Strategic Management: School of Business & Management Jaipur National University

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SCHOOL OF BUSINESS & MANAGEMENT

JAIPUR NATIONAL UNIVERSITY

STRATEGIC MANAGEMENT

FOR BBA VI SEMESTER


BY sumit janu
SYLLABUS

UNIT I INTRODUCTION
- Concept
- Meaning of Strategic Management
- Need for Strategic Management
- Role of Strategic Management in Business and Non-business
Organisations
- Organizational Mission, Vision, Objectives, Goals & Ethics
- Strategic Planning Process
- Single Strategic Business Unit
- Multiple Strategic Business Unit

UNIT II THE EXTERNAL AND INTERNAL ENVIRONMENT


- The Broad Environment : Social, Ethical, Environmental,
Technological, Legal/Political & Global
- Organizational Managers, Owners & Employees
- Human Resource Management
- Internal Resources
- Core Competence & Competitive advantage
- Porters & Forces Model
- Value Chain Model
- SWOT analysis
- TOWS Analysis

UNIT III CHOICE OF STRATEGIC ALTERNATIVES


UNIT IV STRATEGIC ALTERNATIVES & CHOICES
UNIT V STRATEGIC CONTROL
Unit I
Introduction to Strategic Management

Introduction

Strategic Management is exciting and challenging. It makes fundamental decisions


about the future direction of a firm – its purpose, its resources and how it interacts
with the environment in which it operates. Every aspect of the organisation plays a
role in strategy – its people, its finances, its production methods, its customers and
so on. Strategic Management can be described as the identification of the purpose of
the organisation and the plans and actions to achieve that purpose. It is that set of
managerial decisions and actions that determine the long-term performance of a
business enterprise. It involves formulating and implementing strategies that will help
in aligning the organisation and its environment to achieve organisational goals.
Strategic management does not replace the traditional management activities such
as planning, organising, leading or controlling. Rather, it integrates them into a
broader context taking into account the external environment and internal capabilities
and the organisation’s overall purpose and direction. Thus, strategic management
involves those management processes in organisations through which future impact
of change is determined and current decisions are taken to reach a desired future. In
short, strategic management is about envisioning the future and realizing it.

Definition of Strategic Management

We have so far discussed the concepts of strategic thinking, strategic


decision-making and strategic approach which, it is hoped, will serve as an a
background understand the nature of strategic management. However, to get an
understanding of what goes on in strategic management, it is useful to begin with
definitions of strategic management. Later in the unit, we introduce the elements and
the process of strategic management and the importance, benefits and limitations of
strategic management.

As already mentioned, the concepts in strategic management have been developed


by a number of authors like Alfred Chandler, Kenneth Andrews, Igor Ansoff, William
Glueck, Henry Mintzberg, Michael E. Porter, Peter Drucker and a host of others.
There are therefore several definitions of strategic management. Some of the
important definitions are:

1. “Strategic management is concerned with the determination of the basic long-term


goals and the objectives of an enterprise, and the adoption of courses of action and
allocation of resources necessary for carrying out these goals”. – Alfred Chandler,
1962
2. “Strategic management is a stream of decisions and actions which lead to the
development of an effective strategy or strategies to help achieve corporate
objectives”. – Glueck and Jauch, 1984

3. “Strategic management is a process of formulating, implementing and evaluating


cross-functional decisions that enable an organisation to achieve its objective”. –
Fed R David, 1997

4. “Strategic management is the set of decisions and actions resulting in the


formulation and implementation of plans designed to achieve a company’s
objectives.” – Pearce and Robinson, 1988

5. “Strategic management includes understanding the strategic position of an


organisation, making strategic choices for the future and turning strategy into action.”
– Johnson and Sholes, 2002

6. “Strategic management consists of the analysis, decisions, and actions an


organisation undertakes in order to create and sustain competitive advantages.” –
Dess, Lumpkin & Taylor, 2005

We observe from the above definitions that different authors have defined strategic
management in different ways. Note that the definition of Chandler that we have
quoted above is from the early 1960s, the period when strategic management was
being recognized as a separate discipline.

This definition consists of three basic elements:

l. Determination of long-term goals

2. Adoption of courses of action

3. Allocation of resources to achieve those goals

Though this definition is simple, it does not consist of all the elements and does not
capture the Notes essence of strategic management.

The definitions of Fred R. David, Pearce and Robinson, Johnson and Sholes and
Dell, Lumpkin and Taylor are some of the definitions of recent origin. Taken together,
these definitions capture three main elements that go to the heart of strategic
management. The three on-going processes are strategic analysis, strategic
formulation and strategic implementation. These three components parallel the
processes of analysis, decisions and actions. That is, strategic management is
basically concerned with:

l. Analysis of strategic goals (vision, mission and objectives) along with the analysis
of the external and internal environment of the organisation.
2. Decisions about two basic questions: (a) What businesses should we compete in?
(b) How should we compete in those businesses to implement strategies?

3. Actions to implement strategies. This requires leaders to allocate the necessary


resources and to design the organisation to bring the intended strategies to reality.
This also involves evaluation and control to ensure that the strategies are effectively
implemented.

The real strategic challenge to managers is to decide on strategies that provide


competitive advantage which can be sustained over time. This is the essence of
strategic management, and Dess, Lumpkin and Taylor have rightly captured this
element in their definition.

Nature of Strategic Management


Strategic Management can be defined as the art & science of formulating,
implementing, and evaluating, cross-functional decisions that enable an organisation
to achieve its objectives. Strategic management is different in nature from other
aspects of management. An individual manager is most often required to deal with
problems of operational nature. He generally focuses on day-to-day problems such
as the efficient production of goods, the management of a sales force, the monitoring
of financial performance or the design of some new system that will improve the level
of customer service.

Strategic management involves elements geared toward a firm's long term survival
and achievement of management goals. The components of the content of a
strategy making process include a desirable future, resource allocation,
management of the firm-environment and a competitive business ethics. However,
some conflicts may result in defining the content of strategy such as differences in
interaction patterns among associates, inadequacy of available resources and
conflicts between the firm's objectives and its environment.

Dimensions of Strategic Management


The characteristics of strategic management are as follows:

1. Top management involvement: Strategic management relates to several areas of


a firm’s operations. So, it requires top management’s involvement. Generally, only
the top management has the perspective needed to understand the broad
implications of its decisions and the power to authorize the necessary resource
allocations.

2. Requirement of large amounts of resources: Strategic management requires


commitment of the firm to actions over an extended period of time. So they require
substantial resources, such as, physical assets, money, manpower etc. Example:
Decisions to expand geographically would have significant financial implications in
terms of the need to build and support a new customer base.
3. Affect the firm’s long-term prosperity: Once a firm has committed itself to a
particular strategy, its image and competitive advantage are tied to that strategy; its
prosperity is dependent upon such a strategy for a long time.

4. Future-oriented: Strategic management encompasses forecasts, what is


anticipated by the managers. In such decisions, emphasis is placed on the
development of projections that will enable the firm to select the most promising
strategic options. In the turbulent environment, a firm will succeed only if it takes a
proactive stance towards change.

5. Multi-functional or multi-business consequences: Strategic management has


complex implications for most areas of the firm. They impact various strategic
business units especially in areas relating to customer-mix, competitive focus,
organisational structure etc. All these areas will be affected by allocations or
reallocations of responsibilities and resources that result from these decisions.

6. Non-self-generative decisions: While strategic management may involve making


decisions relatively infrequently, the organisation must have the preparedness to
make strategic decisions at any point of time. That is why Ansoff calls them
“non-self-generative decisions.”

Need for Strategic Management


No business firm can afford to travel in a haphazard manner. It has to travel with the
-support of some route map. Strategic management provides the route map for the
firm. It makes it possible for the firm to take decisions concerning the future with a
greater awareness of their implications. It provides direction to the company; it
indicates how growth could be achieved. The external environment influences the
management practices within any organisation. Strategy links the organisation to this
external world. Changes in these external forces create both opportunities and
threats to an organisation’s position – but above all, they create uncertainty. Strategic
planning offers a systematic means of coping with uncertainty and adapting to
change. It enables managers to consider how to grasp opportunities and avoid
problems, to establish and coordinate appropriate courses of action and to set
targets for achievement. Thirdly, strategic management helps to formulate better
strategies through the use of a more systematic, logical and rational approach.
Through involvement in the process, managers and employees become committed
to supporting the organisation. The process is a learning, helping, educating and
supporting activity.

An increasing number of firms are using strategic management Notes for the
following reasons:

1. It helps the firm to be more proactive than reactive in shaping its own future.
2. It provides the roadmap for the firm. It helps the firm utilize its resources in the
best possible manner.

3. It allows the firm to anticipate change and be prepared to manage it.

4. It helps the firm to respond to environmental changes in a better way.

5. It minimizes the chances of mistakes and unpleasant surprises.

6. It provides clear objectives and direction for employees.

Case Study
Star Struck

I ridium is named after the 77th element to signify the 77 satellites that were
supposed to beam signals around the world, creating a worldwide mobile satellite
telephone service (MSS). However, things did not work out as planned. Motorola,
Iridium's chief sponsor, has vowed not to invest any more than the $1.6 billions it has
already invested in the venture, unless other investors do so too. Iridium was
chasing a very modest goal in terms of number of subscribers - 27,000 by end of
July, from 10,000 at the end of March. These two events are symptoms of deeper
problems within the Iridium network, as people try to work out what went wrong.
Were its estimates of MSS market (between 32 millions and 45 millions subscribers
within ten years) unrealistic? Or, are Iridium's problems due to poor vision and poor
planning? Mobile telephony, in general, has been a growth market, with subscribers
expected to reach 600 millions within the next two years. MSS providers plan to
capture 2.5% of the market by offering handsets that operate as a land-based
cellular phone and a satellite telephone when cellular service is unavailable. Apart
from business executives, other specialized users include truckers, civil engineers,
field scientists, disaster-relief agencies, news organisations, extractive industries,
and geologists. Shipping and aviation, as well as operations in less developed
countries, which lack traditional telephone infrastructure, are also potential markets.
Yet Iridium has not been able to sign up many subscribers. The technology is quite
sound - the problem has been poor forecasting, marketing, production glitches, and
some unexpected competitive moves. Iridium's market size forecast and value did
not materialize. This may be due to several marketing problems. Iridium's handsets
cost more than $3,000, and call charges range from $2 to $7 a minute. Iridium's
handset is large (7 inches), and weighs 1 pound, limiting its portability. Manufacturing
delays at Motorala and Kyocera left customers waiting to get their telephones. In any
case, its marketing partners, Sprint, and Telecom Italia were not prepared to sell the
telephones. Its generic. "schmoozy" and "generic life-style marketing" (according to
John Richardson, Iridium's new CEO) was not suitable for its specialized target
market. Competitive entry also hurt Iridium's already weak network. Two new
entrants to the MSS market, Global star and ICO have been able to promise the
same service at a lower cost. At a volume of 1 billion minutes per year, for instance,
the cost of a minute using Iridium's system is $1.28, compared to 51 cents a minute
for Global star, and 35 cents for ICO. The difference arises mainly because of
Iridium's numerous satellites and their use of more power to maintain their low earth
orbit. This also shortens their life span to 5 - 7 years. ICO's satellites, on the other
hand, fly about 6000 miles higher in medium-earth orbit and have a life span of 12
years. With Iridium being forced to charge prices far lower than it had planned, and
two low cost operators about to enter the market, Iridium's future is uncertain.

Questions

1. Analyze the role of poor strategic management at Motorola in Iridium's failure.

2. What steps do you think should have been collectively taken by Motorola,
Kyocera, Sprint and Telecom Italia to save Iridium?

*Source: Adapted from The Economist, July 17, 1999.

Benefits of Strategic Management


“We are tackling 20-year problems with five-year plans staffed with two-year
personnel funded by one–year appropriations”. – Harlan Cleveland

The above quotation sums up why today’s decision-makers must plan and manage
strategically. In developing as well as in industrialized countries, the increasingly
rapid nature of change as well as a greater openness in the political and economic
environments, requires a different set of perspective from that needed during more
stable times.

When a certain degree of equilibrium existed in the environment, as during the


1950s, with constant positive economic growth, low debt, manageable budgets and
relative environmental stability, managers could concentrate almost exclusively on
the internal dimensions of their organisations and assume constancy in the external
environment. Forward calculations were simple, inputs were predictable, and
planning was mostly an arithmetic exercise.

Now, systems are much more open, environment is characterized by increasingly


unstable economic growth, budgets are constantly revised, inputs are thoroughly
unpredictable, and planning in the traditional sense is no longer tenable.

Therefore, today’s enterprises need strategic management to reap the benefits of


business opportunities, overcome the threats and stay ahead in the race. The
purpose of strategic management is to exploit and create new and different
opportunities for tomorrow; while longterm planning, in contrast, tries to optimize for
tomorrow the trends of today.

Today, all top companies are involved in strategic management. They are finding
ways to respond to competitors, cope with difficult environmental changes, meet
changing customer needs and effectively use available resources. At a time when
the business environment is changing rapidly, even established firms are paying
more attention to strategy because they may face new competitors who threaten
their core business. Should a firm compete in all areas or concentrate on one area?
Should a company try to extend the brand to even more diverse areas of activity, or
would it gain more by building profits in the existing areas, and achieving more
synergies across the group? Should the company continue the current strategy as it
is now, or would it initiate a radical review of its strategy? These are just a few
examples of the strategic part of the management tasks.

It is important to note that strategic planning goes far beyond the planning process.
Unlike traditional planning, strategic planning involves a long-range planning under
conditions of uncertainty and complexity Such a planning involves:

l. Strategic thinking

2. Strategic decision-making

3. Strategic approach

A structured approach to strategy planning brings several benefits (Smith, 1995;


Robbins, 2000)

1. It reduces uncertainty: Planning forces managers to look ahead, anticipate change


and develop appropriate responses. It also encourages managers to consider the
risks associated with alternative responses or options.

2. It provides a link between long and short terms: Planning establishes a means of
coordination between strategic objectives and the operational activities that support
the objectives.

3. It facilitates control: By setting out the organisation’s overall strategic objectives


and ensuring that these are replicated at operational level, planning helps
departments to move in the same direction towards the same set of goals.

4. It facilitates measurement: By setting out objectives and standards, planning


provides a basis for measuring actual performance.

Strategic management has thus both financial and non-financial benefits:

1. Financial Benefits: Research indicates that organisations that engage in strategic


management are more profitable and successful than those that do not. Businesses
that followed strategic management concepts have shown significant improvements
in sales, profitability and productivity compared to firms without systematic planning
activities.

2. Non-financial benefits: Besides financial benefits, strategic management offers


other intangible benefits to a firm. They are;
(a) Enhanced awareness of external threats

(b) Improved understanding of competitors’ strategies

(c) Reduced resistance to change

(d) Clearer understanding of performance-reward relationship

(e) Enhanced problem-prevention capabilities of organisation

(f) Increased interaction among managers at all divisional and functional levels

(g) Increased order and discipline.

According to Gordon Greenley, strategic management offers the following


benefits: 1. It allows for identification, prioritization and exploitation of
opportunities.

2. It provides objective view of management problems.

3. It provides a framework for improved coordination and control of activities.

4. It minimizes the effects of adverse conditions and changes.

5. It allows decision-making to support established objectives.

6. It allows more effective allocation of time and resources to identified


opportunities.

7. It allows fewer resources and less time to be devoted to correcting erroneous


and ad hoc decisions.

8. It creates a framework for internal communication among personnel.

9. It helps integrate the behaviour of individuals into a total effort.

10. It provides a basis for clarifying individual responsibilities.

11. It encourages forward thinking.

12. It provides a cooperative, integrated enthusiastic approach to tackling


problems and opportunities.

13. It encourages a favourable attitude towards change.

14. It gives a degree of discipline and formality to the management of a business.

Risks involved (Disadvantages) in Strategic Management


Strategic management is an intricate and complex process that takes an
organisation into unchartered territory. It does not provide a ready-to-use prescription
for success. Instead, it takes the organisation through a journey and offers a
framework for addressing questions and solving problems. Strategic management is
not, therefore, a guarantee for success; it can be dysfunctional if conducted
haphazardly.

The following are its limitations:

1. It is a costly exercise in terms of the time that needs to be devoted to it by


managers. The negative effect of managers spending time away from their normal
tasks may be quite serious.

2. A negative effect may arise due to the non-fulfillment of the expectations of the
participating managers, leading to frustration and disappointment.

3. Another negative effect of strategic management may arise if those associated


with the formulation of strategy are not intimately involved in the implementation of
strategies. The participants in formulation of the policy may shirk their responsibility
for the decisions taken.

As quoted by Fred R. David, some pitfalls to watch for and avoid in strategic
planning are:

1. Using strategic planning to control over decisions and resources

2. Doing strategic planning only to satisfy accreditation or regulatory requirements

3. Moving too hastily from mission development to strategy formulation

4. Failing to communicate the strategic plan to the employees, who continue working
in the dark

5. Top managers making many intuitive decisions that conflict with the formal plan

6. Top managers not actively supporting the strategic planning process

7. Failing to use plans as a standard for measuring performance

8. Delegating strategic planning to a consultant rather than involving all managers


Notes

9. Failing to involve key employees in all phases of planning

10. Failing to create a collaborative climate supportive of change

11. Viewing planning to be unnecessary or unimportant

12. Becoming so engrossed in current problems that insufficient or no planning is


done

13. Being so formal in planning that flexibility and creativity are stifled.
CASESTUDY
Formulating a Strategy: Following Apple Turnaround

The firm's most important resources and capabilities are those which are durable,
difficult to identify and understand, imperfect transferable, not easily replicated, and
in which the firm possesses clear ownership. These are the company's 'most
important assets' and need to be protected; and they play a pivotal role in the
competitive strategy which the company pursues. The essence of strategy
formulation, then, is to design a strategy that makes the most effective use of these
core resources and capabilities. Consider, for example, the remarkable turnaround of
Apple, the computer company behind the Macintosh computers, between 2000 to
date. Fundamental was Steve Job's recognition that the company's sole durable,
non-transferable, irreplicable asset was Apple image and the loyalty that
accompanied that image. In virtually every other area of competitive
performance-production cost, quality, product and process technology, and global
market scope-Apple was greatly inferior to its other rivals, such as IBM. Apple's only
opportunity for survival was to pursue a strategy founded upon Apple's image
advantage, while simultaneously minimising Apple' disadvantages in other
capabilities. Apple' new marketing strategy involved extending the appeal of the
Apple image of individuality from its traditional customer group (tech savvy, graphic
designers) to more a general, young professional types. Protection of the Apple
name by means of tougher controls over dealers was matched by wider exploitation
of the Apple name through entry in other industries such as the portable music
business. Apple's share of the computer market went from 15% in 1985 to 4% in
2005 and lost around $700 million in only three months in 1997. However, thanks to
the iPod and to the Apple's iTunes music stores, its shares grew 90% between 2001
up until today, i.e. from a mere $7/share. Apple is today the premier provider of MP3
players. Designing strategy around the most critically important resources and
capabilities may imply that the firm limits its strategic scope to those activities where
it possesses a clear competitive advantage. The principal capabilities of Apple, are in
design and new products development; it lacked both the manufacturing capabilities
to compete effectively in the world's computer market. Apple's turnaround from year
2000 followed it decision to specialise upon design and new product development.
The ability of a firm's resources and capabilities to support a sustainable competitive
advantage is essential to the time frame of a firm's strategic planning process. If a
company's resources and capabilities lack durability or are easily transferred or
replicated, then the company must either adopt a strategy of short-term harvesting or
it must invest in developing new sources of competitive advantage. These
considerations are critical for small technological start-ups where the speed of
technological change may mean that innovations offer only temporary competitive
advantage. The company must seek either to exploit its initial innovation before it is
challenged by stronger, established rivals or other start-ups, or it must establish the
technological capability for a continuing stream of innovations. The main issue for
Apple is to make sure that it takes advantage of this window of opportunity. Because
there are tougher competitors down the road and the more money it makes, the
more companies will enter the market making harder for Apple to sustain this new
found competitive advantage. In industries where competitive advantages based
upon differentiation and innovation can be imitated (such as financial services,
retailing, fashion clothing, toys), firms have a brief window of opportunity during
which to exploit their advantage before imitators erode it away. Under such
circumstances firms must be concerned not with sustaining the existing advantages,
but with creating the flexibility and responsiveness that permits them to create new
advantages at a faster rate than the old advantages are being eroded by
competition.

Question: What lessons can be learnt from Apple's Turnaround?

* source
:http://www.bestcxo.com/strategic-management/formulating-a-strategy-following-appl
e-turnaround/

Organizational Mission, Vision, Objectives, Goals & Ethics

Mission
“A mission statement is an enduring statement of purpose”. A clear mission
statement is essential for effectively establishing objectives and formulating
strategies.

A mission statement is the purpose or reason for the organisation’s existence. A


well-conceived mission statement defines the fundamental, unique purpose that sets
it apart from other companies of its type and identifies the scope of its operations in
terms of products offered and markets served. It also includes the firm’s philosophy
about how it does business and treats its employees. In short, the mission describes
the company’s product, market and technological areas of emphasis in a way that
reflects the values and priorities of the strategic decision makers.

As Fred R. David observes, mission statement is also called a creed statement, a


statement of purpose, a statement of philosophy etc. It reveals what an organisation
wants to be and whom it wants to serve. It describes an organisation’s purpose,
customers, products, markets, philosophy and basic technology. In combination,
these components of a mission statement answer a key question about the
enterprise: “What is our business?”

Defining Mission

Thompson defines mission as “The essential purpose of the organisation,


concerning particularly why it is in existence, the nature of the business it is in, and
the customers it seeks to serve and satisfy”. Hunger and Wheelen simply call the
mission as the “purpose or reason for the organisation’s existence”.
A mission can be defined as a sentence describing a company's function, markets
and competitive advantages. It is a short written statement of your business goals
and philosophies. It defines what an organisation is, why it exists and its reason for
being. At a minimum, a mission statement should define who are the primary
customers of the company, identify the products and services it produces, and
describe the geographical location in which it operates.

Example:

l. Ranboxy Petrochemicals: To become a research based global company.

2. Reliance Industries: To become a major player in the global chemicals business


and simultaneously grow in other growth industries like infrastructure.

3. ONGC: To stimulate, continue and accelerate efforts to develop and maximize the
contribution of the energy sector to the economy of the country.

4. Cadbury India: To attain leadership position in the confectionery market and


achieve a strong national presence in the food drinks sector.

5. Hindustan Lever: Our purpose is to meet everyday needs of people everywhere


– to anticipate the aspirations of our consumers and customers, and to respond
creatively and competitively with branded products and services which raise the
quality of life.

6. McDonald: To offer the customer fast food prepared in the same high quality
worldwide, tasty and reasonably priced, delivered in a consistent low key décor and
friendly manner.

Most of the above mission statements set the direction of the business organisation
by identifying the key markets which they plan to serve.

Missions have one or more of the five distinct and identifiable components:

1. Customers

2. Products or services

3. Markets

4. Concern for growth

5. Philosophy

It's more important to communicate the mission statement to employees than to


customers. Your mission statement doesn't have to be clever or catchy–just
accurate. Once a mission statement has been set, every organisation needs to
periodically review and possibly revise it to make sure it accurately reflects its goals
and the business and economic climates evolve.
Importance of Mission Statement
The purpose of the mission statement is to communicate to all the stakeholders
inside and outside the organisation what the company stands for and where it is
headed. It is important to develop a mission statement for the following reasons:

1. It helps to ensure unanimity of purpose within the organisation.

2. It provides a basis or standard for allocating organisational resources.

3. It establishes a general tone or organisational climate.

4. It serves as a focal point for individuals to identify with the organisation’s purpose
and direction.

5. It facilitates the translation of objectives into tasks assigned to responsible people


within the organisation.

6. It specifies organisational purpose and then helps to translate this purpose into
objectives in such a way that cost, time and performance parameters can be
assessed and controlled.

Developing a comprehensive mission statement is also important because divergent


views among managers can be revealed and resolved through the process.
According to Pearce (1982), vision and mission statements have the following value:
1. They provide managers with a unity of direction that transcends individual,
parochial and transitory needs.

2. They promote a sense of shared expectations among all levels and generations of
employees.

3. They consolidate values over time and across individuals and interest groups.

4. They project a sense of worth and intent that can be identified and assimilated by
company outsiders.

5. Finally, they affirm the company’s commitment to responsible action, in order to


preserve and protect the essential claims of insiders for sustained survival, growth
and profitability of the firm.

According to Fred R. David, a mission statement is more than a statement of


purpose. It is

1. A declaration of attitude and outlook

2. A declaration of customer orientation

3. A declaration of social policy and responsibility


Characteristics of a Mission Statement
A good mission statement should be short, clear and easy to understand. It should
therefore possess the following characteristics:

1. Not lengthy: A mission statement should be brief.

2. Clearly articulated: It should be easy to understand so that the values, purposes,


and goals of the organisation are clear to everybody in the organisation and will be a
guide to them.

3. Broad, but not too general: A mission statement should achieve a fine balance
between specificity and generality.

4. Inspiring: A mission statement should motivate readers to action. Employees


should find it worthwhile working for such an organisation.

5. It should arouse positive feelings and emotions of both employees and outsiders
about the organisation.

6. Reflect the firm’s worth: A mission statement should generate the impression that
the firm is successful, has direction and is worthy of support and investment.

7. Relevant: A mission statement should be appropriate to the organisation in terms


of its history, culture and shared values.

8. Current: A mission statement may become obsolete after some time. As Peter
Drucker points out, “Very few mission statements have anything like a life
expectancy of thirty, let alone, fifty years. To be good enough for ten years is
probably all one can normally expect”. Changes in environmental factors and
organisational factors may necessitate modification of the mission statement.

9. Unique: An organisation’s mission statement should establish the individuality and


uniqueness of the company.

10. Enduring: A mission statement should continually guide and inspire the pursuit of
organisational goals. It may not be fully achieved, but it should be challenging for
managers and employees of the organisation.

11. Dynamic: A mission statement should be dynamic in orientation allowing


judgments about the most promising growth directions and the less promising ones.

12. Basis for guidance: Mission statement should provide useful criteria for selecting
a basis for generating and screening strategic options.

13. Customer orientation: A good mission statement identifies the utility of a firm’s
products or services to its customers, and attracts customers to the firm
14. A declaration of social policy: A mission statement should contain its philosophy
about Notes social responsibility including its obligations to the stakeholders and the
society at large.

15. Values, beliefs and philosophy: The mission statement should lay emphasis on
the values the firm stands for; company philosophy, known as “company creed”,
generally accompanies or appears within the mission statement.

Components of a Mission Statement


Mission statements may vary in length, content, format and specificity. But most
agree that an effective mission statement must be comprehensive enough to include
all the key components. Because a mission statement is often the most visible and
public part of the strategic management process, it is important that it includes all the
following essential components:

1. Basic product or service: What are the firm’s major products or services?

2. Primary markets: Where does the firm compete?

3. Principal technology: Is the firm technologically current?

4. Customers: Who are the firm’s customers?

5. Concern for survival, growth and profitability: Is the firm committed to growth and
financial soundness?

6. Company philosophy: What are the basic beliefs, values, aspirations and ethical
priorities of the firm?

7. Company self-concept: What is the firm’s distinctive competence or major


competitive advantage?

8. Concern for public image: Is the firm responsive to social, community and
environmental concerns?

9. Concern for employees: Are employers considered a valuable asset of the firm?

10. Concern for quality: Is the firm committed to highest quality?

A firm’s growth is inextricably linked to its survival and profitability. Company


Philosophy The statement of a company’s philosophy (also called company creed)
generally appears within the mission statement. It specifies the basic values, beliefs
and aspirations to which the strategic decision-makers are committed in managing
the company. The company philosophy provides a distinctive and accurate picture of
the company’s managerial outlook.

Company Self-concept Both individuals and companies have a crucial need to know
themselves. The ability of a company to survive in a highly competitive environment
depends on its realistic evaluation of its strengths and weaknesses. Description of
the firm’s self-concept provides a strong impression of the firm’s self-image. Public
Image Mission statements should reflect the public expectations of the firm since this
makes achievement of the firm’s goals more likely.

Example:

“Johnson & Johnson make safe products” reflects the customer expectations of the
company in making safe products. Sometimes, a negative public image can be
corrected by emphasizing the beneficial aspects in the mission statements.

Concern for Employees Mission statements should also emphasize their concern for
improvement of quality of work life, equal opportunity for all, measures for employee
welfare etc. Customers “The customer is our top priority” is a slogan that would be
claimed by most of the businesses the world over. A focus on customer satisfaction
causes managers to realize the importance of providing an excellent customer
service. So, many companies have made customer service a key component of their
mission statement. Quality The emphasis on quality has received added importance
in many corporate philosophies.

Example:

Motorola’s mission statement contains a statement that “dedication to quality is a


way of life at our company, so much so that it goes beyond rhetorical slogans.”

Formulation of Mission Statements


There is no standard method for formulating mission statements. Different firms
follow different approaches. As indicated in the strategic management model, a clear
mission statement is needed before alternative strategies can be formulated and
implemented. It is important to involve as many managers as possible in the process
of developing a mission statement, because through involvement, people become
committed to the mission of the organisation. Mission statements are generally
formulated as follows:

1. In many cases, the mission is inherited i.e. the founder establishes the mission
which may remain unchanged down the years or may be modified as the conditions
change.

2. In some cases, the mission statement is drawn up by the CEO and board of
directors or a committee of strategists constituted for the purpose.

3. Engaging consultants for drawing up the mission statement is also common.

4. Many companies hold brainstorming sessions of senior executives to develop a


mission statement. Soliciting employee’s views is also common.
5. According to Fred R. David, an ideal approach for developing a mission statement
would be to select several articles about mission statements and ask all managers to
read these as background information. Then ask managers to prepare a draft
mission statement for the organisation. A facilitator or a committee of top managers,
merge these statements into a single document and distribute this draft mission
statement to all managers. Then the mission statement is finalized after taking inputs
from all the managers in a meeting. Thus, the process of developing a mission
statement represents a great opportunity for strategists to obtain needed support
from all managers in the firm.

6. Decision on how best to communicate the mission to all managers, employees


and external constituencies of an organisation are needed when the document is in
its final form. Some organisations even develop a videotape to explain the mission
statement and how it was developed.

7. The practice in Indian companies appears to be a consultative-participative route.

For example

● Mahindra and Mahindra, workshops were conducted at two levels within the
organisation with corporate planning group acting as facilitators.
● The State Bank of India went one step ahead by inviting labour unions to
partake in the exercise.
● Satyam Computers went one more step ahead by involving their joint venture
companies and overseas clients in the process.

! Caution Although many organisations have mission statements, their value has
sometimes been questioned. Kay (1996) asserts that visions or missions are
indicative of a 'wish - driven strategy' that fails to recognize the limits to what
might be possible, given finite organisational resources. He cites the case of
Groupe Bull, a French computer company, which for many years sought to
challenge the supremacy of IBM, particularly in the large US market. After several
attempts, Bull finally conceded that its mission was faulty. Kay's analysis was that
for 30 years Groupe Bull was: Driven not by an assessment of what it was, but by
a vision of what it would like to be. Throughout, it lacked the distinctive
capabilities that would enable it to realize that vision. Bull epitomizes wish-driven
strategy, based on aspiration, not capability (Kay, 1996). In a study of some
organisations, Leach (1996) found that mission statements and strategic vision
had become fashionable. While in some organisations, mission statements had
made a real impact in clarifying organisational values and culture, others
regarded them only as symbolic public relations documents that had little effect
as a management tool. The dangers are not just that missions are unrealistic and
fail to recognize an organisation's capabilities (as in the case of Groupe Bull), but
also that management fails to develop a belief in the mission statement
throughout the organisation. People come to believe in and act upon the mission
statement only when they see others doing so, especially senior management
and other influential players. The ideas of the mission statement need to be
cascaded through the structure to ensure a link between mission and day-to-day
actions.

Caselet Mission of two Global Companies Mission Statement of IBM At IBM, we


strive to lead in the invention, development and manufacture of the industry's most
advanced information technologies, including computer systems, software, storage
systems and microelectronics. We translate these advanced technologies into value
for our customers through our professional solutions, services and consulting
businesses worldwide Mission Statement of FedEx "FedEx is committed to our
People-Service-Profit Philosophy. We will produce outstanding financial returns by
providing totally reliable, competitively superior, global, air-ground transportation of
high-priority goods and documents that require rapid, time-certain delivery."

*Source: ibm.com and fedex.com

Evaluating Mission Statements


For a mission statement to be effective, it should meet the following ten conditions:

1. The mission statement is clear and understandable to all parties involved. The
organisation can articulate and relate to it.

2. The mission statement is brief enough for most people to remember.

3. The mission statement clearly specifies the purpose of the organisation. This
includes a clear statement about:

(a) What needs the organisation is attempting to fill (not what products or services
are offered)?

(b) Who the organisation's target populations are?

(c) How the organisation plans to go about its business; that is, what its primary
technologies are?

4. The mission statement should have a primary focus on a single strategic thrust.

5. The mission statement should reflect the distinctive competence of the


organisation (e.g., what can it do best? What is its unique advantage?)

6. The mission statement should be broad enough to allow flexibility in


implementation, but not so broad as to permit lack of focus.

7. The mission statement should serve as a template and be the same means by
which the organisation can make decisions.
8. The mission statement must reflect the values, beliefs and philosophy of
operations of the organisation.

9. The mission statement should reflect attainable goals.

10. The mission statement should be worked so as to serve as an energy source


and rallying point for the organisation (i.e., it should reflect commitment to the vision).

Task : Find out the mission statement of any one service company. Do they really
work the way their mission says?

Distinction between Vision and Mission


We have already distinguished between vision and mission statements in the
previous section; we throw more light on this distinction in this section. While a
mission statement describes what the organisation is now; a vision statement
describes what the organisation would like to become. A vision statement defines
more of a direction as to “where are we headed” and “what do we want to become”,
whereas the company’s mission broadly indicates the “business purpose” of the
organisation.

The distinction between vision and mission can be summarized as follows:

Vision Mission
1. A mental image of a possible and 1. Enduring statement of philosophy, a
desirable future state of the organization.
creed statement.
2. A dream. 2. The purpose or reason for a firm’s
existence.
3. Broad. 3. More specific than vision
4. Answers the question “what we want 4. Answers the question “what is our
to become?” business”

Concept of Goals and Objectives

Goals
The terms “goals and objectives” are used in a variety of ways, sometimes in a
conflicting sense. The term “goal” is often used interchangeably with the term
“Objective”. But some authors prefer to differentiate the two terms. A goal is
considered to be an open-ended statement of what one wants to accomplish with no
quantification of what is to be achieved and no time criteria for its completion. For
example, a simple statement of “increased profitability” is thus a goal, not an
objective, because it does not state how much profit the firm wants to make.

Objectives are the end results of planned activity. They state what is to be
accomplished by when and should be quantified. For example, “increase profits by
10% over the last year” is an objective. As may be seen from the above, “goals”
denote what an organisation hopes to accomplish in a future period of time. They
represent a future state or outcome of the effort put in now. “Objectives” are the ends
that state specifically how the goals shall be achieved. In this sense, objectives make
the goals operational. Objectives are concrete and specific in contrast to goals which
are generalized. While goals may be qualitative, objectives tend to be mainly
quantitative, measurable and comparable.

Distinction between Vision and Mission

Goals Objectives
General Specific
Qualitative Quantative
Broad organization–wide target Narrow targets set by operating divisions
Long term results Immediate, short term results

Some of the areas in which a company might establish its goals and objectives are:

1. Profitability (net profit)

2. Efficiency (low costs, etc)

3. Growth (increase in sales etc)

4. Shareholder wealth (dividends etc)

5. Utilization of resources (return on investment)

6. Market leadership (market share etc)

Stated vs. Operational Goals


Operational goals are the real goals of an organisation. Stated goals are the official
goals of an organisation. Operational goals tell us what the organisation is trying to
do, irrespective of what the official goals say the aims are. Official goals generally
reflect the basic philosophy of the company and are expressed in abstract
terminology, for example, ‘sufficient profit’, ‘market leadership’ etc.

According to Charles Perrow, the following are the important operational goals:

1. Environmental Goals: An organisation should be responsive to the broader


concerns of the communities in which it operates, and should have goals that satisfy
people in the external environment. For example, goals like customer satisfaction
and social responsibility may be important environmental goals.

2. Output Goals: Output goals are related to the identification of customer needs.
Issues like what markets should we serve, which product lines should be followed,
etc. are examples of output goals.
3. System Goals: These goals relate to the maintenance of the organisation itself.
Goals like growth, profitability, stability etc. are examples.

4. Product Goals: These goals relate to the nature of products delivered to


customers. They define quantity, quality, variety, innovativeness of products.

5. Derived Goals: These goals relate to derived or secondary areas like contribution
to political Notes activities, promoting social service institutions etc.

Objectives
Objectives are the results or outcomes an organisation wants to achieve in pursuing
its basic mission. The basic purpose of setting objectives is to convert the strategic
vision and mission into specific performance targets.

Objectives function as yardsticks for tracking an organisation’s performance and


progress. Characteristics of Objectives Well – stated objectives should be:

1. Specific

2. Quantifiable

3. Measurable

4. Clear

5. Consistent

6. Reasonable

7. Challenging

8. Contain a deadline for achievement

9. Communicated, throughout the organisation Role of Objectives Objectives play an


important role in strategic management. They are essential for strategy formulation
and implementation because: 1. They provide legitimacy 2. They state direction 3.
They aid in evaluation 4. They create synergy 5. They reveal priorities 6. They focus
coordination 7. They provide basis for resource allocation 8. They act as
benchmarks for monitoring progress 9. They provide motivation

Nature of Objectives
The following are the characteristics of objectives: Hierarchy of Objectives In a multi
– divisional firm, objectives should be established for the overall company as well as
for each division. Objectives are generally established at the corporate, divisional
and functional levels, and as such, they form a hierarchy. The zenith of the hierarchy
is the mission of the organisation. The objectives at each level contribute to the
objectives at the next higher level. Long-range and Short-range Objectives
Organisations need to establish both long-range and short-range objectives
(Long–range means more than one year, and short–range means one year and
less.) Short-range objectives spell out the near – term results to be achieved. By
doing so, they indicate the speed and the level of performance aimed at each
succeeding period. Short – range objectives can be identical to long– range
objectives if an organisation is performing at the targeted long-term level (for
example, 20% growth - rate every year). The most important situation where
short-range objectives differ from the long-range objectives occurs when managers
cannot reach the long-range target in just one year, and are trying to elevate
organisational performance. Short–range objectives (one – year goals) are the
means for achieving long range objectives. A company that has an objective of
doubling its sales within five years can’t wait until the third or fourth year of its
five-year strategic plan. Short range objectives then serve as stepping-stones or
milestones. Multiplicity of Objectives Organisations pursue a number of objectives.
At every level in the hierarchy, objectives are likely to be multiple.

Example: The marketing division may have the objective of sales and distribution of
products. This objective can be broken down into a group of objectives for the
product, distribution, research and promotion activities. To describe a single, specific
goal of an organisation is to say very little about it. It turns out that there are several
goals involved. This may be due to the fact that the enterprise has to meet internal
as well as external challenges effectively. Moreover, no single objective can place
the organisation on a path of prosperity and progress in the long run. However, an
organisation should not set too many objectives. If it does, it will lose focus. Too
many objectives have a number of problems.

Examples: (a) They dilute the drive for accomplishment

(b) Minor objectives get highlighted to the detriment of major objectives There is no
agreement to the number of objectives that a manager can effectively handle. But, if
there are so many that none receives adequate attention, the execution of objectives
becomes ineffective; there is a need to be cautious. It will be wise to identify the
relative importance of each objective, in case the list is not manageable.

Business Vision
The first task in the process of strategic management is to formulate the
organisation’s vision and mission statements. These statements define the
organisational purpose of a firm. Together with objectives, they form a “hierarchy of
goals.”

Hierarchy of Goals

- Vision
- Mission
- Goals
- Objectives
- Plans

A clear vision helps in developing a mission statement, which in turn facilitates


setting of objectives of the firm after analyzing external and internal environment.
Though vision, mission and objectives together reflect the “strategic intent” of the
firm, they have their distinctive characteristics and play important roles in strategic
management.

Vision can be defined as “a mental image of a possible and desirable future state of
the organisation” (Bennis and Nanus). It is “a vividly descriptive image of what a
company wants to become in future”. Vision represents top management’s
aspirations about the company’s direction and focus. Every organisation needs to
develop a vision of the future. A clearly articulated vision moulds organisational
identity, stimulates managers in a positive way and prepares the company for the
future.

“The critical point is that a vision articulates a view of a realistic, credible, attractive
future for the organisation, a condition that is better in some important ways than
what now exists.” Vision, therefore, not only serves as a backdrop for the
development of the purpose and strategy of a firm, but also motivates the firm’s
employees to achieve it.

According to Collins and Porras, a well-conceived vision consists of two major


components:

1. Core ideology

2. Envisioned future

Core ideology is based on the enduring values of the organisation (“what we stand
for and why we exists”), which remain unaffected by environmental changes.
Envisioned future consists of a long-term goal (what we aspire to become, to
achieve, to create”) which demands significant change and progress.

Defining Vision
Vision has been defined in several different ways. Richard Lynch defines vision as “
a challenging and imaginative picture of the future role and objectives of an
organisation, significantly going beyond its current environment and competitive
position.” E1-Namaki defines it as “a mental perception of the kind of environment
that an organisation aspires to create within a broad time horizon and the underlying
conditions for the actualization of this perception”. Kotter defines it as “a description
of something (an organisation, corporate culture, a business , a technology, an
activity) in the future.” sets out a range of definitions of organisational vision. Most
refer to a future or ideal to which organisational efforts should be directed. The vision
itself is presented as a picture or image that serves as a guide or goal. Depending on
the definition, it is referred to as inspiring, motivating, emotional and analytical. For
Boal and Hooijberg, effective visions have two components:

1. A cognitive component (which focuses on outcomes and how to achieve them)

2. An affective component (which helps to motivate people and gain their


commitment to it)

Johnson: Vision is "clear mental picture of a future goal created jointly by a group
for the benefit of other people, which is capable of inspiring and motivating those
whose support is necessary for its achievement".

Kirkpatrick et al: Vision is "an ideal that represents or reflects the shared values to
which the organisation should aspire".

Thornberry: Vision is "a picture or view of the future. Something not yet real, but
imagined. What the organisation could and should look like. Part analytical and part
emotional".

Shoemaker: Vision is "the shared understanding of what the firm should be and how
it must change".

Kanter et al: Vision is "a picture of a destination aspired to, an end state to be
achieved via the change. It reflects the larger goal needed to keep in mind while
concentrating on concrete daily activities".

Stace and Dunphy: Vision is "an ambition about the future, articulated today, it is a
process of managing the present from a stretching view of the future".

Nature of Vision
A vision represents an animating dream about the future of the firm. By its nature, it
is hazy and vague. That is why Collins describes it as a “Big hairy audacious goal”
(BHAG). Yet it is a powerful motivator to action. It captures both the minds and
hearts of people. It articulates a view of a realistic, credible, attractive future for the
organisation, which is better than what nowexists. Developing and implementing a
vision is one of the leader’s central roles. He should not only have a “strong sense of
vision”, but also a “plan” to implement it.

Example:

1. Henry Ford’s vision of a “car in every garage” had power. It captured the
imagination of others and aided internal efforts to mobilize resources and make it a
reality. A good vision always needs to be a bit beyond a company’s reach, but
progress towards the vision is what unifies the efforts of company personnel.

2. One of the most famous examples of a vision is that of Disneyland “To be the
happiest place on earth”. Other examples are:
(a) Hindustan Lever: Our vision is to meet the everyday needs of people everywhere.

(b) Microsoft: Empower people through great software any time, any place and on
any device.

(c) Britannia Industries: Every third Indian must be a Britannia consumer.

Although such vision statements cannot be accurately measured, they do provide a


fundamental Notes statement of an organisation’s values, aspirations and goals.

Some more examples of vision statements are

- A Coke within arm's reach of everyone on the planet (Coca Cola)


- Encircle Caterpillar (Komatsu)
- Become the Premier Company in the World (Motorola)
- Put a man on the moon by the end of the decade (John F. Kennedy, April
1961)
- Eliminate what annoys our bankers and customers (Texas Commerce Bank)
- The one others copy (Mobil)

Characteristics of Vision Statements


As may be seen from the above definitions, many of the characteristics of vision
given by these authors are common such as being clear, desirable, challenging,
feasible and easy to communicate. Nutt and Backoff have identified four generic
features of visions that are likely to enhance organisational performance:

1. Possibility means the vision should entail innovative possibilities for


dramatic organisational improvements.

2. Desirability means the extent to which it draws upon shared organisational


norms and values about the way things should be done.

3. Actionability means the ability of people to see in the vision, actions that
they can take that are relevant to them.

4. Articulation means that the vision has imagery that is powerful enough to
communicate clearly a picture of where the organisation is headed.

According to Thompson and Strickland, some important characteristics of an


effective vision statement are:

1. It must be easily communicable: Everybody should be able to understand it


clearly.

2. It must be graphic: It must paint a picture of the kind of company the management
is trying to create.
3. It must be directional: It must say something about the company’s journey or
destination.

4. It must be feasible: It must be something which the company can reasonably


expect to achieve in due course of time.

5. It must be focused: It must be specific enough to provide managers with guidance


in making decisions.

6. It must be appealing to the long term interests of the stakeholders.

7. It must be flexible: It must allow company’s future path to change as events unfold
and circumstances change.

Characteristics of a Good Vision

Jock Kotter Metais Johnson El-Namaki


- Clear and Imaginable— it It is a It It is a dream—it
concise conveys picture dream—it visualizes provides emotional
- Memorable of what future provides a future involvement It is
will look like emotional aim It is excessive— and not
- Exciting Desirable—It involveme contribute attainable within
and appeals to nt It is d from a current actions or
inspiring longterm excessive variety of resources It is
- Challenging interests of — and not sources It deviant—it breaks
- Centered stakeholders, attainable implicates conventiona l
for example, within the need thinking and frames
on
employees, current for people of reference It
excellence customers, actions or with visualizes a future
- Both stable stockholders resources specialist aim It is contributed
and flexible Feasible—It It is skills It from a variety of
- Achievable embodies deviant—i can be sources It implicates
realistic, t breaks communic the need for people
and tangible
attainable goals conventio at -ed with specialist skills
Focused—It na l easily It It can be
provides thinking has a communicat -ed
guidance in and powerful easily It has a
decision frames of motivation powerful
making reference al effect It motivational effect It
Flexible—It is serves an serves an important
general enough important need It is aligned
to enable need It is with the values of
individual aligned prospective
initiative and with the supportersCoherenc
alternative values of e—It integrates the
responses to prospectiv company strategy
changing e and the future image
environments supporter of the company
Communicabl s Translatable— It is
e—It can be translatable into
explained in meaningful
five minutes company goals and
strategies
Powerful—It
generates
enthusiasm
Challenging— It is
challenging for all
organizational
participants
Unique—It
distinguishes the
company from
others Feasible—It
is realistic and
achievable
Idealistic—It
communicates
desired outcome

Importance of Vision
Having a strategic vision is linked to competitive advantage, enhancing
organisational performance, and achieving sustained organisational growth. Clear
vision enable firms to determine how well organisational leaders are performing and
to identify gaps between the vision and current practices. Organisations preparing for
transformational change regularly undertake “envisioning” exercises to help guide
them into the future. The visioning process itself can enhance the self-esteem of the
people who participate in it because they can see the potential fruits of their labours.

Conversely, a “lack of vision” is associated with organisational decline and failure. As


Beaver argues “Unless companies have clear vision about how they are going to be
distinctly different and unique in adding and satisfying their customers, they are likely
to be the corporate failure statistics of tomorrow”. Lacking vision is used to explain
why companies fail to build their core competencies despite having access to
adequate resources to do so. Business strategies that lack visionary content may fail
to identify when change is needed. Lack of an adequate process for translating
shared vision into collective action is associated with the failure to produce
transformational organisational change.

Thus vision statements serve as:

1. A basis for performance: A vision creates a mental picture of an organisation’s


path and direction in the minds of people in the organisation and motivates them for
high performance.
2. Reflects core values: A vision is generally built around core values of an
organisation, and channelises the group’s energies towards such values and serves
as a guide to action.

3. Way to communicate: A vision statement is an exercise in communication. A


wellcommunicated vision statement will bring the employees together and galvanize
them into action.

4. A desirable challenge: A vision provides a desirable challenge for both senior and
junior managers.

While providing a sense of direction, strategic vision also serves as a kind of


“emotional commitment”. Thompson and Strickland point out the significance of
“vision” which is broadly as follows:

1. It crystallizes top management’s own view about firm’s long-term direction.

2. It reduces the risk of rudderless decision-making.

3. It serves as a tool for maximizing the support of organisation members for internal
changes.

4. It serves as a “beacon” to guide managers in decision-making.

5. It helps the organisation to prepare for the future.

Vision poses a challenge and addresses the human need for something to strive for.
It can depict an image of the future that is both attractive and worthwhile.

Indeed, developing a strategic vision may be regarded as a managerial imperative in


the strategic management process. This is because strategic management
presupposes the necessity to look beyond today, to anticipate the impact of new
technology, changes in customer needs and market opportunities. Creating a
well-conceived vision illuminates an organisation’s direction and purpose, and then
using it repeatedly as a reminder of “where we are headed and why” helps keep
organisation members on the chosen path.

Although the idea of vision is widely accepted as a useful backdrop for the
development of purpose and strategy, there is a problem. Vision has little meaning
unless it can be successfully communicated to those working in the organisation,
since these are the people who will have to realize it.

Advantages of Vision

Several advantages accrue to an organisation having a vision. Parikh and Neubauer


point out the following advantages:

1. Good vision fosters long-term thinking.


2. It creates a common identity and a shared sense of purpose.

3. It is inspiring and exhilarating.

4. It represents a discontinuity, a step function and a jump ahead so that the


company knows what it is to be.

5. It fosters risk-taking and experimentation.

6. A good vision is competitive, original and unique. It makes sense in the market
place.

7. A good vision represents integrity. It is truly genuine and can be used for the
benefit of people.

Did u know? When does a vision fail?

A vision may fail when it is:

1. Too specific (fails to contain a degree of uncertainty)

2. Too vague (fails to act as a landmark)

3. Too inadequate (only partially addresses the problem)

4. Too unrealistic (perceived as unachievable)

A.D. Jick observes that a vision is also likely to fail when leaders spend 90 percent
of their time articulating it to their staff and only 10 percent of their time in
implementing it. There are two other reasons for vision failure:

1. Adaptability of vision over time

2. Presence of competing visions

Formulating a Vision Statement


Generally, in most cases, vision is inherited from the founder of the organisation who
creates a vision. Otherwise, some of the senior strategists in the organisation
formulate the vision statement as a part of strategic planning exercise.

Nutt and Backoff identify three different processes for crafting a vision:

1. Leader-dominated Approach: The CEO provides the strategic vision for the
organisation. This approach is criticized because it is against the philosophy of
empowerment, which maintains that people across the organisation should be
involved in processes and decisions that affect them.
2. Pump-priming Approach: The CEO provides visionary ideas and selects people
and groups within the organisation to further develop those ideas within the broad
parameters set out by the CEO.

3. Facilitation Approach: It is a “co-creating approach” in which a wide range of


people participate in the process of developing and articulating a vision. The CEO
acts as a facilitator, orchestrating the crafting process. According to Nutt and
Backoff, it is this approach that is likely to produce better visions and more
successful organisational change and performance as more people have contributed
to its development and will therefore be more willing to act in accordance with it.
While the above frameworks identify the extent to which there is involvement
throughout the organisation in the development of the vision, they do not address the
specifics on how to develop the actual vision itself. Some routines for producing
vision are outlined in Table 2.2.

Developing the mission


Implementing Vision Retreat Strategic Vision Developing the
Strategic Vision (Nanus, 1996) and Core Vision (Pendiebury
(Gratton, 1996) Capabilities et al., 1998:63–67)
(1992:67)
1. Articulate the Phase 1: 1. Generate 1. Formalize the
long-term vision Preparation. scenarios of need for change
2. Identify strategic Establish purpose possible futures the 2. Identify the
people and and goals of the organization may issues that need to
processes critical retreat face 2. Do a be addressed
to achieving the Phase 2: Initial competitive 3. Develop multiple
vision meeting. Two-day analysis of the visions
3. Assess meeting with industry 3. Analyze 4. Choose an
alignment of the discussion on the core appropriate vision
vision with current vision audit capabilities of the 5. Formalize the
capabilities (character of company and its vision, ensuring it is
4. Prioritize key organization), competitors clear and
actions to bridge vision scope (who it 4. Develop a communicable To
from current reality includes and strategic vision develop a strategy
to vision of the desired vision (best) aligned to with a coherent
future characteristics), the strategic internal logic, the
and vision context options generated strategists need to
(environmental from steps 1–3 understand
issues)
Phase 3: Analysis
and report cycle.
Facilitator prepares
three scenarios of
the future that are
discussed among
participants over a
number of weeks
Phase 4: Final
meeting One- day
discussion and
evaluation of vision
alternatives and
their strategic
implications
Phase 5:
Post-retreat
activities.
Conclusions
communicated
throughout the
organization
including ways of
implementing it

To develop a strategy with a coherent internal logic, the strategists need to


understand where the firm and industry are headed. As the future cannot be
precisely and definitely described, the strategist has to make some assumptions
about it. This requires foresight. Foresight requires imagination of how events might
unfold and the role the firm might play in shaping that future to the firm’s advantage.
“Vision” is therefore needed to guide the strategists’ plan for bridging the gap
between current reality and a potential future.

Strategic Management Process


Developing an organisational strategy involves four main elements – strategic
analysis, strategic choice, strategy implementation and strategy evaluation and
control. Each of these contains further steps, corresponding to a series of decisions
and actions, that form the basis of strategic management process.

1. Strategic Analysis: The foundation of strategy is a definition of organisational


purpose. This defines the business of an organisation and what type of organisation
it wants to be. Many organisations develop broad statements of purpose, in the form
of vision and mission statements. These form the spring – boards for the
development of more specific objectives and the choice of strategies to achieve
them. Environmental analysis – assessing both the external and internal
environments is the next step in the strategy process. Managers need to assess the
opportunities and threats of the external environment in the light of the organisation’s
strengths and weaknesses keeping in view the expectations of the stakeholders.
This analysis allows the organisation to set more specific goals or objectives which
might specify where people are expected to focus their efforts. With a more specific
set of objectives in hand, managers can then plan how to achieve them.
2. Strategic Choice: The analysis stage provides the basis for strategic choice. It
allows managers to consider what the organisation could do given the mission,
environment and capabilities – a choice which also reflects the values of managers
and other stakeholders. (Dobson et al. 2004). These choices are about the overall
scope and direction of the business. Since managers usually face several strategic
options, they often need to analyze these in terms of their feasibility, suitability and
acceptability before finally deciding on their direction.

3. Strategy Implementation: Implementation depends on ensuring that the


organisation has a suitable structure, the right resources and competencies (skills,
finance, technology etc.), right leadership and culture. Strategy implementation
depends on operational factors being put into place.

4. Strategy Evaluation and Control: Organisations set up appropriate monitoring and


control systems, develop standards and targets to judge performance.

Table 1.1 summarizes the steps involved in each of the above elements of strategic
management.

Elements in strategy Questions Description


process
STRATEGY FORMULATION
Strategic analysis
Defining organizational What is our purpose? Organizational purpose is
purpose What kind of organization generally articulated in
do we want to be? vision and mission
statements. The first task
is, therefore, to identify
vision and mission of the
organization.
Environmental analysis
involves the gathering and
analysis of intelligence on
the business environment.
This encompasses the
external environment
(general and competitive
forces), the internal
environment (resources,
competences,
performance relative to
competitors), and
stakeholder expectations.
Strategic choice
Objectives Where do we want to be? Objectives provide a more
detailed articulation of
purpose and a basis for
monitoring performance.
Options analysis Are there
alternative Alternative strategic
routes? options may be identified;
options require to be
appraised in order that the
best can be selected.
Strategies How are we going to get Strategies are the means
there? or courses of action to
achieve the purpose of the
organization.
STRATEGY IMPLEMENTATION
Actions How do we turn plans into A specification of the
reality? operational activities and
tasks required to enable
strategies to be
implemented.
STRATEGY EVALUATION
AND CONTROL
Monitoring and control How will we know if we are Monitoring performance
getting there? and progress in meeting
objectives, taking
corrective action as
necessary and reviewing
strategy

The above steps can also be depicted as a series of processes involved in strategic
management.

A GENERAL FRAMEWORK OF STRATEGIC MANAGEMENT PROCESS

1. Agreement on and initiation of the strategic management process.


2. The organization determines vision, mission, goals and objectives.
3. The organization analyzes both external and internal environment.
4. The organization establishes long-term goals and objectives.
5. The organization chooses from alternative courses of action.
6. The organization implements the choices to achieve strategic fit.
7. The organization monitors the implementation activity.
Feedback

The seven steps in the above model of strategy process fall into three broad phases
– formulation, implementation and evaluation – though in practice the three phases
interact closely.

Good strategists know that formulation and implementation of strategy rarely


proceed according to plan, partly because the constantly changing external
environment brings new opportunities or threats, and partly because there may also
be inadequate internal competence. Since these may lead the management to
change the plan, there will be frequent interaction between the activities of
formulating and implementing strategy, and management may need to return and
reformulate the plan.

Caselet
- Telecom Growth and Tata Strategic

Tata Strategic assessed the telecom environment with respect to customers,


regulation, technology and competition, and estimated the market potential for
different segments in the Indian telecom market. The group's vision and long-term
strategic intent in telecom was formulated, growth options and attractive investment
opportunities were recommended to achieve this vision, and an optimum
organisation structure covering the various telecom entities in the group was
evolved. The group was able to take critical investment decisions based on Tata
Strategic's recommendations and is now one of India's leading integrated telecom
operators.

*Source: tsmg.com

- Microsoft Broadens Vision Statement Beyond PCs

Responding to what Microsoft perceives as serious threats, the company changed its
"PCcentric" vision statement to one that embraces the impact of the Internet on
technology. Specifically the shift is from "a computer on every desk and in every
home" to "empower people through great software any time, any place and on any
device". The most serious threat is the decreased need for windows' software and
PCs as developers create programmes accessible via web browsers. While the
number of developers writing for Windows is currently stable, the percentage
targeting the web have increased from21% to 38% in the past year. Microsoft has
also introduced a pop-up notes feature in their online MSN, that is compatible with
and competes with AOl:s instant messaging (IM) feature (Wall Street Journal, July
29, 19990). AOL has blocked Microsoft's "hacking" into their IM feature, as this
technology is currently" closed". Microsoft and other Internet service providers such
as Yahoo and Prodigy are pursuing AOL to work with them and create interoperable
systems (Wall Street Joumal, July 26, 1999b). However, Microsoft continues to adapt
its software to enable its Hotmail subscribers to continue instant communication over
the Internet-in line with its new vision. The new corporate vision also indicates
Microsoft's intentions to take advantage of new opportunities. Consumers are using
their PCs and the Internet to share photography and sample new music. The
Windows operating system will integrate digital photography and music, technology,
and online services into Windows (Wall Street Journal, July 26, 1999c.) While the
company is still under anti-trust scrutiny, they hope to position product integration as
a competitive response to changing industries and markets. Clearly, their new vision
demands such actions.

* Source: Adapted from WallStreet Journal, July 26, 1999


SUMMARY

- Strategic or institutional management is the conduct of drafting, implementing


and evaluating cross-functional decisions that will enable an organisation to
achieve its longterm objectives.
- It is a level of managerial activity under setting goals and over tactics.
- It is the process of specifying the organisation's mission, vision and
objectives, developing policies and plans, often in terms of projects and
programs, which are designed to achieve these objectives, and then
allocating resources to implement the policies and plans, projects and
programs.
- Strategic management provides overall direction to the enterprise and is
closely related to the field of Organisation Studies.
- Although a sense of direction is important, it can also stifle creativity,
especially if it is rigidly enforced. In an uncertain and ambiguous world, fluidity
can be more important than a finely tuned strategic compass.
- When a strategy becomes internalized into a corporate culture, it can lead to
group think. It can also cause an organisation to define itself too narrowly.
- Even the most talented manager would no doubt agree that "comprehensive
analysis is impossible" for complex problems.
- Formulation and implementation of strategy must thus occur side-by-side
rather than sequentially, because strategies are built on assumptions which, in
the absence of perfect knowledge, will never be perfectly correct.
- The essence of being "strategic" thus lies in a capacity for "intelligent trial-and
error" rather than linear adherence to finally honed and detailed strategic
plans.
- Strategic management is a question of interpreting, and continuously
reinterpreting, the possibilities presented by shifting circumstances for
advancing an organisation's objectives.
- Strategic management is the set of managerial decisions and action that
determines the way for the long-range performance of the company.
- It includes environmental scanning, strategy formulation, strategy
implementation, evaluation and control.
- Strategy formulation is the development of long range plans for the effective
management of environmental opportunities and threats in light of corporate
strengths and weaknesses.
- It includes defining the corporate mission, specifying achievable objectives,
developing strategies and setting policy guidelines.
- Corporate strategy is one, which decides what business the organisation
should be in, and how the overall group of activities should be structured and
managed.
- Competitive Strategy is concerned with creating and maintaining a
competitive advantage in each and every area of business. Strategy that is
related to each functional area of business such as production, marketing and
personnel is called functional strategy.
- Corporate vision is a short, succinct, and inspiring statement of what the
organisation Notes intends to become and to achieve at some point in the future, often
stated in competitive terms.

KEYWORDS

Environmental Analysis: Evaluation of the possible or probable effects of external


as well as internal forces and conditions on an organisation's survival and growth
strategies.

Financial Benefits: profits associated with strategic management Multifunctional


Consequences: having complex implications on most of the functions of the
organisation Non-financial Benefits: intangible benefits associated with strategic
management Non-Self

Generative Decisions: decisions that are taken infrequently but promptly when
needed at any point of time

Plan: A set of intended actions, through which one expects to achieve a goal.

Strategic Choice: choice of course of action given the environment, mission and
capabilities

Strategic Management: stream of decisions and actions that lead to development


of effective strategy

Strategy: A plan of action designed to achieve a particular goal.

Tactic: A conceptual action taken under a well defined strategy to achieve a


specific objective.

Self Assessment Notes

Fill in the blanks:

1. Strategic management provides overall ......................... to the enterprise.

2. Strategic management is a question of interpreting, and continuously


........................., the possibilities presented by ......................... circumstances for
advancing an organisation's objectives.

3. The foundation of strategy is a definition of organisational ..........................

4. Organisations set up appropriate monitoring and control systems, develop


standards and targets to judge .....................
5. ......................... and ......................... of strategy rarely proceed according to
plan.

6. The first step in the strategic management process is to develop the corporate
......................... and .........................

7. Once a firm has committed itself to a particular strategy, its .........................


and ......................... are tied to it.

8. A ......................... can be defined as the overall goal of an organisation that all


business activities and processes should contribute toward achieving.

9. Formulation and implementation of strategy must occur side-by-side rather


than .........................

10. When a strategy becomes internalized into a corporate culture, it can lead to
.........................

11. Strategic planning goes far beyond the ......................... process.

12. Generally, only the ......................... has the perspective needed to


understand the broad implications behind the strategic plans.

13. The real strategic goals are realized only along with the analysis of the
......................... and ......................... environment of the organisation.

14. Developing an organisational strategy involves ......................... main


elements.

15. Strategic planning is a ......................... exercise in terms of the time that


needs to be devoted to it by managers.

16. Strategy formulation is the process of determining appropriate courses of


action for achieving organisational .....................

17. The most wonderful strategy in the history of the world is useless if not
..................... successfully.

18. Corporate strategy involves ..................... kinds of initiatives.

19. Strategy formulation includes defining the ....................., specifying


achievable ....................., developing ..................... and setting policy guidelines.

20. Corporate vision is a short, succinct, and inspiring statement of what the
organisation intends to ................. and to .................

21. ................. basic characteristics distinguish functional strategies from


corporate level and business level strategies.
22. Competitive Strategy is concerned with creating and maintaining a
competitive ................. in each and every area of business.

23. Lack of vision is associated with organisational ................. and .................

24. ..................... of business vision means that it should include innovative


possibilities for dramatic organizational improvement.

25. A business vision should be .....................; it should be able to paint a picture


of the kind of company the management is trying to create.

Review Questions

1. Discuss the various elements of strategic management.

2. Examine the significance of strategic management.

3. "Strategic management process is the way in which strategists determine


objectives and strategic decisions". Discuss.

4. Bring out the distinguishing features of strategic management.

5. Can the process of strategic management really be depicted in a given model


or it is a prompt and dynamic process? Give reasons.

6. Depict the model of strategic management and explain its components.

7. Suppose you are the Managing Director of an organisation. Your organisation


is running into losses due to poor management and decision making. How will
you analyse the situation and move your organisation out of the situation?

8. Have you ever challenged, shaken old work methods? What problems did you
encounter? Did you overcome them? How? If no, what were the reasons for their
being insurmountable?

9. With reference to a day's work, what steps do you take to organise and
prioritize your tasks?

10. Describe a specific instance, in a group situation, where you made your views
known about an issue important to yourself. What was the issue, and why was it
crucial?

11. Outline in very broad terms how you would create a strategy for say, a public
interest campaign.
UNIT II
THE EXTERNAL AND INTERNAL ENVIRONMENT

- The Broad Environment : Social, Ethical, Environmental, Technological,


Legal/Political & Global
- Organizational Managers, Owners & Employees
- Human Resource Management
- Internal Resources
- Core Competence & Competitive advantage
- Porters & Forces Model
- Value Chain Model
- SWOT analysis
- TOWS Analysis

Concept of Environment
Environment literally means the surroundings, external objects, influences or
circumstances under which someone or something exists. The environment of any
organisation is “the aggregate of all conditions, events and influences that surround
and affect it.” Davis, K, The Challenge of Business, (New York: McGraw Hill, 1975),
p. 43.

Environment refers to all external forces which have a bearing on the functioning of
business. Jauch and Gluecke has defined environment as “The environment
includes factors outside the firm which can lead to opportunities or a threat to the
firm. Although there are many factors the most important of the sectors are
socio-economic, technological, supplier, competitor and govt.” The recent changes in
tariff rates have changed the toy industry of India with the market now being
dominated by Chinese products. A slight change in the Reserve Bank of India’s
monetary policy can increase or decrease interest rates in the market. A slight shift
in the government’s fiscal policy can shift the whole demand curve towards the right
or the left.

Example: Hindustan Lever Limited (HLL) took advantage of the new takeover and
merger codes and acquired brands like Kissan from the UB group, TOMCO (Tata Oil
Mills Company) and Lakme from Tata and Modern Foods from the government,
besides many other small takeovers and mergers. The new moguls of the Indian
business are those who predicted the changes in the environment and reacted
accordingly. Azim Premji of Wipro, Narayana Murthy of Infosys, Subhash Goyal of
ZEE, the Ambanis of Reliance, L.N. Mittal of Mittal Steel, Sunil Mittal of Bharti
Telecom are some of them.
Even a small businessman who plans to open a small shop as a general merchant in
his town needs to study the environment before deciding where he wants to open his
shop, the products he intend to sell and what brands he wants to stock. The relation
between a business and an environment is not a one way affair. The business also
equally influences the external environment and can bring about changes in it.
Powerful business lobbies for instance, actively work towards changing government
policies. The business environment is not all about the economic environment but
also about the social and political environment. Politically, after the Congress
government came to power at the center with the support of the CPI in May 2004,
the whole process of disinvestments took a Uturn. Similarly, a new sociological order
in India today has created a market for fast foods, packaged foods, multiplexes,
designer names, Valentine day gifts and presents, and gymnasiums and clubs etc.

So it is quite obvious that success in a business depends upon better understanding


of the environment. A successful organisation doesn’t look at the environment on an
ad hoc basis but develops a system to study the environment on a continuous basis
to try and protect the organisation from every possible threat and to take the
advantage of every opportunity. Some times better and timely understanding of the
environment can even turn a threat into an opportunity.

Importance of Business Environment

1. Environment is Complex: The environment consists of a number of factors,


events, conditions and influences arising from different sources. All these interact
with each other to create new sets of influences.

2. It is Dynamic: The environment by its very nature is a constantly changing one.


The varied influences operating upon it impart dynamism to it and cause it to
continually change its shape and character.

3. Environment is multi -faceted: The same environmental trend can have different
effects on different industries. For instance, GATS is an opportunity for some
companies but a threat for others.

4. It has a far-reaching impact: The environment has a far-reaching impact on


organisations in that the growth and profitability of an organisation depends critically
on the environment in which it exists.

5. Its impact on different firms with in the same industry differs: A change in
environment may have different bearings on various firms operating in the same
industry. In the pharmaceutical industry in India, for instance, the impact of the new
IPR (Intellectual Property Rights) law will different for research-based pharmacy
companies such as Ranbaxy and Dr. Reddy’s Lab and will be different for smaller
pharmacy companies.
6. It may be an opportunity as well as a threat to expansion: Developments in
the general environment often provide opportunities for expansion in terms of both
products and markets.

7. Changes in the environment can change the competitive scenario: General


environmental changes may alter the boundaries of an industry and change the
nature of its competition. This has been the case with deregulation in the telecom
sector in India. Since deregulation, every second year new competitors emerge, old
foes become friends and M&As follow every new regulation.

8. Sometimes developments are difficult to predict with any degree of


accuracy: Macroeconomic developments such as interest rate fluctuations, the rate
of inflation, and exchange rate variations are extremely difficult to predict on a
medium or a long term basis. On the other hand, some trends such as demographic
and income levels can be easy to forecast.

Human Resource Management


“Human Resource Management is that part of management which is concerned with
people at work and with their relationship with an enterprise. Its aim is to bring
together and develop into effective organization the men and women who make up
an enterprise and having regard for the well-bring of the individual and of working
groups, to enable them to make their best contribution to its success”.

“Thus, Human Resource Management is that part of the process of management


specifically concerned with the people employed in an organization. Its purpose is to
establish and maintain sound relations at all levels of the organization and to secure
the effective use of personnel by ensuring such conditions of employment as well as
to attain for these personnel social satisfaction which they tend naturally to seek
within their working environment”.

The word ‘personnel’ refers to ‘the human resource’ of an organization, i.e., the
employees. Thus Human Resource Management is often referred to as Personnel
Management (though there are conceptual differences between the two). To define
it, “Personnel management is concerned with all aspects of managing the human
resources of an organization. More specifically, personnel management involves
determining the organization’s need of human resources, recruiting and selecting the
best available employees, developing, counselling and rewarding employees, acting
as a liaison with unions and government organizations and handling other matters
related to the well being of employees.” Each of these functions is necessary to
some degree irrespective of nature and size of the organization. That is why, in most
of the organizations, a separate department known as Personnel/ Human Resources
Department is created for the effective performance of these functions.

Human Resource Management is also concerned with the human and social
implications of change in internal organization and methods of working and of
economic and social changes in the community”.
Management must have the support of all employees. In an informative society,
human resources are at the cutting edge. And it means that human resource
professionals are becoming much more important in their organization.
Currently, many companies recognize the growing importance of their human
resources, but a large number are conceptualizing them in strategic terms-in ways to
gain a competitive advantage. But, many companies forego the opportunity to seize
competitive advantage through human resource practice initiatives.

What are Human Resources?


The term human resources may be defined as the total knowledge, skills, creative
abilities, talents and aptitudes of an organization’s workforce, as well as the values,
attitudes, approaches and beliefs of the individuals involved in the affairs of the
organization. It is the sum total or aggregate of inherent abilities, acquired knowledge
and skills represented by the talent and aptitudes of the persons employed in an
organization.
Several terms have been used by various management thinkers to represent human
resources. These include ‘personnel’, ‘people at work’, ‘manpower, ‘staff’ and
‘employees’. Whatever may be the term used, the human resources of an
organization include all individuals engaged in various organizational activities at
different levels.

According to Leon C. Megginson, “From the national point of view, human


resources may be defined as knowledge, skills, creative abilities, talents and
aptitudes obtained in the population; whereas from the viewpoint of the individual
enterprise, they represent the total of the inherent abilities, acquired knowledge and
skills as exemplified in the talents and aptitudes of its employees.”

Jucius Michael calls these resources, ‘human factors’, which refer to “a whole
consisting of inter-related, interdependent and interacting physiological,
psychological, sociological and ethical components.” Thus, human resources are
multi-dimensional in nature. People working in the organization have different needs
at different times. These needs may be physiological (water, food, ventilation, etc),
social (sense of affiliation, belongingness etc.) and psychological (motivation,
counselling, guidance, supervision, etc).

Definition of Personnel/Human Resources Management


Personnel management has come to be recognized as an inherent part of
management, which is concerned with the human resources of an organization. Its
objective is to maintain of better human relations in the organization by the
development, application and evaluation of policies, procedures and programmes
relating to human resources to optimize their contribution towards the realisation of
organizational objectives. In other words, personnel management is concerned with
getting better results with the collaboration of people.

French Wendell, defines “Personnel Management is the recruitment, selection,


development, utilization, compensation and motivation of human resources by the
organization”.
To quote Edwin B. Flippo, “Personnel Management is the planning, organizing,
directing, and controlling of the procurement, development, resources to the end that
individual and societal objectives are accomplished”.

This definition reveals that personnel or human resource (HR) management is that
aspect of management, which deals with the planning, organizing, directing and
controlling the personnel functions of the enterprise.
This definition is a comprehensive one and covers both the management functions
and the operative functions. The purpose of all these functions is to assist in the
achievement of basic organizational, individual and societal goals.
DIFFERENCE BETWEEN PERSONNEL MANAGEMENT AND HRM
As in any other discipline, there is a problem of semantics with HRM too. First, we
have two terms, namely personnel management (PM) and HRM. Between these two
terms there is a basic difference, and it is important to understand what it is.

HRM differs from PM both in scope and orientation.


– Personnel management is more administrative in nature, dealing with payroll,
complying with employment law, and handling related tasks. Personnel management
typically seeks to motivate employees with such things as compensation, bonuses,
rewards, and the simplification of work responsibilities.

– PM is more specific in nature as it focuses on operational activities.

On the other hand,


– HRM considers workforce as one of the primary resources that contributes to the
success of an organization and society. Thus it is responsible for managing the
workforce by formulating policies and procedure that promote mutuality-mutual
goals, mutual respect, mutual rewards and mutual responsibilities.
– HRM is more general in nature as it focuses on the developmental activities.
FEATURES OF HUMAN RESOURCE MANAGEMENT
The nature of the personnel management has been highlighted in its following
features:

(i) Inherent Part of Management: Human resource management is inherent in the


process of management. This function is performed by all the managers throughout
the organization rather than by the personnel department alone. If a manager is to
get the best of his people, he must undertake the basic responsibility of selecting
people who will work under him. He must also take interest in training and motivating
the employees and in appraising their performance for improving their quality.

(ii) Pervasive Function: Personnel management is a pervasive function of


management. It is performed by all managers at various levels across all
departments in the organization. In other words, every manager from managing
director to the foreman is required to perform the personnel function on a continuous
basis.

(iii) People Centered: Personnel management is people centered and is relevant in


all types of organizations.
It is concerned with all categories of personnel from top to the bottom of the
organization. The broad classification of personnel in an industrial enterprise may be
as follows:
– Blue-collar workers (i.e. those working on machines and engaged in loading,
unloading, etc.) and white-collar workers (i.e. clerical employees).
– Managerial and non-managerial personnel.
– Professionals (such as Company Secretary, Lawyer, etc.) and non-professional
personnel.

(iv) Personnel Activities or Functions: Personnel management involves several


functions concerned with the management of people at work. It includes manpower,
planning, employment, placement, training, appraisal and compensation of
employees. For the performance of these activities efficiently, a separate department
known as Personnel Department is created in most of the organizations.

(v) Continuous Process: Personnel management is not a ‘one shot’ function. It must
be performed continuously if the organizational objectives are to be achieved
smoothly. To quote G.R. Terry. “The personnel function cannot be turned on and off
like water from a faucet; it cannot be practiced only one hour each day or one day a
week. Personnel management requires a constant alertness and awareness of
human relations and their importance in everyday operations”.

(vi) Based on Human Relations: Personnel management is concerned with the


motivation of human resources in the organization. The human beings can’t be dealt
with like the physical factors of production. Every person has different needs,
perceptions and expectations. The managers should give due attention to these
factors. They require human relations skills to deal with the people at work. Human
relations skills are also required in training, performance, appraisal, transfer, and
promotion of subordinates. If the personnel function is performed properly, the
human relations in the organization will be cordial.
IMPORTANCE OF HUMAN RESOURCE MANAGEMENT
According to Dirks “The objectives of personnel administration include the utilization
of human resources effectively, establishment and maintenance of productive and
self-respecting working relationships among the participants and attainment of
maximum individual development of the members in the organization.”

According to the Indian Institute of Personnel Management, “Personnel


management aims to achieve both efficiency and justice, neither of which can be
pursued successfully without the other. It seeks to bring together and develop into an
effective organization the men and women who make up an enterprise, enabling
each to make his or her own best contribution to its success both as an individual
and as a member of a working group. It seeks to provide fair terms and conditions of
employment and satisfying work for those employed.”

The basic objective of human resource management is to contribute to the


realisation of the organizational goals. However, the specific objectives of personnel
management may be outlined as follows:
(i) To ensure effective utilisation of human resources. All other organizational
resources will be efficiently utilised by the human resources.
(ii) To establish and maintain an adequate organizational structure of relationship
among all the members of an organization by dividing the organization tasks into
functions, positions, and jobs, and by defining
clearly the responsibility, accountability, authority for each job and its relation with
other jobs in the organization.
(iii) To generate maximum development of human resources within the organization
by offering opportunities for advancement to employees through training and
education.
(iv) To ensure respect for human beings by providing various services and welfare
facilities to the personnel.
(v) To ensure reconciliation of individual/group goals with those of the organization in
such a manner that the personnel feel a sense of commitment and loyalty towards it.
(vi) To identify and satisfy the needs of individuals by offering various monetary and
non-monetary rewards.
In order to achieve the above objectives, human resource management undertakes
the following activities:
(i) Human Resource or Manpower Planning, i.e., determining the number and kinds
of personnel required to fill various positions in the organization.
(ii) Recruitment, selection and placement of personnel, i.e., employment function.
(iii) Training and development of employees for their efficient performance and
growth.
(iv) Appraisal of performance of employees and taking corrective steps such as the
transfer of the employees from one job to another.
(v) Motivation of workforce by providing financial incentives and avenues for
promotion.
(vi) Remuneration of employees. The employees must be given sufficient wages and
fringe benefits to achieve higher standard of living as this would motivate them to
show higher productivity.
(vii) Social security and welfare of employees.
LIMITATIONS OF HUMAN RESOURCE MANAGEMENT
The following are the limitations of HRM:

(i) Uncertain Future: The future of an enterprise in any country is uncertain, i.e.,
political, cultural, technological changes takes place every day. This affects the
employment situation. Accordingly the company may have to appoint or remove
people. Therefore, HRM can only be a guiding factor. One cannot totally rely on it
and perform every action according to it.

(ii) Conservative Attitude of Top Management: Much top management adopts a


conservative attitude and is not ready to make changes. The process of HRM
involves either appointing or laying off the staff. Therefore, it becomes very difficult to
implement HRM in organization because top management does not support the
decisions of other department many times.

(iii) Problem of Surplus Staff: HRM gives a clear cut solution for the excess staff, i.e.,
termination, laying off and VRS. However when certain employees are laid off it
affects the psyche of the existing employees, and they start feeling insecure,
stressed out and lose faith in the company. This is a limitation of HRM, i.e., it does
not provide alternative solutions like re-training so that employees need not be laid
off by the company.
(iv) Time Consuming: HRM collects information from all departments, regarding
demand and supply of personnel. This information is collected in detail and each and
every job is considered. Therefore, the activity takes up a lot of time.

(v) Expensive Process: The solution provided by the process adopted by the HRM
incurs expenses like VRS, overtime, etc. Company has to spend a lot of money in
carrying out these procedures. Hence, we can say the process is expensive.
ROLE OF PERSONNEL MANAGER IN AN ORGANIZATION
In most of the big enterprises, personnel department is set up under the leadership
of personnel manager who has specialised knowledge and skills. The personnel
manager performs managerial as well as operative functions. Since he is a manager,
he performs the basic functions of management, like planning, organising, directing
and controlling in order to manage his department. He has to also perform certain
operative functions of recruitment, selection, training, placement, etc., which the
other line managers may entrust him with. He has to play multiple roles in the
effective management of human resources and in improving human relations in the
organization. Ideally, the personnel manager should concentrate on drawing
managerial attention to human problems. Just as finance assesses costs, marketing
emphasizes customers, personnel is people-centered. Success of a

Personnel Manager depends on the degree of his contribution to solve management


problems in dealing with human resources in the organization. Though managing is
the job of the every manager in the organization, yet the personnel manager has a
special role to play. Some of the important roles of personnel manager in an
organization in addition to the managerial and operative functions are discussed
below:
(i) Policy Initiation: Policy initiation and its formulation is one of the important tasks of
a personnel manager.
The personnel manager helps the top management in the formulation of policies on
wages and salary administration, transfer, appraisal, welfare activities, personnel
records and statistics, working environment, etc.
(ii) Advisory Role: The advisory role of personnel manager is of crucial importance.
Line managers are generally confronted with a variety of problems in their day to day
operations. The personnel manager can offer useful advice in all these matters as he
is familiar with personnel policies and practices, labour agreements, labour laws, etc.
(iii) Linking Pin Role: The personnel manager attempts to achieve and maintain good
industrial relations in the organization. He gives authentic information to the trade
union leaders regarding the personnel policies and programmes of the enterprise.
He also conveys the views of the trade union leaders to the higher management.
Thus, he acts as a link between the management and the workers.
(iv) Representative Role: The personnel manager generally acts as a spokesman of
the top management or representative of the company and communicates
management policies and decisions that affect people in the organization. He can do
this because he has a better understanding and can visualise an overall picture of
the company’s operations.
(v) Decision-Making Role: The personnel manager also plays an effective role in
decision-making on issues related to human resources. He formulates and designs
objectives, policies and programmes of human resource management.
(vi) Mediator Role: The personnel manger often acts as a mediator in the event of
conflict between employees, or groups of employees, superior and subordinate, and
even between management and employees. Thus, he attempts to maintain industrial
peace and harmony in the organization.
(vii) Leadership Role: The personnel manager provides leadership and guidance to
the workers and their groups. He ensures effective communication in the
organization and influences the workers for extending their cooperation in achieving
organizational objectives. He also acts as a counseller by providing advice to
workers on their work and personal problems.
(viii) Welfare Role: The personnel manager acts as a welfare officer in the
organization. As welfare officer, he
is responsible for providing canteen, crèches, transport and hospital facilities, and
other welfare services
for the benefit of workers and their family members.
(ix) Research Role: The personnel manager maintains the records of the employees
working in the enterprise. On the basis of records, he undertakes research in various
personnel areas such as absenteeism, labour turnover, alcoholism, etc., and
suggests suitable measures for their eradication to the top management.
The role of personnel management in industry is underlined by the complex and
dynamic nature of environment under which the modern large-scale industries
function. The task has also been facilitated by the greater recognition of the value of
human resources in industry and application of human resource development (HRD)
techniques by the enlightened managers in modem organizations.
QUALITIES OF A HUMAN RESOURCE MANAGER
Fayol has put the qualities required by the human resource managers into the
following categories:
(i) Physical-health, vigour, address;
(ii) Mental-ability to understand and learn; judgment, mental vigour and adaptability;
(iii) Moral-energy, firmness, willingness to accept, responsibility, initiative, loyalty,
tact, dignity;
(iv) Educational-general acquaintance with matters not belonging exclusively to the
function performed;
(v) Technical-peculiar to the function; and
(vi) Experience-arising from the work.

Internal Resources

Core Competence & Competitive advantage

Porters & Forces Model


In 1979, the Harvard Business Review published the article “How Competitive
Forces Shape Strategy” by the Harvard Professor Michael Porter. It started a
revolution in the strategy field. In subsequent decades, “Porter’s five forces” have
shaped a generation of academic research and business practice. This unit explores
how competitive analysis can be done using Porter’s five forces model.

The Five Forces


In essence, the job of the strategist is to understand and cope with competition.
However, managers define competition too narrowly, as if it occurs only among
today’s direct competitors. Yet competition for profits goes beyond established
industry rivals. It includes four other competitive forces as well: customers, suppliers,
potential entrants and substitutes.

Porter’s Five Forces Model

The Five Forces model developed by Michnal E. Porter has been the most
commonly used analytical tool for examining competitive environment. According to
this model, the intensity of competition in an industry depends on five basic forces.

These five forces are:

1. Threat of new entrants

2. Intensity of rivalry among industry competitors

3. Bargaining power of buyers

4. Bargaining power of suppliers

5. Threat of substitute products and services.

Each of these forces affects a firm’s ability to compete in a given market. Together,
they determine the profit potential for a particular industry. To understand industry
competition and profitability, one must analyze the industry’s underlying structure in
terms of the five forces.

Porter argues that the stronger each of these forces are, the more limited is the
ability of established companies to raise prices and earn greater profits. With Porter’s
framework, a strong competitive force can be regarded as a threat because it
depresses profits. A weak competitive force can be viewed as an opportunity
because it allows a company to earn greater profits. The strength of the five forces
may change with time as industry conditions change. For example, in industries such
as airlines, textiles and hotels, where these forces are intense, almost no company
earns attractive returns on investment. In pharmaceuticals and toiletries, where
these forces are benign, many companies earn attractive profits.

*** Understanding the competitive forces, and their underlying causes, reveals the
roots of an industry’s current profitability, while providing a framework for anticipating
and influencing competition and profitability over time. Understanding industry
structure is also essential to effective strategic positioning. Defending against the
competitive forces and shaping them in a company’s favour are crucial to strategy.

Case Study

IKEA: Earning through Five Forces National Competitive Advantage of IKEA IKEA
Group, a Swedish company founded in 1943 with its headquarters in Denmark, is a
multinational operator of a chain of stores for home furnishing and furniture. It is the
world's largest furniture retailer, which specializes, in stylish but inexpensive
Scandinavian designed furniture. At the end of 2005, the IKEA Group of Companies
had a total of 175 stores in 31 countries. In addition, there are 19 IKEA stores owned
and run by franchisees, outside the IKEA Group, in 12 countries. During the IKEA
financial year 2004-2005, 323 million people visited our IKEA stores around the
world. In Sweden, nature and the home both play a big part in people's lives. In fact,
one of the best ways to describe the Swedish home furnishing style is to describe
nature – full of light and fresh air, yet restrained and unpretentious. To match up, the
artists Carl and Karin Larsson combined classical influences with warmer Swedish
folk styles. They created a model of Swedish home furnishing design that today
enjoys world-wide renown. In the 1950s the styles of modernism and functionalism
developed at the same time as Sweden established a society founded on social
equality. The IKEA product range – modern but not trendy, functional yet attractive,
human-centered and child-friendly – carries on these various Swedish home
furnishing traditions. The IKEA Concept, like its founder, was born in Småland. This
is a part of southern Sweden where the soil is thin and poor. The people are famous
for working hard, living on small means and using their heads to make the best
possible use of the limited resources they have. This way of doing things is at the
heart of the IKEA approach to keeping prices low. IKEA was founded when Sweden
was fast becoming an example of the caring society, where rich and poor alike were
well looked after. This is also a theme that fits well with the IKEA vision. In order to
give the many people a better everyday life, IKEA asks the customer to work as a
partner. The product range is child-friendly and covers the needs of the whole family,
young and old. So together we can create a better everyday life for everyone. In
addition to working with around 1,800 different suppliers across the world, IKEA
produces many of its own products through sawmills and factories in the IKEA
industrial group, Swedwood. Swedwood also has a duty to transfer knowledge to
other suppliers, for example by educating them in issues such as efficiency, quality
and environmental work. Swedwood has 35 industrial units in 11 countries.
Purchasing: IKEA has 42 Trading Service Offices (TSO's) in 33 countries. Proximity
to their suppliers is the key to rational, long-term co-operation. That's why TSO
co-workers visit suppliers regularly to monitor production, test new ideas, negotiate
prices and carry out quality audits and inspections. Distribution: The route from
supplier to customer must be as direct, cost-effective and environmentally friendly as
possible. Flat packs are an important aspect of this work: eliminating wasted space
means we can transport and store goods more efficiently. Since efficient distribution
plays a key role in the work of creating the low price, goods routing and logistics are
a focus for constant development. The IKEA business idea is to offer a wide range
of home furnishings with good design and function at prices so low that as many
people as possible will be able to afford them. And still have money left! The
company targets the customer who is looking for value and is willing to do a little bit
of work serving themselves, transporting the items home and assembling the
furniture for a better price. The typical IKEA customer is young low to middle income
family. The Competition Advantage: The Competition Advantage Strategy of IKEA's
product is reflected through IKEA's success in the retail industry. It can be attributed
to its vast experience in the retail market, product differentiation, and cost leadership.
IKEA Product Differentiation: A Wide Product Range The IKEA product range is wide
and versatile in several ways. First, it's versatile in function. Because IKEA think
customers shouldn't have to run from one small specialty shop to another to furnish
their home, IKEA gather plants, living room furnishings, toys, frying pans, whole
kitchens – i.e., everything which in a functional way helps to build a home – in one
place, at IKEA stores. Second, it's wide in style. The romantic at heart will find
choices just as many as the minimalist at IKEA. But there is one thing IKEA don't
have, and that is, the far-out or the over-decorated. They only have what helps build
a home that has room for good living. Third, by being coordinated, the range is wide
in function and style at the same time. No matter which style you prefer, there's an
armchair that goes with the bookcase that goes with the new extending table that
goes with the armchair. So their range is wide in a variety of ways. Cost Leadership:
A wide range with good form and function is only half the story. Affordability has a
part to play – the largest part. A wide range with good form and function is only half
the story. Affordability has a part to play – the largest part. And the joy of being able
to own it without having to forsake everything else. And the customers help, too, by
choosing the furniture, getting it at the warehouse, transporting it home and
assembling it themselves, to keep the price low. Questions 1. Do you think that IKEA
has been successful to utilize Porter's Five force analysis? Give reasons. 2. Where
do you think can IKEA improve?

SWOT Analysis
SWOT stands for strengths, weaknesses, opportunities and threats. SWOT analysis
is a widely used framework to summaries a company’s situation or current position.
Any company undertaking strategic planning will have to carry out SWOT analysis:
establishing its current position in the light of its strengths, weaknesses,
opportunities and threats. Environmental and industry analyses provide information
needed to identify opportunities and threats, while internal analysis provides
information needed to identify strengths and weaknesses. These are the
fundamental areas of focus in SWOT analysis. SWOT analysis stands at the core of
strategic management. It is important to note that strengths and weaknesses are
intrinsic (potential) value creating skills or assets or the lack thereof, relative to
competitive forces. Opportunities and threats, however, are external factors that are
not created by the company, but emerge as a result of the competitive dynamics
caused by ‘gaps’ or ‘crunches’ in the market. We had briefly mentioned about the
meaning of the terms opportunities, threats, strengths and weaknesses. We revisit
the same for purposes of SWOT analysis.

1. Opportunities: An opportunity is a major favourable situation in a firm’s


environment. Examples include market growth, favourable changes in competitive or
regulatory framework, technological developments or demographic changes,
increase in demand, opportunity to introduce products in new markets, turning R&D
into cash by licensing or selling patents etc. The level of detail and perceived degree
of realism determine the extent of opportunity analysis

2. Threats: A threat is a major unfavourable situation in a firm’s environment.


Examples include increase in competition; slow market growth, increased power of
buyers or suppliers, changes in regulations etc. These forces pose serious threats to
a company because they may cause lower sales, higher cost of operations, higher
cost of capital, inability to make break-even, shrinking margins or profitability etc.
Your competitor’s opportunity may well be a threat to you. 3. Strengths: Strength is
something a company possesses or is good at doing. Examples include a skill,
valuable assets, alliances or cooperative ventures, experienced sales force, easy
access to raw materials, brand reputation etc. Strengths are not a growing market,
new products, etc. 4. Weaknesses: A weakness is something a company lacks or
does poorly. Examples include lack of skills or expertise, deficiencies in assets,
inferior capabilities in functional areas etc. Though weaknesses are often seen as
the logical ‘inverse’ of the company’s threats, the company’s lack of strength in a
particular area or market is not necessarily a relative weakness because competitors
may also lack this particular strength.

Carrying out SWOT Analysis


The first thing that a SWOT analysis does is to evaluate the strengths and
weaknesses in terms of skills, resources and competencies. The analyst then should
see whether the internal capabilities match with the demands of the key success
factors. The job of a strategist is to capitalize on the organisation’s strengths while
minimizing the effects of its weaknesses in order to take advantage of opportunities
and overcome threats in the environment.

Steps in SWOT Analysis

The three important steps in SWOT analysis are:

1. Identification
a) Identify company resource strengths and competitive capabilities (b) Identify
company resource weaknesses and competitive deficiencies (c) Identify company’s
opportunities (d) Identify external threats

2. Conclusion

3. Translation .

SWOT Analysis

2. Conclusion: (a) Draw conclusions about the company’s overall situation 3. Translation: Translate
the conclusions into strategic actions by acting on them: (a) Match the company’s strategy to its
strengths and opportunities (b) Correct important weaknesses (c) Defend against external threats In
devising a SWOT analysis, there are several factors that will enhance the quality of the material: 1.
Keep it brief, pages of analysis are usually not required. 2. Relate strengths and weaknesses,
wherever possible, to industry key factors for success. 3. Strengths and weaknesses should also be
stated in competitive terms, that is, in comparison with competitors. 4. Statements should be specific
and avoid blandness. 5. Analysis should reflect the gap, that is, where the company wishes to be and
where it is now. 6. It is important to be realistic about the strengths and weaknesses of one’s own
and competitive organisations. Probably the biggest mistake that is commonly made in SWOT
analysis is to provide a long list of points but little logic, argument and evidence. A short list with
each point well argued is more likely to be convincing.

What is TOWS Matrix?

TOWS matrix is just an extension of SWOT matrix. TOWS stand for threats,
opportunities, weaknesses and strengths. This matrix was proposed by Heinz
Weihrich as a strategy formulation – matching tool. TOWS analysis poses a number
of questions: What actions should a company take? Should it focus on using
company’s strengths to capitalize on opportunities, or acquire strengths in order to
be able to capture opportunities? Or should it actively try to minimize weaknesses
and avoid threats? TOWS matrix illustrates how internal strengths and weaknesses
can be matched with external opportunities and threats to generate four sets of
possible alternative strategies. This matrix can be used to generate corporate as well
as business strategies. An example of TOWS matrix is shown below: Internal
factors/ External factors Strengths(S) Weaknesses(W) Opportunities(O) SO
strategies: strategies that use strengths to take advantage of opportunities. WO
strategies: strategies that take advantage of opportunities by over -coming
weaknesses Threats(T) ST strategies: strategies that use strengths to avoid threats.
WT strategies: strategies that minimize weaknesses and avoid threats. To generate
a TOWS matrix, the following steps are to be followed: 1. List external opportunities
available in the company’s current and future environment, in the ‘opportunities
block’ on the left side of the matrix. 2. List external threats facing the company now
and in future in the “threats block” on the left side of the matrix. 3. List the specific
areas of current and future strengths for the company, in the “strengths block” across
the top of the matrix. 4. List the specific areas of current and future weaknesses for
the company in the “weaknesses box” across the top of the matrix. 5. Generate a
series of possible alternative strategies for the company based on particular
combinations of the four sets of factors. The four sets of strategies that emerge are:
SO Strategies SO strategies are generated by thinking of ways in which a company
can use its strengths to take advantage of opportunities. This is the most desirable
and advantageous strategy as it seeks to mass up the firm’s strengths to exploit
opportunities. For example, Hindustan Lever has been augmenting its strengths by
taking over businesses in the food industry, to exploit the growing potential of the
food business. ST Strategies ST strategies use a company’s strengths as a way to
avoid threats. A company may use its technological, financial and marketing
strengths to combat a new competition. For example, Hindustan Lever has been
employing this strategy to fight the increasing competition fromcompanies like Nirma,
Procter & Gamble etc.

Strategies attempt to take advantage of opportunities by overcoming its weaknesses.


For example, for textile machinery manufacturers in India the main weakness was
dependence on foreign firms for technology and the long time taken to execute an
order. The strategy followed was the thrust given to R&D to develop indigenous
technology so as to be in a better position to exploit the opportunity of growing
demand for textile machinery. WT Strategies WT Strategies are basically defensive
strategies and primarily aimed at minimizing weaknesses and avoiding threats. For
example, managerial weakness may be solved by change of managerial personnel,
training and development etc. Weakness due to excess manpower may be
addressed by restructuring, downsizing, delayering and voluntary retirement
schemes. External threats may be met by joint ventures and other types of strategic
alliances. In some cases, an unprofitable business that cannot be revived may be
divested. Strategies which utilize a strength to take advantage of an opportunity are
generally referred to as “exploitative” or “developmental strategies”. Strategies which
use a strength to eliminate a weakness may be referred to as “blocking strategies”.
Strategies which overcome a weakness to take advantage of an opportunity or
eliminate a threat may be referred to as “remedial strategies”. The TOWS matrix is a
very useful tool for generating a series of alternative strategies that the
decision-makers of the firm might not otherwise have considered. It can be used for
the company as a whole or it can be used for a specific business unit within a
company. However, it may be noted that the TOWS matrix is only one of many ways
to generate alternative strategies. Caselet SWOT Analysis of Tata Motors T ata
Motors began in 1945 and has produced more than 4 million vehicles. Tata Motors
Limited is the largest car producer in India. It manufactures commercial and
passenger vehicles, and employs in excess of 23,000 people. This SWOT analysis is
about Tata Motors.

Strengths 1. The internationalisation strategy so far has been to keep local


managers in new acquisitions, and to only transplant a couple of senior managers
from India into the new market. The benefit is that Tata has been able to exchange
expertise. For example after the Daewoo acquisition the Indian company leaned
work discipline and how to get the final product 'right first time.'

2. The company has a strategy in place for the next stage of its expansion. Not only
is it focusing upon new products and acquisitions, but it also has a programme of
intensive management development in place in order to establish its leaders for
tomorrow. 3. The company has had a successful alliance with Italian mass producer
Fiat since 2006. This has enhanced the product portfolio for Tata and Fiat in terms of
production and knowledge exchange. For example, the Fiat Palio Style was
launched by Tata in 2007, and the companies have an agreement to build a pick-up
targeted at Central and South America.

Weaknesses 1. The company's passenger car products are based upon 3rd and 4th
generation platforms, which put Tata Motors Limited at a disadvantage with
competing car manufacturers.

2. Despite buying the Jaguar and Land Rover brands (see opportunities below); Tat
has not got a foothold in the luxury car segment in its domestic, Indian market. Is the
brand associated with commercial vehicles and low-cost passenger cars to the
extent that it has isolated itself from lucrative segments in a more aspiring India? 3.
One weakness which is often not recognised is that in English the word 'tat' means
rubbish. Would the brand sensitive British consumer ever buy into such a brand?
Maybe not, but they would buy into Fiat, Jaguar and Land Rover (see opportunities
and strengths).

Opportunities 1. In the summer of 2008 Tata Motor's announced that it had


successfully purchased the Land Rover and Jaguar brands from Ford Motors for UK
£2.3 million. Two of the World's luxury car brand have been added to its portfolio of
brands, and will undoubtedly off the company the chance to market vehicles in the
luxury segments.

2. Tata Motors Limited acquired Daewoo Motor's Commercial vehicle business in


2004 for around USD $16 million.
3. Nano is the cheapest car in the World - retailing at little more than a motorbike.
Whilst the World is getting ready for greener alternatives to gas-guzzlers, is the Nano
the answer in terms of concept or brand? Incidentally, the new Land Rover and
Jaguar models will cost up to 85 times more than a standard Nano!

4. The new global track platform is about to be launched from its Korean (previously
Daewoo) plant. Again, at a time when the World is looking for environmentally
friendly transport alternatives, is now the right time to move into this segment? The
answer to this question (and the one above) is that new and emerging industrial
nations such as India, South Korea and China will have a thirst for low-cost
passenger and commercial vehicles. These are the opportunities. However the
company has put in place a very proactive Corporate Social Responsibility (CSR)
committee to address potential strategies that will make is operations more
sustainable.

5. The range of Super Milo fuel efficient buses are powered by super-efficient,
ecofriendly engines. The bus has optional organic clutch with booster assist and
better air intakes that will reduce fuel consumption by up to 10%.

Threats 1. Other competing car manufacturers have been in the passenger car
business for 40, 50 or more years. Therefore Tata Motors Limited has to catch up in
terms of quality and lean production.

2. Sustainability and environmentalism could mean extra costs for this low-cost
producer. This could impact its underpinning competitive advantage. Obviously, as
Tata globalises and buys into other brands this problem could be alleviated.

3. Since the company has focused upon the commercial and small vehicle
segments, it has left itself open to competition from overseas companies for the
emerging Indian luxury segments. For example ICICI bank and DaimlerChrysler
have invested in a new Pune-based plant which will build 5000 new Mercedes-Benz
per annum. 1 players developing luxury cars targeted at the Indian market include
Ford, Honda Notes and Toyota. In fact the entire Indian market has become a target
for other global competitors including Maruti Udyog, General Motors, Ford and
others.

4. Rising prices in the global economy could pose a threat to Tata Motors Limited on
a couple of fronts. The price of steel and aluminium is increasing putting pressure on
the costs of production. Many of Tata's products run on Diesel fuel which is
becoming expensive globally and within its traditional home market. Source:
www.marketingteacher.com

Critical Assessment of SWOT Analysis

SWOT analysis is one of the most basic techniques for analyzing firm and ind
industry conditions. It provides the “raw material” for analyzing internal conditions as
well as external conditions of a firm. SWOT analysis can be used in many ways to
aid strategic analysis. For example, it can be used for a systematic discussion of a
firm’s resources and basic alternatives that emerge from such an analysis. Such a
discussion is necessary because a strength to one firm may be a weakness for
another firm, and vice-versa. For example, increased health consciousness of
people is a threat to some firms (e.g. tobacco) while it is an opportunity to others
(e.g. health clubs). According to Johnson and Sholes (2002), a SWOT analysis
summarises the key issues from the business environment and the strategic
capability of an organisation that impacts strategy development. This can also be
useful as a basis for judging future courses of action. The aim is to identify the extent
to which the current strengths and weaknesses are relevant to, and capable of,
dealing with the changes taking place in the business environment. It can also be
used to assess whether there are opportunities to exploit further the unique
resources or core competencies of the organisation. Overall, SWOT analysis helps
focus discussion on future choices and the extent to which the company is capable
of supporting its strategies. 5.2.4 Advantages and Limitations Advantages 1. It is
simple. 2. It portrays the essence of strategy formulation: matching a firm’s internal
strengths and weaknesses with its external opportunities and threats. 3. Together
with other techniques like Value Chain Analysis and RBV, SWOT analysis improves
the quality of internal analysis.

Limitations

1. It gives a static perspective, and does not reveal the dynamics of competitive
environment.

2. SWOT emphasizes a single dimension of strategy (i.e. strength or weakness) and


ignores other factors needed for competitive success.

3. A firm’s strengths do not necessarily help the firm create value or competitive
advantage.

4. SWOT’s focus on the external environment is too narrow.

5. Hill and Westbrook criticize SWOT analysis by saying that it is not a panacea.
According to them, some of the criticisms against SWOT analysis are: (a) It
generates lengthy lists (b) It uses no weights to reflect priorities (c) It uses
ambiguous words and phrases (d) The same factor can be placed in two categories
(e.g. an opportunity may also be a threat). (e) There is no obligation to verify
opinions with data or analysis. (f) It is only a simple level of analysis. There is no
logical link to strategy implementation. (g) SWOT helps only as a starting point. By
itself, SWOT analysis rarely helps a firm develop competitive advantage that it can
sustain over time. In spite of the above criticism and its limitations, SWOT analysis is
still a popular analytical tool used by most organisations. It is definitely a useful aid in
generating alternative strategies, through what is called TOWS matrix

Value Chain Analysis


Every organisation consists of a chain of activities that link together to develop the
value of the business. They are basically purchasing of raw materials,
manufacturing, distribution, and marketing of goods and services. These activities
taken together form its value chain. The value chain identifies where the value is
added in the process and links it with the main functional parts of the organisation. It
is used for developing competitive advantage because such chains tend to be
unique to an organisation. It then attempts to make an assessment of the
contribution that each part makes to the overall added value of the business.
Essentially, Porter linked two areas together:

1. the added value that each part of the organisation contributes to the whole
organisation; and

2. the contribution that each part makes to the competitive advantage of the whole
organisation. In a company with more than one product area, the analysis should be
conducted at the level of product groups, not at corporate strategy level. Value Chain
thus views the organisation as a chain of value-creating activities. Value is the
amount that buyers are willing to pay for what a product provides them. A firm is
profitable to the extent the value it receives exceeds the total cost involved in
creating its products. Creating value for buyers that exceeds the cost of production
(i.e. margin) is a key concept used in analyzing a firm’s competitive position.

Notes The concept of value chain analysis was introduced by Michael Porter in 1985
in his seminal book “Competitive Advantage”. This concept is derived from an
established accounting practice that calculates the value added to a product by
individual stages in a manufacturing or service process. Porter has applied this idea
to the activities of an organisation as a whole, arguing that it is necessary to examine
activities separately in order to identify sources of competitive advantage. According
to Porter, customer value is derived from three basic sources.

1. Activities that differentiate the product

2. Activities that lower its costs

3. Activities that meet the customer’s need quickly. Competitive advantage, argues
Michael Porter (1985), can be understood only by looking at a firm as a whole, and
cost advantages and successful differentiation are found in the chain of activities that
a firm performs to deliver value to its customers.

Conducting a Value Chain Analysis

Value chain analysis involves the following steps. Identify Activities The first step in
value chain analysis is to divide a company’s operations into specific activities and
group them into primary and secondary activities. Within each category, a firm
typically performs a number of discrete activities that may reflect its key strengths
and weaknesses. Allocate Costs The next step is to allocate costs to each activity.
Each activity in the value chain incurs costs and ties up time and assets. Value chain
analysis requires managers to assign costs and assets to each activity. It views costs
in a way different from traditional cost accounting methods. The different method is
called activity-based costing. Identify the Activities that Differentiate the Firm
Scrutinizing the firm’s value chain not only reveals cost advantages or
disadvantages, but also identifies the sources of differentiation advantages relative
to competitors. Examine the Value Chain Once the value chain has been
determined, managers need to identify the activities that are critical to buyer
satisfaction and market success. This is essential at this stage of the value chain
analysis for the following reasons:

1. If the company focuses on low-cost leadership, then managers should keep a


strict vigil on costs in each activity. If the company focuses on differentiation,
advantage given by each activity must be carefully evaluated.

2. The nature of value chain and the relative importance of each activity within it,
vary from Notes industry to industry.

3. The relative importance of value chain can also vary by a company’s position in a
broader value system that includes value chains of upstream suppliers and
downstream distributors and retailers.

4. The interrelationships among value-creating activities also need to be evaluated.


The final basic consideration in applying value chain analysis is the need to use a
comparison when evaluating a value activity as a strength or weakness. In this
connection, RBV and SWOT analysis will supplement the value chain analysis. To
get the most out of the value-chain analysis, as already noted, one needs to view the
concept in a broader context. The value chain must also include the firm’s suppliers,
customers and alliance partners. Thus, in addition to thoroughly understanding how
value is created within the organisation, one must also know how value is created for
other organisations involved in the overall supply chain or distribution channel in
which the firm participates.

Therefore, in assessing the value chains there are two levels that must be
addressed.

1. Interrelationships among the activities within the firm.

2. Relationships among the activities within the firm and with other organisations that
are a part of the firm’s expanded value chain.

Usefulness of the Value Chain Analysis

The value chain analysis is useful to recognize that individual activities in the overall
production process play an important role in determining the cost, quality and image
of the end-product or service. That is, each activity in the value chain can contribute
to a firm’s relative cost position and create a basis for differentiation, which are the
two main sources of competitive advantage. While a basic level of competence is
necessary in all value chain activities, management needs to identify the core
competences that the organisation has or needs to have to compete effectively.
Analyzing the separate activities in the value chain helps management to address
the following issues:

1. Which activities are the most critical in reducing cost or adding value? If quality is
a key consumer value, then ensuring quality of supplies would be a critical success
factor.

2. What are the key cost or value drivers in the value chain?

3. What linkages help to reduce cost, enhance value or discourage imitation?

4. How do these linkages relate to the cost and value drivers? Porter identified the
following as the most important cost and value drivers:

Cost Drivers

1. Economies of scale

2. Pattern of capacity utilization (including the efficiency of production processes and


labour productivity)

3. Linkages between activities (for example, timing of deliveries affect storage costs,
just-in time system minimizes inventory costs)

4. Interrelationships (for example, joint purchasing by two units reduces input costs)

5. Geographical location (for example, proximity to supplies reduces input costs)

6. Policy choices (such as the choices on the product mix, the number of suppliers
used, wage costs, skills requirements and other human resource policies affect
costs)

7. Institutional factors (which include political and legal factors, each of which can
have a significant impact on costs).

Core Competence
Superior performance does not merely come from resources alone because they can
be imitated or traded. Superior performance comes by the way in which the
resources are deployed to create competences in the organisation’s activities. For
example, the knowledge of an individual will not improve an organisation’s
performance unless he or she is allowed to work on particular tasks which exploit
that knowledge. Although an organisation will need to achieve a threshold level of
competence in all of the activities and processes, only some will become core
competences. Core competence refers to that set of distinctive competencies that
provide a firm with a sustainable source of competitive advantage. Core
competencies emerge over time, and reflect the firm’s ability to deploy different
resources and capabilities in a variety of contexts to gain and sustain competitive
advantage.

Core competences are activities or processes that are critically required by an


organisation to achieve competitive advantage. They create and sustain the ability to
meet the critical success factors of particular customer groups better than their
competitors in ways that are difficult to imitate. In order to achieve this advantage,
core competences must fulfill the following criteria. It must be: 1. an activity or
process that provides customer value in the product or service features. 2. an activity
or process that is significantly better than competitors. 3. an activity or process that is
difficult for competitors to imitate

An organisation uses different types of resources and exhibits a certain type of


organisational capabilities to leverage those resources to bring about a competitive
advantage. It is important to emphasize that resources by themselves do not yield a
competitive advantage. Those resources need to be integrated into value creating
activities. Thus the central theme of RBV is that competitive advantage is created
and sustained through the bundling of several resources in unique combinations.
Thus,

1. Competence is something an organisation is good at doing.

2. Core competence is a proficiently performed internal activity.

3. Distinctive competence is an activity that a company performs better than its


rivals.

4. Distinctive competencies become the basis for competitive advantage.

Creation of Competitive Advantage

Barney, in his VRIO framework of analysis, suggests four questions to evaluate a


firm’s key resources.

1. Value: Does it provide competitive advantage?


2. Rareness: Do other competitors possess it?

3. Imitability: Is it costly for others to imitate?

4. Organisation: Is the firm organised to exploit the resource? If the answer to these
questions is “yes” for a particular resource, that resource is considered a strength
and a distinctive competence.

Using Resources to Gain Competitive Advantage: Grant proposes a five-step


resource based approach to strategy analysis.

1. Identify and classify the firm’s resources in terms of strengths and weaknesses.

2. Combine the firm’s strengths into specific capabilities.

3. Appraise the profit potential of these resources and capabilities.

4. Select the strategy that best exploits the firm’s resources and capabilities relative
to external opportunities.

5. Identify resource gaps and invest in overcoming weaknesses.

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