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Visit us at Preface Strategic management is a stream of decisions and actions with view to develop effective long
term and short term planning and policies with technological business forecasting that would help
the organization achieve its superior goal. Strategic management includes strategic analysis, strategy
formulation, strategic choice, strategy implementation and control strategic decision for an organization
to deploy resources into new opportunities.
Strategic management is important for Chartered Accountants, CEO, Directors, Managing
Directors, Strategy Planners, Students and Faculty Members of BBM, MBA, M.Com, PGDM,
PGDBM, PGDHRM, ICFAI and competitive examinations in India and abroad. I invite suggestions
from one and all for improvements in next edition of this book.
Many individuals have rendered their helping hand to me. I take this opportunity to thank all of
them. I thank Dr. D.M. Basvaraja, my teacher, guide and supervisor and professor from Kuvempur
University for this constant inspiration and support. I also thank Dr. C.M. Thagaraju, Dr. G.T.
Govindappa, my teachers, and professors of Kuvempur University. I am immensely indebted to
them. I also thank T.N. Suresh, Director of Padmashree group of institutions, Bangalore, Dr. C.N.
Aswathnarayan, Chairman of Padmashree group of institutions, Bangalore, Dr. Bakkappa, Coordinator,
Shiva Gangothri PG Centre, Davanagere, Dr. A.Venktaraju, Professor, ATNCC, Shimoga, Prof.
Sheshchalla, KKECS, Bangalore, Chairman, Principal, HOD and staff of TIMS, Bangalore, and Prof.
Shekappa and my friend Nagaraja A.P.
In writing this book I have drawn on a vast amount of literature in strategic management.
Naturally, I owe an intellectual debt to numerous authors who have enriched the stream of literature
in strategic management by their contributions. My prefounded debt is to American scholars, George
Stenier, Ansoff, Newman, Warren, Peter Drucker, Akcoff, Christenson, Kenneth, Bower and Vacil,
Acherman, Robinson, Piere, Wheeler and Hunger, Charles W.L. Hill and Gareth R. Jones. In the UK
I owe a great debt to Argeni, Hussey, and Barnard Taylor, Thomson and other scholars.
Shri Saumya Guptha, MD, Shri Sudarshan S.P., Marketing manager, the New Age International
Publisher, these persons are the main initiators and monitors of this project. I express my sincere
gratitude to all of them.
It is my prime responsibility to thank my parents, brother, sisters and friends for put with
inconveniences caused during writing of this book.
Dr. B. HIRIYAPPA. Ph. D.
Bangalore This page
1. BUSINESS ENVIRONMENT
1.2 Definition of Business
1.3 Characteristics of Business
1.4 Components of Business
1.5 Objectives of a Business
1.6 Characteristics of Business Environment
1.7 Environmental Influences on Business
1.8 Environmental Analysis
1.9 Components of Business Environment
1.10 Relationship Between Organisation and its Environment
1.11 Internal Analysis of the Organisation/Company
1.12 The Value of Systematic Internal Assessment
1.13 Identificaion of Strategic Factors
1.14 Evalution of Strategic Internal Factors
1.15 External Environment
1.16 Economic Environment
1.17 Political-Legal Environment
1.18 Socio–Cultural Environment
1.19 Demographic Environment
1.20 Natural Environment
1.21 Technological Environment
1.22 Global Environment
1.23 Strategic Response to the Environment
1.24 Competitive Environment
1.25 Competitive Advantage (v)
52 viii Contents 2. BUSINESS POLICY AND STRATEGIC MANAGEMENT
2.2 Business Policy as a Discipline
2.3 Importance of Business Policy
2.4 Classification of Business Policy
2.5 Definition of Strategy
2.6 Generic Strategic Alternatives
2.7 The Dynamics of Competitive Strategy
2.8 Meaning of Strategic Management
2.9 Dimensions of Strategic Decisions
2.10 Tasks in Strategic Management
2.11 Strategic Management Model
2.12 Vision, Mission and Objectives
2.13 The Need for explicit Mission of Organization
2.14 Defining Organisation Mission 64
97 3. STRATEGIC ANALYSIS
3.2 Strategic Analysis
3.3 Issues to Consider For Strategic Analysis
3.4 Situational Analysis
3.5 The Methods of Industry and Competitive Analysis
3.6 Strategic Groups
3.7 Key Factors for Competitive Success
3.8 Swot Analysis
3.9 Tows Matrix Analysis
3.10 Portfolio Analyses
3.11 Strategic Business Units
3.12 Stages in Product/Market Evolution or Product Life Cycle
3.13 BCG Matrix
3.14 ADL Matrix
3.15 The General Elective Model 106
137 4. STRATEGIC PLANNING
4.1 Corporate Strategy
4.2 The Stages of Corporate Strategy
Formulation–Implementation Process 142
145 ix Contents 4.3
4.12 Strategic Alternatives
Cost Leadership Strategies
Characteristics and Scope of various Grand Strategies
Retrenchment, Divestment and Liquadation Stralegy
The Causes of Corporate Decline
Divestment/Cutback Strategy 156
185 5. FORMULATION OF FUNCTIONAL STRATEGY
5.2 Marketing Strategy Formualation
5.3 Developing the Marketing Mix
5.4 Dealing with the Marketing Environment
5.5 Marketing Strategy Techniques
5.6 Financial Strategy Formulation
5.7 Production Strategy Formulation
5.8 Logistics Strategy
5.9 Research and Development Strategy
5.10 Human Resource Strategy 189
211 6. FORMULATION OF FUNCTIONAL STRATEGY
6.2 Interrelationships between Strategy Formulation
6.3 Issues in Strategy Implementation
6.4 Organization and Strategy Implementation
6.5 Implementing Strategic Change: Steps in the Changing Process
6.6 Vertical Differentiation
6.7 Horizontal Differentiation
6.8 Strategic Business Units
6.9 Matrix Organizational Structure
6.10 Integration and Integrating Mechanisms
6.11 Multidomestic Strategy and Structure 219
252 x Contents 6.12
6.18 Global Organizational Structure
Strategic Business Units and Core Competence
The Value Chain
Matching Structure and Control at the Corporate Level
Operational Control Systems
Strategic Reward System 253
295 7. REACHING THE STRATEGIC EDGE
7.2 Business Process Reengineering
7.4 Total Quality Management
7.5 Six Sigma and Management
7.6 Importance of Six Sigma in Organization 297
324 8. CONTEMPORARY STRATEGIC ISSUES
8.2 Strategies for Internet Economy
8.3 Strategy Shaping Characteristics of
the E-commerce Environment
8.4 Strategic Management in Non-Profit
and Government Organization 329
332 CHAPTER 1 Business Environment
• Objectives of business
• Environmental influences on business
• Environmental analysis
• Characteristics of business environment
• Components of business environment
• The micro and macro environment
• Competitive environment
• Porter’s five forces model–competitive analysis
The present chapter aims at:
• Definitions and objective of business
• Examine environment analysis, characteristics components of the organisation. Let us
know the microenvironment and macro environment
• Understand the competitive environment
• Describe the Porter’s five-force model and its limitations. 2 Strategic Management for Chartered Accountants
“Environment factors of constraints are largely if not totally external and beyond the control of
individual industrial enterprises and their arrangements. These are essentially the ‘givers’ within
which firms and their managements must operate in a specific country and they vary, often greatly
from country to country”.
Barry M. Richman and Melvyn Copen
“ The environment includes outside the firm which can lead to opportunities for or threats to the
firm. Although, there are many factors, the most important of the sectors are socio – economic,
technical, supplier, competitors, and government”.
Glueck and Jauch
“Analysis is the critical starting point of strategic thinking”
“It is not the strongest of the species that survive, nor the most intelligent, but the one most
responsive to change”.
“Strategy is a deliberate search for a plan of action that will develop a business’s competitive
advantage and compound it”.
“Awareness of the environment is not special project to be undertaken only when warning of
change becomes deafening”.
Clifton Garvin, Kenneth R. Andrews 1.1 INTRODUCTION
The concept of strategy has been borrowed from the military and adapted for use in
business. This book has reviews of strategy formulation, implementation, controlling
and monitoring strategic events, which have to suggest that adopting the concept is
easy to business and industry. In business, as in the military, strategy bridges the gap
between policy and tactics. Together, strategy and tactics bridge the gap between ends
and means. Also this book reviews various issue like business environment and
components of business environment, competitive environment, Porter’s five forces
model, business policy and strategic management, major tasks in strategic
management, vision and mission and objectives of the strategic enterprise, strategic
analysis in terms of swot analysis, tows matrix, portfolio analysis, strategic planning,
marketing, financial production, logistics, research and development and human
resources strategy formulation, implementation and control and achieved the strategic
edge for the purpose of clarifying the concept and placing it in this context.
In this chapter, we shall discuss about the business, major objectives of business
like survival, stability, growth, efficiency and profitability, environmental influence
to business, environment analysis, characteristics of business environment,
components of business environment, to know the relationship between the
organisation and its environment, the micro and macro environment and its Business Environment 3 elements like customers, competitors, organisation, market, suppliers, intermediaries,
demographic, economic, government, legal, political, cultural, technological and global
environment impact on business. Companies how to enter into global market, its
manifestation trends, strategic response to business, Porter’s competitive and five
forces model analysis for business enterprises in industry, commerce and services
1.2 DEFINITION OF BUSINESS
The term ‘typically’ refers to the development and processing of economic values in
society. Normally, the term is applied to portion of economic activities whose primary
purpose is to provide goods and services for society in an effective manner. It is also
applied to economics and commercial activities of institutions which having other
Business principally comprises of an all profit seeking activities of the organisation
which provide goods and services that are necessary to economic system. It is the
major economic pulse of a nation, striving to increase society’s standard of living.
Finally, profits are a primary mechanism for motivating these activities.
Business is in any organisation which makes distribution or provides any article
or service to the customers, who are belonging to members of the society. Business
may be satisfied customers needs for these purpose customers are able and willing to
pay for it.
Business may be defined as “the organised effort by individuals to produce goods
and services to sell these goods and services in a market place and to reap some reward
for this effort.”
Functionally, we may define business as “those human activities which involves
production or purchase of goods with the object of selling them at a profit margin”.
• The term business refers to the state of being busy for an individual, group,
organisation or society.
• It is also interpreted as one’s regular occupation or profession or economic
• It deals with particular entity, company, organisation, enterprise, firms or
• It also interpreted as particular market segment sector like computer business
and it included under term business.
• It is wide and willing to use different activities
• It consists of purchase, sale, manufacture, processing, marketing of products,
services like manufacturing, trading, transportation, warehousing, banking
and finance, insurance and advertising etc.
• It is clearly stated that all business activities main purpose is to earn profit.
Profit as a surplus of business and It accrues and distributed to the owners 4 Strategic Management for Chartered Accountants of the business. Business has to pay wages to workers who works in the
business. People invests money in business due to getting a retain. Retain is
profit from the business. This is awarded to investor due to be taking the risk.
• Profit is the motive for the investor who serves, runs business and it is the
stimulation effort of the business for growth, survival of business.
Profit Is A Main Motive Of Business
• For every kind of business organisation, profit is often regarded as motive for
the entrepreneurs and it measure the overall performance of the business. • Profit is the tool for measuring and evaluation of the business efficiency and
productivity at the managerial competence.
• It is helpful to strategic managers how to take well decisions and actions which
are turn into effective in the form of able to combine and utilize the available
resource and able to sustain the organisation with growth and survival of the
• Business managers who will take higher efficiency and risk and certainly
expect greater volume of the profit from the business entity.
• Business efficiency expressed in terms of percentage of profit to sales volume,
to capital employed, to market value of corporate shares.
• Outside investors eager to know the profit of the firm and to make assessment
about their commit funds and effective utilization of funds will be in the
Business According to Prof. R. N. Owens
“Business is an enterprise engaged in the production and distribution of goods for
sale in a market or rendering of services for a price”.
Business According to L.R. Dicksee
“Business is a form of activity pursued primarily with the object of earning profits
for the benefit of those on whose behalf the activity is conducted”.
Business According to Urwick and Hunt
“Business is any enterprise which makes, distributes or provides any article or service
which other members of the community need and are willing to pay for”
Business According to Haney
“Business may be defined as human activity directed towards producing or acquiring
wealth through buying and selling of goods”. Peter F Drucker has drawn some conclusions about what is a business and what
are useful from the business and how to understand the term business. His conclusions
are listed below: Business Environment 5 • Business is created and managed by the people. A group of people who will be
taken decisions that will be determined either an organisation is going to
prosper or decline, whether it will survive or will eventually perish in market.
This conclusion is true in the business.
• Business cannot be explained in terms of profit.
1.3 CHARACTERISTICS OF BUSINESS
• Business is to provide goods and service to the people. It provides the public
with the things it needs and wants in order to survive, enjoy life and improve
in a material sense. From the point of view of consumer, business is the
satisfier of needs and desire of the customer demands which should be provided
by business in order to meet people requirements in society. • Goods that have been produced or procured for sale in retail for price enter
the realm of business. This activity of selling results is the creation of the
wealth for the society. In satisfying demand, business uses the resources of
land, labor and capital. These resources when taken separately have little
value; but business combines structures and refines the resources to produce
to the value of the society. Further, business employees’ people who exchange
their talents for wages and salaries. Therefore, these people exchange their
compensation for the desired goods and service.
• Business is profit seeking activity firm. It supplies goods and services to
customers who are satisfy their demand and desire. It adds to society’s value
by earning of a profit. Profit is the biggest stimulus for maintains the survival
of the business and its future development. Society has permits business to
earn profit as a reward for assuming the risks of operating a business.
• Business is also an essential participant in society. For satisfying society demand
which supplying goods and services and earning profits. Business involves the
most fundamental activities of the society. As a result, Society has looks to
business for something more than products, services and profits. It looks to
business for leadership and direction in helping to achieve society’s objectives.
It expects business to assist in the establishment of a better service to the society.
1.4 COMPONENTS OF BUSINESS
Business includes the total enterprise of the country. Business activity has two
branches. They are as follows:
• Industry • Commerce
In broad sense, industry is the branch of business activity which concerned with raising
production, fabrication or possessing of goods and services. In other words, industry 6 Strategic Management for Chartered Accountants is an activity concerned with conversion of raw materials or semi finished goods into
finished goods. Industry provides two types of goods namely consumer goods and
Industrial goods. Consumer goods are those goods manufactured by industry for
ultimate use of a customer. For instance brush, paste, cloth and food products etc.,
Industrial\Capital goods are those goods produced and used for further production.
For instance machineries, tools and raw material etc.,
Types of Industry
Industry is further classified into five broad types. They are as listed below:
1. Extractive industries
2. Genetic industries
3. Manufacturing industries
4. Construction industries
5. Territory\Service industries
Extractive industry are those industries concerned with extraction of wealth from
surface of the earth, soil, forest, water, air etc., for instance agriculture, mining etc.,
Figure 1.1: Components of Business
Business Industry Primary
Mining Secondary Genetic
Fish culture Manufacturing
Assembly Commerce Trade Service
trade Aids to trads International
Bridges dams, flyovers
Canals Genetic industries
Genetic industries are those industries concerned with reproduction and multiplication of plants animals for making profit on their sale. For example, Nurseries,
cattle building and poultry farming. Business Environment 7 Manufacturing industries
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