SM Module 2

CHAPTER OUTLINE
Concepts of Strategic Intent, Stretch, Leverage, and Fit

Vision: Nature, Benefits, and Process

Mission: Concept and Mission Statement

Business Definition: Concept and Dimensions

Business Model

Goals and Objectives: Concept, Role, Essentials

Factors Influencing Objectives

Balanced Scorecard Approach to Setting Objectives

Critical Success Factors (CSFs)

Key Performance Indicators (KPIs

Organisations exist and function to realise some dreams and aspirations. These
dreams and aspirations are expressed in their strategic intent. Organisations
state at many levels what they wish to achieve. Therefore, there is a hierarchy
of strategic intent. Establishment of strategic intent is the first phase of the
strategic management process and it serves as the base for other phases.

Concepts of Strategic Intent, Stretch, Leverage, and Fit

The concept of strategic intent was coined by Hamel and Prahalad in 1989.
They attributed the lead of Japanese firms over their American and European
counterparts to an "obsession to win," an obsession of having ambitions that
may even be out of proportion to their resources and capabilities. This
obsession to win or the quest for global leadership was called strategic intent.
Hamel and Prahalad defined strategic intent as follows:

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 On the one hand, strategic intent envisions a desired leadership position and
establishes the criterion the organisation will use to chart its progress.... At the
same time, strategic intent is more than simply unfettered ambition.... The
concept also encompasses an active management process that includes:
focusing the organisation's attention on the essence…The concept also
encompasses an active management process that includes: focussing the
organisation's attention on the essence of winning, motivating people by
communicating the value of the target, leaving room for individual and team
contributions, sustaining enthusiasm by providing new operational definitions
as circumstances change and intent consistently to guide resource allocations.
The strategic intent of an organisation represents what the organisation wants
to become in future. It reflects the desired end result. It has wide implications
and meaning for strategic management of an organisation. The main functions
of strategic intent are as follows:
1. Desired Destiny: Strategic intent reflects what the organisation wants to
become in future.
2. Sense of Direction: Strategic intent implies what the organisation should do
and why it should do. It serves as a unified guide to its activities.

3. Sense of Discovery: Strategic intent implies a unique competitive position

that will differentiate the organisation from its rivals.

The hierarchy of strategic intent has significant implications for strategic

management of an organisation. It serves as the charter of goals the
organisation wants to achieve. Second, it indicates the direction in which the
organisation should move in future. Third, it is a powerful means of
communicating the organisation’s intent down the line of command. Fourth, it
helps to create a result-oriented culture in the organisation. Lastly, it serves as
a means of integrating the efforts of individuals and groups in the organisation.

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 Strategic intent of an organisation is established in the form of a hierarchy
consisting of several layers. At every successive lower layer, the generalised
intent is converted into more specific intent. Different layers of strategic intent
are interrelated and interdependent and form a continuum (3). [Fig. 3.1].

VISION
Nations, organisations and individuals all have a vision. For example, a nation
like India may have the vision to become a developed country by 2025.
Similarly, an MBA student may have the vision of retiring as the chief executive
of a large diversified multinational corporation, or to become a start-up
entrepreneur. In the context of an organisation, vision means a mental image or
articulation of its future. It is the position that an organisation would like to
attain in the distant future.

Different experts have defined vision in different ways. According to Kotter,

vision is a “description of something (an organisation, a corporate culture, a
business, a technology, an activity) in the future” (4). In the words of Miller
and Dess, vision means “the category of intentions that are broad, all–
inclusive and forward thinking” (5).

El-Namaki defines vision as, “a mental perception of the kind of environment

an individual, or an organisation, aspires to create within a broad time
horizon and the underlying conditions for the actualisation of this
perception”.

These definitions reveal the following features of vision:

(i) Vision reflects the organisation’s intentions or desires or expectations.

(ii) Vision is a mental picture of the desired future. It indicates where the
organisation will be in future rather than where it is now. It is not a history of the
organisation’s proud past.

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 (iii) Vision sets out a core set of principles that the company stands for and
criteria for measuring organisational success.
(iv) Vision is long term representing what an organisation ultimately wants to
become.

(v) Vision is the guiding philosophy stemming from core beliefs and values.
(vi) Vision may be implicit (a dream or a mental picture) or explicit (a written
statement).

(vii) Vision is a set of ideals and priorities that make the organisation special
and unique.

Vision statement provides answers to questions such as:

Who are we?

What we want to become?

Where are we headed?

Examples of Vision
Reliance Industries Limited: To achieve global leadership in polymers, fibres,
and resin businesses through innovative research and technology development
in materials, products, and applications through efficient, disciplined, target-
oriented, and cost-effective research and development activities.
Tata International: To be the “Leading International Business Company” of the
country and “International Arm” of Tata Group with a significant overseas
reach, presence and linkages, and with focus on facilitating globalisation of
Tata Group’s core business.

Bank of Baroda: To become “a technology enabled customer centric financial

services organisation”.

Hindustan Unilever Ltd: To meet everyday needs of people everywhere.

Life Insurance Corporation (LIC) of India: Vision 2020 – At the centre of this
vision is the welfare of the nation along with the welfare of its stakeholders –
the policyholders, employees, agents and the society in general. The
company’s vision for the year 2020 is to provide ‘A Policy in Every Pocket’. It
implies that every insurable Indian should have one policy by the end of the
year 2020.
ITC Limited: Sustain ITC’s position as one of India’s most valuable corporations
through world class performance, creating growing value for the Indian

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 economy and the Company’s stakeholders.

Essentials of a Good Vision

A good vision must fulfil the following requirements.

1. Realistic: A vision is meaningful for the organisation only when it is based on

reality. Mere daydreaming is useless but a dream that can be converted into
reality is required. Vision should be realistic so that people believe that it is
achievable. However, The vision should be idealistic or challenging enough so
that it cannot be achieved without stretching.

2. Credible: A vision becomes relevant to the members of the organisation

when it is believable. A credible vision can aspire them to excel and provide
direction to their actions.

3. Attractive: A vision must be attractive so as to inspire and encourage

members of the organisation. It must make them part of the future that is
envisioned for the organisation.

4. Unique: A good vision reflects uniqueness and distinctive competence of the

organisation.
5. Appropriate: A good vision is consistent with the core values and beliefs,
and environment of the organisation.

6. Charter: A good vision is a set of core values and principles. It should reflect
what the organisation stands for. It also needs to indicate the priorities of the
organisation.

7. Motivational: A good vision should inspire members of the organisation and

encourage commitment from them.

8. Articulated: A good vision is well articulated and well understood by those

who are responsible to convert it into reality.

Benefits (Role) of Vision

Vision stands at the top of the hierarchy of strategic intent. A written statement
of vision offers the following advantages:

(i) Vision indicates the destination. It provides clues as to where the

organisation is heading for in future and what it stands for.

(ii) Vision is a source of inspiration to members of the organisation. It

encourages them to give their best towards the organisation’s success.

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 (iii) Vision helps in the creation of a common identity and a shared sense of
purpose.
(iv) A good vision encourages risk-taking and experimentation.

(v) A good vision fosters long-term thinking.

(vi) A good vision represents integrity. It is truly genuine and can be used for
the benefit of people.
(vii) It differentiates the organisation from its counterparts.

Thus, vision creates a sense of commonality that permeates the organisation

and gives coherence to diverse activities. It helps to focus the collective energy
of people.

Developing Vision (Envisioning)

The process of developing a vision is called envisioning. It consists of the
following steps:
(i) Conducting Vision Audit: First of all, the current status and momentum of
the organisation is assessed. Answers are sought to key questions such as:
Does the organisation have a clear vision? In which direction the organisation is
moving? Do the strategists know where the organisation is headed?

(ii) Identifying the Context: Vision is the desired future position. Therefore, it is
necessary to identify the broad direction of the future environment in which the
organisation will operate. Key questions asked at this stage are: What must the
vision achieve? What are the boundaries and constraints? What critical issues
must be addressed in the vision?

(iii) Developing the Future Scenarios: The likely future trends in the
environment are called scenarios. It is not possible to predict accurately the
distant future environment.

Therefore, alternative scenarios are developed. The organisation will have to

behave in accordance with the particular scenario that actually occurs.

Tradition, fear of ridicule, stereotypes, complacency, shortsightedness are the

hurdles in envisioning.
(iv) Generating the Alternative Visions: Possible visions are developed for
different scenarios. These alternative visions reflect different directions in
which the organisation may move.

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 (v) Choosing the Final Vision: Alternative visions are evaluated in the light of
scenarios and organisation’s capabilities. That vision is finally selected which is
most likely to lead to success.

Components of Vision
According to Collins and Porras (7), a good vision consists of two major
elements: core ideology and envisioned future. The core ideology or
corporate philosophy defines the enduring character of an organisation. It
consists of core or corporate values (what the organisation stands for) and
core purposes (reason for existence). The envisioned future or tangible image
also consists of two elements: long-term audacious goal, and a vivid
description of its achievement.

Core ideology or guiding philosophy reflects the basic tenets, values and
principles which remain constant over a long-time period.
1. Core Values: Core values refer to the deeply held values of an organisation.
These are independent of industry environment. Core values do not change
even if the industry in which the company operates changes. Excellent
customer service, innovation, integrity, transparency are examples of core
values.

2. Core Purpose: The core purpose means the reason for the existence of the
organisation. It is relatively unchanging and endures for a long-time period. The
core purpose sets the company apart from its competitors. For example, the
purpose of a marketing research firm may be “to provide information that helps
clients to better understand their markets”.

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 3. Visionary Goals: The lofty objectives which an organisation wants to pursue
are its visionary goals. These represent the milestones that a company will
reach in future. These goals should be challenging. Visionary goals are of the
following types:
(a) Target: Quantitative and qualitative goals such as Ford’s goal to
‘democratize the automobile’.
(b) Common enemy: Overtaking a rival e.g., goal of Reliance Industries ‘to be
the biggest private sector company’.

(c) Role mode: To become like another firm in a different industry e.g., ‘to
become the Nike of the motorcycle industry’.
(d) Internal transformation: For example, General Electric set the goal of
becoming number one or two in every market it serves.
Once a visionary goal is reached, it should be replaced, otherwise the company
may fall behind. For example, after placing the automobile within the reach of
common man, Ford did not set a new visionary goal. General Motors overtook
Ford in the thirties.

MISSION
Mission is the second level in the hierarchy of strategic intent. It describes the
reason for the existence of an organisation. Every organisation exists to satisfy
some needs of the society. Mission is a statement which defines the role that
an organisation plays in the society. For example, a publisher exists to satisfy
the information needs of the society.
According to Thompson(8): “Mission is the essential purpose of the
organisation concerning particularly why it is in existence, the nature of the
business(es) it is in, and the customers it seeks to serve and satisfy”. In the
words of Pearce and Robinson (9): “The company mission is defined as the
fundamental unique purpose that sets a business apart from other firms of
its types and identifies the scope of its operations in product and market
terms”. Collins and Porras define mission as “a clear and Compelling goal that
serves to unify organisation’s efforts” (10).

Mission provides answers to questions such as: What is our business? What it
will be? What it should be? Mission also represents the image which the
organisation seeks to project and sets it apart from its counterparts. Mission
defines the product-market scope of a company.

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 Difference Between Vision and Mission
Vision and mission are different in the following ways:
1. Nature: Vision is a view of what an organisation wants to become in distant
future. On the other hand, mission states what an organisation is and why does
it exist i.e. what is its business.
2. Focus: Vision focusses on long-term concept and high achievement level for
the organisation. The focus of mission is on what the organisation proposes to
do for its stakeholders.

Examples of Mission
Hero Motorcop: It is our mission to strive for synergy between technology,
systems and human resources to produce products and services that meet the
quality, performance and price aspirations of our customers. While doing so,
we maintain the highest standards of ethics and societal responsibilities. This
mission is what drives us to new heights in excellence and helps us to forge a
unique and mutually beneficial relationship with all our stakeholders. We are
committed to move ahead resolutely on this path.

HCL Infosystems: “To provide world-class information technology solutions

and services to enable our customers to serve their customers better”.
LIC: Zindagi ke Saath Bhi Zindagi ke Baad Bhi

ITC Limited: To enhance the wealth generating capability of the enterprise in a

globalising environment delivering superior and sustainable stakeholder value.
HUL: Unilever’s mission is to add Vitality to life. We meet everyday needs for
nutrition, hygiene and personal care with brands that help people feel good,
look good and get more out of life.
BHEL: To maintain leading position as suppliers of quality equipment, system
and services in the field of conversion, transmission, utilization and conversion
of energy for application in the areas of electric power, transportation and
industries.

Dabur India: Be the preferred company to meet the health and personal
grooming needs of our target consumers with safe, efficacious, natural
solutions by synthesising our deep knowledge of ayurveda and herbs with
modern science.

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 Advantages (Role) of Mission
A clearly defined mission helps in strategy formulation in the following ways:
(i) It helps in deciding the unified direction in which the organisation will
proceed. Strategic decisions can be geared in that direction.
(ii) It helps to clarify the aspirations of the organisation and its stakeholders.
Strategic decisions can be aligned to these aspirations.

(iii) Mission serves as a guide in dealing with various internal and external
stakeholders.
(iv) It ensures uniformity of purpose. It helps in integrating different
subsystems of the organisation as well as in integrating the organisation with its
environment.
(v) Mission helps in developing a positive image of the organisation in the
society.
(vi) It provides standards for allocation of resources.

Formulating a Mission Statement

A mission statement is a written description of an organisation’s mission. An
explicit mission statement helps to communicate the philosophy, character and
image of the organisation to people inside and outside it. Moreover, various
sections of society who are aware about the mission know how to interact with
the organisation.
A mission statement defines the basic reason for the existence of an
organisation. It reflects the philosophy, identity, character and image of the
organisation.

The main elements of a mission statement are as follows:

1. Organisation’s Self-Concept: The self-concept of an organisation is based
on its perception of how society will respond to it. It defines the organisation’s
role in the industry. For example, the self-concept of Reliance Industries is:
“Growth is the way of life.”
2. Organisation’s Philosophy: The philosophy or etho or creed of an
organisation is a set of assumptions, beliefs, values, aspirations and priorities.
It serves as a guide in strategic decision making. ‘Concern for all stakeholders’
is for example the philosophy of ITC Limited.

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 3. Organisation’s Image: The image which an organisation wants to project in
public mind is an integral part of mission statement. For example, Wipro Limited
says, “We will adhere to the highest level of business integrity and ethics in
all our dealings.”

4. Organisation’s Business: Some companies mention the nature of their

business in terms of products/services, market segment, and technology.
5. Organisation’s Objectives: In some cases basic objectives like survival,
growth and profitability are included in the mission statement. Reliance
Industries Limited states: “We are committed to enhance our shareholder
value.”

Essentials of a Good Mission Statement

A good mission statement must fulfil the following requirements:
1. Clear: A mission statement should be clear enough to lead to action. It should
not just be a high sounding set of platitudes meant for image building. For
example, the mission of Hindustan Unilever Limited (HUL) “to add vitality to
life” is clear.

2. Precise: A mission statement should not be too broad to be meaningless, nor

should it be too narrow to restrict growth. For example, “Mobility is our
business” is too broad while “manufacturing cycles” is too narrow.

3. Feasible: A mission statement should be realistic and achievable in view of

the organisation’s capabilities. It should always aim high but should not be
impossible as otherwise it will not be credible.

4. Inspiring: A mission statement should be motivating for people both inside

and outside the organisation. They should feel it worth-while working for the
organisation or being its customers. For example, Bank of Baroda’s mission of
“pursuing best global practices for delivering added value to customers”
inspires its employees to serve its customers well.
5. Focus on Customer Rather Than the Product: Mission statement should
focus on needs and wants of customers which define a business. The mission
and purpose of every business is to satisfy the customer. It should look at the
business from the outside viewpoint of the customer.
6. Distinctive: A good mission statement must create a distinctive image of the
organisation and set it apart from its counterparts. If all car firms define their

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 mission in the same manner, then there will be little difference between them.
Maruti Suzuki’s mission of “providing value for money” is distinctive.

Business Definition
A business definition means a clear statement of the business or businesses
the organisation engages at present or wishes to pursue in future. It specifies
the arena in which the organisation will function and compete. A company’s
business is defined by what needs it is trying to satisfy, to which customer
groups it is targeting and by the technologies it will use and the functions it will
perform in serving the target market.
Defining the business is necessary because an organisation cannot operate in
all the segments of an industry. It can do well when it does different things or
does the same things differently. While defining its business, an organisation
should focus on its chosen field of business activity. For example, Reliance
Industries initially focused on high-priced premium clothing (Vimal brand) in the
textile industry.
Another aspect to be considered in business definition is differentiation i.e. how
an organisation differentiates itself from its counterparts. Differentiation may be
in terms of quality, price, delivery or service. For example, Nirma differentiates
on the basis of price while Hindustan Unilever uses quality as the differentiation
factor.

Business may be defined at corporate level or SBU level. In case of a single

business company, business definition is simple. But a large conglomerate such
as ITC Limited has to define its business at both corporate and SBU levels.
Similarly, Bharat Heavy Electricals Limited (BHEL) has defined its business at
the corporate level as well as at the product category levels (energy, industry,
and transportation sectors). At the product category level, business is defined
in terms of market segment.
When a company takes up activities outside the scope of its business
definition, it may face the crisis of identity. But when a diversification or
acquisition is guided by overall business definition, there may be synergy.

Dimensions of Business Definition

According to Abell", a business can be defined along three dimensions of
customer groups, customer functions and alternative technologies.

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 1. Customer Groups: Individual customers and industrial users could be the
customer groups. These groups relate to who is being satisfied. Customer
groups may be classified on the basis of income – low, middle and high
income groups.

2. Customer Functions: What is being satisfied indicates customer functions.

In case of watches, customer functions could be finding time, recording
time, using watches as a fashion accessory, gift items or pieces of art.
Thus, customer functions are based on what the product or service does
for the customers.

3. Alternative Technologies: These refer to the ways in which a particular

function could be performed for a customer. In case of watches,
mechanical, quartz, digital and analogue could be alternative technologies.
The core competence of a firm lies in its skills used to provide value to
customers. While defining business, the focus must be on the customer.

Thus, business definition provides the framework within, which a business can
operate. It also lays down the direction in which the business can expand or
grow. For example, a business serving a specific group of customers can
expand to serve other customer groups as well. Similarly, a firm satisfying a set
of needs can expand to satisfy complementary needs. The alternative
technologies can be expanded to adopt other means of satisfying customer
needs. In this way, business definition makes the activities of a business
meaningful.

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 The foregoing three dimensions may be described as the ‘who’, ‘what’ and
‘how’ of business definition. The ‘who’ aspect refers to the customer groups
that are targeted by a business. Customer groups may be identified on the
basis of demographics (age, income, gender, occupation), geographies
(rural/urban, northern/southern India), or lifestyle (traditional/modern). The
‘what’ aspect means the customer functions or needs. Customer needs include
basic needs (food, clothing and shelter) and higher-order needs (security,
education, leisure status, etc.). Firms design products and services to satisfy
customer needs. The ‘how’ aspect of business definition implies the alternative
technologies used to provide products and services to the identified customer
groups.
A clear business definition plays a vital role in strategic management. It can
guide the choice of objectives and strategies, assist implementation of
functional policies and suggest an appropriate organisation structure. For
example, a manufacturer of ladies’ watches may extend its business by making
ornamental watches or wall clocks.
Business definition provides the direction in which strategic action is to be
taken and there-by forms the core of business strategies.

Criteria of an Effective Business Definition

An effective business definition should meet the following criteria:

(i) An effective business definition should include a statement of products,

markets and functions;
(ii) The business definitions should be as precise as possible.
(iii) The statement should also indicate the kind of management desired and
policies necessary to attain the mission; and
(iv) The statement should provide the necessary direction for the formulation of
strategies.

Business Model
The term business model has been defined as "a representation of a firm’s
underlying core logic and strategic choices for creating and capturing value
within a value network".
Business model indicates how the strategies it pursues will allow the company
to gain a competitive advantage and achieve superior profitability. In simple

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 terms it specifies how the company makes money. For example, the business
model of an economy airline is characterised by e-ticketing, no-frills service,
uniform planes, etc.
Thus, a business model outlines a firm's value proposition for its stakeholders
and the system it uses to create and deliver value to its customers. It is a
mental model of how a company's strategies form a congruent whole enabling
it to gain a competitive advantage.

Goals And Objectives

Meaning: Goals and objectives refer to the end results which an organisation
strives for. These two terms are used interchangeably. But strictly speaking,
goals are different from objectives. Goals represent what an organisation
wishes to accomplish in a future time period. On the other hand, objectives
specify how the goals shall be achieved. Goals are mainly generalised and
qualitative whereas objectives are more specific and quantitative. Objectives
are measurable and comparable and operationalise the goals. Objectives have
a short term orientation while goals are mainly long term. If profitability is a
goal, objective may be 25 per cent return on investment.
Nature: The main features of objectives are:
(i) Objectives are the reason for an organisation’s existence. Every
organisation exists to achieve certain objectives.

(ii) Objectives are multiple. In the words of Peter Drucker “to manage a
business is to balance a variety of needs and goals..... objectives are
needed in every area where performance and results directly and vitally
contribute to the survival and growth of the business”.
(iii) Objectives at different levels of an organisation constitute a hierarchy or
ends-means chain. Higher level objectives are the ends and lower level
objectives serve as the means.
Corporate objectives may be called strategic objectives (e.g. market share,
profitability social change, corporate image, etc) while objectives in
functional areas like finance (ROI), marketing, etc may be called business
process objectives.

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 (iv) Objective vary in time span e.g. yearly, half yearly, quarterly objectives.
(v) Objectives require change due to changes in environment, organisational
capabilities, expectations of stakeholders, life cycle of the organisation, etc.

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 Key Result Areas (KRAs)

1. Market Standing — the specification of market segments and the

share of each segment sought.

2. Innovation — the extent of business involvement in developing new

products and services.

3. Productivity — the way the firm is going to measure its efficiency.

(Options include processing and output discussed earlier).

4. Physical and financial resources — the acquisition and efficient use of

resources (inputs).

5. Profitability — identification of desired levels of profitability to be used

(10 per cent ROI, 7 per cent profit margin).

6. Manager performance and development — criteria for evaluating the

performance of managers and the design of training and development
programmes to assist managers in reaching their potential.

7. Worker performance and attitude — criteria for evaluating the

performance of operative employees and organisational efforts to
maintain positive employee attitudes towards their jobs and the firms.

8. Public responsibility — the role of the firm in meeting the needs of

society and actions to be taken to enhance the firm's public image.

(vi) There are two main approaches to setting objectives – top down
approach and bottom up approach.

Role of Objectives
Objectives play a significant role in strategic management in the following
ways:

1. Define Relationship: Objectives define the relationship of an organisation

with its environment. These reflect its commitment to various stakeholders.

2. Operationalise Vision and Mission: Objectives help an organisation to

pursue its vision and mission. Long-term goals and short-term targets are
the milestones to reach the mission and vision.

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 3. Provide Basis for Decision Making: Objectives direct the attention of
decision makers to those areas where strategic decisions are needed.
Clearly defined objectives facilitate unified planning. Objectives serve as a
guide to strategy formulation.

4. Motivate People: Objectives serve as a source of inspiration for members

of an organisation. They work hard to achieve the objectives and get a
sense of accomplishment.

5. Facilitate Decentralisation: Objectives indicate the contribution each unit

or individual is expected to make. They enable higher level managers to
delegate decision-making authority to managers at operating levels.

6. Serve as Control Standards: Objectives in the form of time-bound targets

serve as standards against which performance can be assessed. They put
pressure on employees and help to ensure accomplishment.

7. Assist Voluntary Coordination: Clearly specified and mutually agreed upon

objectives help integrate individual and group efforts. People tend to work
within their own areas of discretion and adjust according to the needs of
one another. Unity of purpose leads to unity of action.

Essentials of Valid Objectives

Good objectives must fulfil the following requirements.

1. Understandable: Objectives must be understandable by those who are

responsible for achieving them. Otherwise no action may be taken or a
wrong action might be taken.

2. Clear and Specific: To say that "our company seeks to increase sales" is
vague. On the other hand, "our company seeks to increase sales by ten per
cent next year" is concrete and specific.

3. Time-Bound: Objectives should have a time frame so that managers know

the duration within which objectives have to be achieved.

4. Measurable: Objectives must be such that performance can be compared

and controlled with them. For example, a company which wants to be
attractive to work for can use measures like number of job applications
received per hire, average emoluments offered, employee turnover per
year. Objectives should be result oriented rather than activity oriented.

5. Challenging: Objectives should be set at challenging but realistic levels.

They should be neither too easy nor unachievable.

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 6. Interrelated: Objectives set in different areas must be balanced with each
other. Otherwise they may be a source of conflict between departments or
divisions. Short-term objectives should be consistent with long-term
objectives.

Balanced Scorecard Approach To Objective Setting

The Balanced Scorecard Approach developed by Kaplan and Norton" is a
strategic planning and performance management system. It focuses attention
on measuring a wide range of non-financial and operational objectives so as to
avoid undue emphasis on short-term financial objectives. The balanced
scorecard model is shown in Fig. 3.5.

In order to measure performance in the four areas metrics can be set up. For
example, metrics and cost benefit figures are also included in the financial
perspective

1. Financial Perspective: The financial measures derived from the strategic

intent are included in this perspective. Revenues, earnings, return on capital
and cash flow are examples of these measures. Additional finance related
variables such as risk management and cost benefit figures are also

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 included in the financial perspective.) included in this perspective.
Revenues, earnings, return on capital and cash flow are examples of these
measures. Additional finance related variables such as risk management
and cost benefit figures are also included in the financial perspective.)

2. Customer Perspective: The organisation's ability to provide quality goods

and services,effective delivery and overall customer satisfaction are
measured in this perspective. Market share, customer satisfaction and
customer loyalty are examples of these measures.)

3. Internal Business Perspective: The mechanisms through which

performance expectations are achieved are called internal business
processes. In order to meet these expectations and organisational
objectives, an organisation must identify the key business processes at
which it has to excel. Productivity, quality and efficiency are examples of
measures that lead to financial success and satisfied customers.

4. Learning and Growth Perspective: An organisation must be able to manage

its business and adapt to change. Its employees must acquire new skills
and capabilities to face the challenges of environmental changes and
customer expectations. Employee morale, knowledge, employee turnover
and suggestions, share of revenue from new products are examples of
these measures.
The four perspectives given above help in prioritising the key strategic
objectives of the organisation. Each of these perspectives attempts to
assess how the organisation is moving towards its vision. The balanced
scorecard is a top down approach to objective setting. For revenue growth
may be: sales of new products/services, sales to new customers, and entry
into new markets. It is however difficult to assign weights to the different
perspectives and to establish the cause and effect relationship among
these perspectives.

Critical Success Factors (CSFS)

Critical success factors or strategic factors or key factors for success are "the
limited number of areas in which satisfactory results will ensure successful
competitive performance for the individual, department or organisation" In
other words, critical successful factors indicate what an organisation should do
in order to be successful.

SM Module 2 20
 Critical success factors can be used both for setting objectives and for making
strategic choice) Rockart suggests a three-step procedure for this purpose.
These steps are:

(a) Generate the success factors (What does it take to be successful in

business?)
(b) Refine CSFs into objectives (What should the organi sation's goals be with
respect to CSFs?) and
(c) identify measures of performance (How will we know whether the
organisation has been successful on this factor? CSFs help to pinpoint the key
result areas to determine objectives in those areas and to identify measures of
performance.)

Concept And Role Of Environmental Analysis

Environmental analysis or environmental scanning or external analysis is the
process through which an organisation monitors various environmental forces
to identify opportunities and threats which it is likely to face. The main features
of environmental analysis are as follows:

1. Holistic: Environmental analysis is a holistic exercise because it takes a

total rather than piecemeal view of environmental forces. No doubt
environment is divided into different components for the sake of
comprehension. But finally the analysis of these components is aggregated
to have a total view of the environment.

2. Exploratory: Environmental analysis is an exploratory or heuristic process.

It attempts to estimate what could happen in future on the basis of present
trends. Possible alternative futures are identified on the basis of different
assumptions. The probabilities of these alternative futures are also
estimated to arrive at more rational conclusions.

3. Continuous: Environmental analysis is an ongoing rather than an

intermittent exercise. Continuous scanning of the environment is necessary
to identify the trends. More relevant trends are analysed in detail to
understand their impact on the organisation.

Environmental analysis plays a vital role in strategy formulation. In the absence

of environmental analysis, no meaningful strategy can be formulated.
Organisations which regularly monitor their environment outperform those

SM Module 2 21
 which do not analyse their environment. For example, ITC, TCS, Reliance
Industries Limited and other companies which give very high priority to
environmental scanning have achieved high growth rates over decades.
Environmental analysis is crucial for strategic management in the following
ways:

1. Environmental changes create opportunities and threats for an organisation.

On this basis of understanding the opportunities and threats, the
organisation can take appropriate strategic decisions to exploit the
opportunities and ward off the threats.

2. Environmental analysis serves as an early warning system. By anticipating

the likely threats, the strategists can take timely action before the damage
is done. They are not caught unaware.

3. Environmental analysis helps the strategists to identify the most promising

alternatives and eliminate the options that are inconsistent with
environmental trends. As a result strategic decision-making becomes
easier.

The environment facing business firms is complex and ever changing.

Therefore, environmental scanning is essential for strategic decision-making.

Industry Analysis
An organisation must thoroughly understand the specific industry in which it
operates or plans to operate because the factors relating to that industry
directly affect its working. An industry means a group of firms offering products
or services that are close substitutes of each other. For example, firms which
manufacture two-wheelers (motorcycles, scooters, mopeds) and four-wheelers
(passenger cars) constitute the automobile industry because these products
perform the same function-personal transport. On a broader level, commercial
vehicle (taxis, three-wheelers, tempos, trucks, etc.) manufacturers may also be
included in automobile industry.
Industry analysis involves the analysis of the following industry related factors:

1. Industry Setting: The pattern of industries in terms of their stage of

evolution, stage of maturation and geographical dimension form the setting
of an industry. On the basis of these characteristics, Porter has classified
industries into the following categories:

SM Module 2 22
 Fragmented Industry: A fragmented industry is one which is scattered
at numerous places with each place serving the local markets. There
are several problems in the expansion of the industry beyond certain
geographical areas due to non-mechanised production technology.
Pottery and non-mechanised farm equipments are examples of
fragmented industry. The firms in such an industry have a narrow
competitive advantage because they cater to a small area.

Emerging Industry: In such an industry market for the product exists in

latent form and it materialises later. Most of the industries were
emerging ones in the initial stages. For example, computer industry, at
one point of time, was emerging in the form of abacuses, slide rules,
adding machines and other means of calculation. In an emerging
industry, buyer preferences are evenly scattered. A company has three
options to differentiate its product and gain a competitive advantage: (a)
the product may be designed to meet the preferences of one part of the
market, (b) two or more products may be launched simultaneously for
two or more parts of the market, (c) the new product may be designed
for the middle of the market.

Maturing Industry: As an industry grows and matures, several

competitors enter it and they cover all segments of the market.
Competitors grow faster than the industry. Therefore, they cut each
other's market shares through product differentiation and other means.
For example, firms producing oral care products in India are cutting the
market shares of each other.

Declining Industry: After maturing, an industry may start declining in

terms of total market size. Decline may start due to decline in need for
the product and/or availability of substitute product. For example,
demand for washing soaps has declined due to detergent based
washing. Firms in a declining industry may come out with emerging
products or may leave the market. In a declining industry, a firm may
consider reducing capacity, reduce costs, improve service link through
to end users, maintain competitive advantage, harvest/sell.

Global Industry: In a global industry the strategic positions of

competing firms depend on their overall global positions. A global firm
has a competitive advantage over domestic firms due to differentiation
based on cost, quality, product features, brand image, etc. After
economic liberalisation, more and more industries are becoming global.

SM Module 2 23
 2. Industry Structure: The economic and technical forces operating in an
industry are called industry structure. It also includes the number of
competitors and the extent of product differentiation. There are five types
of industry structures:

Pure Monopoly: In this structure there is only one seller in the market.
Therefore, there is no need for product differentiation. Indian Railways
and State Electricity Boards are examples of pure monopoly.

Pure Oligopoly: There are few sellers which have no product

differentiation. Therefore, any price change by one seller affects the
other sellers. For example, in the heavy commercial vehicles industry in
India, Tata Motors and Ashok Leyland are the major players which
compete on the basis of price and location.

Pure Competition: In case of pure or perfect competition, there is a

large number of sellers with no product differentiation. They compete
on price basis and no single seller has control over price. Sugar, steel,
cement and other commodity industries are characterised by pure
competition.

Differentiated Oligopoly: There are few sellers with differentiated

products. Differentiation is based on price, quality, product design,
delivery, after-sale service, etc. For example, in consumer durables the
number of competitors is limited and each competitor's product is
positioned on some unique selling proposition.

Monopolistic Competition: There is a large number of sellers with

differentiated products. Firms with a highly differentiated product have
high customer loyalty and enjoy monopoly power. But there is
competition due to several sellers. Thus, there is a combination of both
monopoly and competition. Each industry structure provides different
opportunities and threats and, therefore, requires a different strategy.

3. Industry Attractiveness: Industry attractiveness refers to the profitability

position of Whe industry. An industry is considered attractive when there is
enough scope for earning profit. Indüstry attractiveness depends on the
following factors:

Nature of Demand: The total market size and its rate of growth
determines the industry's present and future business scope. The
industry becomes attractive if the demand is large and increasing due

SM Module 2 24
 to increase in population and income, changes in tastes, etc. On the
other hand, when the demand is declining owing to substitute products,
etc. the industry is unattractive. In case seasonal and cyclical
fluctuations phenomena affect demand, industry becomes less
attractive.

Industry Potential: Total sales potential also affects attractiveness of an

industry. A high volume industry has more potential because it can
accommodate a large number of players. For example, in the oral care
industry, toothpaste segment has more potential than tooth powder
segment.

Profit Potential: Profit potential refers to the possibility of earning the

targeted volume of profit. Sales volume and profit margin influence the
profit volume. Knowledge-based industries (e.g., information
technology, consultancy, etc.) and industries with product
differentiation generally offer more scope for higher profitability.

Entry and Exit Barriers: An industry is more attractive when entry

barriers are high and exit barriers are low. Numerous entry barriers
restrict future competition and few exit barriers reduce the cost of exit
from the industry.

4. Industry Performance: An industry's performance is measured in terms of

the following factors:

Profitability: Profits in relation to sales or investment is a common

measure of industry performance. Both sales and investment should be
considered for comparison between industries. For example, a low
capital-intensive industry may show less profitability in relation to sales
than a high capital-intensive industry.

Operating Efficiency: Ratio between inputs and outputs_indicates

operating efficiency. Man-machine ratio, labour productivity,
technology level, quality of raw materials, availability of power and
infrastructure are the main determinants of efficiencyTechnological
Advancement: Development and use of new technologies influences
industry performance. Firms which use latest technology have a
competitive advantage due to lower costs and better quality.

Innovation: In some industries the rate of innovation is higher than in

other industries. Frostfree refrigerator, teleshopping, mobile banking

SM Module 2 25
 and other innovations help to improve industry performance.

Industry environment exercises a significant influence on strategies. The

environment differs from industry to industry and over time. For example, an
embryonic or sunrise industry will require a different strategy than a mature or
sunset industry. Moreover, business strategies must be aligned with changing
environment of the industry. Demand conditions and competitive equations in
an industry change over time.

Competition Analysis
Analysis of competition in an industry helps to identify the exact nature of
opportunities and threats in that industry. Porter³ has given a model of five
forces that shape competition in an industry

1. Threat of New Entrants: An industry that is considered profitable tends to

attract new entrants. Such new firms often make large investments, add to
the existing production capacity and desire to gain substantial market
share. The possibility of new firms entering into an industry depends on
two factors: the entry barriers to an industry and the expected retaliation
from the existing firms. When entry barriers are high, the chance that new
firms will enter into an industry is low) Barriers to entry arise due to the
following factors:

SM Module 2 26
 (i) Economies of Scale: Economies of scale in production, marketing, etc.
give lower cost advantage to existing firms. The new firms which want to
enter the industry have to either come on a large scale or to accept a cost
disadvantage.

(ii) Capital Requirements: The need to invest huge capital in order to

compete may prevent new entrants particularly when the projects involve
long gestation periods.
(iii) Product Differentiation: Unique product features, advertising, customer
service, etc. create brand loyalty of customers towards existing firms. New
entrants have to spend heavily to overcome customer loyalty.
(iv) Access to Distribution Channels: The existing firms might have
developed close long-term relationships with wholesalers and retailers. The
new entrants may not have access to distribution channels and may have to
gain access at higher costs.
(v) Cost Disadvantages Independent of Scale: The existing firms may have
cost advantages not available to potential rivals, irrespective of their size.
These advantages may arise from experience, proprietary technology,
exclusive access to raw materials, favourable location, low cost assets, etc.
Per unit costs decline with experience and new entrants with no experience
face higher costs than the existing firms.
(vi) Government Policy: Government can prevent entry of new firms into an
industry through licensing, price regulation, pollution control standards,
safety regulations and controls over raw materials supply.
In addition to these entry barriers, the retaliation from existing firms may be
a potential threat to entry. For example, an existing firm may reduce its
prices to discourage new entrants. However, new firms do enter a
promising or profitable industry despite entry barriers.
The common strategy adopted by them is to find market niches not served
by the existing firms and to gradually build up their presence in the industry.

2. Rivalry among Competitors: Firms within an industry are mutually

dependent. The desire to capture a larger market share leads to rivalry
among them. When such rivalry is high there is intense competition among
them) The rivalry among competing firms is high when:
(i) the number of competitors is large and all of them are trying to increase
their market shares;

SM Module 2 27
 (ii) none of the competitors is in a position to dominate the industry;
(iii) there is less or no product differentiation and buyers can sily switch
over from one brand to another;
(iv) the rate of growth in supply is higher than the rate of growth in demand;

(v) the product is perishable creating urgency to sell as quickly as possible;

(vi) high exit barriers prevent firms from leaving despite low or negative
returns; exit barriers may arise due to economic, strategic and emotional
factors. Economic factors are huge investment in assets with no alternative
usage and high fixed costs of exit, such as high severence pay under
agreement or high retrenchment compensation. Strategic factors refer to
linkages between different businesses of the company such as sharing a
common resource pool or the firm being its own supplier or buyer.
Sentimental attachment to a business, e.g., being an ancestral business,
loyalty to employees/distributors, etc. is an example of emotional factors.

3. Bargaining Power of Buyers: Powerful buyers may force an organisation to

reduce prices, improve quality and improve customer service so as to get
more value for their money. Buyers have a high bargaining power under the
following conditions.
(i) Buyers are few in number but each buyer purchases in large volume.
(ii) The product bought is standardised or undifferentiated so that buyers
can easily find alternative suppliers who are willing to supply at a lower
price.

(iii) The product purchased constitutes a significant proportion of the

buyer's cost, as for example, industrial products like TV picture tubes and
automobile components.
(iv) Buyers have a low profit margin making them more price sensitive.
(v) The product is not important for the quality of buyers' product.
(vi) Buyers have the ability to integrate backward and create their own
source of supply.

4. Bargaining Power of Suppliers: Powerful suppliers may raise prices and

reduce quality or level of service. Such actions are likely to reduce the
profitability of firms in the industry. Suppliers have a high bargaining power
under the following conditions:

(i) There are few suppliers and many buyers.

SM Module 2 28
 (ii) The products/services supplied are unique and are not commonly
available.
(iii) The substitutes of the products/services are not freely available.
(iv) The supplier can easily switch over from one buyer to another.
(v) The supplier has low dependence on the products/services supplied.

(vi) The buyer purchases in small quantities and, therefore, is not important
to the supplier.
(vii) The supplier is able to integrate forward and thereby use his own
supplies for producing the end product/service.

5. Threat of Substitute Products: Products or services that are apparently

different but satisfy the same customer needs are known as substitutes. For
example, tea and coffee are substitute products. Similarly, postal and
courier services are substitutes. Easy availability of substitutes at same
price poses a threat to the industry. Firms in such an industry cannot
charge high prices. Substitutes, therefore, affect the profitability and growth
of the industry. For instance, polysack industry has caused a huge loss to
jute industry because the former offers better packaging material at about
the same price. The threat of substitutes is high in case of more profitable
products because greater attention is paid to develop substitutes for such
products.
The central theme of Porter's hypothesis is location of clusters, i.e., the
group of companies specialising in a specific area and location at one
place. Clusters affect competition in these basic ways:

Companies become more productive.

Rate of innovation increases.

Rate of growth is enhanced with regard to new businesses.

The knowledge and motivation is almost next door. Clusters also attract
more talent.

Approaches To Environmental Scanning

Kubr has suggested the following approaches which can be adopted for
scanning the environment.

SM Module 2 29
 1. Systematic Approach: Under this approach, a highly systematic and formal
procedure is used to collect, process and interpret information about the
environment. In order to monitor the environment, information concerning
markets, customers, government policies and regulations and other
environmental factors influencing the organisation and its industry is
collected on a continuous basis Proactive organisations with a high degree
of sensitivity to the environment use this approach. The anticipated
changes in the environment and their data collection and processing are
well structured.

2. Adhoc Approach: Under this approach, special surveys and studies are
conducted about specific environmental issues. For example, an
organisation planning to undertake a special project may conduct a survey
to develop new strategies. The impact of unforseen changes in the
environment may also be investigated) Reactive organisations which are
less sensitive to the environment often adopt an adhoc and informal
approach to environmental scanning.

3. Processed-form Approach: (Under this approach, processed information

available from different internal and external sources is used. For example,
data contained in government publications (Census Report, etc.) may be
used

The approach adopted by a particular organisation depends on the nature of

the environment (stable or dynamic), concern for the environment (low or high
concern). importance of environment (directly relevant or general
environment), etc.

Sources Of Information For Environmental Scanning

Timely collection of relevant information is absolutely essential for proper
scanning of the environment. The major sources of environmental information
are as follows:
(i) Internal Sources: Files, reports, databases, and other documents and
employees of the company are internal sources of data

(ii) Secondary Sources: Newspapers, magazines, journals, books, annual

reports of other companies, government publications, publications of trade
associations and chambers of commerce, trade and telephone directories and
commercial databases are secondary sources or publications

SM Module 2 30
 (iii) External Agencies: Customers, suppliers, marketing intermediaries,
industry associations and government agencies are included in this category.
Information from these agencies can be collected verbally or in writing.
(iv) Mass Media: Radio, television and Internet are the mass media
(v) Formal Studies: Company's employees, market research agencies,
consultants and educational institutions may conduct surveys and studies to
collect data, secul study
(vi) Business Espionage: Ah organisation may collect data through spying and
surveillance through competitors' employees, industrial espionage agencies,
etc. This source is considered unethical but is used.
Before using a particular source, the organisation should check its reliability,
time and cost involved, etc.

Scenario Development
Scenarios are descriptions of possible future situations. These are prepared
after projecting the likely future events.

Strategic decisions are usually made on the basis of incomplete information or

under conditions of partial ignorance. Contingent strategies can be developed
to meet the needs of different scenarios. Therefore, strategists need to develop
alternative scenarios and adopt one of them as the most probable. They must
watch signals that might confirm or reject that scenario. In case the scenario is
confirmed, there may be no need to modify the strategy. Otherwise the strategy
has to be modified or abandoned and an alternate strategy may be required.

Methods And Techniques Of Environmental Scanning

Several techniques are used for scanning the environment. Some of these are
described below:

1. Environmental Threat and Opportunity Profile (ETOP): The ETOP is the

most useful technique of structuring the results of environmental analysis.
ETOP or Environmental Impact Matrix is a summary of the environmental
factors and their likely impact on the organisation.
The preparation of ETOP involves the following steps:

SM Module 2 31
 (i) Selection of Environmental Factors: First of all, relevant components of
the environment are selected. Each major factor is divided into sub-factors.
For example, economic environment may be divided into economic policies,
economic indices, market environment, etc.
(ii) Assessment of Importance: The importance of each selected
factor/sub-factor is assessed in qualitative (high, medium, low) or
quantitative (3, 2, 1) terms..
(iii) Measurement of Impact: The positive and negative impact of each
factor is measured as opportunity and threat respectively.
(iv) Combination of Importance and Impact: The importance and impact of
each factor together indicate clearly the situation.
ETOP can be prepared in two forms: matrix form or descriptive form. In
matrix form, importance and impact of each environmental factor are
expressed in quantities. In descriptive form the impact is expressed as
being positive or negative Table 4.4 is in matrix form while Table 4.5 gives
ETOP in descriptive form.

ETOP provides a clear picture of where the organisation stands in relation to

its Environment. It indicates the opportunities and threats which the
organisation is likely to face. Such an understanding is very useful in

SM Module 2 32
 formulating appropriate strategies which will help the organisation to take
advantage of the opportunities and to counter the threats in its environment.

2. P.E.S.T. Analysis: The acronym P.E.S.T. stands for Political, Economic,

Social and Technological environment. These environmental factors create
opportunities and threats for an organisation. Some strategists rearrange
these variables as Social, Technological, Economic and Political and use the
acronym S.T.E.P. analysis. Each category of these 99 factors contains
innumerable elements. But the more common elements are as follows:
(i) Political Analysis: It involves analysis of:

Political system and stability

Legal framework concerning business

Political parties and their ideology

Risk of military invasion

Foreign relations with other nations

Bureaucracy and red tape

Political corruption

(ii) Economic Analysis: It consists analysis of:

Economic system

Economic policies

Economic indices

Financial markets

Industrial infrastructure

(iii) Social Analysis: It includes analysis of:

Demographics

Class structure

Family system

Education levels

Cultural values, attitudes and interests

Entrepreneurial spirit

SM Module 2 33
 (iv) Technological Analysis: It involves analysis of:

Level of technological progress

Rate of technology diffusion

Transfer of foreign technology

Impact of technology on costs, quality and value chain

3. Q.U.E.S.T.: The acronym Q.U.E.S.T. represents Quick Environmental

Scanning Technique.

Limitations Of Environmental Scanning

Environmental scanning is not a foolproof exercise. It suffers from several
shortcomings:
(i) Complete accuracy in environmental scanning is impossible because
long-term future events are analysed. More turbulent is the environment
greater may be the degree of error
(ii) It is very difficult to judge what is the relevant environment. Too much
focus on the relevant factors may lead to overlooking issues in the general
environment that may be significant
(iii) The basic purpose of environmental analysis is to identify the trends that
really matter for strategy formulation. Strategists may use the information for
their own goals through manoeuvring(Difficult Movement).
(iv) Environmental scanning may create such an overload of data that timely
action is not taken. This is called 'paralysis by analysis.
(v) In practice, environmental scanning may become a line or staff function
devoid of organisational realities.

Concept Of Organisational Analysis

Organisational analysis is the process of evaluating systematically an
organisation's capabilities which can give it a competitive advantage in the
market. The capabilities enable the organisation to achieve strategic advantage
for long-term success. Organisational analysis is also known as internal
analysis, corporate appraisal, self-approval, company analysis, etc.

SM Module 2 34
 Organisational analysis is the analysis of internal environment which refers to
all factors within an organisation that influence its capability to achieve its
strategic intent. The purpose of organisational analysis is to determine the
capabilities of an organisation in terms of its strengths and weaknesses.

NEED FOR ORGANISATIONAL ANALYSIS

Organisational analysis plays a vital role in strategic management. It is required
for the following purposes.
(i) Analysis of the external environment enables the organisation to think of
what it might choose to do. Organisational analysis is needed to decide what
it can do.
(ii) An organisation tries to succeed by focussing on its strengths and
overcoming its weaknesses. These strengths and weaknesses can be
identified through organisational analysis. On the basis of its strengths and
weaknesses, the organisation can concentrate on those businesses in which
it is most likely to be successful.
(iii) Knowledge of weaknesses helps the organisation to take relevant action
for overcoming the weak areas. It may rearrange and rellocate its resources
to convert weaknesses into strengths. Alternatively, the organisation may
withdraw itself from the operations wherein it is weak.
(iv) Strategy formulation requires matching strengths and weaknesses with
environmental opportunities and threats. By appraising itself, an organisation
can identify the capabilities it must develop to compete in the market place.

Process Of Organisational Analysis

The process of organisational analysis consists of the following steps:

1. Identifying the Key Factors: First of all the key factors for organisational
analysis are identified. The analysis should cover all important aspects of
the organisation. The structure, management pattern, personnel, finance,
marketing, manufacturing, research and development are the key aspects
of an organisation.

2. Assessing the Importance of Factors: All the factors identified for analysis
are not equally important. Their relative importance is assessed in terms of

SM Module 2 35
 their contribution towards the achievement of key results. Another method
used to judge the importance of organisational factors is their relationship
with the critical success factors (CSFS) These are those factors which are
crucial for the success of an organisation.

3. Evaluating Strengths and Weaknesses of Key Factors: The strength of a

key factor can be measured in terms of its contribution towards the
achievement of organisational objectives. The weakness of a factor means
its negative contribution. Another method of evaluating strengths and
weaknesses is to make a comparative analysis of these factors with those
of the competitors.

4. Preparing Organisational Capability Profile: The organisational capability

profile shows the strengths and weaknesses of an organisation in
qualitative (very strong, strong, average) or quantitative (5, 4, 3, 2, 1) terms.
Strengths and weaknesses may also be expressed in positive (3, 2, 1) and
negative (-1,-2,-3) quantities.

SM Module 2 36
 5. Relating Organisational Capability Profile to Strategy: Organisational
analysis becomes meaningful when strengths are related to strategy. The
organisation can concentrate on areas of its strengths. It may undertake
activities which convert its weaknesses into strengths. In the long run an
organisation can succeed through, synergistic advantages gained by
relating its capability to the environmental forces.

Methods And Techniques Of Organisational Analysis

Analysis and appraisal of an organisation is a comprehensive and future-
oriented process. Its focus is on what the organisation needs to do so as to

SM Module 2 37
 exploit the forthcoming opportunities and to counter the threats in its external
environment. The methods and techniques used in organisational analysis and
appraisal may be classified as follows:

1. Internal Analysis

(a) VRIO Framework

(b) Value chain Analysis
(c) Quantitative Analysis

Financial analysis

Non-financial analysis

(d) Qualitative Analysis

2. Comparative Analysis
(a) Historical Analysis
(b) Industry Norms
(c) Bench Marking

3. Comprehensive Analysis
(a) Key Factor Rating
(b) Balanced Scorecard.

4. SWOT Analysis

Internal Analysis
The internal analysis of an organisation involves investigation into its strengths
and weaknesses by focussing on factors which are relevant to it.) Techniques
used for internal analysis are described below:

1. VRIO Framework: The acronym VRIO stands for Valuable, Rare, Inimitable
and Organised for usage. These terms are explained below:

(a) Valuable: These are the capabilities that enable the organisation to
generate revenues by capitalising on opportunities and/or to reduce costs
by neutralising threats. The ability to provide high quality after-sale service
to customers and the ability to develop rapport with the government are
examples of valuable capabilities.

SM Module 2 38
 (b) Rare: These are the capabilities that one or a few firms in the industry
exclusively possess. An unique location and a highly motivated workforce
are examples of rare capabilities. Coca-Cola's brand name is a rare
capability. Both Honda and Toyota have rare capability to build quality cars
at a relatively low cost.
(c) Inimitable: These are the capabilities which competitors either cannot
duplicate or can duplicate only at a very high cost) Excellent corporate
image and the ability to acquire/merge new businesses are examples of
inimitable capabilities.
(d) Organised for usage: These are the capabilities which an organisation
can use through its appropriate structure, business processes, control and
reward system The availability of competent R & D personnel and research
laboratories to continually bring out innovative products is an example of
organised for usage capabilities. Many firms have valuable and rare
capabilities but they fail to exploit these capabilities. For example, for many
years Novell had a significant competitive advantage in computer
networking based on its core Net Ware product. But its inability to innovate
in the face of changing markets and technology led to Novell's decline
during 1995-1999. Similarly Xerox failed to exploit its innovation capability
for quite some time. Suppose a firm adopts differentiation through superior
R & D. It can evaluate whether its R & D capability is valuable (high quality R
& D equipment), rare (highly qualified research staff), inimitable (R & D
skills) and organised (integration of R & D resources, structure and
systems).

2. Value Chain Analysis: Every organisation performs several activities.

These activities are interrelated and form a chain. Each activity in the chain
creates some value and involves cost. Thus, a value chain is a set of
interlinked and value-creating activities performed by an organisation.
Value chain analysis" is used to measure how each activity in the chain
creates value.

SM Module 2 39
 Primary Activities: These activities are directly related to the creation of a
product or service.Primary activities consist of the following:
(i) Inbound logistics: All the activities used for receiving, storing and
transporting inputs into the production process are known as inbound
logistics. These activities are materials handling, transportation,
warehousing and inventory control.
(ii) Operations: All activities involved in the transformation of inputs into
outputs are called operations. These include assembling, fabricating,
machining, testing, packaging, etc.
(iii) Outbound logistics: All the activities used for receiving, storing nad
transporting finished products are known as outbound logistics.
Collecting, order processing, physical distribution and warehousing are
the activities.
(iv) Marketing and sales: These consist of activities used to market and
sell products/services to customers. Pricing, advertising, promoting and
distributing are examples of such activities.
(v) Service: These are the activities used for enhancing and maintaining
a product's value. Installation, repair, maintenance and customer training
are the typical service activities.

SM Module 2 40
 Support Activities: These activities provide support to the primary
activities! Support activities consist of:

(i) Firm infrastructure: All the activities for general management of the
organisation to achieve its objective are called firm infrastructure. These
include accounting. finance, legal, secretarial, general management and
managing government relations
(ii) Human resource management: These comprise recruitment,
selection, training. deploying and retaining the human resources of an
organisation.
(iii) Technology development: Typical activities in this category are
research and development, product and process design, equipment
design, etc. These activities are used for creating, developing and
improving products or services.
(iv) Procurement: Obtaining raw materials, parts, supplies, machinery,
equipment and other purchased items are included in procurement
The value chain provides a systematic view of all the activities performed
by an organisation and interrelationship/interaction between them. The
value created by an activity in the value chain can be estimated by
assessing its contribution and cost. Profit margin that an organisation
earns depends on how effectively it manages the value chain.

3. Quantitative Analysis: Both financial and non-financial aspects are covered

in quantitative analysis which is easy and verifiable.
(i) Financial Analysis: In order to assess strengths and weaknesses in
different functional areas, ratio analysis and economic value added analysis
are used.

(a) Ratio Analysis is a traditional and popular technique. Under it the

liquidity, profitability, leverage and activity aspects of the organisation
are assessed. Various ratios are calculated and compared over a period
of time However, ratio analysis has limited use in strategic management
as it suffers from several limitations.
(b) Economic Value Added (EVA) Analysis is a relatively new technique
developed by Stern Stewart & Co. (USA). EVA measures profitability in
terms of the returns on capital above the cost of servicing the capital
employed. It is the wealth created by the company for its owners and is
expressed as the difference between after-tax operating profits and the

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 cost of capital. When the EVA is positive, the organisation has the
required strength.

(c) Activity Based Costing (ABC) attempts to measure the cost of each
activity in the value chain. Like EVA, it helps to identify the areas where
the organisations's strengths and weaknesses lie
(ii) Non-Financial Analysis: There are several aspects of an organization
which cannot be measured in financial terms. Non-financial analysis is
used to assess these aspects. Employee absenteeism and turnover,
advertising recall rate, production cycle time, service call rates, number of
patents registered per annum, inventory turnover rate, etc. are such
aspects.

4. Qualitative Analysis: Those aspects of an organisation which cannot be

expressed in quantitative terms are assessed through qualitative analysis.

Comparative Analysis
Strengths and weaknesses provide a competitive advantage to the organisation
when these are unique and exclusive. Therefore an organisation should
compare its capabilities with those of its competitors. Comparative analysis can
be made over a time period, on the basis of industry norms and through bench
marking.

1. Historical Analysis: In historical analysis an organisation's strengths and

weaknesses are compared over different time periods. It reveals whether
the strengths are improving or declining Areas which show continuous
improvement are durable strengths. Hofer and Schendel" have developed a
functional-area profile and resource deployment matrix for historical
analysis.
Historical analysis suffers from some limitations. First, it reveals
improvement/decline but not the reasons ysis suffers from some
measurement of performance on a snable than ind show dramatic but
illusory theprovement. For example, many IT firms earned more than 100
per cent increase in profit over the previous year but their base is very thin
and gestation period is very short. Third, historical analysis indicates
improvement with respect to a company's own performance and not in
comparison with its competitors.

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 2. Industry Norms Every industry has certain norms or standards for key
parameters of performance. The performance levels of a firm can be
compared with the norms of the industry in which the firm operates) For
example, cost levels of Maruti Suzuki may be compared against cost
standards in the car industry.
A more selective approach can be to compare with firms that follow similar
strategies. These firms are known as a strategic group. According to Miller
and Dess, a strategic group is "a cluster of competitors that share similar
strategies and, therefore, compete more directly with one another than with
other firms in the same industry".

Industry norms, however, suffer from following limitations:

(i) Comparisons on the basis of industry norms may yield erroneous
conclusions concerning an organisation's capability as these are averages.
(ii) Firms in the same industry differ in many respects and may not be fully
comparable.
(iii) It is difficult to get industry norms because competitors closely guard
information.
In spite of these limitations, industry norms can reveal the areas in which an
organisation requires improvement.

3. Benchmarking: A benchmark means a reference point for the purpose of

measurement and comparison. "Benchmarking is the process of
identifying, understanding and adapting outstanding practices from within
the same industry or from other businesses to help improve performance".
The basic purpose of benchmarking is to match and even surpass the best
performer. The key questions in benchmarking are: What to benchmark,
and whom to benchmark. These questions can be answered by knowing
the types of benchmarking. On the basis of what to benchmark,
benchmarking is of the following types:
(i) Performance benchmarking involves comparison of an organisation's
performance with that of the best performer.
(ii) Process benchmarking involves comparison of an organisation's
methods and practices with those of the best organisation.
(iii) Strategic benchmarking involves comparison of an organisation's
strategies with those of the best organisation
On the basis of whom to benchmark, there are four types of benchmarking:

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 Internal benchmarking means comparison between
departments/units of the same organisation.

Competitive benchmarking means comparison with the rival

organisations.

Functional benchmarking means comparison of function against

non-competing organisations.

Generic benchmarking means comparison of own processes with

the best practices anywhere or any organisaton at the global level.

Benchmarking by Indian Firms

1. Product quality improvement - Tata Motors Jenson & Nicholson, NTPC,

BHEL, SAIL, IOC are some of the companies which have improved their
product quality by modifying their operations after benchmarking
against global leaders in their industries.

2. Customer service improvement HDFC, Modi Xevx, Thermax, Kirloskar

cummins, IFB, Infosys and many other firms have bench-marked those
practices which can improve customer service.

3. Comprehensive practices Reliance, Hindustan Unilever, Maruti Suzuki,

etc. have benchmarked their technology supplier or foreign
partner/parent firm to improve overall performance. Reliance Industries
observes: "Global benchmarking has always been a mantra for all of
us, here at Reliance. We have now geared ourselves up to raise our
levels of productivity and efficiency for capital, assets, people, and the
entire organisation, well beyond comparable global benchmarks.

Benchmarking is a popular technique of assessing organisational capability. But

it suffers from some limitations. First, it is a time-consuming and expensive
process. Second, it can be useful only when done on a continuous basis. Third,
it is difficult to find comparable organisations for benchmarking in different
industries and sectors.

Comprehensive Analysis

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 Each of the techniques given above has its own use but fails to provide a
comprehensive picture of organisational strengths and weaknesses.
Comprehensive analysis is required to overcome this limitation. The techniques
used in comprehensive analysis are given below:

1. Key Factor Rating: In this method the key factors as discussed under
section 5.5 are analysed to judge their positive and negative impact on the
functioning of the organisation. The rating of key factors in the finance area
is illustrated in Fig. 5.4

Key factor rating provides a very comprehensive or holistic view of

performance but it suffers from some limitations. First, it is an unwieldy
technique. It requires considerable information from different parts of the
organisation and is, therefore, time-consuming. Second, this method is
subjective because managers assign rating on the basis of their judgment.
Third, the key factor rating needs to be calibrated with the on going audit
processes in the organisation.

2. Balanced Scorecard: Balanced scorecard discussed in Chapter 3 is the

most comprehensive method of analysing an organisation's strengths and
weaknesses. It integrates different perspectives with vision and strategy to
provide a comprehensive and balanced picture of organizational

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 performance. The four key performance measures identified in balanced
scorecard are as under.
(i) Financial Perspective-How do shareholders look at us?
(ii) Customer Perspective-How do customers see us?
(iii) Internal Business Processes Perspective What must we excel at?

(iv) Learning and Innovative Perspective-Can we continue to improve and

create value.
When used together, these perspectives help in judging whether the
organisation is moving towards its vision. A balanced view of the
organisation's strengths and weaknesses can be obtained by keeping score
in the four critical areas of performance. It can be used for deciding the key
areas of performance and focus attention to build capabilities in these
areas.

3. Business Intelligence Systems: Data from various internal and external

sources are used to evaluate the company's strategic directions and
operational performance. Data mining, data warehouses and analytical
reports are used

SWOT Analysis
The acronym SWOT stands for the following:

1. Strength (S): A strength is a competence which enables an organisation to

gain an advantage over its competitors.

2. Weakness (W): A weakness is a limitation or constraint which creates a

competitivedisadvantage for the organisation.

3. Opportunity (O): An opportunity is a favourable condition in the

environment.

4. Threat (T): A threat is an unfavourable condition in the environment.

Strengths and weaknesses can be identified through organisational appraisal or

analysis of the internal environment. Environmental appraisal or analysis of the
external environment reveals opportunities and threats.

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 SWOT analysis is also known as WOTS and TOWS analysis. It helps in
understanding the 127 internal and external environment. It is very useful in
strategy formulation as the organisation's strengths and weaknesses can be
matched with the opportunities and threats. An effective strategy makes use of
strengths to capitalise on the opportunities and minimisse the impact of
weaknesses to neutralise the threats. After SWOT analysis, an organisation has
to decide how to maximise its strengths and minimise its weaknesses. It can
also decide how to exploit the opportunities and to counter the threats.

SWOT analysis is made in the form of a four-cell matrix (Fig. 5.5)

Main advantages of SWOT analysis are as follows:

(i) It is simple to use.
(ii) It is inexpensive.
(iii) It provides a comprehensive picture of environment.

(iv) It is flexible and can be adapted to different types of organisations.

(v) It serves as the basis for strategic analysis.

SWOT analysis suffers from some limitations.

1. It may give an oversimplified view of reality.

2. It does not indicate relative importance of different variables.

3. It may be affected by the evaluator's perception and judgment.

4. There is a change of confusion between opportunities and strengths, and

threats and weaknesses.

5. It provides a static picture.

SWOT analysis can be divided into two major parts - ETOP and SAP. ETOP is a
list of opportunities and threats in the external environment. It has been

SM Module 2 47
 described in Chapter 4. SAP indicates an organisation's strengths and
weaknesses against its competitors.

Structuring Organisational Appraisal

The information obtained through organisational analysis and appraisal can be
summarised in two formats-organisational capability profile, and strategic
advantage profile.

Organisational Capability Profile (OCP)

Organisational capability profile is a summary of an organisation's strengths
and weaknesses in key result areas. Information in this summary statement
should be presented in quantitative terms so as to show the degree of a
strength/weakness. The values to different capabilities may be assigned along
a scale ranging from +5 to-5. OCP helps an organisation to identify gaps in
capabilities so that appropriate action can be taken to overcome the
weakness.)

Strategic Advantage Profile (SAP)

Strategic advantage profile describes an organisation's competitive position in
the industry. While OCP has internal orientation, SAP is externally-oriented.
SAP gives "a picture of the more critical areas which can have a relationship
with the strategic posture of the firm in future"s
The preparation of SAP involves the following steps:
(1) Identify the factors (called critical success factors) which are important for
success in the industry.
(ii) Measure the organisation's position on these factors in comparison to its
competitors.
(iii) Judge the sustainability of each competitive advantage/disadvantage of the
organisation. Competitive advantage may turn into a disadvantage due to
changes in the environment.

SM Module 2 48
 Strategic Decision - Making
Strategic decision-making is the core of strategic management. It influences
the entire organization and has long-term implications. It involves commitment
of large amount of resources. Take over of Corus Steel by Tata Steel, ITC's
entry into food products, decision of Tata Motors to launch Nano car are
examples of strategic decisions. Where are we now? Where we want to be?
How can we get there from here? are examples of strategic decisions.

Strategic decisions are concerned with:

The scope of an organisation's activities.

The matching of an organisation's activities to its environment.

The matching of the activities of an organisation to its resource

capability.

The allocation and reallocation of major resources in an organisation.

The values, expectations and goals of those influencing strategy.

The direction an organisation will move in the long run.

Implications for change throughout the organisation-they are therefore

likely to be complex in nature.

Approaches To Strategic Decision-Making (Modes Of Strategy

Making)
Mintzberg has identified three modes of strategy-making entrepreneurial,
planning and adaptive. But Steiner et.al. have given five approaches formal-
structured, intuitive-anticipative, entrepreneurial-opportunistic, incremental and
adaptive.
These two sets of classification can be reconciled to some extent.
Entrepreneurial mode involves intuition and anticipation. Formal-structured
approach is similar to planning mode. Incremental and adaptive approaches are
by and large similar. Therefore, three main approaches to strategic decision-
making are described below:

SM Module 2 49
 1. Entrepreneurial-Opportunistic Approach: Under this approach decision-
making is an emergent rather than a formal process. Family-managed
companies adopt the entrepreneurial approach. The basic features of
entrepreneurial strategy-making are as follows:
(a) The main objective is expansion and growth in turnover, assets and
market share
(b) Decision power is centralised in the promoters who are capable of
making bold and unusual decisions in the face of environmental uncertainty
(c) The focus of the entrepreneur is search for business opportunities and
to capitalise them
(d) The decisions lead the firm to make unusual leaps or lows depending on
whether the decisions are right or wrong.
The entrepreneurial approach is suitable when the key strategists have very
high stake and are in a position to lead the organization from the front. Such
strategists are highly ambitious, risk takers and visionary. Decisions made
by them are unorthodox and path-breaking. Therefore their organizations
outperform the competitors. However, if the strategy makers lack the
necessary intuition and vision, their organizations are likely to fail badly.

SM Module 2 50
 Examples Of Entrepreneurial Approach

During his morning walks, Akio Moita, chairman of Sony Corporation of

Japan, needed a mini cassette player so that he could listen to his
favourite music conveniently. Therefore, he asked his research and
design engineers to design a Walkman. The engineers replied that the
product would not succeed in the market. But he insisted on that and
Walkman became a roaring success.

The late Dhirubhai Ambani saw the business opportunity in high priced
premium fabrics which was unheard at that time in India. Vimal brand
fabrics made roaring success. Later on, he used the same approach to
conceive several projects and Reliance ultimately became the largest
private sector company in India.

Brijmohan Lall Munjal, the chairman of Hero Motor Corp felt that
motorcycles rather than scooter will be the future mode of personal
transport due to rising fuel prices and speed-orientation. His vision
tuned out to be true though most experts did not agree with him at that
time. Today, Hero Motor Corp is the largest motorcycle manufacturer in
the world.

Sunrise Industries launched Yuva and Piyu brands of toilet cleaners in

1980s. Both the products failed in the market due to stiff competition
from Hindustan Unilever and other existing competitors

Suraj Automobiles launched diesel-based motorcycles. The product

offered saving in fuel cost but failed in the market

2. Formal-Structured Approach (Planning Mode): In the formal approach,

strategic decisions are made on the basis of the organization's purposes,
environmental opportunities ,threats, and the organization's strengths and
weaknesses. In other words, various factors influencing the strategy are
analysed before making the strategy. Therefore, this is a systematic and
comprehensive approach involving anticipating of the future conditions.
Decision-making is decentralised to the level of expertise.
Multinational corporations and other professionally managed firms usually
follow the Tormal approach The main advantage of this approach is that it

SM Module 2 51
 generates adequate✓ information which helps strategists to make
decisions in complex situations. However, too much formalised and highly
structured process may slow down decision-making. Path-breaking and
unusual decisions are rare.
The degree of formalisation differs from one organisation to another. Large
and high technology firms are operating in stable environment, i.e., usually
characterised by greater formalisation than small and low technology firms
operating in turbulent and highly competitive environment.

3. Adaptive Approach: In this approach the focus is on solving problems

rather than exploiting opportunities. Decision-making is largely incremental
and reactive. An attempt is made to adapt the organization to changes in its
environment. The final decisions are largley compromises due to pressure
from several stakeholders with conflicting interests.
The adaptive approach is followed in most of the public sector enterprises.
Private sector firms lacking vision and intuition may also adopt this
approach.
The main advantage of the adaptive approach is low risk because the firms
using this approach follow industry leaders. But this approach does not
work when there are rapid changes in the environment. By the time the
organisation adopts one change, environment changes further. In the era of
globalisation firms who follow the adaptive approach fail to gain a
competitive advantage)
Thus, each approach to strategic decision-making has its own merits and
demerits. Several factors determine the approach which a particular
organisation will adopt. Size, management style, environment, technology,
etc. of the organisation are the main factors.

Strategic decision-making contributes to the strategic management process

by:
(i) assisting the organisation adapting to its environment by monitoring
changes in the environment;
(ii) improving integration between different parts of the organisation by
means of common agenda (strategic intent);
(iii) monitoring the organisation's performance against the strategic
priorities.

SM Module 2 52
 Process And Model Of Strategic Management
The process of strategic management consists of four broad phases (Fig. 2.1)

Each phase consists of several elements or sub-phases which are as follows:

1. Establishing the Strategic Intent: Strategic management aims to help the

organisation realise its strategic intent. Strategic intent, represents what the
organisation stands for and lays the foundation for the organisations
strategic management. The main elements of strategic intent are as follows:
(i) Creating and communicating the vision
(ii) Designing a mission statement
(iii) Defining the business
(iv) Choosing the business model
(v) Setting objectives
Vision represents what the organisation wants to be in future. Mission is
the fundamental unique purpose that sets the organisation apart from other
organisations and identifies its product market scope. It also prescribes
how the organisation will deal with its various stakeholders. It relates the
organisation to the society. Business definition is a statement of the
business(es) the organisation engages or wishes to engage in future.
Business model describes how the organisation creates value, Objectives
are the end results which the organisation strives to achieve in future.

2. Formulation of Strategies: This phase of strategic management process

involves the following activities:

SM Module 2 53
 (a) Analysis of external environment to identify the opportunities and
threats for the organisation.
(b) Analysis of internal environment (organisational analysis to identify the
organisation's strengths and weaknesses.
(c) Identification of strategic alternatives in terms of corporate level
strategies, and business level strategies.
(d) Strategic analysis and choice of strategy

3. Implementation of Strategies: The main activities involved in strategy

implementation are as follows:
(a) Activating strategies
(b) Designing the structure, systems and process
(c) Behavioural implementation
(d) Formulating functional strategies
(e) Operationalising strategies
These activities constitute the action phase of the strategic management
process.

4. Evaluation and Control of Strategies: The last phase of the strategic

management process consists of the following activities:
(a) Evaluation of strategies
(b) Exercising strategic control
(c) Reformulating strategies
The various elements of the strategic management process are interrelated
and interdependent. A simple model of strategic management process is
given in Fig. 2.2

SM Module 2 54
 The feedback from strategic evaluation helps in exercising strategic control
which may involve reformulation of strategies and/or improving implementation
of strategics. In this way, strategic management becomes an iterative process.

Participants In Strategic Management

Strategy formulation is largely the responsibility of top management because
this level can take care of the total organisation and relate it to its environment.
Top management consists primarily of the board of directors and the chief
executive officer. However, corporate planning staff, consultants and senior
managers provide valuable inputs for strategy formulation. In strategy
implementation managers at all levels are involved

Role of Board of Directors

Board of Directors has the authority to manage a company within the
framework of the Companies Act, the Memorandum of Association and the
Articles of Association. The main functions of the board of directors are as
follows:

1. Strategy Formulation: The board of directors establishes the company's

strategic intent and formulates corporate level strategies. It defines the

SM Module 2 55
 broad direction in which the company will move and the long-term
objectives which it will pursue.

2. Designing Organisation Structure: The board of directors designs the

company's organisation structure in terms of SBUs, divisions and
departments. It also appoints the chief executive and selects
divisional/departmental heads.

3. Financial Approvals: The board of directors approves the company's

master budget and distribution of its earnings. Through such approvals the
board maintains control over the company's management

4. Exercising Controls: Board of directors is responsible to the shareholders

for the management and performance of the company. Therefore, it has to
keep effective checks and control over the company's functioning. The
board of directors reviews the company's performance at periodic intervals
(usually every quarter) and suggests suitable actions to improve
performance.

5. Trusteeship: The board of directors has a fiduciary relationship with the

company. Shareholders entrust the company's assets to the board of
directors which must discharge its duties with honesty and sincerety for the
benefit of shareholders. It must fulfil the trust and confidence shown by the
shareholders.

6. Legal Duties: The Companies Act defines the legal functions and
responsibilities of the board of directors. The directors face civil and
criminal liabilities if they fail to comply with their legal duties.

Role of Chief Executive

Chief executive is the strategist and the chief architect of the organisation's
purpose. He acts as the organisation builder and leader of the management
team.
The main functions of the chief executive are as follows:

1. Strategic Planning: The chief executive identifies business opportunities

and makes strategic decisions. He lays down corporate goals and
formulates long-term plans.

2. Guidance and Direction: The chief executive guides and directs all the
functional heads of the organisation by:

SM Module 2 56
 (a) explaining and interpreting the strategies and policies formulated by the
board of directors,
(b) issuing orders and instructions to departmental heads.

3. Coordination: The chief executive ensures cooperation and coordination

among all the departments of the company. He ensures that various
departmental/divisional heads work together as a team towards the
achievement of organisational purpose.

4. Staffing: The chief executive selects heads of divisions/departments, fixes

their pay structure and decides their promotions/transfers.

5. Review and Control:The chief executive appraises the performance of

different divisions/departments and suggests appropriate remedial
measures. He prepares progress and control reports for the board of
directors

6. Public Relations: The chief executive is the spokesman and

representative/public face of his company. He works to maintain cordial
relations with shareholders, banks, financial institutions, trade unions, trade
associations, government and other stakeholders.

Thus, the chief executive performs general management functions rather than
looking after functional aspects of the company. He assists the board of
directors in the strategic management of the organisation.
Chief executive is the executive head of a company Traditionally, one person
acts as the chief executive and is responsible for overall functioning of the
company. He may be assisted by staff specialists such as legal adviser,
personal secretary, executive assistant, etc. In big companies a small group
rather than a single person serves as the chief executive.
This group is called plural executive. This is done because one person cannot
effectively perform different roles of the chief executive.
However, a company may not like too much concentration of power in an
individual. Multiple chief executive system is also helpful in solving the problem
of succession. People with complementary skills and experience can be
selected for the chief executive group.
In a large corporation, top management functions may be grouped into two
divisions management division and operating division.

SM Module 2 57
 The Chief Executive Officer (CEO) looks after the management division
whereas the Chief Operating Officer (COO) handles the operating division.

SM Module 2 58