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A R Institute of Management And Technology PGDM III Sem Strategic Management

INTRODUCTION Managers at all companies face three central questions in thinking strategically about their companys present circumstances and prospects: Where are we now? concerns the ins and outs of the companys present situation its market standing, how appealing its products or services are to customers, the competitive pressures it confronts, its strengths and weaknesses, and its current performance where do we want to go? Deals with the direction in which management believes the company should be headed in terms of growing the business and strengthening the companys market standing and financial performance in the years ahead how will we get there? Concerns crafting and executing a strategy to get the company from where it is to where it wants to go. STRATEGY A companys strategy is managements game plan for how to grow the business, how to attract and please customers, how to compete successfully, how to conduct operations, and how to achieve targeted objectives. Markets are usually diverse enough to offer competitors sufficient latitude to avoid look-alike strategies. At companies intent on gaining sales and market share at the expense of competitors, managers lean toward most offensive strategies while conservative risk-avoiding companies prefer a sound defense to an aggressive offense. Bourgeois defines 'strategy' as 'the means by which management establishes pursues the purpose through co alignment of organizational resource with environment, opportunities and constrains'. Good Strategy + Good Strategy Execution = Good Management Essentials of a Sound Strategy: The basic guidelines of an effective strategy are as follows: 1. The strategy must be consistent with the objectives, policies and other strategies of the organization. Internal consistency is an essential requirement of a good strategy as it identifies the areas where strategic decisions will eventually have to be made. 2. The strategy should be workable. It must be able to meet the needs of the particular situation. It must contribute to the progress of the organization. 3. A sound strategy must be suitable to the environment of the business. A strategy which is not consistent with the environment can put the organization in danger. It should also have the efficacy for the changing environment. 4. The risk involved in the strategy must be reasonable in view of its expected payoffs. A high risk strategy may threaten the survival of the enterprise, if things go wrong. 5. The strategy should be designed in the light of available resources. A strategic decision involves commitment of right amount of resources to the opportunity and reservation of sufficient resources for unanticipated demands. 6. The strategy should be based on an appropriate time horizon. Time horizon of strategy depends on the goals to be pursued. The time should be sufficiently long to allow the organisation to make adjust mints and maintain certain consistency of strategy. STRATEGIC MANAGEMENT The term 'Strategic Management' is defined by John A. Pearce and Rechard Robinson as 'set of decisions and actions resulting in formulation and implementation of strategies designed to achieve the objective of an organization'. Strategic management is not a box of tricks or a bundle of techniques. It is analytical thinking and commitment of resources to action. Peter Drucker (a) strategic management is an on-going process of analysis planning and action. It attempts to keep an organization aligned with its environment while capitalizing or organizational strengths and environmental opportunities and minimizing or avoiding organizational weaknesses and external threats.

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(b) Strategic management is also a future-oriented provocative management system. Managers, who use strategic management skills, are seeking a competitive advantage for their organizations and long-term organizational effectiveness. Hence, it is the duty of the strategic managers to do environment scanning, assess internal strength and weaknesses, set goals, mobilize resources, design action plans, implement actions and monitor progress and control resources and deviations from goals for the achievement of goals and key results areas. 6 important activities of Strategic Management process The process consists of the following activities: 1. Environmental Scanning threats and opportunities analysis: This involves analyzing each threat and opportunity according to its time frame (i.e. short-term or long-term). Significance and likelihood of occurrence can help to focus on the most important threats and opportunities. In identifying threats and opportunities in the organizations' environment, three questions need to be kept in mind: (i) Which threats are critical and how can they be avoided to turn into opportunities? (ii) Which opportunities are critical and must be exploited? (iii) Which threats and opportunities are short-term and which are long-term? 2. Organizational analysis mission, strength and weakness analysis: An Organizational analysis begins with an analysis of how the organization is performing and why. It gives a board statement about purpose, philosophy and goals, which guides executive actions, by evaluating the present strengths and weakness of the organization. 3. Strategic goal setting: Understandable; measurable, achievable and challenging long-term goals: Fixing annual objectives in line with long-term objectives as well as specifying functional strategies consistent with the grand strategy. Goals are the ends toward which activity is aimed. Goals must have understandable; measurable, achievable and challenging. Goals have a starting point and an end point. Goals can be measured in terms of quality, cost and time-frame. This can be classified as follows: 4. Strategic actions: Action plan to achieve the goals: Strategic actions flow from goals of the organization. A strategy sets forth a general programme of action and an implied development of employees and resources to obtain goals. Strategic action can be taken from three approaches: i. Functional approach ii. Product approach; and iii. Business unit groping approach Functional and product approaches are useful in developing strategic business plans for single business and functionally organized organizations. A business unit grouping approach works well in diversified enterprises. All these approaches involve choosing target markets and products. Product development plans, capital expenditure plans and marketing plans. For all major actions, two aspects- (i) timing and (ii) sequencing should be considered. All strategic actions will also need mobilizing and effective utilization of resources. 5. Strategy implementation: Spelling out effective policies or operating procedures to channel actions for implementing the strategy: This involves translating strategies into organizational actions, which involves strategies leadership i.e., identifying policies; rules; key results areas, developing management teams, forming teams, allocating responsibilities, making operational plans and day to day decisions. Strategic Management Page 2

6. Strategy Control: This includes both monitoring process and control resources by analyzing the deviation from standards and goals. Controlling is the measurement and correction of performance in order to ensure that enterprise objectives and plans are being accomplished. Strategic control can be done at individual level and group level through the periodic strategic meetings. As the business environment is not static, strategic management process will be a continuous activity of the organization to fight competition and maintain market share on the one hand and how to exploit opportunities; grip more market and forge ahead on the other hand. MISSION, VISIONAND OBJECTIVES Mission A personal mission or a farm business mission statement deals with questions like, Why are we here?, Why do we exist?, Why do we get up each day and do what we do?, What is it that we get paid for? What function does the organization perform? For whom?How? The mission is a broad statement of personal or business scope, purpose and operation that distinguishes me, or my farm, from others. A farm business cannot have values, beliefs or a mission outside of the people who makeup that business. Therefore, especially for small closely held businesses, its important that each principle in the business write their own personal mission statement first, then come together as a group or team to develop a mission statement for the business. A farm business mission statement reflects the core values and beliefs of the individuals who lead the business. Example mission statement: Our priorities are God, family (people), business. Our goal is to be a place where people (our most valuable asset) have the opportunity to grow spiritually, personally, intellectually, and financially. Through putting God first and people second, our success as individuals and as a business is guaranteed. To ensure unanimity of purpose within the organization. To provide a basis for motivating the use of the organizations resources. To develop a basis, or standard, for allocating organizational resources. To establish a general tone or organizational climate, for example, to suggest a businesslike operation. To serve as a focal point for those who can identify with the organizations purpose and direction, and to deter those who cannot form participating further in the organizations activities. To facilitate the translation of objective and goals into a work structure involving the assignment of tasks to responsible elements within the organization. To specify organizational purposes and the translation of these purposes into goals in such a way that cost, time, and performance parameters can be assessed and controlled.

Vision While a mission is a statement of what is, a vision is a statement of what or how you would like things to be. A picture of the future youre working to create, what you want to be when you grow up, what you want your business to become. Without a vision of where youre going how can you develop a plan to get there andhow will you know when youve arrived? Without a vision of where we would like to be, we can continue hiking various trails through life, climbing mountain after mountain, only to discover each time that weve arrived somewhere we really dont want to be. Nothing was ever created without a vision. It guides us, gives us direction and purpose, and can serve as a powerful motivator for those around us and ourselves. In order to truly guide and motivate a vision must: 1. Be aligned with the core values of both the individuals and the farm business. and 2. Be effectively communicated to and accepted by everyone involved in the farm.

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The more precise and detailed you can be in writing a description of your vision of the future, the easier it will be to communicate it to others and gain their commitment to it, and the more likely you will be to achieve it. The three elements of a strategic vision: 1. Coming up with a mission statement that defines what business the company is presently in and conveys the essence of Who we are and where we are now? 2. Using the mission statement as basis for deciding on a long-term course making choices about Where we are going? 3. Communicating the strategic vision in clear, exciting terms that arouse organization wide commitment. Developing visions and missions that are truly shared takes time, effort, energy and commitment. You cant expect that just because you develop mission and vision statements, read them at a staff meeting and even hand them out in printed form that everyone will immediately accept and work toward achieving them. You need to walk the talk and be totally committed to them yourself first, and then discuss them with your employees and consultants at least eight or ten times before they will believe youre really serious and begin to internalize these statements. Goals & Objectives Mission and vision, although frequently short statements, are broad, encompassing and far-reaching. They can often seem overwhelming and perhaps even impossible to achieve. The metaphors, How do you eat an elephant? One bite at a time and A journey of a thousand miles begins with the first step, fit well in regard to achieving a mission and vision. Goals and objectives create the bite size pieces, the road map and manageable stepping stones to achieve the mission, make the vision a reality, and navigate the course we have set for our business, or for ourselves.Reading the business literature is confusing as to whats a goal and whats an objective, theyre used interchangeably from one business author to another. The education literature however is consistent and specific. Goals are the bigger fuzzy things and objectives are the small: - S pecific - M easurable - A ttainable - R ewarding - T imed steps through which we achieve our goals. It doesnt really matter what we call them as long as we keep in mind the principle of, start small and break it down to minuscule in terms of identifying the steps that will move us in the direction we want to go. To be effective goals and objectives must be written. Clearly and specifically written, they also eliminate confusion and misunderstanding. Among all the attributes of a well-written objective, the most important are measurable results and a timeframe for completion. Having well developed goals and objectives also helps: - Maintain focus and perspective - Establish priorities - Lead to greater job satisfaction - Improve employee performance. Researchers studying the effects of goals as part of a companys overall performance management process found that the level of performance is highest when: - Goals are clearly stated and contain specific objectives - Goals are challenging but not unreasonable - Employees accept their goals with a true sense of ownership - Employees participate in setting and reviewing their goals. As time goes on and goals are achieved, or conditions and situations change, its important to reevaluate and establish new goals and objectives.

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MINTZBERG 5PS OF STRATEGY The word "strategy" has been used implicitly in different ways even if it has traditionally been defined in only one. A strategy is a long term plan of action designed to achieve a particular goal. The word derives from the Greek wordstratgos, which derives from two words:stratos (army) and ago (ancient Greek for leading). Strategies referred to a 'military commander' during the age of AtheniaDemocracy. Explicit recognition of multiple definitions can help people to man oeuvre through this difficult field. Mintzberg provides five definitions of strategy: Plan Ploy Pattern Position Perspective.

1. PLAN It is a set of consciously intended course of action, a guideline (or set of guidelines) todeal with a situation. By this definition strategies have twoessential characteristics:1)They are made in advance of the actionsto which they apply 2)They are developed consciously andpurposefully. 2. PLOY It is a specific man oeuvre intended to outwit an opponent or competitor. The real strategy (as plan, that is, the real intention) is the threat, not the new practice area itself, and as such is a ploy. Threatened litigation often falls into this category. 3. PATTERN A pattern is a stream of actions. Defining strategy is incomplete and needs an outline that encompasses the resulting behavior. The outcome of strategy does not derive from the design, or plan, but from the action that is taken asa result. A pattern makes a strategy consistent in behavior, whether or not intended. 4. POSITION Position implies a specific means of locating firm in its environment. In management terms: a "domain" consisting of a particular combination of services, clients and markets. Position is defined competitively. 5. PERSPECTIVE Perspective looks inward into the firm. Strategy is a perspective shared by members of an organization, through their intentions and / or by their actions. In effect, when we talk of strategy in this context, we are entering the realm of the collective mind individuals united by common thinking and / or behavior. STRATEGIC DECISION MAKING One of the essential parts of creating and running a small business is creating a mission or vision for the business and a set of goals the company aims to achieve. Strategic decision making, or strategic planning, describes the process of creating a company's mission and objectives and deciding upon the courses of action a company should pursue to achieve those goals. Decision making is a managerial process. It is the function of choosing a particular course of action out of several alternative courses for the purpose of accomplishment of the organizational goals. Decisions may relate to general day to day operations. They may be major or minor. They may be strategic, tactical or operational in nature. The major dimensions of strategic decisions are as follows: Strategic Management Page 5

1. Strategic issues require top-management decisions: Strategic issues involve thinking in totality of the organization's objectives in which a considerable amount of risk is involved. Hence, problems calling for strategic decisions require to be considered by the top management. 2. Strategic issues involve the allocation of large amounts of company resources: It may require either a huge financial investment to venture into a new area of business or the organization may require a huge amount of manpower with new skill sets. 3. Strategic issues are likely to have a significant impact on the long term prosperity of the firm: Generally the results of strategic implementation are seen on a long term basis and not on immediate terms. 4. Strategic issues are future oriented: Strategic thinking involves predicting the future environmental conditions and how to orient for the changed conditions. 5. Strategic issues usually have major multifunctional or multi- business consequences: As they involve organization in totality they affect different sections of the organization with varying degree. 6. Strategic issues necessitate consideration of factors in the firm's external environment: Strategic focus in an organization involves orienting its internal environment to the changes of external environment. Strategy Decision Making Process

Any number of challenges can arise during a startups initial years. Some of these changes could be major and may require rethinking strategy. Competitors enter your target market. New products are released into your market which undercut yours. Customer acquisition costs rise dramatically. If faced with these questions, its hard to know where to begin or how to structure an analysis to reach an answer McKinsey uses a 6 step process to frame the process of answering these strategic questions which is profiled in this months Harvard Business Review. This framework has helped me many times simplify strategic questions and shift from questioning to analysis to action. Frame the strategic choices as mutually exclusive options. Start with the most apparent options. Either compete directly with a new competitor or change your target market. Generate alternatives. Brainstorm other possibilities that broaden the option set. Partner with the new entrant. Acquire the new entrant. Specify the conditions under which each option is attractive. Competing directly with a competitor makes sense only if our margins are better than our competitors and our cash balance is larger, meaning we can spend more on marketing and customer acquisition. Identify barriers to each option. Our startup may lack the marketing competency to compete. Design and run tests to prove/disprove each of the conditions . Our goal is to quickly determine which options are feasible and realistic. Lets run some initial marketing tests to gauge our return on investment. Lets determin e how long it would take to find the right marketing person and how much it might cost.

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Using the data, make a decision. Enumerating the possibilities, identifying key challenges, developing the triggers for pursuing an option and then deriving key data to compare to these triggers builds clarity into the decision making process. By definition strategy is critical to companies. By using an analysis framework like the one above, you can bring clarity and a common language with your board for evaluating and making the right strategic choices.

UNIT 2&3
ENVIROMENTAL SCANNING Environmental scanning is a process of gathering, analyzing, and dispensing information for tactical or strategic purposes. The environmental scanning process entails obtaining both factual and subjective information on the business environments in which a company is operating or considering entering Kinds of environmental scanning Ad-hoc scanning - Short term, infrequent examinations usually initiated by a crisis Regular scanning - Studies done on a regular schedule (e.g. once a year) Continuous scanning (also called continuous learning) - continuous structured data collection and processing on a broad range of environmental factors

Environmental scanning is one tool in an organization's arsenal that can be used to gain a keen strategic understanding of external influences in order to respond in ways that will ensure the organization's survival and success. Environmental scanning is the internal communication of external information about issues that may potentially influence an organization's decision-making process. Environmental scanning focuses on the identification of emerging issues, situations, and potential pitfalls that may affect an organization's future. Environmental scanning allows an organization to address external competitive, social, economic, and technical issues that may be hard to identify and are persistent.

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A formal environmental scanning process has five basic steps that are integrally linked and may overlap with others: 1. Identify the environmental scanning needs of the organization. 2. Gather the information. 3. Analyze the information. 4. Communicate the results. 5. Make informed decisions. External Environment: External environment is devided into two categories A) Macro Environment B) Micro Environment A) Macro Environment: There are several external environments that may impact an organization. These can be grouped into categories including social, regulatory, technological, political, economic, and industry. Environmental scans must be conducted on an ongoing basis in order to effectively monitor external forces that are likely to impact an organization. Issues for each of the external environments should be explored. A comprehensive environmental scanning process will keep a watchful eye on the potential impacts of the following different environments: Industry/Market: Because the industry/market environment generally seems to be the most significant, it is useful to examine the structure of the industry and identify the key competition in the industry. Understanding the role of the competitors in the market and their relationship with each other, their customers, and their suppliers will provide useful information on trends and potential problems for competing organizations. Technology: The emergence of new technologies can impact organizations' overall business and production processes. It is useful, therefore, to monitor changes in technologies, particularly those that influence business efficiencies, changes in production, existing infrastructures (e.g., energy, transportation, and communication), and the rise of new products or services. Regulatory: Changes in laws and regulatory guidelines may also have a significant impact on the organization. Communications media ownership laws, for example, can have dramatic effects on the numbers of stations one owner may have, thereby potentially affecting the overall market structure and market share. Laws regarding minimum wage and business taxes can have direct bearing on hiring practices within an organization. Regulatory information on employment practices, intellectual property, and those that are industry-specific are important to consider. Economic: Local, regional, national, and international economies can affect an organization, depending on its size, scope, and market. Rates of unemployment and inflation can help or hinder growth if the organization is caught off-guard. Economic information can help the organization prepare for changes in these and other related issues (e.g., exchange rates and gross national product of potential trading nations). Social: Market changes are sometimes driven by changes in society. Demographic shifts in the population may cause an increase or decrease in demand for a given product or service. Demographic information should be monitored for changes in variables such as size and distribution of population, age, education, and income. Additional, qualitative indicators (e.g., consumer attitudes) are also important and should be monitored. Political: Local, national, and international politics can influence an organization in ways that may be direct or indirect. Certainly, the acts of terror on September 11, 2001, directly affected many national and international business practices. Tariffs can concern organizations by either restricting trade flows or by encouraging them, depending on how they are set. It is useful for an organization to have a clear understanding of the political climate in which it operates so that it can be prepared for sudden changes that result from elections or changes in existing policies or laws. Page 8

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B) Micro Enviroment: Factors or elements in an organization's immediate area of operations that affect its performance and decisionmaking freedom. These factors include competitors, customers, distribution channels, suppliers, and the general public. The micro environment and Trends The micro environment refers to the forces that are close to the company and affect its ability to serve its customers The company aspect of micro environment refers to the internal environment of the company The suppliers of a company are also an important aspect of the micro environment because even the slightest delay in receiving supplies can result in customer dissatisfaction

INDUSTRY ANALYSIS Industry/market definition Qualitative approach: Two products are in the same market if they are close substitutes Same or similar product performance characteristics Same or similar occasions for use Sold in the same geographic markets Industry analysis A market assessment tool designed to provide a business with an idea of the complexity of a particular industry. Industry analysis involves reviewing the economic, political and market factors that influence the way the industry develops. Major factors can include the power wielded by suppliers and buyers, the condition of competitors, and the likelihood of new market entrants. Industry analysisalso known as the Five Forces Frameworkis a very useful tool for business strategists. It is based on the observation that profit margins vary between industries, which can be explained by the structure of an industry. Its primary purpose is to determine the attractiveness of an industry. However, the analysis also provides a starting point for formulating strategy and understanding the competitive landscape in which a company operates. Five Forces Framework The Five Forces Framework consists of five basic competitive forces: Industry rivalry (degree of competition among existing firms)intense competition leads to reduced profit potential for companies in the same industry Threat of substitutes (products or services)availability of substitute products will limit your ability to raise prices Bargaining power of buyers powerful buyers have a significant impact on prices Bargaining power of suppliers powerful suppliers can demand premium prices and limit your profit Barriers to entry (threat of new entrants)act as a deterrent against new competitors Industry analysis and competition Competition within an industry is grounded in its underlying economic structure, and goes beyond the behaviour of current competitors. The state of competition in an industry depends upon the five basic competitive forces. The collective strength of these forces determines profit potential in the industry, which is measured in terms of long-term return on invested capital. Different industries have different profit potential, as the collective strength of the five forces differs between industries. Industry analysis enables a company to develop a competitive strategy that best defends against the competitive forces or influences them in its favour. The key to developing a competitive strategy is to understand the sources of the competitive forces. By developing an understanding of these competitive forces, the company is able to: Strategic Management Page 9

highlight the companys critical strengths and weaknesses (SWOT analysis) animate its position in the industry clarify areas where strategic changes will result in the greatest payoffs emphasize areas where industry trends indicate the greatest significance as either opportunities or threats Industry analysis and structure The five competitive forces reflect the fact that competition within an industry extends beyond current competitors. Customers, suppliers, substitutes and potential entrantscollectively referred to as an extended rivalryare competitors to companies within an industry. The five competitive forces jointly determine the strength of industry competition and profitability. The strongest force (or forces) rule and should be the focal point of any industry analysis and resulting competitive strategy. Short-term factors that affect competition and profitability should be distinguished from the competitive forces that form the underlying structure of an industry. Although these short-term factors may have some tactical significance, analysis should focus on the industrys underlying characteristics. ETOP ANALYSIS A profile of environmental threats and opportunities is considered to be a very useful device and is a summarized depiction of environmental factors and their impact on future functions of firm under competitive environment. The environment is a significant source of change and is highly dynamic in nature. Some organizations become victim of the change and dynamism of environment. Basic Characteristics of Environment: 1. Uniqueness 2. Dynamic in Nature 3. Variability of Control 4. Environment Carries Risk, Uncertainties and Opportunities On the basis of impact on a business house we can divide the environment into 4 categories: 1. The Mega Environment or Broader Environment: a) Demographic Factors b) Political Factors c) Legal & Regularity d) Socio-Cultural e) Economic 2. The Micro or Immediate Environment or Industry Environment: This environment and its components are very close to the firm; in fact the firm operates within this environment. Therefore, the intensity of negative or positive effects are directly hit the firm and its strategies/decision making. Porter Model of 5 Forces is the best tool to evaluate this environment. Porters 5 Forces Effects on Industry Profitability and Functioning

High Rivalry

Low Profitability

High Power of Suppliers

Low Profitability

Low Power of Buyers

High Profitability

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Threats of Potential Rival- High

Low Profitability in Future and Unattractive Industry

Threats of Substitutes 3. The Technological Environment: 4. Global Environment

Low Profitability

THE VALUE CHAIN APPROACH The value chain approach to diagnose firms key strengths and weakness was developed by Michael Porter. Value chain is an excellent framework by which a firm can determine its strengths and weaknesses through parts of its operations that create value and those do not. A firm can earn above-average return only when the value it creates is greater than the costs incurred to create that value. The value chain analysis is a systematic way to analyze the series of activities a firm perform to provide a product to its customers. The value chain disaggregates a firm into its activities in order to understand the behavior of the firm cost and its existing or potential source of differentiation (competitive edge over competitors). The disaggregated activities are called as Key internal factors more cheaper or better than its competitors. As shown in the figure the firm value chain is divided into two types of activities. 1. Primary Activities: These activities are involved in products physical creation, its sales and distribution to customers, marketing, and after sales support. 2. Support Activities: Which provide inputs, infrastructure and assistance to primary activities to take place.

The value chain shows how the raw materials are converted into final products and marketed. It is vary apparent that human skills, knowledge and willingness in involved at every part of the chain. Using value chain analysis a firm can identify its strengths in terms of Core Competencies, Key Result Areas (KRAs), and DCs. The term margin which covers both primary activities and supportive activities in the figure denotes how an organization is capable to generate profit margin with the linkage of both the activities. Resource Based Approach of Internal Analysis (Care: Before Value Chain) Strategic Management Page 11

Success of a business firm heavily depend how well firm have a set of DC and resources which are significantly different from those of its competitors. For a successful corporate strategy a firm has to identify resources that systematically distinguished the firm in a way that no other competitor can easily imitate or duplicate (assets, skills, technologies, capabilities etc.). The resources based approach to analyze firms suggest that the available resources must be unique in term of: 1. Quantity, quality, durability 2. Not easy to imitate or duplicate 3. Highly specialized and durable (such as brand name and patent) Such a unique mix of resources provides long term sustainability and competitive edge over its competitors. Following figure shows the Resources Competencies Framework which enables a firm to show its strategic capabilities and competencies over competitors.

GRAND STRATEGY
Grand strategies are the decisions or choices of long term plans from available alternatives. Grand strategies also called as master or corporate strategy. It is based on analysis of internal and external environment. This direct the organization towards achievement of overall long term objectives (strategic intent). They involve Expansion, Quality Improvement, Market Development, Innovation, Liquidation, etc. Usually they are selected by top level managers such as directors, executives etc. Classification of Grand Strategy A) Stability Strategy B) Retrenchment Strategy B) D) Growth Strategy Combination Strategy

1.Stability Strategy A strategy is stability strategy when a firm attempts to maintain its status-quo with existing levels of efforts and it is satisfied with only incremental growth/improvement by marginally changing the business and concentrates its resources where it has or can develop rapidly a meaningful competitive advantages in the narrowest possible product market scope. Absence of significant change i.e. continuing to serve the same clients by offering the same product or service, maintaining market share, and sustaining the organization's return-on investment. When do organization follow - It is common for most of the organizations to follow this strategy at some point of time in their life cycle. - When a firm serves defined market and its segments to fulfills its mission. - When a firm can relate itself with the environment and environmental factors do not show any appreciable change. This is possible for most of the firms in a short run, but for a few in long runs. - When organization continues to pursue the same objectives by adjusting to the same level of achievement about the same percentage. Thus stability does not mean absence of growth but the growth is limited within specified limits and there is no substantial addition of facilities. - When there is scope for incremental improvement in the same line of business to take the fullest advantage of situation. E.g. when a company has technological or other break through it continues to be in the same business until it has competitive advantage. Thus when a company is pioneer in a new business, it reaps the benefit of initiation. Then when competition increases and profitability reduces, it may go for other strategy. - When a firm looks for functional improvement and there by efficiency and economy of operations so as to gain competitive advantage, it follows this strategy. Why do organization follow Strategic Management Page 12

- When management perception about performance in the present business is satisfactory, they tend to follow stability strategy because they are not always sure of a set of factors attributing to success. Thus they decide to continue the same business. - This strategy involves low risk unless there is a major change in the environment. So it provides safe business. Therefore it is preferred by risk avoiding managers. - Slow or resistant to change organizations follow this strategy. As they become larger and more s uccessful, they develop such tendency & prefer stability. - A firm having strategic advantage in the present business & market does not opt. for other strategy and prefers stability. - A company lacking in sufficient resources to effect major changes in business have to opt. for stability. - The environmental factors such as govt. norms, prohibition & restriction of certain products & process, licensing etc. prevent other strategies & a firm has to adopt stability strategy. - A firm may have a product or group of products which is not prestigious to it, its market share as well as contribution to total sales is very small and its market is declining. So before retrenching such product, the firm wants to generate as much profit as possible, even by scarifying its market share, and follows stability strategy - Organizations past history may be full of changes, so to reap the advantages of such past, stability is preferred for some time, usually after growth strategy. Alternatives of stability strategy a) Incremental growth strategy It is one in which a firm sets its objectives/achievement levels based on past accomplishment adjusted for inflation. It may be average achievement level of industry or even low. It is followed when environmental factors are more or less stable. The organization is doing well or perceives as doing well in its present form. It being a less risky and the organization does not go for higher risk. The organization is change resistant and prefers change only in extraordinary times. It is easier to pursue as it does not disturb the organizational routines. b) Profit strategy / End game strategy / Harvesting strategy It is one in which organization or its SBU aims at generating profit/cash, sometimes at the cost of market share also because the product is not prestigious, its market share & also contribution to total sales are very small. The product is in stable or declining market Here, company wants to encase as much profit as possible before retrenchment. c) Sustainable growth strategy It is one in which a firm tries to maintain its existence in unfavorable critical conditions like constraints on finance resources, raw material resources etc., govt. policy, cheaper imports, competitor by big and capable competitors etc. d) Stability as a pause/breathing spell/proceed with caution strategy It is one in which organization has followed growth strategy aggressively in recent past and want a pause on growth to consolidate its position by allowing structured changes to take place and the system to adopt to new strategies thereby it wants to take full advantage of future growth opportunities and strong present factors. Thus this strategy becomes intermediate choice between past & future, for some time. 2.GROWTH STRATEGY Growth Strategies are means by which an organization plans to achieve the increased level of objective that is much higher than its past achievement level. Organizations may select a growth strategy to increase their profits, sales or market share. Strategic Management Page 13

to reduce cost of production per unit. increase in performance objectives.

Reasons for following In the long run, growth is necessary for the very survival of the organizations. The organization that does not grow may be pushed out of the business because Of the new entrants in the field Higher wages, higher costs of other inputs, and lower level of efficiency because of certain obsolescence in plant and machinery. Growth offers many economies because of large-scale operations. Per unit cost of production can be very low The economies of increasing scale enhance degrees of specialization. With more people available to do the different kinds of work Greater penetration can be made These eventually lead to certain competitive advantage to the organization concerned. Growth strategy is taken up because of managerial motivation to do so. Managers with high degree of achievement and recognition always prefer to grow. The needs on the part of managers push them to think as to how they can achieve their need satisfaction. The answer lies in the continuous growth of the organization or the group of organizations as a whole. There are certain intangible advantages of growth. These may be in the form of Increased prestige of the organization Satisfaction to employees and Social benefits Preferred by investors Growing companies have high level of prestige in the corporate world. Alternatives of Growth Strategy a) Concentric Expansion Strategy It means investing the resources in one or more of a firms business so as to expand its present business. i.e. doing more what we are already doing and where we are best at doing; when potential for growth, attractiveness and maturity factors are favorable in the industry of the firm. It can be aimed at Market penetration (capture the market share in the existing product and expand its business at rate higher than the industry growth) Market development (increase sales by developing new markets, geography-wise or segment-wise) Product development (achieve growth through product innovation to penetrate in new segment) b) Vertical Integration Growth Strategy It represents a decision by an organization to utilize internal transactions rather than market transactions to accomplish its objectives. A firm starts undertaking & contributing activities, in addition to present activities, along the line of value addition stages from raw material stage to production and ultimately distribution of goods to customers, so as to gain ownership or increased control and thereby expand the business. Vertical integration can be achieved in two ways Forward Integration Backward Integration c) Diversification Strategy It is the process of entry into a business which is new to an organization. Diversified organizations can be classified into following Concentric Diversification (Related diversification) Strategic Management Page 14

d)

Market-wise Technology wise Both Conglomerate Diversification (Unrelated diversification) External Strategy o Merger strategy It means that two or more organizations merge together by formally losing their corporate identities and form another organization through combining assets & liabilities & issuing new stock, for mutual synergetic benefits. The new co. is called holding company and the merging companies are called subsidiary companies. According to the nature of business of merging companies, merger may be Horizontal Vertical Concentric Conglomerate o Acquisition or takeover It means that one company attempts to acquire ownership or control over management of other co. either by mutual consent of or against the wishes of latters (other co.) management or stock holders. It may be Friendly takeover Hostile takeover o Join venture It means that two or more companies combine to form a new company by equity participation and sharing of resources like finance, managerial talents, technology etc., so as to create new entity distinct from its parents JV b/w Government of India and another company JV b/w two or more Indian private sector companies JV b/w Indian company and a foreign company o Strategic Alliance It is one in which two (or more) firms unite by a win-win type agreement mutually acceptable to both (or all), In strategic alliance partners join hands together for certain specified objectives, when these objectives are achieved partners terminate their alliance. Types of Strategic Alliance (Based on its focus) Technology Development Alliance Operations and Logistics Alliance Marketing, Sales and Service Alliance Single Country or Multicountry Alliance X and Y Alliance 3.RETRENCHMENT STRATEGY It is a defensive strategy in which a firm having declining performance decides to improve its performance through contraction in this activities i.e. reducing the scope of its business by total or partial withdrawal from present business. focusing on functional improvement with special emphasis on cost reduction or reducing the number of functions it performs, by being a captive firm or reducing the no. of products, markets, customer functions etc. or liquidation of business (as a last alternative) or combinations of above. Reasons for adopting

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When the organization is not doing well and perceives that it may not do better in future too in a particular line of business it is advisable to delete that line of business. After deletion, the organization can concentrate in other areas, where it has some advantages. If the organization is not meeting its objectives even after following other alternative strategies it may go for retrenchment strategy. Also when the management is under pressure to improve the performance, this strategy can be pursued as a last resort. Alternatives of Retrenchment Strategy a) Turnaround Strategy It is also known as cutback strategy hold the present business and cut the costs It is one in which a company tries to recover from its declining state by improving internal efficiency. Turnaround actions may include: Change in the product mix Selling of assets which are not useful for long time or in future also to generate cash. Closing down plants & divisions which are not rewarding. Replacement of obsolete machinery Focus on specific products and customers and improved marketing, etc. b) Divestment Strategy In divestment strategy the organization decides to get out of certain businesses and sells off units or divisions. Divestment is done through:Outright sale of unit to another company for which the divested unit is a strategic fit. Or Leveraged buyout- a companys shareholder are bought out by companys management and other private investors using borrowed funds Or Spin off i.e. creating a new co. financially and managerially independent one from parent company and retaining or not retaining partial ownership by distribution of shares of new company to shareholders of parent company. c) Liquidation Strategy It is one in which a firm closes down & sells its entire business at a fair price on the basis of tangible assets, management good will & also intangible assets and invests the realization somewhere else or distributes among debtors and members when Business cant be revived and its retaining value is less than its selling. Business is in peak form (value, but future is quite uncertain, having no direction, Business has accumulated losses and some other organization offers higher price to get tax benefits, Liquidation value is more than discounted present value of future flow of income etc. d) Combination Strategy Combination strategy is not an independent classification but it is a combination of different strategies stability, growth, retrenchment in various forms. Thus the possible combinations of strategies may be: Stability in some businesses and growth in other businesses Stability in some businesses and retrenchment in other businesses Growth in some businesses and retrenchment in other businesses Stability, growth and retrenchment in different businesses. Reasons for following Different products in different product life cycle When different products of the organization are at different product life-cycle stages, they require different types of investment. Business Cycle Business cycle may affect the prospect of various businesses differently. Number of businesses When the number of businesses in an organization has gone beyond the optimum number, they are required to be reduced because some business may not be that attractive from long-term point of view. Strategic Management Page 16

UNIT 4
STRATEGIC IMPLEMENTATION The best game plan is the world never blocked or tackled anybody. V. Lombardi We would be in some form of denial if we didnt see that execution is the true measure of success. C. Michael Armstrong Operation-driven rather than market-driven. Action-oriented, make-things-happen tasks. Strategy requires few; execution requires everyone. Most know what it is: few know how to get things done. Three keys to keep in mind: Execution is a discipline, and integral to strategy. Execution is the major job of the business leader. Execution must be a core element of an organizations culture. Among other things, implementation has to do with; Rigorously discussing hows and whats, questioning, tenaciously following through. Ensuring accountability Making assumptions about the business environment Assessing the organizations capabilities Linking strategy to operations and the people who are going to implement Linking rewards to outcomes Changing assumptions as the environment changes Upgrading the companys capabilities to meet the challenges of an ambitious strategy. A Framework for Executing Strategy Entails converting the organizations strategic plan into action and results. Job for the whole management team. Affects every part of the firm. Each manager must answer, what has to be done in my area to implement our part of the strategic plan, and what must I do to get these things accomplished? All managers become strategic implementers in their areas and all employees are participants. Least charted and most open-ended area. Based on individual company situations. Know basics that must be covered some more than others, depending on changes Implementation should be addressed initially when the pros and cons of strategic alternatives are analyzed. Some strategies cannot be executed by some companies! Form follows function can vary even by department. The Big 8 Components of Implementation. The Strategy Implementers Action Agenda what to do now vs. later? What requires much time and personal attention? What can be delegated to others. 1. Exercise the strategic leadership needed to drive implementation forward. 2. Shaping the work environment and corporate culture to fit the strategy 3. Tying rewards and incentives to the achievement of key strategic targets. 4. Installing information, operating and operating systems that enable company personnel to better carry out their strategic roles proficiently 5. Instituting best practices and pushing for continuous improvement 6. Establish strategy-supportive policies. 7. Allocating ample resources to strategy-critical activities. Strategic Management Page 17

8. Build an organization with the competencies, capabilities, and resource strengths needed for successful strategy execution.

Strategy Formulation Implementation: Interrelationship


STRATEGY FORMULATION It is positioning forces before action. It focuses on effectiveness. It is an intellectual process It requires good intuitive and analytical skills. It requires coordination among few individuals. Concepts and tools do not differ greatly for small, large, profit or non profit organization. STRATEGY IMPLEMENTATION It is managing forces during action. It focuses on efficiency. It is primarily and operational process. It requires special motivational and leadership skills. It requires combination of many individuals. Concepts and tools varies substantially among small, large, profit or non profit organization.

STRUCTURAL IMPLEMENTATION
The most common structure found within organizations, functional structure consists of units or departmental groups identified by specialty, such as engineering, development, marketing, finance, sales or human resources that are controlled from the top level of management. Advantages: Functional structure promotes specialization of labour, encourages efficiency, minimizes the need for an elaborate control system, and allows rapid decision making. Disadvantages: It forces accountability at the top, minimize career development opportunities, low employee morale, line/staff conflicts, poor delegation of authority, inadequate planning for products and markets. Mostly it is abandoned in favour of decentralization and improved accountability. Proper match between strategy and structure gives competitive edge or else it will result into failure. Companies must be flexible, innovative, and creative in global economy to exploit their core competencies. Useful Information contributes the for the formation and use of effective structures and controls, which yield improved decision making. With growth of companies in size, and level of diversification, new strategies my be required. Organizational structure is companies formal configuration of its intended roles, procedures, governance mechanism, authority and decision making processes etc. The structure adopted must fit with the companies strategy. Simple organization structure offers little specialization of tasks, few rules, little formalization, direct involvement of owner-manager in all operations and decision making. Functional structure is used by large companies and companies having low level of diversification. It also impedes communication and coordination and have narrow view. Use of multidivisional structure where each division represents separate business entity, each division would house its own functional hierarchy, divisional managers will be responsible to manage day to day responsibility besides a small corporate office that would determine long term strategic direction and exercise overall financial control over semi-autonomous divisions.

Functional Implementation
1. Marketing Exclusive dealerships or multiple channels of distribution Heavy, light, or no TV advertising To limit or not the share of business with a single customer Price leader or price follower Strategic Management Page 18

Offer complete or limited warranty Reward salespeople with commission or salary Advertise online or not 2. Finance/Accounting Issues Acquiring needed capital Developing projected financial statements Preparing financial budgets Evaluating the worth of a business Raise capital short-term debt, long-term debt, preferred, or common stock Lease or buy fixed assets Determine appropriate dividend payout ratio LIFO, FIFO, or market-value accounting Timeframe of accounts receivable Discounts on accounts Amount of cash to be kept on hand Steps in Preparing Projected Financial Statements Prepare income statement before balance sheet (forecast sales) Use percentage of sales method to project CGS & expenses Calculate projected net income Subtract dividends to be paid from net income and add remaining to retained earnings Project balance sheet items beginning with retained earnings List comments (remarks) on projected statements 3. Research & Development New products and improvement of existing products that allow for effective strategy implementation Three Major R&D Approaches to Implementing Strategies First firm to market new technological products Innovative imitator of successful products Low-cost producer of similar but less expensive products. 4. Management Information Systems Having an effective management information system (MIS) may be the most important factor in differentiating successful from unsuccessful firms. Information collection, retrieval, and storage Keeping managers informed Coordination of activities among divisions Allows firm to reduce costs

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UNIT 5 SWOT ANALYSIS (Strength, Weakness, Opportunities and Threats Profile) As the firm operates under dynamic environment and strategic fit of internal strengths and weaknesses with external opportunities and threats is a must and a matter of constant and regular exercise of the firm. Without this a firm can not be able to create a perfect match of its capabilities with external demands. The approach to match internal capabilities with environmental opportunities and threats are known as SWOT analysis. The basic aim of SWOT is to provide an insight to the managers the abilities of the firm (Strength and Weakness) in terms of handling opportunities and threats. The SWOT provides a framework within which a firm can develop and alter its strategies and shape the actions of functional and other levels of firms. Internal analysis reveals the strength and weaknesses of the organization in term of its internal capabilities, competencies, efficiencies, financial position, track record, experience. Strengths: are resources, skills or other advantages relative to competitors. Strength is a DC that gives a firm comparative advantage in the market and competition. For Exp. Financial Resources, image, market leadership etc. Weaknesses: limitations or deficiencies in resources, skills and capabilities of the firm that seriously affect the firms performance under competition i.e. Disadvantages. Opportunities: Major favorable situations in the firms environments. Opportunities may occur due to poor performance of competitors, consumer demand shift, government policies, unique raw materials, technological changes, better buyer-supplier relationships etc. Threats: major unfavorable situations in the firms environment which may affect firms current and potentials performance. A particular threat may be an opportunity for competitor and vice versa. Advantages of SWOT Analysis SWOT Analysis is instrumental in strategy formulation and selection. It is a strong tool, but it involves a great subjective element. It is best when used as a guide, and not as a prescription. Successful businesses build on their strengths, correct their weakness and protect against internal weaknesses and external threats. They also keep a watch on their overall business environment and recognize and exploit new opportunities faster than its competitors. SWOT Analysis helps in strategic planning in following mannera. It is a source of information for strategic planning. b. Builds organizations strengths. c. Reverse its weaknesses. d. Maximize its response to opportunities. e. Overcome organizations threats. f. It helps in identifying core competencies of the firm. g. It helps in setting of objectives for strategic planning. h. It helps in knowing past, present and future so that by using past and current data, future plans can be chalked out. SWOT Analysis provide information that helps in synchronizing the firms resources and capabilities with the competitive environment in which the firm operates. Limitations of SWOT Analysis SWOT Analysis is not free from its limitations. It may cause organizations to view circumstances as very simple because of which the organizations might overlook certain key strategic contact which may occur. Moreover, categorizing aspects as strengths, weaknesses, opportunities and threats might be very subjective as there is great degree of uncertainty in market. SWOT Analysis does stress upon the significance of these four aspects, but it does not tell how an organization can identify these aspects for itself. There are certain limitations of SWOT Analysis which are not in control of management. These includea. Price increase; b. Inputs/raw materials; Strategic Management Page 20

c. Government legislation; d. Economic environment; e. Searching a new market for the product which is not having overseas market due to import restrictions; etc. Internal limitations may includea. Insufficient research and development facilities; b. Faulty products due to poor quality control; c. Poor industrial relations; d. Lack of skilled and efficient labour; etc

TOWS METRIX

SO Strategies Strategies that enable competitive advantage, external opportunities match well with internal strengths, allows for competitive advantage to be built and maintained. ST Strategies Mitigation Strategies, firm possesses internal strengths that facilitates neutralization of external threats, may lead to temporary advantage if competitors are impacted by environmental threats. WO Strategies Acquisition/Development Strategies, situation where strategies are formulated to acquire or develop new resources/capabilities to take advantage of external opportunities. WT Strategies Consolidation/Exit Strategies, if firms cant find ways to convert weaknesses to strengths via acquisition/development, exit from market is recommended. Applying SWOT Analysis Review Case Material Identify the Primary Problems/Issues Analyze Internal/External Environments Develop Strategic Alternatives Make Strategy Formulation & Implementation Recommendations Strategic Management Page 21

STRATEGIC EVALUATION
Strategy Evaluation is as significant as strategy formulation because it throws light on the efficiency and effectiveness of the comprehensive plans in achieving the desired results. The managers can also assess the appropriateness of the current strategy in todays dynamic world with socio-economic, political and technological innovations. Strategic Evaluation is the final phase of strategic management. The significance of strategy evaluation lies in its capacity to co-ordinate the task performed by managers, groups, departments etc, through control of performance. Strategic Evaluation is significant because of various factors such as - developing inputs for new strategic planning, the urge for feedback, appraisal and reward, development of the strategic management process, judging the validity of strategic choice etc. Nature of Strategic Evaluation Through the process of strategic evaluation and control, the strategists attempt to answer set of questions, as below. Are the premises made during strategy formulation proving to be correct? Is the strategy guiding the organisation towards its intended objectives? Are the organisation and its managers doing things which ought to be done? Is there a need to change and reformulate the strategy? How is the organisation performing? Are the time schedules being adhered to? Are the resources being utilised properly? What needs to be done to ensure that resources are utilised properly and objectives met? Importance of Strategic Evaluation - Strategic evaluation helps to keep a check on the validity of a strategic choice. - An ongoing process of evaluation would, in fact, provide feedback on the continued relevance of the strategic choice made during the formulation phase. This is due to the efficacy of strategic evaluation to determine the effectiveness of strategy. - During the course of strategy implementation managers are required to take scores of decisions. - Strategic evaluation can help to assess whether the decisions match the intended strategy requirements. - In the absence of such evaluation, managers would not know explicitly how to exercise such discretion - Strategic evaluation, through its process of control, feedback, rewards, and review, helps in a successful culmination of the strategic management process. - The process of strategic evaluation provides a considerable amount of information and experience to strategists that can be useful in new strategic planning. Participants in Strategic Evaluation Shareholders Board of Directors Chief executives Profit-centre heads Financial controllers Company secretaries External and Internal Auditors Audit and Executive Committees Corporate Planning Staff or Department Middle-level managers Barriers in Evaluation Limits of control Difficulties in measurement Resistance to evaluation Rely on short-term implications of activities

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BOSTON CONSULTING GROUP (BCG) MATRIX


Boston Consulting Group (BCG) Matrix is a four celled matrix (a 2 * 2 matrix) developed by BCG, USA. It is the most renowned corporate portfolio analysis tool. It provides a graphic representation for an organization to examine different businesses in its portfolio on the basis of their related market share and industry growth rates. It is a two dimensional analysis on management of SBUs (Strategic Business Units) . In other words, it is a comparative analysis of business potential and the evaluation of environment. According to this matrix, business could be classified as high or low according to their industry growth rate and relative market share. Relative Market Share = SBU Sales this year leading competitors sales this year. Market Growth Rate = Industry sales this year - Industry Sales last year. The analysis requires that both measures be calculated for each SBU. The dimension of business strength, relative market share, will measure comparative advantage indicated by market dominance. The key theory underlying this is existence of an experience curve and that market share is achieved due to overall cost leadership. BCG matrix has four cells, with the horizontal axis representing relative market share and the vertical axis denoting market growth rate. The mid-point of relative market share is set at 1.0. if all the SBUs are in same industry, the average growth rate of the industry is used. While, if all the SBUs are located in different industries, then the midpoint is set at the growth rate for the economy. Resources are allocated to the business units according to their situation on the grid. The four cells of this matrix have been called as stars, cash cows, question marks and dogs. Each of these cells represents a particular type of business.

1.

Stars- Stars represent business units having large market share in a fast growing industry. They may generate cash but because of fast growing market, stars require huge investments to maintain their lead. Net cash flow is usually modest. SBUs located in this cell are attractive as they are located in a robust industry and these business units are highly competitive in the industry. If successful, a star will become a cash cow when the industry matures. Cash Cows- Cash Cows represents business units having a large market share in a mature, slow growing industry. Cash cows require little investment and generate cash that can be utilized for investment in other business units. These SBUs are the corporations key source of cash, and are specifically the core business. They are the base of an organization. These businesses usually follow stability strategies. When cash cows loose their appeal and move towards deterioration, then a retrenchment policy may be pursued. Question Marks- Question marks represent business units having low relative market share and located in a high growth industry. They require huge amount of cash to maintain or gain market share. They require attention to determine if the venture can be viable. Question marks are generally new goods and services Page 23

2.

3.

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which have a good commercial prospective. There is no specific strategy which can be adopted. If the firm thinks it has dominant market share, then it can adopt expansion strategy, else retrenchment strategy can be adopted. Most businesses start as question marks as the company tries to enter a high growth market in which there is already a market-share. If ignored, then question marks may become dogs, while if huge investment is made, then they have potential of becoming stars. 4. Dogs- Dogs represent businesses having weak market shares in low-growth markets. They neither generate cash nor require huge amount of cash. Due to low market share, these business units face cost disadvantages. Generally retrenchment strategies are adopted because these firms can gain market share only at the expense of competitors/rival firms. These business firms have weak market share because of high costs, poor qu ality, ineffective marketing, etc. Unless a dog has some other strategic aim, it should be liquidated if there is fewer prospects for it to gain market share. Number of dogs should be avoided and minimized in an organization. Limitations of BCG Matrix The BCG Matrix produces a framework for allocating resources among different business units and makes it possible to compare many business units at a glance. But BCG Matrix is not free from limitations, such asBCG matrix classifies businesses as low and high, but generally businesses can be medium also. Thus, the true nature of business may not be reflected. Market is not clearly defined in this model. High market share does not always leads to high profits. There are high costs also involved with high market share. Growth rate and relative market share are not the only indicators of profitability. This model ignores and overlooks other indicators of profitability. At times, dogs may help other businesses in gaining competitive advantage. They can earn even more than cash cows sometimes. This four-celled approach is considered as to be too simplistic.

1. 2. 3. 4. 5. 6.

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