SMCG Notes-1

Sugandhini B S Akshara institute of management studies, shimoga .
Strategic management and corporate governance
Unit-1
Introduction
Concept of strategy
• The term strategy is “military” word. Mr. Hugh Macmillan & Mohan
tempoe . Compare strategy to military action.
• Thinking Strategically:
The Three Big Strategic Questions
1. Where are we now?
2. Where do we want to go?
– Business(es) to be in and market positions to stake out?
– Buyer needs and groups to serve?
– Outcomes to achieve?
3. How do we get there?
• In Traditional Sense:
“It is the science of planning and directing the military operations”
• In Modern sense:
Professor Henry Mint berg developed a modern approach about
strategy.
According to him “strategy is a pattern in a stream of decisions as actions.”
Strategy ?
• A strategy is a high level future plan of action, undertaken by senior
management at a high level of abstraction, to achieve one or more goals
under conditions of uncertainty.
• A strategy describes how the ends (i.e. the goals) will be achieved by the
means (i.e. by deploying the resources). This is generally tasked with
determining strategy. It involves activities such as strategic planning and
strategic thinking
• A company’s strategy consists of the set of competitive moves and
business approaches that management is employing to run the company
• Strategy is management’s “game plan” to
• Attract and please customers
• Stake out a market position
• Conduct operations
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• Compete successfully
• Achieve organizational objectives
Why are the Strategies Needed?
• To proactively shape how a company’s business will be conducted.
• To mold the independent actions and decisions of managers and
employees into a coordinated, company-wide game plan.
STRATEGY MANAGEMENT
Is a set of managerial decision and the action that determine the long term
goals and long run performance of company? It including environment
scanning, strategy formulation and strategic implementation to achieve
the organization goals
• According to Mr. John and Richard : “Strategic Management is define as

a set of decisions and action resulting in formulation and implementation
of strategies designed to achieve the objectives of on organization”
• According to Alfred chandler “ the determination of long term goals and
objectives for an enterprise and the adoption of action and the allocation
of resources necessary for carrying out these goals”
Characteristics of Strategic Management

• Strategy is a systematic phenomenon:
• By its nature, it is multidisciplinary:
• By its influence, it is multidimensional
• By its structure, it is hierarchical
• By relationship, it is dynamic:
• Strategy requires searching for new sources of advantage:
Dimensions of Strategic Management

• Strategic issues require top-management decisions
• Strategic issues involve the allocation of large amounts of company
resources
• Strategic issues are likely to have significant impact on the long-term
prosperity of the firm
• Strategic issues are future oriented
• Strategic issues usually have major multifunctional or multi business
consequences
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• Strategic issues necessitate considering factors in the firm's external

environment.
Approaches to strategic decision making

• Unilateral firms :
• Ad Hoc firms:
• Administrative firms:
• Collaborative firms :
Level of Strategic Management
1. Corporate Strategy
2. Bussiness Strategy
3. Functional Strategy
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Strategic Management Process

• The strategic management process means defining the organization’s
strategy. It is also defined as the process by which managers make a
choice of a set of strategies for the organization that will enable it to
achieve better performance.
• Environmental Scanning- Environmental scanning refers to a process of

collecting, scrutinizing and providing information for strategic purposes.
It helps in analyzing the internal and external factors influencing an
organization. After executing the environmental analysis process,
management should evaluate it on a continuous basis and strive to
improve it.
• Strategy Formulation- Strategy formulation is the process of deciding
best course of action for accomplishing organizational objectives and
hence achieving organizational purpose. After conducting environment
scanning, managers formulate corporate, business and functional
strategies.
• Strategy Implementation- Strategy implementation implies making the
strategy work as intended or putting the organization’s chosen strategy
into action. Strategy implementation includes designing the
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organization’s structure, distributing resources, developing decision

making process, and managing human resources.
• Strategy Evaluation- Strategy evaluation is the final step of strategy
management process. The key strategy evaluation activities are:
appraising internal and external factors that are the root of present
strategies, measuring performance, and taking remedial / corrective
actions. Evaluation makes sure that the organizational strategy as well as
it’s implementation meets the organizational objectives
Business Policy and Strategic Management
• Business policy is the study of roles and responsibilities of top-
management, the significant issues affecting organizational success and
the decision affecting organization in long-run.
• Business policy are the guidelines developed by an organization to
govern its action. policy are guides to decision making and address
repetitive or recurring situations.
Strategic management Vs operation management

Strategic management
 The process of understanding the business environment, developing the
desired state of performance and implementing strategies to achieve it.
 It concerned all the activities in the organization as whole, it concerned
to top level to bottom level of the organization.
 SM is a long term process where it identifies the long term desired level
performance and try to achieve it.
 The SM process involves a non reutilized tasks where there is very
ambiguous and dynamic nature.
 Is the process which requires heavy management skills to handle.
 SM process as it manages critical success factors of an organization. It
direct link to the survival of an organization.
Operation management
 It involves executing the strategies on the day to day basis to achieve the
desired performance in the long run.
 It concerned of operations in production function of the organization at
the operation / manufacturing floor level of organization.
 Om is the short term focused and handles day to day operation entity.
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 The OM involves day to day activities of a business organization at the

operations level which reutilized and mechanical, it does not involve
any ambiguity.
 It is the fairly simple process and manager with average skills can handle
the daily operations of the organization.
 It indirectly influence the organization survival through cumulative
performance on a day today basis.
Strategic role of Board of Director and Top Management
Unit-2
Strategic Intent
Strategic Intent Meaning
 It refers to the purpose the organization strives for. The frame work
incentives which firms operate adopt a predetermined direction and
attempt to achieve their goal is provided by strategic intent.
 The hierarchy of strategic intent covers that vision, mission, business
definition, business model and goals and objectives.
 Strategic intent is company’s vision of what it wants to achieve in long
term.
 For example: strategic intent of Dabur limited is “we intend to
significantly accelerate profitable growth”.
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Concept of Vision and Mission

 Vision is the statement that expresses origination's ultimate long-run
objectives. It is what the firm ultimately likes to become.
 Vision once formulated is for forever and long lasting for years to
achieve.
 Vision is closely related with strategic intend and is forward thinking
process.
 Vision is closely related with a term ‘strategic intent’ – a desired
leadership position that is currently unachievable due to the lack of
resources and capabilities.
 Vision is the statement that expresses origination's ultimate long-run
objectives. It is what the firm ultimately likes to become.
 Vision once formulated is for forever and long lasting for years to
achieve.
 Vision is closely related with strategic intend and is forward thinking
process.
 Vision is closely related with a term ‘strategic intent’ – a desired
leadership position that is currently unachievable due to the lack of
resources and capabilities.
Mission
 It tells who we are and what we do as well as what we’d like to become.
 Mission of a business is the fundamental, unique purpose hat sets it apart

from other firms of its kind and identifies the scope of its operations in
product and market terms.
 A mission statement is a short statement of an organization’s purpose,
what its overall goal is, identifying the goal of its operations: what kind of
product or service it provides, its primary customers or market and its
geographical region of operations.
 Mission statement is a description of what an organization actually does –
what its business is – and why it does it.
Mission of Amul:
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“To manufacture world class products of outstanding qualities, providing

related services and solutions to our client while utilizing latest
technologies, highest business standards, work ethics corporate
governance so we can make every customer SMILE”.
Mission of Infosys:
Infosys International Inc. is dedicated to providing the people, services
and solutions our clients need to meet their information technology
challenges and business goals.
Mission of Amazon:
"Amazon is guided by four principles: customer obsession rather than
competitor focus, passion for invention, commitment to operational
excellence, and long-term thinking.
Difference between Mission and Vision

Vision
 Tells what an organization aims to achieve.
 What do we want to become?
 It includes Objectives, Values.
 Talks about the future
 It develops Employees of the company
Mission
 States what a company is currently doing.

 What do we do?
 It includes Customers, Products/Services, Markets, Technology, concern
for public image, Concern for employees
 Talks about the present
 It develops Employees, customers, suppliers, distributors, partners and
communities
Constituent of Corporate Mission

 Customers: Who are the enterprise's customers?
 Products or services: What are the firm's major products or services?
 Markets: Where does the firm compete?
 Technology: What is the firm's basic technology?
 Concern for survival, growth, and profitability: What is the firm's
commitment towards economic objectives?
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 Philosophy: What are the basic beliefs, core values, aspirations and
philosophical priorities of the firm?
 Self-concept: What are the firm's major strengths and competitive
advantages?
 Concern for public image: What is the firm's public image?
 Concern for employees: What is the firm's attitude/orientation towards
employees?
Stake Holders- Goals and Corporate Missions

 Stakeholders are those organisations or people that have an interest in the
organisation, these interests varied and for many reasons.
 It is difficult for an organisation to be committed to treating all
stakeholders equally, all stakeholders can be listened to, but at the same
time it would very difficult to consider their views equally.
 Stakeholders are groups or individuals who have a stake in, or
expectation of, the organization's performance .....”
Objectives –Concepts
 A specific result that a person or system aims to achieve within a time
frame and with available resources.
 In general, objectives are more specific and easier to measure than goals.
Objectives are basic tools that underlie all planning and strategic
activities. They serve as the basis for creating policy and evaluating
performance. Some examples of business objectives include minimizing
expenses, expanding internationally, or making a profit.
For examples:
 Our main objective is to improve the company's productivity.
 My sole objective is to make the information more widely available.
Difference between goal and objectives

Goal
 Goals are final results or outcome of the endeavor.
 It is what you want to achieve.
 Broader than objectives.
 May not be measurable.
 Have a longer time frame.
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Objectives
 Objectives are the specific results that help to achieve the final goal.
 It is how you are going to achieve the goal.
 More specific.
 Measurable.
 Have a short time frame.
Hierarchy of Objectives:
Concepts of goals and objectives

 Goals help define a company's purpose, assist its business growth and
achieve its financial objectives. Setting specific organizational goals can
also help a company measure their organization's progress and determine
the tasks that must be improved to meet those business goals.
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 Goals need to be specific, measurable, achievable and timely. By setting

clear, realistic goals, organizations have a clearer path to achieve success
and realize its vision. Goal setting, and attaining them, can also help an
organization achieve increased efficiency, productivity and profitability
Importance of goal-setting in organization:

 Goals inform the specific steps a business should take in order to succeed.
 Goals improve employer/employee communication.
 Goals force founders to keep the right perspective.
 Goals help founders to see themselves clearly.
 Goals sustain future growth and company autonomy.
Unit-3
External and Internal Environmental Analysis
Environment
• Environment is defined as something external to an individual or
organization.
• Business environment refers to all external factors which will influence
the activities of business.
• However, some experts have used the term “environment” in a broader
sense. They defined business environment as external and internal factors
that have direct or indirect influence on business or business activities.
• Business environment consists of all the factors that affect a company’s
operations, actions and outcomes.
• It is comprised of macro environment and micro environment, the former
includes legal and political environment, social environment, economic
environment and technological environment, and the later includes
customers, competitors, stakeholders, suppliers, banks and so on.
• Strategy is a action plan designed to achieve a particular goal. It is the
direction and scope of an organization over the long-term.
• which achieves advantage for the organization through its configuration
of resources within a changing environment, to meet the need of markets
and to fulfil stakeholder expectation
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• Strategy planning is determined by the external and internal environment,

however, it may be ineffective because the environment can not predict
clearly.
• Therefore, marketers should obtain new information in the business
environment continually and make strategic planning that can meet the
changing conditions
Importance of Environment in Strategic Management
• Environmental analysis will help the firm to understand what is
happening both inside and outside the organization and to increase the
probability that the organisational strategies developed will appropriately
reflect the organizational environment.
• Environmental scanning is necessary because there are rapid changes
taking place in the environment that has a great impact on the working of
the business firm.
• Analysis of business environment helps to identify strength weakness,
opportunities and threats. SWOT analysis is necessary for the survival
and growth of every business enterprise.
The following is the need and importance of environmental scanning:

1. Identification of strength:
2. Identification of weakness:
3. Identification of opportunities:
4. Identification of threat:
5. Optimum use of resources:
6. Survival and growth:
7. To plan long-term business strategy:
8. Environmental scanning aids decision-making:
Types of Environment in Strategic Management

1. Internal environment
a) Physical assets
b) Technological capabilities
c) Human, financial and marketing resources
d) Management structure
e) Objectives and values
f) Vision, mission.
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2. External Environment
A) External Micro Environment:
• Suppliers of Inputs:
• Customers:
• Marketing Intermediaries:
• Competitors:
• Publics:
B) External Macro Environment:
• Economic Environment:
• Social and Cultural Environment:
• Political and Legal Environment:
• Technological Environment:
• Demographic Environment:
• Natural Environment:
• Ecological Effects of Business:
PEST Analysis (political, economic, socio-cultural and technological )
• it describes a framework of macro environmental factors used in the
environmental scanning components of strategic management.
• It is part of an external analysis when conducting a strategic analysis or
doing market research, and gives an overview of the different macro-
environmental factors to be taken into consideration.
• It is a strategic tool for understanding market growth or decline, business
position, potential and direction for operations.
‘P’ stands for “Political Environment”.

• It includes government regulations or any defined rules for that particular
industry or business.
• It also involves study of tax policy which includes exemptions' If any,
employment law, environment laws, property rights and corruptions etc.
‘E’ stands for “Economic factors”.

• It includes the economic environment by studying factors in the macro
economy such as interest rates, economic growth, exchange rate as well
as inflation rate.
• These factors also help in accessing the demand, costing of the product,
expansion and growth.
• It related to trade agreements and currency.
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‘S’ stands for “social factors”

• it includes the study of the macro environment of the organization.
• It includes the study of demographics, as well as the target customers.
• These factors help to measure or gauge the potential size of the market.
• It includes study of population growth, age, distribution, career attitude
etc.
‘T’ stands for “Technology”

• Technology changes very rapidly, and customers are hungry, and
customers are hungry to adopt new technology.
• It involves understanding factors which are related to technology gets
upgrading by innovation.
• It includes the new innovation and technological environment.
Michal Porter’s Five Force Model

1. Rivalry among the existing competitors
• Number of competitors
• Quality differences
• Switching costs
• Customer loyalty
• Brand loyalty
• Price wars
• Investment in innovation and new product.
• Intensive promotion
2. Threat of New Entry
• Time and cost of entry
• Specialist knowledge
• If new entrants move into an industry, they will gain market share and
rivalry will be increased.
• The position of existing firm is stronger, if there are barriers to entering
the market.
• If the barriers to entry are low, then threat of new entrants will be high,
Vice versa.
Easy to enter: when
• There is common technology
• Freedom of distribution channel
• Low capital requirement
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• No need to have high capacity and output

• Absence of strong brands and customer loyalty
Difficult to enter : when
• Patented and property know-how
• Well established brand
• Restricted distribution channel
• High capital requirements
3.Bargaining power of Buyer/customer

Customer tends to enjoy strong bargaining power when:
• There are only a few of them
• The customer purchase a significant proportion of output of an industry.
• They can choose from a wide range of supply firms
• They find it easy and inexpensive to switch to alternative suppliers.
4. Bargaining power of suppliers

If a firm's suppliers have barging power, when
• There are only a few large suppliers.
• The resources they supply is scare
• The cost of switching to an alternative suppliers is high.
• The customer is small and unimportant.
• There are few substitute resource are available.
5. Threat of substitute products
• A substitute product can be regarded as something that meets the same

need.
• These are produced in a different industry but satisfy the same customer
need.
• The extent to which the price and performance of substitute can match the
industry’s product.
• The willingness of customer to switching cost.
• Customer loyalty and switching costs.
Strategic groups
• It refers to group of companies who fallow the same strategy within a
particular industry.
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• A company which operates in an industry can have different segment

catering to different markets.
• A strategic group is a used in strategic management that groups
companies within an industry that have similar business models or similar
combinations of strategies.
ETOP Analysis.
• It refers to Environment Threat and Opportunity Profile.
• It is a technique to structure the environment for fundamental business
analysis.
• It was developed by glueck
• The presentation of ETOP involves dividing the environment into
different sectors and analyzing the impact of each sector on the
organization.
• ETOP requires sub-dividing each environmental sector into sub-sectors
and then the impact of each sector is described in the form of a statement.
Competitive Advantage
• It refers to superior performance relative to other competitors in the same
industry or superior performance relative to the industry average.
• Higher profit margin, greater return on assets, valuable resource such
brand reputation, unique production these are all consider as competitive
advantage
• An organization that is capable of out performing its competitors over a
long period of time has sustainable competitive advantage.
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Through external changes.

 Changes in PEST factors. PEST stands for political, economic,
socio-cultural and technological factors that affect firm’s external
environment.
 Company’s ability to respond fast to changes. The advantage
can also be gained when a company is the first one to exploit the external
change. Otherwise, if a company is slow to respond to changes it may
never benefit from the arising opportunities.
• By developing them inside the company.
 VRIO resources. A company that possesses VRIO (valuable, rare, hard
to imitate and organized) resources has an edge over its competitors due
to superiority of such resources. If one company has gained VRIO
resource, no other company can acquire it (at least temporarily). The
following resources have VRIO attributes:
 Intellectual property (patents, copyrights, trademarks)
 Brand equity
 Culture
 Know-how
 Reputation
Unique competences.
• Competence is an ability to perform tasks successfully and is a cluster of
related skills, knowledge, capabilities and processes.
• A company that has developed a competence in producing miniaturized
electronics would get at least temporary advantage as other companies
would find it very hard to replicate the processes, skills, knowledge and
capabilities needed for that competence.
Innovative capabilities.
• Most often, a company gains superiority through innovation. Innovative
products, processes or new business models provide strong competitive
edge due to the first mover advantage.
• For example, Apple’s introduction of tablets or its business model
combining mp3 device and iTunes online music store.
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M. Porter has identified 2 basic types of competitive advantage:
Cost advantage:
• Porter argued that a company could achieve superior performance by
producing similar quality products or services but at lower costs.
• In this case, company sells products at the same price as competitors but
reaps higher profit margins because of lower production costs.
• The company that tries to achieve cost advantage (like Amazon.com) is
pursuing cost leadership strategy.
• Higher profit margins lead to further price reductions, more investments
in process innovation and ultimately greater value for customers.
Differentiation advantage.
• Differentiation advantage is achieved by offering unique products and
services and charging premium price for that.
• Differentiation strategy is used in this situation and company positions
itself more on branding, advertising, design, quality and new product
development (like Apple Inc. ) rather than efficiency, outsourcing or
process innovation.
• Customers are willing to pay higher price only for unique features and the
best quality.
• The cost leadership and differentiation strategies are not the
only strategies used to gain competitive advantage. Innovation strategy is
used to develop new or better products, processes or business models that
grant competitive edge over competitors.
Generic- building blocks

• Competitive advantage consists of 4 generic building blocks: quality,
innovation, efficiency and customer responsiveness.
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• Superior quality means better design, durability and reliability of the

product.
• Superior Efficiency refers to cost to the target market via production,
overheads.
• Superior customer responsiveness is the degree to which a product
satisfies the needs of the customer.
• Superior innovation means adding value and service ahead of the
competitors.
Core competencies
• It refers to specific skills, knowledge and expertise, that is hard to be
followed by the competitors.
• It amounts to sure success formula for a firm in the long run.
• It provides sustained superiority to the firm.
• It accrues from fundamental strength.
• It provides excellence in a variety of businesses and products.
• Apple - used a core competency of design to “attack all types of
hardware and software” and disrupt multiple industries, like the music
industry.
• Nike - used a core competency of product development to burst through
manufacturing shoes and widen their circle of competency to a digital
platform.
Internal Factor Analysis

• An internal factor includes resources and function of an organization such
as marketing, finance, human resource, production,research and
development systems.
• Internal factor can be controlled and influenced
• It helps to analysis to establish long-term objectives, generate, evaluate
and select strategies i.e. strategy formulation.
Importance of Internal Factor Analysis.

• It helps to analyze the strength and weakness.
• It helps to understand the competitive advantage, growth, profitability in
the firm.
• It helps to assess the organization and formulate, implement and evaluate
the strategic plan
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• It analysis helps in understanding its past trends and activities.
Strategic Advantage Profile (SAP)

• Every firm has strategic advantages and disadvantages. For example,
large firms have financial strength but they tend to move slowly,
compared to smaller firms, and often cannot react to changes quickly. No
firm is equally strong in all its functions. In other words, every firm has
strengths as well as weaknesses.
• Marketing and Distribution
• R & D and Engineering
• Production and Operations Management
• Corporate Resources and Personnel
• Finance and Accounting
Unit-4
Strategic formulation and implementation
Strategy formulation
• Strategy formulation is the process by which an organization chooses the
most appropriate courses of action to achieve its defined goals.
• This process is essential to an organization's success, because it provides
a framework for the actions that will lead to the anticipated results
• Strategy Formulation is an analytical process of selection of the best
suitable course of action to meet the organizational objectives and vision.
It is one of the steps of the strategic management process.
• The strategic plan allows an organization to examine its resources,
provides a financial plan and establishes the most appropriate action plan
for increasing profits.
Steps of Strategy Formulation

• Step 1. Setting Basic Objectives:
• Step 2. Identify Opportunities and Risks:
• Step 3. Evaluating Alternative Resource:
• Step 4. Formulating Alternative Strategies:
• Step 5. Evaluating these Alternatives:
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• Step 6. Establishing Basic Strategy:

• Step 7. Implementing Strategy:
• Step 8. Evaluating Strategy:
Strategy Framework for Analyzing Competition

• A central aspect of strategy formulation is perceptive competitor analysis.
There are four diagnostic components to a competitor
analysis: future goals, current strategy, assumptions and capabilities.
• A basic framework for performing individual competitive analysis has
been postulated by Michael Porter.
Porter’s Value Chain Analysis

• The value chain also known as Porter’s Value Chain Analysis is a
business management concept that was developed by Michael Porter. In
his book Competitive Advantage (1985),
• Michael Porter explains Value Chain Analysis; that a value chain is a
collection of activities that are performed by a company to create value
for its customers.
• Value Creation creates added value which leads to competitive
advantage. Ultimately, added value also creates a higher profitability for
an organization.
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The Value Chain activities
• Porter’s Value Chain Analysis consists of a number of activities, namely

primary activities and support activities.
• Primary activities have an immediate effect on the production,

maintenance, sales and support of the products or services to be supplied.
Primary activities consist of the following elements:
• Inbound Logistics
• Production
• Outbound logistics
• Marketing and Sales
• Service
Support activities of the Value Chain Analysis
• Firm infrastructure
• Human resource management
• Technology development
• Procurement
Using the Porter’s Value Chain Analysis

• Step 1: identify sub activities for each primary activity
• Step 2: identify sub activities for each support activity
• Step 3: identify links
• Step 4: look for opportunities/ solutions to optimize and create value
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Corporate level Strategy

• CORPORATE STRATEGY is the direction an organization takes with the
objective of achieving business success in the long term.
• Recent approaches have focused on the need for companies to adapt to
and anticipate changes in the business environment, i.e. a
flexible strategy.
Business level strategies

• Business strategy can be understood as the course of action or set of
decisions which assist the entrepreneurs in achieving specific business
objectives.
• It is the master plan that the management use to secure a competitive
position in the market, carries on its operations, please customers and
achieve the desired ends of the business.
• A business strategy is a set of competitive moves and actions that
business uses to attract customers, compete successfully, strengthening
performance, and achieve organisational goals. It outlines how business
should be carried out to reach the desired ends.
Functional level Strategies

• Functional Level Strategy can be defined as the day to day strategy
which is formulated to assist in the execution of corporate and business
level strategies.
• These strategies are framed as per the guidelines given by the top level
management. Functional Level Strategy is concerned with operational
level decision making, called tactical decisions, for various functional
areas such as production, marketing, research and development, finance,
personnel and so forth.
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• As these decisions are taken within the framework of business strategy,

strategists provide proper direction and suggestions to the functional level
managers relating to the plans and policies to be opted by the business,
for successful implementation.
Types of Strategies
• Offensive strategy
• Defensive strategy
• Vertical integration strategy
• Horizontal strategy
1. Offensive Strategy
• Offensive competitive strategy is a type of corporate strategy that consists
of actively trying to pursue changes within the industry.
• Companies that go on the offensive generally invest heavily in research &
development and technology in an effort to stay ahead of the competition.
• This strategy is particularly useful when trying to change the services of
company with regards to the changing needs of the customers and also
during the acquisition of other companies.
• A strategy implemented by a company that intends to stay ahead of its
competition, through investments in technology and research and
development.
• Improving own position by taking away market share of competitors.
• Involves direct and indirect attacks
• It helps to acquire the market share and boosts the sales.
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2. Defensive Strategy
• Defensive strategy is defined as a marketing tool that helps companies to
retain valuable customers that can be taken away by competitors.
• Defensive strategies are management tools that can be used to fend off an
attack from a potential competitor.
• Think of it as a battleground: You have to protect your share of the
market in order to keep your customers happy and your profits stable.
• Primary purpose is to make possible attacks unattractive or discourage
competitors.
• It is a developed market share, position and profitability.
• It is a strategy that can be used to keep up top position in local and
existing market.
• This strategy is most successful to keep up the customer’s confidence
when no new competitors can disturb.
Vertical Integration Strategy

• Vertical integration is a strategy used by a company to gain control over
its suppliers or distributors in order to increase the firm’s power in the
marketplace, reduce transaction costs and secure supplies or distribution
channels.
• Forward integration is a strategy where a firm gains ownership or
increased control over its previous customers (distributors or retailers).
• Backward integration is a strategy where a firm gains ownership or
increased control over its previous suppliers.
Horizontal Strategy
• Horizontal integration is the process of acquiring or merging with
competitors, leading to industry consolidation.
• Horizontal integration is a strategy where a company acquires, mergers
or takes over another company in the same industry value chain.
• It is a type of integration strategies pursued by a company in order to
strengthen its position in the industry.
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Strategic Analysis and choice

• Choosing appropriate strategies is the one area in strategic management
where you must attempt to muster your most creative talents.
• There is plenty of research to demonstrate that no matter how good your
mission, goals and objectives are, it is your choice of strategy that really
determines success or failure.
• Different types of strategies include business unit strategy, corporate
strategy, operational strategy and others.
• Strategic analysis implies the examination of the present condition of a
business and consequently developing an appropriate business strategy.
Factors Taken into Consideration for Strategic Analysis and Choice

• Key Internal Factors
Marketing
Management
Operations/Production
Accounting/Finance
Computer Information Systems
Research and Development
• Key External Factors
Political/Governmental/Legal
Economy
Technological
Social/Demographic/Cultural/Environmental
Competitive
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The following devices or techniques are used in the procedure of

strategic analysis:
Five Forces Analysis
PEST Analysis (Political, Economic, Social and Technological Analysis)
Market segmentation
Competitor analysis
SWOT Analysis (Strength, Weaknesses, Opportunities, and Threats
Analysis)
Critical Success Factor Analysis
Characteristics of Strategic Analysis and Choice

Establishment of long term goals
producing strategy options
choosing strategies to act on
Selecting the best option and accomplishing mission and goals
Strategy implementation
• Strategic implementation is a process that puts plans and strategies into
action to reach desired goals.
• The strategic plan itself is a written document that details the steps and
processes needed to reach plan goals, and includes feedback and progress
reports to ensure that the plan is on track.
The basic activities in strategy implementation involve the following:

• Establishment of annual objectives
• Formulation of policies for execution of strategies
• Allocation of resources
• Actual performance of tasks and activities
• Leading and controlling the performance of activities or tactics in various
levels of the organization
Steps In Strategy Implementation

• Step 1: Evaluation and communication of the Strategic Plan.
• Step 2: Development of an implementation structure
• Step 3: Development of implementation-support policies and programs
• Step 4: Budgeting and allocation of resources
• Step 5: Discharge of functions and activities
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Inter-relationship between formulation and implementation

Strategy formulation
• Strategy formulation is positioning forces before the action.
• Strategy formulation focuses on effectiveness.
• Strategy formulation is primarily an intellectual process.
• Strategy formulation requires good intuitive and analytical skills.
• Strategy formulation requires coordination among a few individuals
Strategy implementation
• Strategy implementation is managing forces during the action.
• Strategy implementation focuses on efficiency.
• Strategy implementation is primarily an operational process.
• Strategy implementation requires special motivation and leadership skills
• Strategy implementation requires combination among many individuals.
Unit-5
Strategic Evaluation and Control
Strategic Evaluation
• It is the assessment process that provide executives process and managers
performance information about program, projects, activities designed to
meet business goals and objectives.
• The significance of strategic evaluation lies in its capacity to co-ordinates
the task performed by managers ,groups, departments etc, through control
of performance.
Strategic Control
• Strategic control is a term used to describe the process used by
organizations to control the formation and execution of strategic plan.
• Strategic control is also focused on the achievement of future goals, rather
than the evaluation of past performance.
• Strategic control is a way to manage the execution of
your strategic plan. As a management process, it's unique in that it's built
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to handle unknowns and ambiguity as it tracks a strategy's

implementation and subsequent results.
Strategic Evaluation and Control

• It is the process of determining the effectiveness of a given strategy in
achieving the organizational objectives and taking creativeness whenever
required.
• Control can be exercised through formulation of contingency strategies
and a crisis management team.
Importance or purpose of Strategic Evaluation and Control

• Fixing benchmark of performance
• Measurement of performance
• Analyzing Variance
• Taking Corrective Action
• There is a need for feedback, appraisal and reward.
• To check on the validity of strategic choice
• Creating input for new strategic plan.
Gap Analysis.
• Strategic gap analysis is an evaluation of the difference between desired

outcome and actual outcome, and what must be done to achieve a desired
goal.
• Strategic gap analysis attempts to determine what a company should do
differently to achieve a particular goal by looking at the time frame,
management, budget and other factors to determine where shortcomings
lie.
• After conducting this analysis, the company should develop an
implementation plan (also known as an operational plan) to eliminate the
gaps.
Strategic Budgeting
• Strategic budgeting is the process of creating a long- range budget has
spans a period of more than one year.
• The intend behind this type of budgeting is to develop a plan that
supports a long- range vision for the future position of the entity.
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• It involves the development of new geographical markets, the research

and development needed to introduce a new product line, converting to a
new technology platform and the restructuring of the organization.
Strategic Auditing
• A strategic audit is an examination and evaluation of areas affected by
the operation of a strategic management process within an organization.
Audit Steps:
Evaluate current performance results
Review corporate governance
Scan and assess the external environment
Scan and assess the internal environment
Analyze strategic factors using SWOT
Generate and evaluate strategic alternatives
Implement strategies
Evaluate and control
A strategy audit may be needed under the following

conditions
• Performance indicators show that a strategy is not working or is
producing negative side effects.
• A shift or change occurs in the external environment.
• Take corrective action.
• Assessing the firm’s operational and strategic health.
Feedback in strategy management.

• Feedback control is a process that the manager used to help them to carry
out the functions of manager like plan, organize, lead and control the
team.
• This process gives the manager the necessary information to better
execute their control function, allowing the team to meet the standards set
by the manager’s plans.
• Feedback control is a process that managers can use to evaluate how
effectively their teams meet the standards goals at the end of production
process.
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Strategic Information System

• It was introduced in 1982 by Dr. Charles Wiseman and primarily used
within field of information system, strategic information system are
created in response to business initiatives to provide a competitive
advantage.
• Main task: Strategic/competitive advantage, linkage to business strategy.
• Key objective: Pursuing opportunities, integrating IS and business
strategies.
• Direction form: Executives/senior management and users, and
information system.
• SIS are information system that are developed in response to corporate
business initiative.
• They are intended to give competitive advantage to the organization.
• SIS can be used at all organizational levels.
Unit-6
Corporate Governance
Introduction
• It is the system of rules, practices and processes by which a firm is
directed and controlled.
• Corporate governance essentially involves balancing the interest of a
company’s many stakeholders, such as shareholders, management,
customers, suppliers, financiers, government and the community.
• Governance refers specifically to the set of rules, controls policies and
resolutions put in place to dictate corporate behavior.
• Since corporate governance also provides the frameworks for attaining a
company’s objectives, it encompasses practically every sphere o
management, from action plans and internal controls to performance
measurement and corporate disclosure.
• Corporate governance has a broad scope. it includes both social and
institutional aspects.
• It encourages a trustworthy, morale, as well as ethical environment.
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Principles of Corporate Governance

• Sustainable development of all stakeholders
• Effective management and distribution of wealth
• Discharge of social responsibility
• Application of best management practices
• Compliances of law in letter and sprit
• Adherence to ethical standards
Pillars of Corporate Governance

The 4 pillars of corporate governance are:
• Accountability
• Fairness
• Transparency
• Independence
Benefits of Corporate Governance

• Good corporate governance ensures corporate success and economic
growth
• Strong corporate governance maintains investors’ confidence, as a result
of which, company can raise capital efficiently and effectively.
• It lower the capital cost.
• There is a positive impact on the share price.
• It helps in brand formation and development.
• Good corporate governance also minimizes wastages, corruption, risks
and mismanagement.
Corporate Governance and Strategic management

• Corporate governance in strategic management, refers to the set of
internal rules and policies that determine how a company is directed.
• For example, which strategic decisions can be decided by managers and
which decision must be decided by the board of directors or shareholders.
• The BOD is responsible for supervising the successful management of the
organizations' business.
• It has the authority and obligation to protect and enhance the assets of the
corporation in the interest of all shareholders and the company's’ public
mission.
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Models of Corporate Governance

1. The Anglo-US Model
• The Anglo-US model is characterized by share ownership of individual,
and increasingly institutional, investors not affiliated with the
corporation.
• A well-developed legal framework defining the rights and
responsibilities of three key players, namely management, directors and
shareholders
• A comparatively uncomplicated procedure for interaction between
shareholder and corporation as well as among shareholders during or
outside the AGM.
2. The Japanese Model

• The Japanese model is characterized by a high level of stock ownership
by affiliated banks and companies
• A banking system characterized by strong, long-term links between bank
and corporation; a legal, public policy and industrial policy framework
designed to support and promote “keiretsu” (industrial groups linked by
trading relationships as well as cross-shareholdings of debt and equity);
• Boards of directors composed almost solely of insiders; and a
comparatively low (in some corporations, non-existent) level of input of
outside shareholders, caused and exacerbated by complicated procedures
for exercising shareholders’ votes
3. The German Model

• The German model governs German and Austrian corporations. Some
elements of the model also apply in the Netherlands and Scandinavia.
Furthermore, some corporations in France and Belgium have recently
introduced some elements of the German model.
• The German corporate governance model differs significantly from both
the Anglo-US and the Japanese model, although some of its elements
resemble the Japanese model.
• There are two unique elements of the German model that distinguish it
from the other models outlined in this article. Two of these elements
pertain to board composition and one concerns shareholders’ rights
Page 33
Committees and Authorities on Corporate governance

Cadbury committees
• The Cadbury committee was set up in may 1991 by the financial
reporting council of the London stock exchange.
• The committee publish its report in December 1992.
• It involves role of board of directors, duties of the board and
compositions.
• It involves role of non- executives directors.
• The board should meet regularly retain full and effective control over the
company and monitor the executive management.
• The board should include non-executive directors of succifient caliber
and number of their views to carry significance weight in the board
decisions.
• All directors should have access to advice and service of the company
secretary, who is responsible to the board for ensuring that board
procedure are followed and rules and regulations are complied with.
• Non-executive directors should bring an independent judgment to bear on
issues of strategy, performance, resources, including key appointments
and standard of conduct.
• Non-executive directors should be appointed for specified terms and
reappointed should not be automatic
• Theses are selected through a formal process and both this process and
their appointment should be matter for the board as a whole.
Confederation of Indian industries(CII)

• The Confederation of Indian Industry (CII) works to create and sustain an
environment conducive to the development of India, partnering industry,
Government, and civil society, through advisory and consultative
processes.
• CII is a non-government, not-for-profit, industry-led and industry-
managed organization, playing a proactive role in India's development
process.
• Founded in 1895, India's premier business association has around 9000
members, from the private as well as public sectors, including SMEs and
MNCs, and an indirect membership of over 300,000 enterprises from
around 276 national and regional scrotal industry bodies.
Page 34
• CII charts change by working closely with Government on policy issues,

interfacing with thought leaders, and enhancing efficiency,
competitiveness and business opportunities for industry through a range
of specialized services and strategic global linkages.
• It also provides a platform for consensus-building and networking on key
issues.
• CII assists industry to identify and execute corporate citizenship
programmes.
• Partnerships with civil society organizations carry forward corporate
initiatives for integrated and inclusive development across diverse
domains including affirmative action, healthcare, education, livelihood,
diversity management, skill development, empowerment of women, and
water, to name a few.
Code of corporate governance

• The Corporate Governance Code sets out standards of good practice in
relation to issues such as board composition and development,
remuneration, accountability and audit, and relations with shareholders.
• Listed companies are required to report on how they have applied the
main principles of the Code, and either to confirm that they have
complied with the Code's provisions or – where they have not – to
provide an explanation.
The main principles of the Code

• Leadership: Every company should be headed by an effective board
which is collectively responsible for the long term success of the
company.
• Effectiveness: The board and its committees should have the appropriate
balance of skills, experience, independence and knowledge of the
company to enable them to discharge their respective duties and
responsibilities effectively.
• Accountability: The board should present a fair, balanced and
understandable assessment of the company's position and prospects.
• Remuneration: Executive director remuneration should be designed to
promote long term success of the company. Performance-related elements
should be transparent, stretching and rigorously applied.
Page 35
• Relations with shareholders: There should be a dialogue with

shareholders based on the mutual understanding of objectives. The board
as a whole has responsibility for ensuring that a satisfactory dialogue with
shareholders takes place
Kumara Mangala Birla committee

• In early 1999, Securities and Exchange Board of India (SEBI) had set up
a committee under Shri Kumar Mangalam Birla, member SEBI Board, to
promote and raise the standards of good corporate governance.
• The report submitted by the committee is the first formal and
comprehensive attempt to evolve a ‘Code of Corporate Governance', in
the context of prevailing conditions of governance in Indian companies,
as well as the state of capital markets.
• The primary objective of the committee was to view corporate
governance from the perspective of the investors and shareholders and to
prepare a ‘Code' to suit the Indian corporate environment.
The Committee's terms of the reference were to:

• suggest suitable amendments to the listing agreement executed by the
stock exchanges with the companies and any other measures to improve
the standards of corporate governance in the listed companies, in areas
such as continuous disclosure of material information, both financial and
non-financial, manner and frequency of such disclosures, responsibilities
of independent and outside directors;
• draft a code of corporate best practices; and
• suggest safeguards to be instituted within the companies to deal with
insider information and insider trading.
Mandatory Recommendations:
Applies To Listed Companies with Paid Up Capital Of Rs. 3 Crore And
Above
• Composition Of Board Of Directors – Optimum Combination Of
Executive & Non-Executive Directors
• Audit Committee – With 3 Independent Directors With One Having
Financial And Accounting Knowledge.
• Remuneration Committee
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• Board Procedures – At least 4 Meetings Of The Board In A Year With

Maximum Gap Of 4 Months Between 2 Meetings. To Review
Operational Plans, Capital Budgets, Quarterly Results, Minutes Of
Committee's Meeting. Director Shall Not Be A Member Of More Than
10 Committee And Shall Not Act As Chairman Of More Than 5
Committees Across All Companies
• Management Discussion And Analysis Report Covering Industry
Structure, Opportunities, Threats, Risks, Outlook, Internal Control
System
• Information Sharing With Shareholders
Non-Mandatory Recommendations:
• Role Of Chairman
• Remuneration Committee Of Board
• Shareholders' Right For Receiving Half Yearly Financial Performance
Postal Ballot Covering Critical Matters Like Alteration In Memorandum
Etc
• Sale Of Whole Or Substantial Part Of The Undertaking
• Corporate Restructuring
• Further Issue Of Capital
• Venturing Into New Businesses
Board committees
• Audit committee
• Compensation committee
• Nomination committee
Audit committee
• The audit committee is a central pillar of effective corporate governance
and is in the best position to offer effective oversight of the performance,
independence and objectivity of the auditor and the quality of the audit.
• Audit committees also oversee the system of internal controls and ensure
that the company is compliant with laws and regulations. Audit
committee oversight extends to IT security and operational matters.
• Certified public accountants report directly to the audit committee, as
opposed to reporting to management. The role of the audit committee
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includes such responsibilities as appointing and overseeing the work of

the auditor and managing the auditor’s compensation.
Role of the Audit Committee in Corporate Governance

• Audit committees should have at least one individual on the committee
who is considered a financial expert.
• It’s not necessary for all members of the committee to be financial
experts, but they should be individuals who are knowledgeable about
financial issues and who have a solid understanding of accounting
principles and audit and finance terms and definitions.
• Senior managers and independent auditors also have distinct roles in the
financial reporting process. Managers are responsible for preparing the
financial statements and establishing internal controls over the financial
reporting.
Compensation committee
• A committee of a board of directors that sets the compensation level of
senior management.
• In addition to salary, the compensation committee determines the level of
stock option compensation and stock warrants.
• Under the 2002 Sarbanes-Oxley legislation, members of the
compensation committee all have to be independent directors by the
middle of 2004.
• If a company is controlled by another company, it is not subject to the full
independence requirement.
• The compensation committee also must have a charter specifying its
purpose and the evaluation procedures of the committee.
Role Compensation committee

• Develop the Compensation Philosophy for the company.
• Approve any compensation plans in which Officers and Directors are
eligible to participate, subject to the review of the full Board and
shareholders, as appropriate.
• Recommends, provides oversight, and approves awards of stock options,
other equity, perquisites and other benefits, as well as employment and
change of control contracts, subject to Board and shareholder approval, as
may be required.
Page 38
• Act as liaison between the CEO and Board on all compensation and
human resources issues.
• Recommend and/or approve the CEO’s compensation to the Board, as
well as the compensation for his/her direct reports.
• Where appropriate, recommend any changes to the compensation
package for Board members, subject to approval by the entire Board.
• Select and employ whatever professional assistance may be required to
assist the Committee to accomplish its role, including legal counsel,
accounting support, and compensation consultants.
Nomination committee
• A nomination committee is a committee that acts as part of an
organization’s corporate governance.
• Nomination committees will evaluate the board of directors of its
respective firm and examine the skills and characteristics needed in board
candidates.
• Nomination committees may also have other duties, which vary from
company from company.
Role of Nomination committee

• The role of the Nomination Committee is to develop and maintain a
formal, rigorous and transparent procedure for making recommendations
on appointments and reappointments to the board of the Company.
• In addition, it is responsible for recommending appointments to the
Boards of material subsidiaries in the Group, and reviewing the
succession plans for the executive directors the non-executive director.
Nomination committee duties and reasonability

• Regularly review the structure, size and composition (including the skills,
knowledge and experience) required of the Board compared to its current
position and make recommendations to the Board with regard to any
changes;
• Give full consideration to succession planning for directors and other
senior executives in the course of its work, taking into account the
challenges and opportunities facing the company, and what skills and
expertise are therefore needed on the Board in the future;
Page 39
• Be responsible for identifying and nominating for the approval of the

Board, candidates to fill board vacancies as and when they arise;
• Membership of the Audit and Remuneration Committees, in consultation
with the chairman of those committees;
Business ethics
• Business ethics comprises the principles and standards that guide
behaviour in the conduct of business.
• Businesses must balance their desire to maximise profits against the
needs of the stakeholders.
• Maintaining this balance often requires tradeoffs. To address these unique
aspects of businesses, rules- articulated and implicit are developed to
guide the businesses to earn profits without harming individuals or
society as a whole.
Nature of business ethics

• Ethics deals with human beings
• Ethics belongs to the field of social science. It deals with moral behaviour
and conduct of human being.
• The science of ethics is a normative science. It deals with value judgment.
It decides what ought to be rather than factual judgments.
• It deals with human conduct which is voluntary and not forced by
other person or circumstances.
Corporate Social Reasonability (CSR)

• Corporate Social Responsibility (also known as CSR, corporate
conscience, and corporate citizenship) is the integration of socially
beneficial programs and practices into a corporation's business model and
culture.
• CSR aims to increase long-term profits for online and offline businesses
by enabling them to become more efficient and attract positive attention
for their efforts.
• It helps to maintain a positive reputation and Increase employee loyalty.
Page 40

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Sugandhini B S Akshara institute of management studies, shimoga .

Strategic management and corporate governance

• According to Mr. John and Richard : “Strategic Management is define as

Characteristics of Strategic Management

Dimensions of Strategic Management

• Strategic issues necessitate considering factors in the firm's external

Approaches to strategic decision making

Level of Strategic Management

Strategic Management Process

• Environmental Scanning- Environmental scanning refers to a process of

organization’s structure, distributing resources, developing decision

Strategic management Vs operation management

 The OM involves day to day activities of a business organization at the

Strategic role of Board of Director and Top Management

Concept of Vision and Mission

 Mission of a business is the fundamental, unique purpose hat sets it apart

“To manufacture world class products of outstanding qualities, providing

Difference between Mission and Vision

 States what a company is currently doing.

Constituent of Corporate Mission

Stake Holders- Goals and Corporate Missions

Difference between goal and objectives

Concepts of goals and objectives

 Goals need to be specific, measurable, achievable and timely. By setting

Importance of goal-setting in organization:

• Strategy planning is determined by the external and internal environment,

The following is the need and importance of environmental scanning:

Types of Environment in Strategic Management

‘P’ stands for “Political Environment”.

‘E’ stands for “Economic factors”.

‘S’ stands for “social factors”

‘T’ stands for “Technology”

Michal Porter’s Five Force Model

• No need to have high capacity and output

3.Bargaining power of Buyer/customer

4. Bargaining power of suppliers

5. Threat of substitute products

• A substitute product can be regarded as something that meets the same

• A company which operates in an industry can have different segment

Through external changes.

M. Porter has identified 2 basic types of competitive advantage:

Generic- building blocks

• Superior quality means better design, durability and reliability of the

Internal Factor Analysis

Importance of Internal Factor Analysis.

• It analysis helps in understanding its past trends and activities.

Strategic Advantage Profile (SAP)

Steps of Strategy Formulation

• Step 6. Establishing Basic Strategy:

Strategy Framework for Analyzing Competition

Porter’s Value Chain Analysis

The Value Chain activities

• Porter’s Value Chain Analysis consists of a number of activities, namely

• Primary activities have an immediate effect on the production,

Primary activities consist of the following elements:

Using the Porter’s Value Chain Analysis

Corporate level Strategy

Business level strategies

Functional level Strategies