strategic management 2011

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Strategic ManagementDr Rohit Ramesh

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2011Faculty ofManagementJB Knowledge ParkFaridabad

Dr Rohit Ramesh,Professor & DeanFaculty ofManagement

[STRATEGIC

MANAGEMENTDR ROHIT RAMESH]Strategic Management: Structured Notes as per the Syllabus of MD University,Rohtak, Haryana


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Strategic Management

The Strategic Management Process

In today's highly competitive business environment, budget-oriented planning or forecast-based planning methods are insufficient for a large corporation to survive and prosper. Thefirm must engage in strategic planning that clearly defines objectives and assesses boththe internal and external situation to formulate strategy, implement the strategy, evaluatethe progress, and make adjustments as necessary to stay on track.

A simplified view of the strategic planning process is shown by the following diagram:

The Strategic Planning Process

Mission &Objectiv

es

EnvironmentalScanning

Strategy

Formulation

StrategyImplementation

Evaluation& Control

Mission and Objectives

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The mission statement describes the company's business vision, including the unchangingvalues and purpose of the firm and forward-looking visionary goals that guide the pursuit offuture opportunities.

Guided by the business vision, the firm's leaders can define measurable financial andstrategic objectives. Financial objectives involve measures such as sales targets and

earnings growth. Strategic objectives are related to the firm's business position, and mayinclude measures such as market share and reputation.

Environmental Scan

The environmental scan includes the following components:

Internal analysis of the firm

Analysis of the firm's industry (task environment)

External macroenvironment (PEST analysis)

The internal analysis can identify the firm's strengths and weaknesses and the externalanalysis reveals opportunities and threats. A profile of the strengths, weaknesses,opportunities, and threats is generated by means of a SWOT analysis

An industry analysis can be performed using a framework developed by Michael Porterknown as Porter's five forces. This framework evaluates entry barriers, suppliers, customers,substitute products, and industry rivalry.

Strategy Formulation

Given the information from the environmental scan, the firm should match its strengths tothe opportunities that it has identified, while addressing its weaknesses and externalthreats.

To attain superior profitability, the firm seeks to develop a competitive advantage over itsrivals. A competitive advantage can be based on cost or differentiation. Michael Porteridentified three industry-independent generic strategies from which the firm can choose.

Strategy Implementation

The selected strategy is implemented by means of programs, budgets, and procedures.Implementation involves organization of the firm's resources and motivation of the staff toachieve objectives.

The way in which the strategy is implemented can have a significant impact on whether itwill be successful. In a large company, those who implement the strategy likely will bedifferent people from those who formulated it. For this reason, care must be taken tocommunicate the strategy and the reasoning behind it. Otherwise, the implementationmight not succeed if the strategy is misunderstood or if lower-level managers resist itsimplementation because they do not understand why the particular strategy was selected.

Evaluation & Control

The implementation of the strategy must be monitored and adjustments made as needed.

Evaluation and control consists of the following steps:

1. Define parameters to be measured

2. Define target values for those parameters

3. Perform measurements

4. Compare measured results to the pre-defined standard

5. Make necessary changes

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Levels of Strategy

Strategy can be formulated on three different levels:

corporate level

business unit level

functional or departmental level.

While strategy may be about competing and surviving as a firm, one can argue thatproducts, not corporations compete, and products are developed by business units. The roleof the corporation then is to manage its business units and products so that each iscompetitive and so that each contributes to corporate purposes.

Consider Textron, Inc., a successful conglomerate corporation that pursues profits through arange of businesses in unrelated industries. Textron has four core business segments:

Aircraft - 32% of revenues

Automotive - 25% of revenues

Industrial - 39% of revenues

Finance - 4% of revenues.

While the corporation must manage its portfolio of businesses to grow and survive, thesuccess of a diversified firm depends upon its ability to manage each of its product lines.While there is no single competitor to Textron, we can talk about the competitors andstrategy of each of its business units. In the finance business segment, for example, thechief rivals are major banks providing commercial financing. Many managers consider thebusiness level to be the proper focus for strategic planning.

Corporate Level Strategy

Corporate level strategy fundamentally is concerned with the selection of businesses inwhich the company should compete and with the development and coordination of that

portfolio of businesses.Corporate level strategy is concerned with:

Reach - defining the issues that are corporate responsibilities; these might includeidentifying the overall goals of the corporation, the types of businesses in which thecorporation should be involved, and the way in which businesses will be integratedand managed.

Competitive Contact - defining where in the corporation competition is to belocalized. Take the case of insurance: In the mid-1990's, Aetna as a corporation wasclearly identified with its commercial and property casualty insurance products. Theconglomerate Textron was not. For Textron, competition in the insurance marketstook place specifically at the business unit level, through its subsidiary, Paul Revere.(Textron divested itself of The Paul Revere Corporation in 1997.)

Managing Activities and Business Interrelationships - Corporate strategy seeks todevelop synergies by sharing and coordinating staff and other resources acrossbusiness units, investing financial resources across business units, and usingbusiness units to complement other corporate business activities. Igor Ansoffintroduced the concept of synergy to corporate strategy.

Management Practices - Corporations decide how business units are to be governed:through direct corporate intervention (centralization) or through more or lessautonomous government (decentralization) that relies on persuasion and rewards.

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Corporations are responsible for creating value through their businesses. They do so bymanaging their portfolio of businesses, ensuring that the businesses are successful over thelong-term, developing business units, and sometimes ensuring that each business iscompatible with others in the portfolio.

Business Unit Level Strategy

A strategic business unit may be a division, product line, or other profit center that can beplanned independently from the other business units of the firm.

At the business unit level, the strategic issues are less about the coordination of operatingunits and more about developing and sustaining a competitive advantage for the goods andservices that are produced. At the business level, the strategy formulation phase deals with:

positioning the business against rivals

anticipating changes in demand and technologies and adjusting the strategy toaccommodate them

influencing the nature of competition through strategic actions such as verticalintegration and through political actions such as lobbying.

Michael Porter identified three generic strategies (cost leadership, differentiation, and focus)

that can be implemented at the business unit level to create a competitive advantage anddefend against the adverse effects of the five forces.

Functional Level Strategy

The functional level of the organization is the level of the operating divisions anddepartments. The strategic issues at the functional level are related to business processesand the value chain. Functional level strategies in marketing, finance, operations, humanresources, and R&D involve the development and coordination of resources through whichbusiness unit level strategies can be executed efficiently and effectively.

Functional units of an organization are involved in higher level strategies by providing inputinto the business unit level and corporate level strategy, such as providing information onresources and capabilities on which the higher level strategies can be based. Once thehigher-level strategy is developed, the functional units translate it into discrete action-plansthat each department or division must accomplish for the strategy to succeed.

The Business Vision and Company Mission Statement

While a business must continually adapt to its competitive environment, there are certaincore ideals that remain relatively steady and provide guidance in the process of strategicdecision-making. These unchanging ideals form the business vision and are expressed inthe company mission statement.

In their 1996 article entitled Building Your Company's Vision, James Collins and Jerry Porrasprovided a framework for understanding business vision and articulating it in a missionstatement.

The mission statement communicates the firm's core ideology and visionary goals, generally

consisting of the following three components:1. Core values to which the firm is committed

2. Core purpose of the firm

3. Visionary goals the firm will pursue to fulfill its mission

The firm's core values and purpose constitute its core ideology and remain relativelyconstant. They are independent of industry structure and the product life cycle.

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The core ideology is not created in a mission statement; rather, the mission statement issimply an expression of what already exists. The specific phrasing of the ideology maychange with the times, but the underlying ideology remains constant.

The three components of the business vision can be portrayed as follows:

Core

Valu

es

Core

Purpo

se

Busine

ssVision

VisionaryGoals

Core Values

The core values are a few values (no more than five or so) that are central to the firm. Corevalues reflect the deeply held values of the organization and are independent of the currentindustry environment and management fads.

One way to determine whether a value is a core value to ask whether it would continue tobe supported if circumstances changed and caused it to be seen as a liability. If the answeris that it would be kept, then it is core value. Another way to determine which values arecore is to imagine the firm moving into a totally different industry. The values that would becarried with it into the new industry are the core values of the firm.

Core values will not change even if the industry in which the company operates changes. Ifthe industry changes such that the core values are not appreciated, then the firm shouldseek new markets where its core values are viewed as an asset.

For example, if innovation is a core value but then 10 years down the road innovation is nolonger valued by the current customers, rather than change its values the firm should seeknew markets where innovation is advantageous.

The following are a few examples of values that some firms has chosen to be in their core:

excellent customer service

pioneering technology

creativity

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integrity

social responsibility

Core Purpose

The core purpose is the reason that the firm exists. This core purpose is expressed in a

carefully formulated mission statement. Like the core values, the core purpose is relativelyunchanging and for many firms endures for decades or even centuries. This purpose sets thefirm apart from other firms in its industry and sets the direction in which the firm willproceed.

The core purpose is an idealistic reason for being. While firms exist to earn a profit, theprofit motive should not be highlighted in the mission statement since it provides littledirection to the firm's employees. What is more important is how the firm will earn its profitsince the "how" is what defines the firm.

Initial attempts at stating a core purpose often result in too specific of a statement thatfocuses on a product or service. To isolate the core purpose, it is useful to ask "why" inresponse to first-pass, product-oriented mission statements. For example, if a marketresearch firm initially states that its purpose is to provide market research data to itscustomers, asking "why" leads to the fact that the data is to help customers betterunderstand their markets. Continuing to ask "why" may lead to the revelation that the firm'score purpose is to assist its clients in reaching their objectives by helping them to betterunderstand their markets.

The core purpose and values of the firm are not selected - they are discovered. The statedideology should not be a goal or aspiration but rather, it should portray the firm as it reallyis. Any attempt to state a value that is not already held by the firm's employees is likely tonot be taken seriously.

Visionary Goals

The visionary goals are the lofty objectives that the firm's management decides to pursue.This vision describes some milestone that the firm will reach in the future and may require adecade or more to achieve. In contrast to the core ideology that the firm discovers, visionary

goals are selected.These visionary goals are longer term and more challenging than strategic or tactical goals.There may be only a 50% chance of realizing the vision, but the firm must believe that it cando so. Collins and Porras describe these lofty objectives as "Big, Hairy, Audacious Goals."

These goals should be challenging enough so that people nearly gasp when they learn ofthem and realize the effort that will be required to reach them.

Most visionary goals fall into one of the following categories:

Target - quantitative or qualitative goals such as a sales target or Ford's goal to"democratize the automobile."

Common enemy - centered on overtaking a specific firm such as the 1950's goal ofPhilip-Morris to displace RJR.

Role model - to become like another firm in a different industry or market. Forexample, a cycling accessories firm might strive to become "the Nike of the cyclingindustry."

Internal transformation - especially appropriate for very large corporations. Forexample, GE set the goal of becoming number one or number two in every market itserves.

While visionary goals may require significant stretching to achieve, many visionarycompanies have succeeded in reaching them. Once such a goal is reached, it needs to bereplaced; otherwise, it is unlikely that the organization will continue to be successful. For

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example, Ford succeeded in placing the automobile within the reach of everyday people, butdid not replace this goal with a better one and General Motors overtook Ford in the 1930's.

Environment

PEST Analysis

A scan of the external macro-environment in which the firm operates can be expressed interms of the following factors:

Political

Economic

Social

Technological

The acronym PEST (or sometimes rearranged as "STEP") is used to describe a framework forthe analysis of these macroenvironmental factors. A PEST analysis fits into an overallenvironmental scan as shown in the following diagram:

Environmental Scan

/ \

External AnalysisInternalAnalysis

/ \

Macroenviron

ment

Microenviron

ment

|

P.E.S.T.

Political Factors

Political factors include government regulations and legal issues and define both formal andinformal rules under which the firm must operate. Some examples include:

tax policy

employment laws

environmental regulations

trade restrictions and tariffs

political stability

Economic Factors

Economic factors affect the purchasing power of potential customers and the firm's cost ofcapital. The following are examples of factors in the macroeconomy:

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economic growth

interest rates

exchange rates

inflation rate

Social Factors

Social factors include the demographic and cultural aspects of the externalmacroenvironment. These factors affect customer needs and the size of potential markets.Some social factors include:

health consciousness

population growth rate

age distribution

career attitudes

emphasis on safety

Technological Factors

Technological factors can lower barriers to entry, reduce minimum efficient productionlevels, and influence outsourcing decisions. Some technological factors include:

R&D activity

automation

technology incentives

rate of technological change

SWOT Analysis

A scan of the internal and external environment is an important part of the strategicplanning process. Environmental factors internal to the firm usually can be classified asstrengths (S) or weaknesses (W), and those external to the firm can be classified as

opportunities (O) or threats (T). Such an analysis of the strategic environment is referred toas a SWOT analysis.

The SWOT analysis provides information that is helpful in matching the firm's resources andcapabilities to the competitive environment in which it operates. As such, it is instrumentalin strategy formulation and selection. The following diagram shows how a SWOT analysis fitsinto an environmental scan:

SWOT Analysis Framework

Environmental Scan

/ \

Internal Analysis External Analysis

/ \ / \

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Strengths Weaknesses

Opportunities Threats

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SWOT Matrix

Strengths

A firm's strengths are its resources and capabilities that can be used as a basis fordeveloping a competitive advantage. Examples of such strengths include:

patents

strong brand names

good reputation among customers

cost advantages from proprietary know-how

exclusive access to high grade natural resources favorable access to distribution networks

Weaknesses

The absence of certain strengths may be viewed as a weakness. For example, each of thefollowing may be considered weaknesses:

lack of patent protection

a weak brand name

poor reputation among customers

high cost structure

lack of access to the best natural resources

lack of access to key distribution channels

In some cases, a weakness may be the flip side of a strength. Take the case in which a firmhas a large amount of manufacturing capacity. While this capacity may be considered astrength that competitors do not share, it also may be a considered a weakness if the largeinvestment in manufacturing capacity prevents the firm from reacting quickly to changes inthe strategic environment.

Opportunities

The external environmental analysis may reveal certain new opportunities for profit andgrowth. Some examples of such opportunities include:

an unfulfilled customer need

arrival of new technologies loosening of regulations

removal of international trade barriers

Threats

Changes in the external environmental also may present threats to the firm. Some examplesof such threats include:

shifts in consumer tastes away from the firm's products

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emergence of substitute products

new regulations

increased trade barriers

The SWOT Matrix

A firm should not necessarily pursue the more lucrative opportunities. Rather, it may have abetter chance at developing a competitive advantage by identifying a fit between the firm'sstrengths and upcoming opportunities. In some cases, the firm can overcome a weakness inorder to prepare itself to pursue a compelling opportunity.

To develop strategies that take into account the SWOT profile, a matrix of these factors canbe constructed. The SWOT matrix (also known as a TOWS Matrix) is shown below:

SWOT / TOWS Matrix

StrengthsWeaknesses

Opportuni

ties

S-O

strategies

W-O

strategies

ThreatsS-Tstrategies

W-Tstrategies

S-O strategies pursue opportunities that are a good fit to the company's strengths.

W-O strategies overcome weaknesses to pursue opportunities.

S-T strategies identify ways that the firm can use its strengths to reduce itsvulnerability to external threats.

W-T strategies establish a defensive plan to prevent the firm's weaknesses frommaking it highly susceptible to external threats.

BCG Growth-Share Matrix

Companies that are large enough to be organized into strategic business units face thechallenge of allocating resources among those units. In the early 1970's the BostonConsulting Group developed a model for managing a portfolio of different business units (ormajor product lines). The BCG growth-share matrix displays the various business units ona graph of the market growth rate vs. market sharerelative to competitors:

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BCG Growth-Share Matrix

Resources are allocated to business units according to where they are situated on the gridas follows:

Cash Cow - a business unit that has a large market share in a mature, slow growingindustry. Cash cows require little investment and generate cash that can be used toinvest in other business units.

Star - a business unit that has a large market share in a fast growing industry. Starsmay generate cash, but because the market is growing rapidly they requireinvestment to maintain their lead. If successful, a star will become a cash cow whenits industry matures.

Question Mark (or Problem Child) - a business unit that has a small market share

in a high growth market. These business units require resources to grow marketshare, but whether they will succeed and become stars is unknown.

Dog - a business unit that has a small market share in a mature industry. A dog maynot require substantial cash, but it ties up capital that could better be deployedelsewhere. Unless a dog has some other strategic purpose, it should be liquidated ifthere is little prospect for it to gain market share.

The BCG matrix provides a framework for allocating resources among different businessunits and allows one to compare many business units at a glance. However, the approachhas received some negative criticism for the following reasons:

The link between market share and profitability is questionable since increasingmarket share can be very expensive.

The approach may overemphasize high growth, since it ignores the potential of

declining markets.

The model considers market growth rate to be a given. In practice the firm may beable to grow the market.

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GE / McKinsey Matrix

In consulting engagements with General Electric in the 1970's, McKinsey & Companydeveloped a nine-cell portfolio matrix as a tool for screening GE's large portfolio of strategic

business units (SBU). This business screen became known as the GE/McKinsey Matrix andis shown below:

GE / McKinsey Matrix

Business UnitStrength

High Medium

Low

High

Mediu

m

Low

The GE / McKinsey matrix is similar to the BCG growth-share matrix in that it maps strategicbusiness units on a grid of the industry and the SBU's position in the industry. The GE matrixhowever, attempts to improve upon the BCG matrix in the following two ways:

The GE matrix generalizes the axes as "Industry Attractiveness" and "Business Unit

Strength" whereas the BCG matrix uses the market growth rate as a proxy forindustry attractiveness and relative market share as a proxy for the strength of thebusiness unit.

The GE matrix has nine cells vs. four cells in the BCG matrix.

Industry attractiveness and business unit strength are calculated by first identifying criteriafor each, determining the value of each parameter in the criteria, and multiplying that valueby a weighting factor. The result is a quantitative measure of industry attractiveness and thebusiness unit's relative performance in that industry.

Industry Attractiveness

The vertical axis of the GE / McKinsey matrix is industry attractiveness, which is determinedby factors such as the following:

Market growth rate

Market size

Demand variability

Industry profitability

Industry rivalry

Global opportunities

Macroenvironmental factors (PEST)

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Each factor is assigned a weighting that is appropriate for the industry. The industryattractiveness then is calculated.

Business Unit Strength

The horizontal axis of the GE / McKinsey matrix is the strength of the business unit. Somefactors that can be used to determine business unit strength include:

Market share

Growth in market share

Brand equity

Distribution channel access

Production capacity

Profit margins relative to competitors

The business unit strength index can be calculated by multiplying the estimated value ofeach factor by the factor's weighting, as done for industry attractiveness.

Plotting the Information

Each business unit can be portrayed as a circle plotted on the matrix, with the informationconveyed as follows:

Market size is represented by the size of the circle.

Market share is shown by using the circle as a pie chart.

The expected future position of the circle is portrayed by means of an arrow.

The following is an example of such a representation:

The shading of the above circle indicates a 38% market share for the strategic business unit.The arrow in the upward left direction indicates that the business unit is projected to gainstrength relative to competitors, and that the business unit is in an industry that is projectedto become more attractive. The tip of the arrow indicates the future position of the centerpoint of the circle.

Strategic Implications

Resource allocation recommendations can be made to grow, hold, or harvest a strategicbusiness unit based on its position on the matrix as follows:

Grow strong business units in attractive industries, average business units inattractive industries, and strong business units in average industries.

Hold average businesses in average industries, strong businesses in weak industries,and weak business in attractive industries.

Harvest weak business units in unattractive industries, average business units inunattractive industries, and weak business units in average industries.

There are strategy variations within these three groups. For example, within the harvestgroup the firm would be inclined to quickly divest itself of a weak business in an unattractiveindustry, whereas it might perform a phased harvest of an average business unit in thesame industry.

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While the GE business screen represents an improvement over the more simple BCGgrowth-share matrix, it still presents a somewhat limited view by not consideringinteractions among the business units and by neglecting to address the core competenciesleading to value creation. Rather than serving as the primary tool for resource allocation,portfolio matrices are better suited to displaying a quick synopsis of the strategic businessunits.

Strategic Business Unit

Strategic Business Unit or SBU is understood as a business unit within the overallcorporate identity which is distinguishable from other business because it serves a defined

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external market where management can conduct strategic planning in relation to productsand markets. The unique small business unit benefits that a firm aggressively promotes in aconsistent manner. When companies become really large, they are best thought of as beingcomposed of a number of businesses (or SBUs).

In the broader domain of strategic management, the phrase "Strategic Business Unit" came

into use in the 1960s, largely as a result ofGeneral Electric's many units.These organizational entities are large enough and homogeneous enough to exercise controlover most strategic factors affecting their performance. They are managed as self containedplanning units for which discrete business strategies can be developed. A Strategic BusinessUnit can encompass an entire company, or can simply be a smaller part of a company set upto perform a specific task. The SBU has its own business strategy, objectives andcompetitors and these will often be different from those of the parent company. Researchconducted in this include the BCG Matrix.

This approach entails the creation of business units to address each market in which thecompany is operating. The organization of the business unit is determined by the needs ofthe market.

An SBU is an sole operating unit or planning focus that does not group a distinct set of

products or services, which are sold to a uniform set of customers, facing a well-defined setof competitors. The external (market) dimension of a business is the relevant perspective forthe proper identification of an SBU. (Therefore, an SBU should have a set of externalcustomers and not just an internal supplier.[1]

Companies today often use the word Segmentation or Division when referring to SBUs,or an aggregation of SBUs that share such commonalities.

Strategy Evaluation and Control

The final stage in strategic management is strategy evaluation and control. All strategies aresubject to future modification because internal and external factors are constantly changing.In the strategy evaluation and control process managers determine whether the chosen

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strategy is achieving the organization's objectives. The fundamental strategy evaluation andcontrol activities are: reviewing internal and external factors that are the bases for currentstrategies, measuring performance, and taking corrective actions.

Each organization has its own approach to evaluation. There are not absolute answers as tothe proper evaluation standards. However, there are three basic questions to ask in strategy

evaluation:1. Is the existing strategy any good?

2. Will the existing strategy be good in the future?

3. Is there a need to change a strategy?

The first question may need additional detailing to indicate whether the current strategy isuseful and beneficial to the organization.

1. Is the strategy internally consistent? Internal consistency refers to the cumulativeimpact of various strategies on the organizations. According to Tilles, a strategy mustbe judged not only in relationships to other strategies.

2. Is organizations strategy consistent with its environment? An important test ofstrategy is whether the chosen strategy in consistent with environment (constituent

demands, competition, economy, product / industry life cycle, suppliers, customers) -whether the really make sense with respect to what is going on outside.

3. Is the strategy appropriate in view of available resources? Resources are those thingsthat company is or has and that help it to achieve its corporate objectives. Includedare money, competence, facilities and other. Without appropriate resources,organization simply cannot make strategic work.

4. Does the strategy involve an acceptable degree of risk? Strategy and resources,taken together, determine the degree of risk which the company is undertaken. Eachcompany must determine the amount of risk it wishes to incur. This is a criticalmanagerial choice. In attempting to assess the degree of risk associated with aparticular strategy, management must assess such issues as the total amount ofresources a strategy requires, the proportion of the organization's resources that a

strategy will consume, and the amount of time that must be committed.5. Does the strategy have an appropriate time horizon? A significant part of every

strategy is the time horizon on which it is based. For example, a new productdeveloped, a plant put on stream, a degree of market penetration, becomesignificant strategic objectives only if accomplished by a certain time. Managementmust ensure that the time necessary to implement the strategy is consistent.Inconsistency between these two variables can make it impossible to reach goals in asatisfactory way.

6. Is the strategy workable?

7. Is the strategy identifiable? Has it been clearly and consistently identified and arepeople aware of it?

8. Is the strategy appropriate to the personal values and aspirations of key managers?9. Does strategy constitute a clear stimulus to organizational effort and commitment?

10. Is the strategy socially responsible?

11. Are there early indications of the responsiveness of markets and market segments tothe strategy?

12. Does the strategy rely on weakness or do anything to reduce them?

13. Does the strategy exploit major opportunities?

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14.Does it avoid, reduce, or mitigate the major threats? If not, are there adequatecontingency plans?

All these questions can be applied as the strategy progresses through its various stages,including implementation. The answers can provide guidelines as to how the strategy shouldbe altered or changed.

The second basic question "Will the existing strategy be good in the future?" seeks toascertain if the strategy would continue to satisfy the firm's objective in the future. Theanswer to this is based upon unforeseeable changes in the organization's environment orresources, or changes in its mission, goals, or objectives.

The answer to the third question "Is there a need to change the strategy?" will providedirection toward a strategy formation task.

Control of Strategy

Strategy control refers to the process by which an organization influences its subunits andmembers to behave in ways that lead to the attainment of organizational objectives.

Types of Control

Management can implement controls before an activity commences, while the activity is

going on, or after the activity has been completed. The three respective types of controlbased on timing are feed-forward, concurrent, and feedback.

Strategic Control

Strategic control is concerned with tracking the strategy as it is being implemented,detecting any problems areas or potential problem areas, and making any necessaryadjustments.

Newman and Logan use the term "steering control" to highlight some importantcharacteristics of strategic control Ordinarily, a significant time span occurs between initialimplementation of a strategy and achievement of its intended results. During that time,numerous projects are undertaken, investments are made, and actions are undertaken toimplement the new strategy.

Also the environmental situation and the firm's internal situation are developing andevolving. Strategic controls are necessary to steer the firm through these events. They mustprovide some means of correcting the directions on the basis of intermediate performanceand new information.

Henry Mintzberg,one of the foremost theorists in the area of strategic management, tells usthat no matter how well the organization plans its strategy, a different strategy mayemerge.

Starting with the intended or planned strategies, he related the 3 types of strategies in thefollowing manner:

1. Intended strategies that get realized; these may be called deliberate strategies.

2. Intended strategies that do get realized; these may be called unrealized strategies.

3. Realized strategies that were never intended; these may be called emergentstrategies.

Recognizing the number of different ways that intended and realized strategies may differunderscores the importance of evaluation and control systems so that the firm can monitorits performance and take corrective action if the actual performance differs from theintended strategies and planned results.

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Where management control is imposed, it functions within the framework established by thestrategy. Normally these objectives (standards) are established for major subsystems withinthe organization, such as SBUs, projects, products, functions, and responsibility centers.

Typical management control measures include ROI, residual income, cost, product quality,and so on. These control measures are essentially summations of operational control

measures. Corrective action may involve very minor or very major changes in the strategy.

Strategy Implementation

The implementation of organization strategy involves the application of the managementprocess to obtain the desired results.

Strategy implementation is "the process of allocating resources to support the

chosen strategies". This process includes the various management activities that arenecessary to put strategy in motion, institute strategic controls that monitor progress, andultimately achieve organizational goals.

For example, according to Steiner, "the implementation process covers the entiremanagerial activities including such matters as motivation, compensation,management appraisal, and control processes".

As Higgins has pointed out, "almost all the management functions -planning,controlling, organizing, motivating, leading, directing, integrating,

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communicating, and innovation -are in some degree applied in theimplementation process".

Pierce and Robinson say that "to effectively direct and control the use of the firm'sresources, mechanisms such as organizational structure, information systems,leadership styles, assignment of key managers, budgeting, rewards, and control

systems are essential strategy implementation ingredients".The implementation activities are in fact related closely to one another and decisions abouteach are usually made simultaneously.

Aspects of Strategy Implementation

Aspects of strategy implementation include:

1. Designing the organization's structure,2. Allocating resources,3. Developing information and decision process,4. Managing human resources, including such areas as the reward system, approaches

to leadership, and staffing.

Structure of Strategy Implementation

Structure of strategy implementation involves identifying the activities, decisions, andrelationships critical to accomplishing the activities.

There are six principal administrative tasks that shape a manager's action agenda forimplementing strategy. In general, every unit of an organization has to ask, "What isrequired for us to implement our part of the overall strategic plan and how can webets get it done?".

The specific components of each of the six strategy-implementation tasks:

1. Building an organization capable of executing the strategy. The organizationmust have the structure necessary to turn the strategy into reality. Furthermore, thefirm's personnel must possess the skill needed to execute the strategy successfully.Related to this is the need to assign the responsibility for accomplish keyimplementation tasks to the right individuals or groups.

2. Establishing a strategy-supportive budget. If the firm is to accomplish strategicobjectives, top management must provide the people, equipment, facilities, andother resources to carry out its part of the strategic plan. Further, once the strategyhas been decided on, the key tasks to performed and kinds of decision required mustbe identified, formal plans must also be developed. The tasks should be arranged in asequence comprising a plan of action within targets to be achieved at specific dates.

3. Installing internal administrative support systems. Internal systems arepolicies and procedures to establish desired types of behavior, information systemsto provide strategy-critical information on a timely basis, and whatever inventory,materials management, customer service, cost accounting, and other administrativesystems are needed to give the organization important strategy-executing capability.

These internal systems must support the management process, the way themanagers in an organization work together, as well as monitor strategic progress.

4. Devising rewards and incentives that are tightly linked to objectives andstrategy. People and departments of the firm must be influenced, throughincentives, constraints, control, standards, and rewards, to accomplish the strategy.

5. Shaping the corporate culture to fit the strategy. A strategy-supportivecorporate culture causes the organization to work hard (and intelligently) toward theaccomplishment of the strategy.

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6. Exercising strategic leadership. Strategic leadership consists of obtainingcommitment to the strategy and its accomplishment. It also involves the constructiveuse of power and politics, and politics in building a consensus to support the strategy.

Strategy Design and Change

Implementing Business Level Strategies

Strategy implementation at the business level takes place in the areas of manufacturing,accounting and finance, marketing sales, and organizational culture.

The primary organizational functions are integrated to design the implementation ofPorter'sgeneric strategies and Miles and Snow's strategies.

Michael Porter described three strategic options available to firms at the business level:overall cost leadership, differentiation, and focus strategies.

Pure cost leadership strategies focus on those variables that will allow the firm toachieve and maintain a low cost position. An organization implements an overall costleadership strategy when it attempts to gain a competitive advantage by reducing its costsbelow the costs of competing firms.

The tasks associated with the cost strategy variables focus mostly upon the internaloperations of the business, emphasizing the productive employment of capital and humanresources. A cost strategy requires attention to operational details.

For example, it focuses on simple products attributes and how these product meetcustomers needs in a low-cost and effective manner. In general, an organization that chosena cost leadership strategy sells a mass-produced product to large members of customersand provide strong incentives to its salespeople to increase the volume of sales.

Conversely, a business with a pure differentiation strategy attempts to enhance theprice component of the profit quation by offering customer something they perceive asunique and for which they are willing to pay a higher price. An organization implements adifferentiation strategy when it seeks to distinguish itself from competitors through the highquality of its products or services.

This strategy incorporates variables dealing principally with the business' environment. Theproducts and services must be designed to meet unique customer needs. Quality, productperformance, perceived quality, and new technical features added are more importantcomponents of the marketing effort that is a concern for low price.

An organization implements a focus strategywhen it uses either a differentiation strategyor an overall cost leadership focus strategy in a particular market segment or geographicarea.

Miles and Snow identified four business-level strategies: defender, prospector, analyzer, andreactor.

Defender Strategy. Organizations implementing a defender strategy attempt to protecttheir market from new competitors. As result of this narrow focus, these organizationsseldom need to make major adjustments in their technology, structure, or methods of

operation. Instead, they devote primary attention to improving the efficiency of theirexisting operations. Defenders can be successful especially when they exist in a decliningindustry or a stable environment.

Prospector Strategy. Organizations implementing a prospector strategy are innovative,seek out new opportunities, take risks and grow. To implement this strategy, organizationsneed to encourage creativity and flexibility. They regularly experiment with potentialresponses to emerging environmental trends. Thus, these organizations often are thecreators of change and uncertainty to which their competitors must respond. In such anenvironment, creativity is more important then efficiency.

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Analyzer Strategy. Organizations implementing analyzer strategies attempt to maintaintheir current businesses and to be somewhat innovative in new businesses. Some productsare targeted toward stable environments, in which an efficiency strategy designed to retaincurrent customers is employed. Others are targeted toward new, more dynamicenvironments.

They attempt to balance efficient production for current lines along with the creativedevelopment of new product lines. Analyzers have tight accounting and financial controlsand high flexibility, efficient production and customized products, creativity and low costs.However, it is difficult for organizations to maintain these multiple and contradictoryprocesses. new product lines.

Reactor Strategy. Organizations that follow a reactor strategy have no a consistentstrategy-structure relationship. Rather than defining a strategy to suit a specificenvironment, reactors respond to environmental threats and opportunities in ad hoc fashion.

Sometimes these organizations are innovative, sometimes they attempt to reduce costs,and sometimes they do both. Reactors are organizations in which top managementfrequently perceive change and uncertainty occurring in their organizational environmentsbut are unable to respond effectively. Therefore, failed organizations often are the result ofreactor strategies.

Design and Implementation of Corporate Level Strategies

Corporate-level strategy focuses on how organizations manage their operations acrossmultiple business and markets. The most important corporate strategy decisions thatorganizations need to make concerns the type and degree of corporate diversification.

Designing Diversification Strategies

A central concept to understanding and proposing diversification strategies is relatedness. Arange of diversification strategies-from highly related to highly unrelated -can be observed.

Pitts and Hopkins (1982) have conducted an extensive literature review and summary onthis topic. As they suggested, "the first tasks facing a researcher wishing to measurea firm's diversity therefore, is to identify its individual businesses".

In this review of strategic diversity, Pitts and Hopkins cite three primary approaches:* The first, resource independence, sees a business as discrete from others of thecorporation if the "resources involved are separate from those supporting the firm's otheractivities."

* The least-employed approach, due to data collection difficulties, defines businesses interms ofmarket discreteness.

* Finally, businesses can be defined in terms ofproduct differences, viewing each productoffering as a separate business.

Pitts and Hopkins here note two primary approaches to the measurement of diversity: (1)the first is based upon the numberof businesses in which the firm is positioned; (2) thesecond approach is termed strategic and assesses diversity by either the relatedness of

various businesses or the firm's historical growth pattern.Rumeltdeveloped, as a variation ofWrigley's (1970) scheme, a typology -single business,dominant business, related business, and unrelated business -according to thedegree of strategic interdependence across businesses as well as "the proportion of afirm's revenues that can be attributed to its largest single business in a givenyear". Nathanson (1980) has developed a system that captures both product and marketdiversity.

Strategies Changes

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Most organizations do not start out completely diversified. Therefore, in implementing adiversification strategy organizations face two important questions:

1. How will the organizations move from a single product strategy to some form ofdiversification?

2. How will it manage diversification effectively?

The concept of center of gravity opens a broader range of strategic options to the firm. These include vertical integration; by-product, related, intermediate, and unrelateddiversification and finally, a shift in center of gravity.

Vertical Integration

The first strategic change that an organization sometimes makes is to vertically integratewithin its industry. The organization can move backward to prior stages to guaranteesources of supply and secure bargaining leverage on vendors; or it can move forward toguarantee markets and volume for capital investments, and became its own customer tofeed back data for new products. Each company can have its center of gravity at a differentstage.

However, this initial strategic move does not change the center of gravity, because the priorand subsequent stages are usually operated for the benefit of the center of gravity stage.Research findings indicate that the poorest performer of the strategic categories is thevertically integrated by-product seller (Rumelt 1974). These companies are all upstream,row material, and primary manufacturers. Their resource allocation was within a singlebusiness, not across multiple products. Significant here is their inability to change, becausethe management skills-partly technological know-how does not transfer across industries atthe primary manufacturing center of gravity.

Diversification

The next strategic change that a company usually takes is diversification. There are differenttypes of diversification.

By-Product Diversification. One of the first diversification moves that are vertically

integrated company makes is to sell by-products from points along the industry chain. Butthe company has changed neither its industry nor its center of gravity. A key dimension thatdistinguishes among companies pursuing this strategy is the number of industries into whichby-products are sold.

Related Diversification. Related Diversification is a strategic change in which thecompany moves its core industry into other industries that are related to the core industry.

The position taken here is that relatedness has two dimensions: 1. one is the degree towhich the new industry is related to the core industry; 2. the other - more important - is thedegree to which the company operates at the same center of gravity in the new industry.

Related diversification is a strategic change in which the company diversifies be enteringnew industry but always enters business in that industry at the same center of gravity. Anappreciation for the degree of relatedness is needed to estimate the amount of strategicchange that is being attempted. A scale of relatedness could be constructed by listing the

functional aspects of any business, such as process technology, product technology, productdevelopment, purchasing, assembly, packing, shipping, inventory management, quality,labor relations, distribution, selling, promotion, advertising, consumer / customer, buyinghabits, working capital, and credit.

The magnitude of strategy implementation problem is directly proportional to the amount ofrelatedness in the diversification move. The less related the diversification, the greater thedifficulty of strategy implementation, and the greater the likelihood of acquisition versusinternal growth.

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Intermediate diversification. Between related and unrelated diversifiers are a largenumber of firms whose businesses are somewhat related but operate at a number of centersof gravity. The strategic change hypothesized is to be more difficult because it involvesmanaging businesses with different centers of gravity. The company must learn not onlynew businesses but also new ways of doing business.

Unrelated Diversification. The unrelated company has several centers of gravity, operatein many industries, and actually seek to avoid relatedness (e.g., electronic, energy).However, the intermediate and unrelated diversification does not change the centers ofgravity of their core business.

Changes in Center of Gravity

Changes in the center of gravity usually occur by a new star-up at a new center of gravityrather than by a shift in the center of established firms. Changing of gravity is difficultbecause it requires a dismantling of the current power structure, rejection of parts of the oldculture, and establishing all new management systems.

The companies that are successful are those that began as downstream companies andestablished their center of gravity there.

Strategy And StructureEach strategy has an associated organizational structure consistent with the above view ofstrategy and diversification. These relationships are summarized in the tale below.

Strategy Structure

Single business Functional

Vertical by ProductsFunctional with profit

centers

Related businesses Divisional

Intermediatebusinesses

Mixed structures

Unrelated

BusinessesHolding company

Managing Diversification

An organizations implements diversification must monitor and manage its strategy. The two

major tools for managing diversification are organization structure and portfolio

management techniques.

Behavioral Aspects of Strategy Implementation

Leadership

If the CEO does not exert the leadership needed to drive strategy implementation, changewill just not happen. Ultimately, the CEO determines how successful strategyimplementation is going to be. How CEOs lead the strategy implementation depends on anumber of factors:

1. leadership style they are comfortable with

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2. their administrative, interpersonal and problem-solving skills

3. their personal relationships within the organization

4. their experience in business

5. their perspective on their role

Major initiatives to implement business strategies are usually led by the CEO and supportedby the top-level managers. Weak leadership can destroy the soundest of strategies. Thesingle most visible factor that differentiates successful strategy implementation from failedattempts is competent leadership at the top. CEOs plant the seeds of change. Change has tobe driven from the top. Only they have the power and organizational influence to bringabout change.

Culture

Peters and Waterman focused attention on the role of culture in strategic management.Organizational culture is more than emotional rhetoric; the culture of an organizationdevelops over a period of time is influenced by the values, actions and, beliefs of individualsat all levels of the organization.

Organization culture may also limit the ability of a firm to change strategy. As the

experience at Levi Strauss & Co. suggests, it is often hard to convince employees of theneed for change when their peers and other members of the organization are not supportiveof the proposed change.

Management must also recognize the existing organization culture and learn to work withinor change its parameters.

As the strategic plan and performance measures are being created, the organization mustmake sure that they are aligned with the systems, structure, culture, and performancemanagement architecture. The best plans may fail because the reward systems motivatedifferent behaviors than those called for in the strategy map and measurement design. Forexample, if a team approach to business development is outlined in the plan, but salescommission remains individual, organizations will be hard pressed to see a team focus.

Culture is formed by screening and selecting new employees who share the same values asyour organization. However, culture evolves, it is not static. Both internal (hiring, staffturnover, etc) and external (technology, competition, etc.) factors shape your culture. Yourbeliefs, vision, objectives and business practices may be compatible with culture. If this isthe case, your culture becomes a valuable ally in strategy implementation. On the otherhand, if there is conflict then you do not have a strategy-culture fit and you need to dosomething about it quickly.

Strong cultures promote successful strategy implementation while weak cultures do not. Bystrong culture, I mean there is a shared belief in practices, norms and other practices withinthe organization that helps energize everyone to do their jobs to promote successfulstrategy implementation. For example, if your culture is built around listening to customersand empowering employees (both authority and responsibility), it promotes the execution of

a strategy that supports superior customer service. In weak cultures, employees have nopride in ownership of work, work is sloppy, there are very few values and people formpolitical groups within the organization. Such cultures provide little or no assistance toimplement strategy.

In todays dynamic business world, strategies are dynamic. Hence, it is but logical that yourorganizational culture has to be dynamic too. It needs to adapt to the demands of business.In such cultures, all employees have confidence in the teams ability to meet any challenge.

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Strategy Implementation - Personal Values and Business Ethics

Personal values refer to a persons view of life and judgment of what is desirable that is verymuch part of a persons personality.

1. A benign attitude to labor welfare is a value which may prompt an industrialist to domuch more for workers than the labor laws stipulate.

2. Service mindedness is value which when cherished in an organization, manifests inbetter customers satisfaction.

3. Personal values are imbibed from:Parents

Teachers andElders

4. Values are adapted and refined in the light of new knowledge and experiences.Within organizations, values are imparted by the founder-entrepreneur or a dominantchief executive.

Ethics are related to personal values and choices and focuses on standards, rulesand codes of conduct that govern the behavior of a person or a group with respect towhat is right or wrong. Business ethics operate as a system of values and are concerned primarily with therelationship of business goals and techniques to specifically human ends. Specifically human ends mean viewing the needs and aspirations of individualsnot merely as individuals but as a part of society.

Borrowing office supplies for personal use Surfing the net for personal interest on organizations time. Plagiarism Filing inflated information about the organization Getting things done through unfair means like providing financial incentives and soon. Producing goods or services harmful to the society and the customers. Following production practices not in tune with the prevailing laws. Promotion of goods and services with features and qualities which are nonexistent.

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Determinants of ethical behavior Family influences Peer influences Experiences Situational factors Personal values and morals

5. Managerial ethics

The standards that guide individual managers in their work behavior.

Three areas of concern: How the organization treats its employees? How employees treat their organizations? How the organization treats its other stakeholders?

Managing ethical behaviors

Hiring employees with high ethical behaviors Establishing codes of ethics and decision rules Leading by example Delineating job goals Providing ethical trainings

Role of a Strategist

A major task of leadership (strategist) is to inculcate personal values and impart asense of business ethics to the organizational members. Values and ethics shape the corporate culture and dictate the way how politics andpower will be used. These also clarify Corporate Social Responsibility of theorganization. Strategists have to reconcile divergent values and modify values, if necessary.

6. Leadership Style and Culture Change: Culture is the set of values, beliefs,behaviours that help its members understand what the organization stands for, howit does things and what it considers important. Firms culture must be appropriate andsupport their firm. The culture should have some value in it . To change the corporateculture involves persuading people to abandon many of their existing beliefs andvalues, and the behaviours that stem from them, and to adopt new ones. The firstdifficulty that arises in practice is to identify the principal characteristics of theexisting culture. The process of understanding and gaining insight into the existingculture can be aided by using one of the standard and properly validated inventoriesor questionnaires that a number of consultants have developed to measurecharacteristics of corporate culture. These offer the advantage of being able to

benchmark the culture against those of other, comparable firms that have used thesame instruments. The weakness of this approach is that the information thusobtained tends to be more superficial and less rich than material from other sourcessuch as interviews and group discussions and from study of the companys history. Incarrying out this diagnostic exercise, such instruments can be supplemented bysurveys of employee opinions and attitudes and complementary information fromsurveys of customers and suppliers or the public at large.

7. Values and Culture: Value is something that has worth and importance to anindividual. People should have shared values. This value keeps the every one from

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the top management down to factory persons on the factory floor pulling in the samedirection.

8. Ethics and Strategy: Ethics are contemporary standards and a principle orconducts that govern the action and behviour of individuals within the organization.In order that the business system function successfully the organization has to avoid

certain unethical practices and the organization has to bound by legal laws andgovernment rules and regulations

Functional Implementation

Functional Strategy

A functional strategy is one that is implemented and activated by functional areas thatsupport product and service development. These could be human resources, marketingand/or research and development. Their functional strategies have to be customized toensure that the business strategy adopted by the business team will be able to succeed. Thefunctional strategy therefore supports the business strategy. Effective functional strategieswill help the corporation develop competitive advantages for the company.

Functional strategy- selection of decision rules in each functional area. Thus, functionalstrategies in any organization, some (eg, marketing strategy, financial strategy, etc.). It isdesirable that they have been fixed in writing.

In particular, functional strategies are as follows:

Production strategy( "make or buy") - defines what the company produces itself, and thatpurchases from suppliers or partners, that is, how far worked out the production chain.

Financial Strategy- to select the main source of funding: the development of their ownfunds (depreciation, profit, the issue of shares, etc.) or through debt financing (bank loans,bonds, commodity suppliers' credits, etc.).

Organizational strategy- decision on the organization of the staff (choose the type oforganizational structure, compensation system, etc.).

May be allocated and other functional strategies, for example, the strategy for research andexperimental development (R & D), investment strategy, etc.

In addition, each of the functional strategies can be divided into components. For example,organizational strategy can be divided into three components:

strategy of building organizations - to select the type of structure (divisional,functional, project, etc.);

strategy to work with the staff - a way of training (mainly administrative staff),training of staff (in a business or educational institutions), career planning, etc.;

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Strategy wages (in the broader sense - rewards and penalties) - in particular, theapproach to the compensation of senior managers (salary, bonuses, profit sharing,etc.).

It is important that an organization periodically (at least annually, usually as part of themedium-term planning process) review all functional strategies to assure that they are:

Consistent with the business strategySupportive of the business strategyConsistent with other functional strategiesSupportive of other functional strategiesBest utilize the organizations strengthsLead to the level of efficiency and effectiveness desiredCreate or maintain functional competitive advantages, if desiredAre within the organization's resource constraints

Each organization may contain a variety of functional areas, however, the followingrepresent what are usually the most significant functional areas of concern regardingstrategy.

Finance and Accounting: Functional Strategies

Human Resources: Functional StrategiesInformation Systems: Functional StrategiesMarketing: Functional StrategiesProduction/Operations: Functional StrategiesResearch & Development: Functional Strategies

Finance and AccountingExamples of Functional Strategies

Below are some of the more important functional strategies. It is important that functionalstrategies be supportive of the overall business strategy and consistent betweenthemselves.

Capital structure

Medium-term planning methods Budget systems and approaches

Emphasis between leasing and buying

How owners are rewarded

Capital investment methods and systems

Credit strategies

Liquidity strategies

Human ResourcesExamples of Functional Strategies

Below are some of the more important functional strategies. It is important that functional

strategies be supportive of the overall business strategy and consistent betweenthemselves.

Job design

Job specifications

Recruiting

Selection approaches and criteria

Hiring methods

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Compensation systems and level

Evaluation systems and criteria

Training and development

Promotion criteria

Information SystemsExamples of Functional Strategies


Strategic information systems

Centralization/decentralization of IS people, computers, and databases

Standardization policies and approaches

Support for mobile computing

Policies towards technology (leaders, late adopters, followers)

Systems strategic control methods and approachesSteering committees

Integration of systems

Inter-functional versus functional systems

Inter-organizational systems EDI

Partnering and level of systems integration

Internet, intranet, and extranet support

MarketingExamples of Functional Strategies


Price:What is included in the initial pricePrice levelDiscountsTerms

ProductQualityFeatures and optionsStylingBrand nameProduct line and related productsWarranties and guaranteesService and after-sale items

PromotionAdvertisingPersonal sellingPromotionPublicity

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PlaceDistribution channelsDistribution coverageInventory levels and locationsTransportation methods

Production/OperationsExamples of Functional Strategies


Size of facility

Location of facility

Product design

Type of equipment

Type of tooling

Inventory size and strategy Quality control methods

Degree and types of cost controls

Use of standards

Level of specialization

Degree and approach towards technological innovation

Focus between product and process

Research and DevelopmentExamples of Functional Strategies

Below are some of the more important functional strategies. It is important that functional

strategies be supportive of the overall business strategy and consistent betweenthemselves.

Which level(s) of R&D to support and emphasis between themBasic researchApplied researchDevelopment

New product typeNew product of existing typeImprovement of existing product

Centralization/decentralization of R&D

Emphasis between product and process R&D

Innovate versus imitate strategies Where to have R&D done

InternalPrivate outside R&D contractorUniversity

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QSP Matrix

The Quantitative Strategic Planning Matrix is a strategic tool which is used to evaluate

alternative set of strategies. The QSPM incorporate earlier stage details in an organize way

to calculate the score of multiple strategies in order to find the best match strategy for the

organization.

The QSPM comes under the third stage of strategy formulation which is called The Decision

Stage and also the final stage of this process. The best thing about QSPM is that it never

insist the strategist to enter the information on assumptions, it extracts the information from

stage 1 The Input Stage and stage 2 the matching stage. The input stage is based on EFE

Matrix, IFE Matrix and CPM and stage 2 made up of TOWS matrix, SPACE Matrix, BCG Matrix,

IE Matrix, Grand Strategy Matrix. The QSPM combine the intuitive thinking of managers with

the analytical process to decide the best strategy for the organization success.

There are four main columns in QSPM, the left column list down the key internal and

external key factors which are same as in EFE and IFE matrix. Adjacent column to key

factors is Weight (relative importance of the factor) which hold the numeric value obtained

from EFE and IFE matrix weight column. The next to weight is AS stands for attractive score

assign priority to key factors using the numeric value 4 for most importance and 1 for least

importance and the last column TAS (Total attractive score) is the value calculated bymultiplying weight by AS. One thing important to note for each strategy separate AS and

TAS value added in the table, weight remain same for all set of strategies mentioned in

QSPM. The topmost shows the strategies are compared in the QSPM matrix, below

mentioned table illustrate the structure of QSPM matrix.

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Steps to develop Quantitative Strategic Planning Matrix (QSPM)Step 1

Make a list of the firms key external opportunities/threats and internalstrengths/weaknesses in the left column of the QSPM. This information should be takendirectly from the EFE Matrix and IFE Matrix. A minimum of 10 external critical successfactors and 10 internal critical success factors should be included in the QSPM.

Step 2

Assign weights to each key external and internal factor. These weights are identical to thosein the EFE Matrix and the IFE Matrix. The weights are presented in a straight column just tothe right of the external and internal critical success factors.

Step 3

Examine the Stage 2 (matching) matrices and identify alternative strategies that theorganization should consider implementing. Record these strategies in the top row of theQSPM. Group the strategies into mutually exclusive sets if possible.

Step 4

Determine the Attractiveness Scores (AS), defined as numerical values that indicate therelative attractiveness of each strategy in a given set of alternatives. Attractiveness Scoresare determined by examining each key external or internal factor, one at a time, and askingthe question, Does this factor affect the choice of strategies being made? If the answer to

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this question is yes, then the strategies should be compared relative to that key factor.Specifically, Attractiveness Scores should be assigned to each strategy to indicate therelative attractiveness of one strategy over others, considering the particular factor. Therange for Attractiveness Scores is 1 = not attractive, 2 = somewhat attractive, 3 =reasonably attractive, and 4 = highly attractive. If the answer to the above question is no,indicating that the respective key factor has no effect upon the specific choice being made,then do not assign Attractiveness Scores to the strategies in that set. Use a dash to indicatethat the key factor does not affect the choice being made. Note: If you assign an AS score toone strategy, then assign AS score(s) to the other. In other words, if one strategy receives adash, then all others must receive a dash in a given row.

Step 5

Compute the Total Attractiveness Scores. Total Attractiveness Scores are defined as theproduct of multiplying the weights (Step 2) by the Attractiveness Scores (Step 4) in eachrow. The Total Attractiveness Scores indicate the relative attractiveness of each alternativestrategy, considering only the impact of the adjacent external or internal critical successfactor. The higher the Total Attractiveness Score, the more attractive the strategicalternative (considering only the adjacent critical success factor).

Step 6

Compute the Sum Total Attractiveness Score. Add Total Attractiveness Scores in eachstrategy column of the QSPM. The Sum Total Attractiveness Scores reveal which strategy ismost attractive in each set of alternatives. Higher scores indicate more attractive strategies,considering all the relevant external and internal factors that could affect the strategicdecisions. The magnitude of the difference between the Sum Total Attractiveness Scores ina given set of strategic alternatives indicates the relative desirability of one strategy overanother.

Limitations of QSPM

A limitation of the QSPM is that it can be only as good as the prerequisite information andmatching analyses upon which it is based. Another limitation is that it requires good

judgment in assigning attractiveness scores. Also, the sum total attractiveness scores can

be really close such that a final decision is not clear. Like all analytical tools however, theQSPM should not dictate decisions but rather should be developed as input into the ownersfinal decision.

Advantages of QSPM

A QSPM provides a framework to prioritize the strategies it can be used for comparingstrategies at any level such as corporate, business and functional. The other positive featureof QSPM that it integrates external and internal factors into decision making process. AQSPM can be developed for small and large scale profit and non-profit organizations.

strategic management 2011

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