Unit 1 Strategic Management Process

Unit-1
Introduction to
Strategic
Management
Dr. Prashant Kalaskar

What is Strategy..???
Why Strategy..???

What is Planning: Action Steps, as answers to…
What, How, Who, When, Where ….
While Strategy is…
An answer to Why…
Strategy is bigger than planning
Strategy Comes before Planning
Strategy decides and shapes up Planning
Tactics are ways or process of implementing plans
Difference between Planning & Strategy

Examples:
Vision: Winning of Battle / War and takeover enemy
Strategy: Winning a battle, in less than a week,
without much loss to human life by December end.
Planning: Planning where to send the troops to win
the war.
Tactics: How soldiers should run in a zig-zag pattern
to decrease the chance of being shot.
Difference between Planning & Strategy

Examples:
Strategy: To increase market share
Tactics: Offer lower cost solutions than competitors
Strategy: Maneuver our brand into top two brands
Tactics: Deploy a marketing campaign
Strategy: Improve retention of top 10% performers
Tactics: Offer best in market compensation plan
Strategy: Connect with customers while in our store and
increase sales.
Tactics: Free wifi in shop, social connect & shopping app
Difference between Tactics & Strategy

Why Strategy…??
• The ultimate goal of the organizations is
to be successful – SUCCESS is:
• Survival (long-term success)
• Achievement of Goals
• Above average returns/Profitability (probably
most important, because it determines the
ability to achieve the above two)
• To provide ROI to the investors.
• To create a favorable environment for capital
raise

Need of Strategy..!!
• Market has become Global
• Market has become Dynamic
• Ever Changing Technology
• Growing Competition in domestic as well as in global
market
• Information based Market
• Customer dominated markets

What is Strategy..???
Strategy: The unifying theme that gives
coherence (reason) and direction to the
decisions of any organization
Strategic Management: Consisting of the
analysis, decisions, and actions an
organization undertakes in order to create
and sustain competitive advantages.

Origin of Strategy..!!!
• Strategy comes from the Greek word STRATEGOS, which is
formed from stratos, meaning army, and –ag, meaning to
lead
Strategy Définition
Strategies- ‘‘ Systematically planned course of actions
for achievement of organizational Objectives or Goals’’
Glueck: ‘’An Unified, Comprehensive & integrated plan,
designed to assure that the basic objectives of the
enterprise are achieved

More Recent Historical Development of
Business Strategy
• Not until very large companies with the ability to
influence the competitive environment within their
industries did strategic thinking in the business world
begin to be articulated.
• Alfred Sloan, CEO of GM, 1923 – 1946 - One of the first
to analyze competition- ‘Ford’, and devise a strategic
plan based on its strengths and weaknesses.
• Chester Barnard, Senior Executive of New Jersey Bell,
1930s - Argued managers should pay attention to
“strategic factors” which depend on “personal or
organizational action.”

More Recent Historical Development of
Business Strategy
• Wartime (WWI and WWII) efforts also impacted
strategic thinking and use of formal strategic
tools and concepts:
• Allocation of scarce resources
• Use of quantitative analysis in planning
• The concept of “learning curves”
• The concept of “distinctive competence” - first mentioned
by Philip Selznick, a sociologist.

More Historical Development
• These concepts serve as the foundation of strategic
management study:
– Previous “Business Policy” perspectives looked at
maintaining a “balance in accord with the underlying policies
of the business as a whole.” – Harvard
– Kenneth Andrews’ SWOT Analysis was developed – still in
use today.
– Theodore Levitt’s “Marketing Myopia” argued that when
companies fail typically, it is because firms focus on the
product rather than the changing patterns of consumer
needs and tastes.
Ex: Apple introduced a music player with name of iPod and not
just as another mp3 player.

More Historical Development
– Igor Ansoff argued, in response to Levitt, that a firm’s
mission should exploit an existing need in the market,
rather than using the consumer as the common thread in
business. “In reality, a given type of customer will
frequently have a range of product missions or needs.”
Corporate Strategy, 1965.
– BCG developed the “experience curve” and portfolio
analysis concepts.
– McKinsey & Company’s development of SBUs and the
nine-block matrix.
– Mintzberg’s “Deliberate, Emergent & Realized Strategies”
– Porter’s Generic Strategies

Pattern in Stream of Decisions
(H. Mintzberg & J. Waters)
Realized
StrategyUnrealized
Strategy
Emergent
Strategy
**Normally emergent strategy comes from
learning and dissemination within the organization.

Intended & Deliberate
• Planned strategies start with intentions, mostly
from the chief strategists of the firm. In this regard
intentions define the purpose in performing
strategic actions. Planning, however, also involves
deliberation, which would mean analyzing the
purpose for action and evaluating systematically
different courses of action. In this sense, intention
and deliberation is not the same. To put it simple:
intention is purpose, deliberation stands for
conscious analysis.

Forms of Strategy
• Intended strategy
Decisions are determined only by analysis
• Realized strategy
Decisions are determined by both analysis and
unforeseen environmental developments,
unanticipated resource constraints, and/or
changes in managerial preferences

The Three Big Strategic “Analysis”
Questions
• 1. Where are we now? What is our situation?
• 2. Where do we want to go?
• Business(es) we want to be in and market positions we
want to obtain.
• Buyer needs and groups we want to serve
• Outcomes we want to achieve
• 3. How will we get there?

Differing Perspectives of the Strategic
Management Process
External Environment
Industry Attractiveness
Strategy Formulation
I/O Model
Assets/Skills Assessment
Implementation
Resources
Capability
Sustainable CA
RBV Model
Implementation

The Strategy Concept
Levels of Analysis
Corporate
Strategy
Business
Strategy
Functional
Strategy
Choice of Products
Choice of Markets
Choice of Competitors
• Where to Compete?
• How to Compete?
• How to Contribute?
• Grand Strategies
• Generic Strategies
• Functional Strategies
• (Mktg. Mix,
Operational, Financial
etc.)

Definition of Strategic Management..!!
Decisions and actions where organizations
Analyze current situation
Develop appropriate strategies
Put strategies into action
Evaluate, modify, or change strategies

Characteristics of Strategic Management ..!!
Corporate-level
decisions
Greater risk,cost,
and profit potential
Greater need for
flexibility
Longer time horizons

Business-level
decisions
Bridge decisions at
corporate and functional
levels
Are less costly, risky, and
potentially profitable than
corporate-level decisions
Are more costly, risky, and
potentially profitable than
functional-level decisions

Functional-
level
decisions
Implement overall strategy
Involve action-oriented
operational issues
Are relatively short range
and low risk
Incur only modest costs

Strategy: Partly Proactive Partly Reactive
Company’s
Experiences
Know
How's,
Strength &
Weaknesses
Competitive
Capabilities
Actual
Company’s
Strategy
Adaptive Reactions to
Changing Circumstances
Planned Strategy
New Initiatives Plus Ongoing
Strategy, Features Continued
from Prior Periods

Strategy is how an organization intends
to create value for its stakeholders.
"If we succeed, how will we
look to our shareholders?”
The Strategy
Private Sector Organizations
Financial Perspective
"To achieve our vision, how
must we look to our
customers?”
Customer Perspective
"To satisfy our customers, at
which processes we must
excel?”
Internal Perspective
"To achieve our vision, how
must our organization learn
and improve
Learning & Growth
Introducing
Strategy Maps
A simple model of
the value creation
process

Strategic Management Process
• There are two dimensions of every action –
substantive and procedural.
• Substantive dimension involves determination
of what to do (Strategy) and
• Procedural dimension is concerned with
determination of how to do (Strategic
Management Process).

• The Term Strategic Management refers to the set
of managerial process of forming-
• - a strategic vision,
• - setting objectives,
• - crafting strategy (Strategy Formulation),
• - implementing & executing the strategy,
• & then overtimes initiating whatever corrective
adjustments in the vision, objectives, strategies, &
executions are deemed to be appropriate

Let us understand some terms…
• Visions- What Company wants to achieve in future
• Mission- The reason for company’s existence
• Goals- What Company wanted to achieve in general in
constraint to VISION
• Objectives- are specific goals to be achieved in future
• Vision - big picture idea of what you want to achieve.
• Mission - general statement of how you will achieve
your vision

The process of Strategic Management
involves 4 steps:
• Strategic Intent
• Environmental Analysis & Strategy Formulation
• Strategy Implementation
• Strategy Evaluation and Control

Strategic Intent
Vision, Mission,
Business
Definition,
Objectives
Internal & External
Appraisal
SWOT Analysis
Corporate & Business
Level Strategies
Strategic Analysis & choice
Strategy
Implem-
entation
Project &
Procedural
Implemen
tation
StrategicEvaluation
Control

Defining Vision,
Mission & Business
Objectives
Environmental
Analysis
Organizational
Analysis
Setting Objectives &
Goals
Identifying Alternative
Strategies
Choice of Strategy
Strategy
Implementation
Evaluation & Control
Feedback
Reformulate if
Required
Re-implement if
Required
Choice of Strategy

Strategic Management
• Strategic Management is the field that deals with
major intended & emergent initiatives, taken up by the
Top Managers on behalf of company.
• It involves utilization of resources to enhance
performance of the firm, in their external competitive
environment.
• It involves organization’s Vision, Mission & Objectives
& then,
• Developing Plans (Strategies) & Policies, so as to
achieve set objectives, then,
• Allocation of resources

• Strategic Management provides overall directions to
the organization.
• Strategic Management involves not only the Top
Management Team but can also includes Board of
Directors, Stakeholders, depending upon
organizational Structure [size].
• Strategic Management is an ongoing process that
evaluates & controls the business.
• It allows companies to assess their competitors &
helps to set goals & plan strategies to outwit existing
& potential competitors.

• Strategic Management also allows reassessing of
implemented strategies on quarterly, half yearly or
annually basis.
• This helps to understand, whether implemented
strategies are succeeded according to the plans or
needs the strategies to be modified or replaced.
• If needed, new strategies can be implemented so as to
meet the changed circumstances, new competitors,
new PEST factors etc.

• Formulation of Strategy:
It involves 3 main processes…..
- Performing situation analysis, self evaluation &
competitors analysis (Internal & External Analysis)
- Simultaneously, the objectives are set, some objectives
are short term & some are long term.
- These objectives set (must be in the light of situation
analysis) suggest strategic plans. The plan provides the
details of how to achieve those objectives

• Strategy Evaluation:
Johnson, Schulez & Whittington presented a model to
evaluate strategic decisions-
- Suitability (will it work)
- Feasibility (can it be made to work)
- Acceptability (will they (employees) work on it)

• Suitability of Strategy:
Suitability deals with the overall rationale of Strategy
- Would it be suitable in terms of environment &
Organizational capabilities
• Feasibility of Strategy:
It is concerned with whether the resources required to
implement the strategy are available, or can be
developed or obtained.
- Does it make economic sense
- Would the organization obtain economies of scale
Resources can be people, funds, time, information,
machines etc.

• Acceptability of Strategy:
To know, whether the stakeholders will accept the strategies with
its expected performance output, which can include:
- Return: Benefits expected by Stakeholders (financial or non financial)
Ex: Shareholders would expect increase in their wealth
Employees would expect improvement in their careers
Customers would expect good value to their money
- Risk: It deals with the probability & consequences of failure of
strategy
- Stakeholders Reaction: Deals with likely reactions like-
Shareholders can oppose from new investment
Employees can oppose outsourcing for fear of loosing their jobs
Customers could have concern over a M&A with regard to
quality & Support

Importance of Strategic Management
Strategic Management is must for all those
organizations, who dreams to grow.
“Survival of Fittest”, does not mean a Strong or Large
company will survive.
Business has to follow war rule- “Win or Lose”
Companies need to have Competitive Advantage
These all characteristics of a successful business
organizations is possible to have if it follows-
Strategic Management- Strategic Analysis, Strategy
Formulation & Strategy Implementation.

Importance of Strategic Management
• Strategic Management has following benefits-
a) It helps organization to be proactive than being reactive
(ex: Apple, Sony)
b)Strategic Management provides a framework for all
different decisions of business like- Product, Markets,
Manufacturing, resources & investment
c) Strategic Management performs a role of Path Finder by
making organizations able to identify opportunities in
the market & process how to reach them.
d)Strategic Management serves as a corporate defense
mechanism against mistakes & pitfalls
e)Strategic Management helps to develop core
competency & competitive advantage for survival &
Growth

Stakeholders in Business
What are Stakeholders?
“ Stakeholders are those individuals or group of
people, who can affect & are affected by the
Strategic Outcomes achieved & who have
enforceable claims on Company’s Performance”
- These people have stakes in Strategic Outcome of the
Company
- These people can be positively or negatively affected by
these outcomes
- These Strategic Outcomes is dependent upon the
support or active participation of certain Stakeholders

Stakeholders Can Be Classified as:-
Firm
Capital market
Stakeholders
Organizational
Stakeholders
Secondary
Stakeholders
Product market
Stakeholders

Capital market Stakeholders:-
Stock Market Investors, Debt Suppliers/Banks
Product Market Stakeholders:-
Customers, Retailers, Suppliers
Organizational Stakeholders:-
Owner, Employees, Managers, Staff
Secondary Stakeholders:-
Community, Competitors, Government

Stakeholders Expectations in Business
Stakeholder Group Membership Primary Expectations
Capital Market
Stakeholders
Shareholders
Lenders
Wealth Enhancement
Wealth Preservation
Product Market
Stakeholders
Customers
Suppliers
Reliable Products at Low Price
Receive Highest Sustainable Price
Organizational
Stakeholders
Employees
Unions
Secured, Dynamic, Rewarding Career
Ideal Working Conditions & Job Security
Secondary
Stakeholders
Community or
Environment
Group
Government
Not affecting Environment
Honest Tax Payment, Safety of Public,
Proper utilization of Resources

Different Type of Stakeholders have different
expectations or demands from the company
- Mainly- Wealth Maximization & to get better ROI or
Value for their Money/Investment
- If Company provides ROI by Making Short Term
decisions, the company can negatively affects the
stakeholders
If company is making above average profitability, then
the company can satisfy its stakeholders
Ex: Reducing invest in R & D & giving dividends to investors as
short term objectives

Strategic Intent
• Strategic Intent is the leveraging a firm’s internal
resources, capabilities and core competencies to
accomplish the firm’s vision, mission and objectives in
a competitive environment. (Reason behind
formulation of strategy)
• It is all about winning competitive battles and gaining
leadership position by putting organizational resources
to best use.

Strategic Intent
• When established effectively- a strategic intent can
cause people turn out excellent performance.
• Strategic intent tries to establish the parameters that
shapes the-
Values, Motives and Actions of people throughout
their organization.

The Hierarchy of strategic Intent
1) A broad Vision of what the
organizations should be.
2) The organization’s Mission.
3) The strategic Objectives
and specific Goals to be
pursued relentlessly
4) The Plans that are
developed to accomplish the
intentions of management in
a concrete way.
1
• Vision
2
• Mission
3
• Goals & Objectives

Vision
Top Management should decide the directional path, on
which the company can walk &
To know what changes in the company’s-
- Product - Market
- Customer - Technology
- Focus
would improve its current market position & future
prospect.
Thus Strategic ‘Vision’ provides a particular direction to
the organization

Vision
A Clearly articulated Strategic Vision, that
communicates management’s aspirations to
stakeholders & helps steer the energies of
company personnel in common directions.
Ex.- Henry Ford’s Vision of a car in every garage had a power
because it captured the imagination of others, aided
internal efforts to mobilize the Ford Motor Company’s
resources & served as a reference point of guaging the
merits of Company’s Strategic Actions

Examples of Vision Statements
‘There will be a personal computer on every desk running’
:Microsoft software.
‘Our vision is every book ever printed in any language all
available in 60 seconds’: Amazon Kindle
GM: “to be the world leader in transportation products and
related services. We will earn our customers’, enthusiasm
through continuous improvement driven by the integrity,
teamwork, and innovation of GM people.’’
“To be the number one athletic company in the world”: Nike

Mission
‘’ Mission is the Statement, typically focused on its
present business scope, ‘’Who We Are & What We
Do’’.
‘Mission is nothing but the purpose or reason
behind existance of the business’
Thus Mission statements broadly describes an
Organization’s present capabilities, customer
focused, activities & business makeup
(Undertaken).

Mission
Mission is a statement which defines the role that an organization
plays in society.
Ex.- Cadburry India- ’’To attain leadership position in the
confectionary market & achieve a strong presence in the food
& drinks sector’’
‘To organize the world’s information and make it universally
accessible and useful’ – Google
‘To give ordinary folk the chance to buy the same thing as rich
people do’ – Wal-Mart
‘To contribute to society through the pursuit of education,
learning, and research at the highest international levels of
excellence.’ - University of Cambridge

Components of Mission Statement
• Customers: Who are the firm’s customers
• Product/Services: What are firm’s major pdts./Services.
• Markets: Geographically, where does firm competes
• Technology: Which technology firm is using
• Concern for Growth/Survival: Is the firm committed to
growth & Financial soundness
• Self Concept: Firm’s major competitive advantage
• Concern for Public Image: Is the firm responsive to Env.,
Society etc.
• Concern for Employees : We value our Customers

Mission
Organizations should have mission:-
a) To ensure unanimity of purpose within the
organization.
b) Provides basis for motivating the use of the
organizations resources.
c) To develop a basis or standard for allocating
organizational resources
d) To facilitate translation of objective & goals into a
work structure involving the assignment of tasks to
responsible elements within the organization.

Characteristics of Good Mission Statement
1. It should be feasible: It should be realistic & achievable on
the basis of available resources
2. It should be precise: Neither too large or too short
3. It should be clear: It should be clear enough to lead &
understand
4. It should be motivating: Motivating to its employees
5. It should be distinctive: Distinctive to its competitor
6. It should indicate major components of strategy: A growth
or combination strategy adopted by company.
7. It should indicate how objectives are to be
accomplished: provide clues regarding the manner in which
the objectives are to be accomplished

Objectives & Goals
• Organizations Translate their Vision & Mission in to
Objectives
• Objectives & Goals are Synonymous to each other.
• Objectives are Open ended attributes that denotes
future states & outcomes. (Specific)
• Goals are Closed ended attributes which are precise &
expressed in specific terms (Generic)

Example of VMOSA
Agriculture Business Development Company
• Vision: A vibrant rural economy driven by value-added agriculture.
• Mission: To create and facilitate the development of value-added
agricultural businesses.
• Goal: Recruit local farmers interested/experienced in business
development.
• Objective: Create a membership of twenty farmers by February 1.
• Strategy: Use local farmer leaders with business development
skills to develop the businesses.
• Action Plan: Form a membership committee to recruit local farmer
leaders. Identify forty farm leaders in the area. List their
qualifications. Contact them individually with the expectation that
half of them will join.

Business Definition
Business Definition-
• A Business definition is a clear statement of the business,
the firm is engaged in or is planning to enter.
• It answers the question: What is our business in a precise
way.
• Examples:
“We are in the beauty-enriching business” – Helen and
Curtis
“We are in the business of computer technology” – Intel
“ We are in the transportation business” – TELCO

D.F Abell suggested business along three
dimensions
1. Customer groups – who is being satisfied (customer)
2. Customer needs – what need is being satisfied
(products)
3. Alternative technologies – how the need is being
satisfied

Business definition orientation
1. Product definition / orientation
2. Market definition / orientation
Company Product definition Market definition
Railways We run railways We are a people and
goods mover
Film producing
company
We make movies We market
entertainment
Copying Machine
company
We make copying
equipment
We help improve office
productivity
Oil company We sell gasoline We supply energy

Peter Drucker’s Business Definition View
Products may come and go but basic needs and
customer groups endure forever.
According to him business definition should cover three
vital aspects.
1. Product/ Service concept
2.Customer segment
3.Value creation

Critical Success Factors (CSF)
• The concept of "success factors" was developed by
D. Ronald Daniel of McKinsey & Company in 1961
• What gets measured, gets done..
• A quality improvement tool that many organizations use
is Critical Success Factors (CSF) which are indicators that
measure how well an organization is accomplishing its
strategic plan and objectives i.e. Objectives Vs Strategic
Plans
• As a general thumb rule, CSF should target those factors
which affects quality, customer satisfaction, cost, market
share and increased revenues.

Critical Success Factors (CSF)
Lets Understand CSF for a Shoe Manufacturer….
1) High Quality Manufacturing of Shoes
2) Cost Efficiency
3) Proper Retailing
4) A Good Product Mix
5) A Good Brand Image
Lets Understand CSF for a Courier Service Company….
1) Speed of Delivery
2) Reliability
3) Price of Service

CSF with Goals & Mission
Mission:
To become
number One
Produce store
in main street
Critical Success Factors
-Create Successful Relationships
with Suppliers
- Attract & Satisfy new Customers
- Secure Financing for Expansion
Goals:
-Gaining a Market Share Locally by 20%
-Fresh Food “from Farm to Consumers” in 24 hrs for 75% Products
-- Sustain a 98% of Customer Satisfaction
-- Expand product range to attract new customers
-- Extend Store space to accommodate new Products & Customers

3 Step Procedure for determining CSF
1) Generate the Success Factors (Identification of CSF)
(What does it take to be successful)
2) Refining of CSF’s into Objectives
(Formulating objectives w.r.t. identified CSF’s)
3) Identify measures of Performance
(Know how, whether organization has succeeded with
identified CSF’s)

Key Performance Indicators (KPI)
• KPI are the measures to Evaluate CSF i.e. to measure
performance of the Organization.
• If an Organization identify & works on CSF, it will help
to achieve its Vision/Objectives
• To make the vision Operational (accomplishing vision),
it needs to determine its KPI
viz.:
Pre Tax Profit, Shareholders Equity etc.

A Shoe Manufacturer’s KPI
• A shoe manufacturer has CSF of High Quality product,
cost efficiency etc. Then its KPI will be
1) Brand Recall Rate by Customers
2) Reduced Product Rejection Rate
3) Reduction in number of Complaints from Customers
4) Increased Footfall of New Customers etc.
KPI combination should be decided by the company to
measure & quantify its success.

Benefits of having KPI
• It will help the company to measure its progress
towards its Objectives.
• Every individual employee in the Organization will
understand- What is important to achieve its objectives
• It can be a tool for Motivation of its Employees.

Key Result Area’s (KRA’s)
• KRA’s are those functions or functional divisions/ Area’s
of Performance in which Organization must continually
improve to be successful
• Definition: "In simple terms it may be defined as the
primary responsibility of an individual, the core area in
which each person is accountable"
Examples of KRA’s
- Customer: Value, Satisfaction
- Marketing: To reach ultimate consumers
- Production: Continuity of Supply
- Finance: ROI, Availability of Funds, Profits etc.
-Product: Quality & Demand

Example of KRA’s for Human Resource
1) Staffing
2) Employee Relations
3) Employee Development
4) Compensation Planning & Administration
5) Policy Designing
6) Career Development

External Environmental Analysis
• Environment outside the company in which it is
operating
• This environment may contain various factors, which
may affect the strategic decision making & strategic
outcome of the company.
• These factors can be classified as:
1) Macro Environmental factors (larger impact) &
2) Micro Environmental factors (lesser impact)
It is depending upon the overall impact of these factors
on any company.

Need of External Env. Analysis.
• It provides an idea for the company to understand:
1) Current & future trends in the market
2) Opportunities & Threats for the organization
3) Risks & strategic uncertainties
4) Also suggests corrective measures to overcome its
impact.

Need of External Env. Analysis.
The External
Environment
Strategic Intent
Strategic Mission &
Analysis of general environment
Analysis of industry environment
Analysis of competitor
environment

Opportunities
“Opportunities are the chances or favorable conditions
for the organization’s growth or performance”
• Viz:
1) Emerging or Growing needs of customers
2) Quality & Technology improvements options
3) Expansion in global market
4) Entry or Exit of competitors..

Threats
“An External factor that poses Danger or Risk to its
Wellbeing or Performance”
• Viz:
1) Change in Demography / Demand in market
2) Emergence of Cheaper Technology
3) Regulatory Changes
4) Entry or Exit of Competitors

External Environmental Analysis
External Environmental Analysis can be done in three
perspectives:
1) Analysis of General Environment (PESTLE Analysis)
2) Analysis of Industry Environment (Porter’s 5 Force)
3) Analysis of Competitors Environment

External Environmental Factors
• Macro Factors
1) Political Factors
2) Economical Factors
3) Socio-Cultural Factors
4) Technological Factors
5) Legal/Regulatory
6) Physical Environmental
• Micro Factors
1) Global Environment
2) Suppliers Environment
3) Market Environment

Industry
Environment
Firms
Political Factors
Economical
Factors
Socio-Cultural
Factors
Technological
Factors
Regulatory
Factors
Supplier’s
Environment
Market Factors
PESTLE Analysis

PESTLE Analysis
Definitions:
“PEST analysis – an analysis of the political, economic,
social and technological factors in the external
environment of an organization, which can affect its
activities and strategic performance.”
“PESTEL model involves the collection and portrayal of
information about external factors which have, or may
have, an impact on business.”

Political Factors
• Factors related to the Politics or Government of that
Nation.
• Different Political Factors will have differential impacts
Political factors like:
- Nature of Political System, Ideology
- Political Structure & its Goals & Stability
- Elections, Funding of Elections, Industrial Promotion
- Government’s Role in Business Development & Policies
- Socio-Political factors

Economical factors
• Economic factors are related to the production &
distribution of wealth, which have its impact on
business of an organization.
• Economic factors like;
- Economic stage of that country at that point of time
- Economic Structure- Capitalistics/Socialistic/Mixed
- Policies like Industrial/Fiscal/monetary policies
- Economic Plans; 5 Yrs plan or Annual Budgets
- Per capita income, disposable income, GDP, GNP, BOP
- Financial Institutions, mode of transportation etc.

Socio-Cultural factors
• Factors related to Human Relationships, human
behaviors etc.
• Socio-Cultural factors like:
- Demographic: Population, density & its distribution, age
composition, inter-state migration, income distribution
- Concern of environment on pollution, corruption & role
of media
- Values like expectations of society from business, ritual
beliefs, changing lifestyle patterns
- Family Structure, role of family members in purchasing
decision, education level etc.

Technological Factors
• Factors related to Knowledge applied & materials &
machines used for production purpose, which can
affect the business.
• Factors like;
- Sources of Technology: Internal or External, Cost of
acquisition of technology, Collaboration etc.
- Technology development stage, Man-Machine System
- Communication & Infrastructural Technology in
Management

Regulatory Factors
• Factors related to Planning, Regulation & Promotion of
economic activities by government that affects
business.
Factors such as:
- Constitutional Framework, Fundamental Rights,
- Policies related to Licensing, Monopolies, FDI etc.
- Policies related to distribution & Pricing & their control.
- Policies related to Import & Export
- Other policies related to sick industries, consumer
protection etc.

Suppliers Environment
• Suppliers are associated with the distribution &
production system of the organization
Factors like:
- Cost, Availability & continuity of raw material supply
- Cost & Availability of Finance for implementing plans
- Costs, Availability & supply of Energy (power/Fuel)
- Cost, Availability of Machineries, spares & Maintenance
- Bargaining power of suppliers & availability of
Substitutes

How to perform the analysis?
• The process of carrying out PESTLE analysis should
involve as many managers as possible to get the best
results. It includes the following steps:
• Step 1. Gathering information about political,
economic, social and technological changes + any
other factor(s)
• Step 2. Identifying which of the PESTLE factors
represent opportunities or threats.

ETOP Model
Why to prepare an ETOP..?
• Helps organization to identify Opportunities and
Threats
• To consolidate and strengthen organization’s position
• Provides the strategists, which sectors have a
favorable impact on the organization
• Organization knows where its stands with respect to
its environment
• Helps in formulating appropriate strategy

Preparing an ETOP
• Dividing the environment into different sectors.
• Analysing the impact of each sector on the
organization.
• Subdividing each environmental sector into sub factor.
• Impact of each sub sector on organization in form of a
statement.

Impact Calculation
+2 Extremely favorable impact
+1 Moderately favorable impact
0 No impact
-1 Moderately unfavorable impact
-2 Extremely unfavorable impact
Trends Probability of
Occurrence
Impact on Strategies
S1 S2 S3
Probability of Occurrence
High
Medium
Low

ETOP Préparation
Trends
Probability of
Occurrences
Impact on Strategies
S1 S2 S3
Increasing Income Level High 2 1 0
High Spending Capability High 2 -1 -1
Attitudes of Work Average -1 0 2
Adaption to Change Low -2 0 0
Social Factor 2 1 0 1

ETOP for Automobile Industry
S.
No.
Environmental Factors
Opportunity/
Threats
Remarks
1 Macro-Economic Factors
a Per Capita Income Opportunity
Rising PCI means more affordability.
(Sixth & Seventh Pay Commission)
b Loans Availability Opportunity Banks are ready for giving loans.
c Interest Rates Opportunity People can’t pay easy installments

Industry Environment Analysis
• Industry is a group of companies, manufacturing
similar products , which can be substituted with each
other & all the companies are targeting to the same
set of customers.
• Industry Analysis allows:
• 1) A new company to make a strategic decision
whether to enter (invest) in a particular industry or not
• 2) A old company already present in the industry to
make a strategic decision, whether to remain (invest)
in the industry or to exit out (divest) from the industry.

Porter's 5 Force Model
Porter's 5 Force Model (suggested by Michael E. Porter
of Harvard Business School in 1979) is a framework to
analyze level of competition within an industry
and business strategy development.
Attractiveness in this context refers to the overall
industry growth & profitability with less Risk.
An "unattractive" industry is one in which the
combination of these five forces acts to drive down
overall profitability & produces high risk.

• The Five Forces model of Porter is an outside-in
business unit strategy tool that is used to make an
analysis of the attractiveness (value...) of an industry
structure.
• It captures the key elements of industry competition.
• Five forces that determine the intensity of competition
in the and therefore Attractiveness of a Market.

• Porter's five forces include –
• Three forces from ‘Horizontal' competition:
1) Threat of substitute products,
2)The threat of established rivals, and
3)Threat of new entrants; and
Two forces from ‘Vertical' competition:
4) The bargaining power of suppliers and
5) The bargaining power of customers.

• This five forces analysis, is just one part of the
complete Porter strategic models.
• The other elements are the Value Chain and the
Generic Strategies.

Porter's 5 Forces of Competition
Threat from
Competition
Customer
Bargaining
Power
Threat of
Substitutes
Supplier
Bargaining
Power
Threat of New
Entrants

Porter's 5 Forces of Competition
BuyersSuppliers
Substitute
products
Potential
entrants
Industry competitors
Rivalry among
existing firms
Threat of
new entrants
Bargaining power
of suppliers
Bargaining power
of buyers
Threat of
substitutes

Porter’s 5 Force Model
• Porter’s 5 force model allows a company to understand
current competitive environment of the industry
(Opportunities & Threats)
• Then Companies can better understand its Strength &
Weaknesses, which company tries to match with the
competitive environment, so as to create a secure position in
the industry.
• The analysis helps the company to formulate competitive
strategies to create profitability & improve its Market Share
Ex: A Company can have an increasing threats of New
Competitors as well of upcoming Technological Advancement
along with the existing competitors.

Threat of New Entrant
• An Growing Industry, having a profitable trends,
attracts many new competitors to enter the
industry
• Depending upon the Attractiveness of the industry,
new companies are ready to invest in the industry.
• All those new companies, tries to influence the
customers of available competitor, so as to earn a
respectable market share.

• To do so, New Entrants do try to differentiate over
existing company’s products by-
• Adding new production capacity
• Brings in substantial resources in R & D’s
• Technological advancement over competitors
The extent of threat of by the new entrant by the
available competitors can be reduced either by-
1. Entry Barrier
2. Retaliation by the available competitors

• Entry Barrier:
• In this method, the available companies can create a
barrier for a new company to enter in the industry.
• Either the entry procedure is difficult- so that new
company can’t enter in the industry or
• The entry in the industry is costly, & require huge
investment, which the new company just can’t afford
• So that existing companies will enjoy their sales &
Market share

Entry Barrier:
• The two most important barriers to entry are:
• Capital requirements
• Government policy and regulations
• There are plenty of other potential barriers that
might scare new entrants away:
• Proprietary products and knowledge
• Access to inputs and distribution
• Economies of scale and other cost advantages

Retaliation by the available competitors:
• Retaliation is nothing but a strong reaction made by
the available companies, which is like not expected by
the new entrant company.
• This will not let the new company to spread their roots
in the industry
• - The retaliation is generally seen in consolidated
industry than in fragmented industry

Retaliation by the available competitors:
• The retaliation can be offered by the companies in
either of the following ways-
• Heavier investments as compare to new entrant
company, so that the machinery, technology or asset
advancement can be achieved.
• By offering variety & improved quality products
• Through economies of scale, reducing the prices of the
products, below which competitors just can’t afford,
to reduce their prices

Industries with high barriers of entry:
• Car making:
- high upfront capital investment in manufacturing
equipment;
- Compliance with safety and emission rules and
regulation,
- Access to parts suppliers, development of a network of
car dealerships, big marketing campaign to establish a
new car brand with consumers.
- Low barriers of entry: computer hard ware industry

Bargaining Power of Supplier
• It is the situation, which indicates that the market is
consisting of few & potential suppliers & large
customer base (Purchasing Companies).
• Hence the terms & conditions of the suppliers are very
high to be handled by the company.
• The suppliers may bargain individually or collectively
(through associations) or company direct selling is
restricted.

• The bargaining may be for purchasing the products by
the suppliers at lower price with high margins
• Selling the products/services at higher prices to the
customers.
• Selling the products of inferior quality to the
customers

Following are the conditions , where suppliers
bargaining power can be high:
• When suppliers are few & buyers are in large number
• When the products are unique & not commonly
available
• When the substitutes of the products are not easily
available to the customers
• When the suppliers are not critically dependent on the
earnings of products/services supplied

Following are the conditions , where suppliers
bargaining power can be high:
• When the buyers buys in limited quantity, which is not
important to the suppliers.
• If the suppliers can have a forward integration with the
retailers, with which they can make their own
products.
• Where the association of the suppliers is strong &
company is dependent on suppliers to supply their
products & services

Examples:
• The PC making industry faces the almost monopolistic
power of operating system supplier. Microsoft has
abused its power a number of times.
• Industries using diamonds, such as jewelry and
electronics, face the huge power of DeBeers, that
takes advantage of the supply concentration to
achieve dominant market share
• Less Bargaining Power: Suppliers of Food Processing
industries has less BP from farmers

Bargaining Power of Buyers
• Bargaining power of buyer means, the buyers
individually or collectively can put conditions/ demands
of purchasing products /services.
• Bargaining power is the ability to influence the setting
of prices.
The bargaining may be for:
• Quality in products / services (Hotel Industry)
• Prices of the products/ Services lower as they desire
• Expecting more value against what they pay

The bargaining power of the buyer is more when:
• When the buyers are in limited in number
• When the buyers are the potential buyer in volume
• When the buyers have alternatives for supply & where
supplier can supply @ buyer’s conditions.
• Switching cost is low, but can affect the suppliers to a
great extent

The bargaining power of the buyer is more:
• 1) When the buyers itself has the ability to integrate
backward to create own capacity supply source.
• Ex.- Building constructor & material suppliers
• - Schools & colleges with uniforms or other
material suppliers
• Hence the customers can demands for the reducing
the prices, which may affect the total profitability of
the suppliers

Threat of Substitute Products
• Substitutes are those products which can be
substituted with each others.
• When the products has a large number of substitutes,
the prices of the products doesn’t move high
• Availability of close substitutes produces, negative
competitive impact.
• Any industry, where close substitutes are not available,
the company sales their products at higher prices

Threats of Substitute products is high when:
• When the switching cost is low
• Prices of substitute products are lower
• Quality & performance of the substituted products are either
equal or little or greater than major industry products
• In such cases, companies can offset the effect of substitute
products, by differentiation over competitors i.e. by
providing –
• Higher Quality, Lower Prices,
• Better After Sales Services,
• Location Advantage etc.

• Full substitute products are products from
different manufacturers that fulfill the exact same
purpose.
Ex.-Kellog's corn flakes and generic brand corn
flakes.
• Partial substitutes are products that only partially
substitute each other.
Ex.- A holiday in Pukhet is not exactly the same as a
holiday in Bankok, even though they are both cities
and they both feature channels.

Protecting against substitution
• Distributors may try to protect themselves against
substitution with exclusive distribution agreements.
Buyers circumvent them with so called grey market
imports.
• Producers may try to protect their products with
strong branding, trade marks, patents and other
psychological and legal barriers against substitutes.
• Another way to protect from substitution is to make
the products incompatible with competing products.
An example are the different lens systems for
SLR cameras.

Examples of Substitution:
• Washing powder- A dozen of brands sitting on the shelves
and waiting for consumers to pick them up. Consumer will
often pick up the one that is on special on shopping day.
• Oil. Although alternative forms of energy are being
studied and introduced, most engines today run on
gasoline. Gasoline can not be replaced that quickly on a
large scale.
• Pharmaceuticals in the short term, because they are
protected by patents. In the long term, generics can dent
their market share and profits.

Intensity of Rivalry among competitors
• In every industry, a good number of companies are
present, who competes with each other for creating a
competitive position in the industry
• Depending upon the nature of the industry & stage of
industry, the number of competitors in the industry &
intensity of competition is dependent.
Dimensions of Rivalry among competitors:
A Competitive Structure
Demand Conditions
Exit Barriers

A Competitive Structure: This refers to-
• No. of Competitors
• Sizes & Diversity of the company
• Different types of competitive structures have
different implications for existing firms & for new
entrant.
• Structure of the industry vary from Consolidated to
Fragmented industry

Demand Conditions: This refers to-
• Nature of the companies &
• Demand of existing customers in the industry
• A high demand, increasing demand tends to moderate
competition, as each company can earn respective MS
depending upon their competency levels.
• A stagnant demand or de-growing market lead to
intensity of competition, so as to take over as much
possible market share from the competitors

Exit Barriers: This refers to situation in the industry,
which prevents the companies from leaving the
industry, even though, the profitability, ROI is
less/negative in the industry.
The exit barriers may be-
• Economic exit barriers
• Emotional exit barriers
• Strategic Factors, which prevent companies to exit
from the industry

Exit Barriers:
• Barriers to exit are obstacles to market players who
realize that they will not turn a profit and would like to
quit the market.
• The difficulties of exiting a market can force a player to
keep competing as the least bad alternative.
• The increased competition affects negatively the other
incumbents.

Exit Barriers: Examples
1) Industries with high barriers to exit:
• Wireless Telecom: the production of an additional
minute of wireless call costs virtually nothing, most
costs being up front investment in expensive
equipment deployment.
• Air Travel: adding a passenger to a scheduled airplane
cost just a little bit of fuel, as opposed to the huge cost
of idle airplanes.

Exit Barriers: Examples
2) Industries with Low barriers to exit:
• Retail: inventory can be moved to more profitable
markets or liquidated.
• Personal care services: labor is the most important
price factor for these services.

For Any Query..!!!!
Dr. Dr. Prashant B. Kalaskar
# 9975770407, 7350520025
Dr. Prashantkalaskar007@gmail.com
pbkalaskar@sinhgad.edu

Unit 1 Strategic Management Process

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