptual abilities. This helps entrepreneurs identify
relationships in complex situations. Chaos does not bother them because they can conceptualize order.
Problems are quickly identified and solutions offered. The drawback is that this may not translate well to
interpersonal problems.

8. Low Need for Status. Their need for status is met through achievement not through material
possessions.

9. Objective Approach. They take an objective approach to personal relationships and are more
concerned with the performance and accomplishment of others than with feelings. They keep their
distance psychologically and concentrate on the effectiveness of operations.

10. Emotional Stability. They have the stability to handle stress from business and from personal areas in
their lives. Setbacks are seen as challenges and do not discourage them.

11. Attraction to Challenges. They are attracted to challenges but not to risks. It may look like they are
taking high risks, but in actuality they have assessed the risks thoroughly.

12. Describing with Numbers. They can describe situations with numbers. They understand their
financial position and can tell at any time how much they have in receivables and how much they owe.

Distinction between an Entrepreneurship and a Manager

The main reason for an entrepreneur to start a business enterprise is because he comprehends the venture
for his individual satisfaction and has personal stake in it where as a manager provides his services in an
enterprise established by someone.
An entrepreneur and a manager differ in their standing, an entrepreneur is the owner of the organization
and he bears all the risk and uncertainties involved in running an organization where as a manager is an
employee and does not accept any risk.
An entrepreneur and a manager differ in their objectives. Entrepreneur’s objective is to innovate and
create and he acts as a change agent where as a manager’s objective is to supervise and create routines. He
implements the entrepreneur’s plans and ideas.
An entrepreneur is faced with more income uncertainties as his income is contingent on the performance
of the firm where as a manager’s compensation is less dependent on the performance of the organization.
An entrepreneur is not induced to involve in fraudulent behavior where as a manger does. A manager may
cheat by not working hard because his income is not tied up to the performance of the organization.
Entrepreneur is required to have certain qualifications and qualities like high accomplishment motive,
innovative thinking, forethought, risk-bearing ability etc. Conversely it’s mandatory for a manager to be
educated in the fields of management theories and practices.
An entrepreneur deals with faults and failures as a part of learning experience where as a manager make
every effort to avoid mistakes and he postpones failure.
An entrepreneur could be a manager but a manager cannot be an entrepreneur”. An entrepreneur is
intensely dedicated to develop business through constant innovation. He may employ a manager in order
to perform some of his functions such as setting objectives, policies, rules etc. A manager cannot replace
an entrepreneur in spite of performing the allotted duties because a manager has to work as per the
guidelines laid down by the entrepreneur.
On the downside, typical manager brings professionalism into working of an organization. They bring
fresh perspectives, ideas and approach to trouble shooting which can be invaluable.
Lately there has been convergence of the entrepreneur and the manager in certain sectors like software.
An employee is being given highly valuable stock options, which make a typical ‘manager’ a part owner.
Functions of an Entrepreneur
An entrepreneur undertakes three types of main function. They are described in brief detail as follows:

Organizational function:
An organizer mentally first of all decides certain things like what, how, and how much to produce. He
estimates the demand for the commodity and initiates the production. He decides the location of the
industry, scale of production and estimates the availability of raw materials, labor, capital etc.

Then he co-ordinates the other factors like land, labor and capital in proper proportion, so that he can
minimize the cost of production and reap more and more profit by producing more and more quantity at a
cheaper price. He supervises the entire production activity. After production is over, he finds proper
market for his product and sells them. From the sale proceeds, he distributes the remuneration for other
factor owners.

Risk bearing function:

An organization not only organizes the entire production process but also undertakes risks and
uncertainties. An organizer starts production with an anticipation of demand for his product. But when he
actually brings the product to market, there may or may not be demand for his product. This is an non-
insurable risk he has to undertake. Thus a brave organizer has to shoulder certain insurable and non-
insurable risks also.
Innovation function:

An entrepreneur must be an innovator to survive in the market and to retain the same position for his
product. Innovation means introducing new changes in production or technology or market for the
product. Profit as a reward for innovation is not a stable one. It appears, disappears and reappears. Only
the imaginative skillful few will remain in the industry for ever.

Types of Entrepreneurs

Concept of Entrepreneurship

Today, Indian society can best be classified into three categories. The first category of people is that of
well-established business families, such as the Mittals, Tatas, Ambanis, Birlas and the like. These families
have a very strong base, with most individuals following the family business tradition passed on from
generation to generation. Most of these companies have a strong management team, and are now going
global. World trust in the Indian corporate sector is increasing like never before.

The second category is dominated by young graduates who are an integral part of Indian business growth.
In fact, India has graduated a huge number of individuals with management degrees over the past decade.
With information technology and multinational corporations on the rise in India, young entrepreneurs
serve as the backbone of many flourishing enterprises.

The third category of society would be product-based business entrepreneurs. You will find them in every
big city, town, or village in India. Educational qualifications do not mean much to them; rather, they rely
on sheer entrepreneurship ability that include training, experience, customer service skills, networking,
hard work, and innovation.

Growth of Entrepreneurship in India

Entrepreneurship in India is on the rise. Here's our take on Indian entrepreneurs and how the landscape is
changing for India and entrepreneurship.

Indian society has traditionally been divided into four castes of people: learned priests, warriors, traders,
and people doing menial jobs. The existence of a caste of traders is itself proof of many centuries worth of
Indian entrepreneurship. Although the Indian caste system dominated societal standards for ages, the
trend has changed. People are bridging the difference between castes to work in fields perhaps
untraditional for their ancestors. The Internet and advances in telecommunications have made it possible
for Indian citizens to sell their services internationally. With the rapid growth of India as an IT power and
business process outsourcing giant, world views of India have also transformed to recognize the country's
entrepreneurial talent and potential. There is an overall shortage of start-up entrepreneurs in India
compared to the rest of the world. One of the most significant deficiencies an Indian entrepreneur may
face revolves around capital. Although there is ample willingness to invest capital in a well-established
enterprise, there is little willingness to fund start-ups. The quality and quantity of venture capital or angel
investors in India is low. The role of Indian government has changed over the years. Since India's
independence in 1947, until the early 1990s, India had a planned economy that made the Indian market
closed and directly controlled by the government. The situation is now different. Structural adjustments
were made to simplify and create a rational tax system that removed of a number of controls and
regulations. India has witnessed a period of sustained growth the last three decades, with each decade
being better than the latter. The average GDP growth was nearly 3.2 percent in the 1970s, which increased
to 5.4 and 5.6 percent, respectively, in the following two decades. The present average growth rate is
close to eight percent. According to the Global Entrepreneurship Monitor Report 2007, 8.5 percent of
India's working population is in the early stages of entrepreneurial activity, while its overall
entrepreneurial activity is at 13.9 percent. Owing to the vast talent in IT, management, and R&D, India
has managed to make its place for outsourced services from all around the world; and investors get high
quality work for lower costs.

Entrepreneurial Motivation

It should be interesting for you to know that the word ‘motivation’ has its origin in the Latin word
‘movere,’ meaning "to move." Psychologically, it means an inner or environmental stimulus to action,
forces or the factors that are responsible for initiation, sustaining (and restraining/abstaining from)
behaviour. You will be amazed to learn that different people engage in the same behaviour for different
reasons (see the Box entitled, ‘Different Reasons’), that there may, in fact, be more than a reason, a
constellation of various influences, and, that the reasons for continuing the same behaviour may be
different from the ones that triggered it off at the first place. In other words, motivations may be diverse,
multiple and dynamic.
In common perception, entrepreneurs are after money and they engage in profit making. True, profit- as
understood in terms of the residual income of the owner after meeting all the expenses incurred on the
engagement and utilisation of other factors of production-is the reward of entrepreneurship just as salary
is to men and women in employment and professional fees is to those in profession. So everybody works
for money. But people certainly don’t work for money alone. After all, money is required not for its own
sake, but for the sake of the needs of the person that it can fulfill. Money, thus, is not the need as such. It
is teleological (to put it more simply, distantly) related to the internally felt needs (such as need for food)
and socially acquired needs (such as status symbols).This leads us to the needs framework of studying
entrepreneurial motivation. This framework serves the important purpose of enabling us to understand
what motivates an entrepreneur. There are various variants of the needs framework, such as the Need
Hierarchy Theory propounded by Maslow, Two-Factor Theory given by Herzberg and Three-
Factor/ERG Theory formulated by Alderfer. _ We would, however, be referring to here much celebrated
framework of ‘manifest’ needs given by McClelland who may be regarded as the father of the study of
entrepreneurial motivation. The prefix ‘manifest’ suggests that you can easily perceive or observe these
needs from the behaviour of the individual. As such ‘manifest’ needs framework relates directly to what
the entrepreneurs do and how they do it. Take for example the risk-taking and innovative behaviour of
entrepreneurs that imply an individual’s desire to undertake challenging tasks, pursuit of excellence and
competitiveness. All these observable behaviours are summarised in ‘Need for Achievement’ or N-Ach.
In the manifest needs framework.

Manifest Needs Theory

McClelland identified three types of manifest needs, namely, Need for Achievement (N-Ach.), Need for
Power (N-Pow) and Need for Affiliation (NAff.). However, it is the N-Ach. That finds the pride of its
place in entrepreneurship literature, so much so that achievement motivation is considered synonymous to
entrepreneurial motivation. We would be describing N-Ach. In greater detail after having discussed N-
pow. and N-Aff. _ Need for Power (N-Pow.): If a man “speculates about who is boss”, he has a concern
for power, notes McClleland. Need for power, in effect, is the “concern for influencing people” or the
behaviour of others for moving in the chosen direction and attaining the envisioned objectives. In
common perception, politicians, social-religious leaders Chief Executive Officers _ (CEOs), Government
Bureaucrats/Civil Servants typify the need for power. Such a perception seems more based on the belief
that the source of power lies in the “position” a person occupies in organizational/societal context. In the
same vein, business ownership too may imply a need for power. Moreover, you would appreciate that the
process of founding a business, one has to win the commitment of capital providers, suppliers of
equipment and materials, the employees and that of the customers. Link this aspect of entrepreneurial
motivation to the competencies related to Assertiveness, Persuasion and Influence Strategies._ Need for
Affiliation: If a man “readily thinks about interpersonal relationships”, he has a concern for affiliation,
wrote McClleland. It implies, among other things, “a tendency of the people to conform to the wishes and
norms of those whom they value.” Apparently, social activists, environmentalists, teachers, and doctors
and nurses may seem as predominantly driven by these needs. Entrepreneurs are believed to be low on
affiliation, as they are and expected to be, innovative, trendsetters and tradition breakers. However, it is
not necessary that affiliation should only interfere with achievement. In certain cultures, family comprises
the bedrock on which the successful careers are built. One works, as if, not for personal gratification but
for family. Desire to carry on the tradition of business in the family and the community to which one
belongs, may be interpreted as reflecting need for affiliation as well. In the countries with the colonial
past, such as ours, the first generation of entrepreneurs in Independent India was driven by patriotic fervor
and the desire to rebuild the economy left stagnated by the alien rulers. One can certainly trace some
elements of affiliation in such instances. Moreover, some industries are particularly suitable for person
with high need for affiliation and having distinct competencies in Empathy and Concern for Employees.
_ Need for Achievement: Entrepreneurial behaviour is so much singularly attributed to this need that one
may just stop short of taking entrepreneurial motivation and achievement motivation as synonymous. N-
ach. Concerns issues of excellence, competition, challenging goals and overcoming difficulties. A
complete achievement sequence would comprise, “…defining the problem, wanting to solve it, thinking
of means to solving it, thinking of difficulties that get in the way of solving it (either in one’s self or in the
environment), thinking of people who might help in solving it, and anticipating what would happen if one
succeeded or failed.”
Accordingly, a person with need for achievement would want to take personal responsibility for solving
problem. One is goal oriented, that is, one sets moderate, realistic, attainable goals. One also seeks
challenge, excellence, and individuality, one takes calculated/ moderate risk and is willing to work hard
for that. One is always keen to find out how well one is doing and likes concrete feedback on
performance. In fact, it is the “feedback” value of profit/money that often results in incorrect attribution of
motive to behaviour. In market economies, profit is probably the best indicator of business performance
just as the salary drawn is a measure of one’s status and competence and professional fees charged a
measure of one’s creditability. Entrepreneurs may appear to be chasing profit for its own sake, the fact of
the matter could be that they derive a feedback satisfaction from the amount of profits earned and are
more concerned about achieving the goals they set for themselves. Should other measures of performance
become paramount, the amount of profit earned would cease to be the sole feedback on performance. In
fact, as the society progresses, measures such as respectability, ethicality, quality, employee involvement,
customer satisfaction eco-friendliness and overall business/corporate citizenship etc. assume increasing
importance as regards business performance. Affirmative action, responsible and responsive business
behaviour is the talk of the day. Sometimes, people lament that the amount of money earned and wealth in
one’s possession confound other important aspects of one’s performance so much so that money becomes
the end and not the means. A stereotypical image of the entrepreneurs is that they engage in reckless
pursuit of profit even at the expense of legitimate expectations of the customers of quality, employees of
fair wages and as regards payment of taxes. However, research is inconclusive about entrepreneurs being
neither more nor less ethical than those in other occupations in this regard. McClelland’s research
methodology sought to identify the dominant need through projective techniques._ We would like to say,
however, that it is rarely if ever that we are trying to satisfy just one type of need through our behaviour.
As a person, we try to simultaneously satisfy multiple needs economic, social, and psychological. Hence,
for example, quest for a “respectable,” “growth oriented,” “challenging,” “fun,” job/career. In fact, as
regards entrepreneurship, one often hears “Need for Autonomy” or N-Aut. also being an important driver
of behaviour. _ Need for Autonomy: The need for autonomy is a desire for independence which, in
effect, becomes a desire to do work of one’s choice and at one’s pace, defining one’s own rules of the
game, taking initiative, making independent and innovative choices and being responsible and
accountable to oneself rather than some external authority for performance. Research evidence too seems
to suggest desire for independence as the prime motivator of entrepreneurial behaviour. Hence, in the
context of entrepreneurship it may be interpreted as the determination not to work for someone else.
Clearly a preference for ‘YOB’ over ‘JOB.’ A career departure form employment to entrepreneurship
may also be interpreted as ‘Desire to be on one’s own’ as one becomes so much dissatisfied with present
employment that rather than seeking another job, entrepreneurship seems a more preferred alternative.
Further, it is the absence of this autonomy in jobs rather than other factors that seem to be driving people
into starting their own ventures- for a distant observer such a decision may appear “risky” given the job
security and compensation package! Thus, you may come across people who risk their cushy jobs for the
sake of preserving their autonomy.

Entrepreneurial Competencies

Every career draws on the competencies of an individual. Some of these competencies may be general
and some peculiar to the chosen career. You may understand competencies to mean abilities and skills.
However, we would desist from calling these as personality traits as such a conceptualization only
reinforces the mistaken belief that entrepreneurs are born rather than made. We believe that recognition of
these competencies as abilities and skills makes entrepreneurship as a teachable and learnable behaviour.
In this section we orient you towards a set of entrepreneurial competencies developed by the
Entrepreneurship Development Institute of India (EDI) Ahemdabad. These competencies were identified
by a thorough research procedure based on critical analysis of the case studies of the successful
entrepreneurs. We also annex a questionnaire that you can use to evaluate your score on each of these
competencies.
(i) Initiative- acting out of choice rather than compulsion, taking the lead rather than waiting for others to
start.
(ii) Sees and Acts on Opportunities- A mindset where one is trained to look for business opportunities
from everyday experiences. Recall ‘oranges’ example.
(iii) Persistence- A ‘never say die’ attitude, not giving up easily, striving Information seeking
continuously until success is achieved.
(iv) Knowing- Knowing who knows, consulting experts, reading relevant material and an overall
openness to ideas and information.
(v) Concern for High Quality of Work- Attention to details and observance of established standards and
norms.
(vi) Commitment to Work Contract- Taking personal pains to complete a task as scheduled.
(vii) Efficiency Orientation- Concern for conservation of time, money and effort.
(viii) Systematic Planning- Breaking up the complex whole into parts, close examination of the parts and
inferring about the whole; e.g. simultaneously attending to production, marketing and financial aspects
(parts) of the overall business strategy (the whole).
(ix) Problem solving-Observing the symptoms, diagnosing and curing.
(x) Self-confidence- Not being afraid of the risks associated with business and relying on one’s
capabilities to successfully manage these.
(xi) Assertiveness- Conveying emphatically one’s vision and convincing others of its value.
(xii) Persuasion- Eliciting support of others in the venture.
(xiii) Use of Influence Strategies- Providing leadership.
(xiv) Monitoring- Ensuring the progress of the venture as planned.
(xv) Concern for Employee Welfare- Believing in employee well being as the key to competitiveness and
success and initiating programmes of employee welfare. The self-administered questionnaire in the
annexure to this chapter would help you measure where you stand on these competencies. Given that
these competencies matter in entrepreneurial success. EDI estimates that development of these
competencies can substantially (as much as 33%) bring down incidence of business failures/industrial
sickness.
Developing Competencies
‘Awareness,’ they say, is the first step towards ‘improvement’ and ‘success.’ Now that you are aware of
the critical competencies for entrepreneurial success and also have a measure of your scores on these, it is
appropriate that you also think in terms of how to improve your scores. Suppose, you find yourself
lacking in the competency- ‘opportunity spotting,’ you may start practicing to think like an entrepreneur
(See Box entitled ‘Thinking like an Entrepreneur’). With just a little change in perspective, the world
changes for you. Similarly you may work on the other competencies as well.

Entrepreneurship Development Programmes

Entrepreneurship is regarded as one of the important determinants of the industrial growth of the country.
The dearth of the entrepreneurial and managerial skill is one of the most common problems being faced
by all under developed economies. Entrepreneurship is to promoted to help alleviate the unemployment
problem, to overcome the problem of stagnation and to increase the competitiveness and growth of
business and industries. Various attempts have been made to promote and develop entrepreneurship. By
giving specific assistance to improve the competence of the entrepreneur and his enterprise so as to make
him and his entrepreneurial so that more people become entrepreneurs.

In order to meet the global demand and the new challenges thrown to the Indian industry and also to
generate employment, entrepreneurship development has to be given a priority. The entrepreneurs should
possess required skills, ability to grasp opportunities which offer economic advantages, orientation
towards applying knowledge to maximize gains, business skills, and leadership qualities and above all
confidence that one can make things happen. In this context a trained entrepreneur has a number of
advantages. In order to accelerate the growth of industries generate employment and utilities the national
human potential there is a need to channelize the youth and women of the country for useful and
productive purpose. There is also a need to motivate the guide the youth to enable them to take a step
forward and take up a carrier of self employment and setup a small or micro enterprise as an entrepreneur.

GROWTH STRATEGIES FOR SMALL BUSINESS

Generally, the term ‘business growth’ is used to refer to various things such as increase in the total sales
volume per annum, an increase in the production capacity, increase in employment, an increase in
production volume , an increase in the use of raw material and power. These factors indicate growth but
do not provide a specific meaning of growth. Simply stated, business growth means an increase in the size
or scale of operations of a firm usually accompanied by increase in its resources and output.
Business enterprise is like a human being, growth is a necessary stimulant to most of the business firms.
As a matter of fact, growth is precondition for the survival of a business firm. An enterprise that does not
grow may, in course of time have to be closed down because of its obsolete products. The market is full of
examples of very popular products disappearing from the scene for lack of growth plans. For example,
pagers vanished from the market because better technology product i.e. cell phones were introduced. The
reasons which drive business enterprises toward growth are described below:

(I) Survival: In a competitive market no single enterprise can have monopoly. The competition can be
direct or indirect. Direct competition comes from other firms manufacturing the same product. For
example, there are many brands of shampoos available in the market. To survive the competition the
manufacturer of each brand of shampoo has to continuously bring new versions of basic product to
maintain an edge over his competitors. Indirect competition may come from availability of cheaper
substitutes. For example, the khadi industry faced a problem when polyester emerged. Severe competition
forces a firm to grow and gain competitive strength. Any business firm that fails to grow can’t survive for
long. A growing concern will be an innovator and can easily face the risk of competition. Thus growth is
means of survival in a competitive and challenging environment.

(ii) Economies of Scale: Growth of a firm may provide several economies in production, purchasing,
marketing, finance, management etc. A growing firm enjoys the advantages of bulk purchase of materials,
increased bargaining power, spreading of overheads, expert management etc. This leads to low cost of
production and higher margin of profit. This also ensures full utilization of plant capacity.

(iii) Owners mandate: The owners of a company get the ultimate benefit of growth in the form of higher
profits. They may direct the management to reinvest a substantial portion of the earnings in the business
rather than paying them out. Capable management may on its own like to take carefully calculated risk
and expand the size of the company.

(iv) Expansion of the market – Increase in demand for goods and services leads business firms to increase
the supply also. Population explosion and transportation led to increase in the size of markets which in
turn resulted in mass production. Business firms grow to meet the increasing demand. Expanding markets
provide opportunity for business growth.

(v) Latest Technology – Some business firms invest in research and development activities to create new
products and new techniques, while others try to acquire latest technology from the market.
Rationalization and automation results in more efficient use of resources and a firm may grow to obtain
them.
(vi) Prestige and Power – The more the size of the business firm increase the more is the prestige and
power of the firm. Businessmen satisfy their urge for power by increasing the size of their business firm.

(vii) Government Policy – In a planned economy like India, business firms operate under a large number
of rules and restrictions. A big firm is in a better position to carry out the various legal formalities
required to obtain licenses and quotas. Business firms may plan for growth to make use of the incentives
provided by the government. The government provides certain subsidies and tax concessions to the new
industrial units in the backward areas and those producing goods for export only.

(viii) Self-sufficiency – Some firms grow to become self sufficient in terms of marketing of raw material
or marketing of products. Growth in either or both of these forms reduces the dependency of the firm over
other firms.

ADVANTAGES OF GROWTH

Business firms try to achieve growth in order to obtain the following advantages:

(i) For obtaining the economies of scale.

(ii) For exploitation of business opportunities.

(iii) For facing competition in the market by diversifying the product line.

(iv) For providing protection against adverse business conditions eg. Depression.

(v) For gaining economic and market power

(vi) For raising profits and creating resources for further reinvestment into business.

(vii) For making optimum utilization of resources.

(viii) For securing subsidies, tax concessions and other incentives offered by the government

LIMITATIONS OF GROWTH

Business firms cannot grow indefinitely. Growth has its own limitations which are:

(i) Finance: Growth, especially external growth, requires additional capital investment which is
sometimes difficult for a small firm to arrange.
(ii) Market: Growth can be achieved to the extent that the size of market permits. If a firm grows faster
than increase in the size of the market, it is likely to face failure.

(iii) Human Relations Problems: In a big firm, management loses personal touch with employees and
customers. Motivation and morale tend to be low resulting in inefficiency.

(iv) Management: Growth increases the functions and complexities of operations. As the number of
functions and departments increase, coordination and control become very difficult. If the organization
and management structure is not capable of accommodating them, growth may be harmful.

(v) Lack of knowledge: Under conglomerate growth, a firm enters new industries and new markets about
which the managers know little. Managers find it difficult to find and develop managers who can quickly
handle new units and improve their earning potential against heavy odds. Many growing firms could not
succeed because their managers felt that they could manage anything anywhere.

(vi) Social problems: From social point of view also big firms may be undesirable as they may lead to
concentration of economic power and creation of monopolies which may exploit consumers. In their
desire for growth firms indulge in combative advertising. The quickening growth creates a cultural gap
when society finds it difficult to cope with technological change.

FORMS OF GROWTH

Once an entrepreneur understands some of the factors that influence growth and development, he can
choose a suitable way for achieving it. Business growth can take place in many ways. Broadly, various
types of growth can be divided into two broad categories – organic and inorganic growth. Organic Growth
– It can also be termed as internal growth. It is growth from within. It is planned and slow increase in the
size and resources of the firm. A firm can grow internally by ploughing back of its profits into the
business every year. This leads to the growth of production and sales turnover of the business. Internal
growth may take place either through increase in the sales of existing products or by adding new products.
Internal growth is slow and involves comparatively little change in the existing organization structure. It
can be planned and managed easily as it is slow. The ways used by the management for internal growth
include: (I) intensification; (ii) diversification and (iii) modernization.

Inorganic Growth – it can also be termed as external growth. It involves a merger of two or more business
firms. A firm may acquire another firm or firms may combine together to improve their competitive
strength. External growth has been attempted by the business houses through the two strategies (a)
mergers and acquisitions and (b) joint ventures. Merger again can be of two types: (i) a firm merges with
other firm in the same industry having similar or related products. This type of merger leads to
coordination problem between the two firms (ii) a firm merges with another firm in altogether different
lines of business and have little common in their products or proceses such a merger is known as
conglomerate merger. Inorganic growth is fast and allows immediate utlization of acquired assets. There
is no risk of overproduction as the capacity of the industry as whole remains unchanged. Merger leads to
combination of independent units to control competition, to gain economics of scale and also sometimes,
to modernize production facilities. But merger also leads to social problem of monopoly, problem of
coordination, strain on capital structure, etc. Thus, external growth involves problem of reorganization.

MEANING OF GROWTH STRATEGY

The term strategy means a well planned, deliberate and overall course of action to achieve specific
objectives. According to chandler, “strategy is the determination of the basic long term goals and
objectives of an enterprise and the adoption of courses of action and the allocation of resources necessary
to carry out these objectives”. The concept of strategy has been derived from military administration
wherein it implies ‘Grand’ military plan designed to defeat the enemy. As applied to business, strategy is
a firm’s planned course of action to fight competition and to increase its market share. ‘Growth Strategy’
refers to a strategic plan formulated and implemented for expanding firm’s business. For smaller
businesses, growth plans are especially important because these businesses get easily affected even by
smallest changes in the marketplace. Changes in customers, new moves by competitors, or fluctuations in
the overall business environment can negatively impact their cash flow in a very short time frame.
Negative impact on cash flow, if not projected and adjusted for, can force them to shut down. That is why
they need to plan for their future. Small entrepreneurs generally feel that strategic planning is for large
business houses; but it is very necessary for small and medium enterprises. Strategic Planning gives a
formal direction to the business. Strategic planning is necessary to take care of the additional efforts and
resources required for faster growth.

Different type of growth strategies are available each having advantage and disadvantage of its own. A
firm can adopt different strategies at different points of time. Every firm has to develop its own growth
strategy according to its own characteristics and environment.

TYPES OF GROWTH STRATEGIES

The following are the main growth strategies available to firms:

1. Intensive Growth Strategy (Expansion)

2. Diversification

3. Modernization

4. External Growth Strategy

(a) Mergers

(b) Joint Ventures

GROWTH STRATEGIES

Organic / Internal Growth Strategy

Intensive growth

Diversification

Modernization

Inorganic / External Growth Strategy

Merger

Joint Ventures

Types of Growth Strategies

INTENSIVE GROWTH STRATEGY

Intensive growth strategy or expansion involves raising the market share, sales revenue and profit of the
present product or services. The firm slowly increases its production and so it is called internal growth
strategy. It is a good strategy for firms with a smaller share of the market. Three alternative strategies are
available in this regard. These are:

(a) Market Penetration – This strategy aims at increasing the sale of present product in the presented
market through aggressive promotion. The firm penetrates deeper into the market to capture a larger share
of the market. For example, promoting the idea of cold coffee during the summer season, also the idea of
instant coffee, instant tea and tea bags.
(b) Market Development – It implies increasing sales by selling present products in the new markets. For
example selling electronic goods in rural areas or sale of chocolates to middle aged and old persons.
Market development leads to increase in sale of existing products in unexplained markets.

(c) Product Development: In this, the firm tries to grow by developing improved products for the present
market. For example, A.C. with remote control, Refrigerator with automatic defreezing and flexible
shelves.

Advantages of Intensive Growth Strategy

(1) Growth is slow and natural. Therefore, it can be handled easily.

(2) Capital required for expansion can be taken from the firm's own funds.

(3) Existing resources can be better utilized

(4) The growing firm is in a better position to face competition in the market.

(5) Only a few changes are required in the organisation and management systems of business.

(6) Expansion provides economics of large-scale operations.

Limitations of Intensive Growth Strategy

(1) Growth is very slow and it takes a long time for growth to actually happen.

(2) A business firm loses the possibility of exploiting many business opportunities by restricting its
operations to the present products and markets.

(3) It is not always possible to grow in the present product market.

Practical Problems of Intensive Growth Strategy

When small business firms try to expand many problems obstruct their way.

Some of these problems are given below:

(I) Scarcity of Funds: For expansion additional funds are required for investing in both fixed assets and
current assets. Funds for fixed capital and working capital are not easily available. Many a times a small
firm has to borrow funds at high rates of interest.
(ii) Risk: Expansion means more risk. Many small-scale firms do not have the ability or will-power to
assume these risks particularly where the competition is acute and raw materials have to be imported.
Some small-scale owners continue to operate at a given scale due to the risks and difficulties involved in
expansion.

(iii) Technology: Expansion often requires upgradation of technology and replacement of plant and
machinery. Upgradation of technology is a time-consuming and expensive process. It becomes essential
to recruit new staff or retrain the existing staff in the use and operation of new technology

(iv) Marketing. Expansion is profitable only when the increased output can be sold at good prices. Small-
scale units face hurdles in selling and distribution of their products due to competition from large-scale
units