Business Process & Strategy

UNIT-II
Unit-II
Strategic Management Process
Environment Analysis
Analysis of Internal Resources
 Business Environment
Organization environment is “the aggregate of all
conditions, events and influences that surround and affect
any organization”
Internal and External Environment
External Business Environment
Macro Environment
Political
Economic Environment
Socio- Cultural Environment

Demograp Attitudes
hics & Values
Family
Concerns Structures
Technological Environment
Regulatory/ Legal Environment
Constitutional Framework

Policies related to licensing, monopolies, financing

Policies related to Imports & Exports

Policies related to Distribution & Pricing

Policies related to public sector, small-scale, consumer protection

Natural Environment
International Environment
Globalisation
Global economic forces
Global trade and commerce
Global financial systems
Global demographic pattern
Global information system
Global technological system
Global legal system etc.
Environment Scanning
The environment of any organisation is ’the aggregate
of all conditions , events and influences the surround
and affect it’.

It can be defined as the process by which organizations

monitor their relevant environment to identify
opportunities and threats affecting their business for
the purpose of taking strategic decisions
Factors to be considered for Environment
Scanning
Events
Trends
Issues
Expectations
 APPROACHES TO ENVIRONMENTAL
SCANNING

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Techniques for Environmental Analysis or
Scanning

PESTEL ANALYSIS
PEST ANALYSIS
STEEP ANALYSIS
SWOT ANALYSIS
TOWS ANALYSIS
QUEST
EFE MATRIX
CPM
ETOP
Weighted PESTLE
 The PESTLE analysis can be converted into a more
specific instrument of measurement by giving a weightage
and a score to the items
 For Example- Ministry of Environment raised the idea of
creating an ‘afloat storage’ for agricultural produce in some
selected areas. The factors that were identified as being
critical to the project were as follows:
 From the political point of view, national acceptability was
considered important. In the economic criteria, the cost of
the project and the cost profile were considered important.
Similarly, in socio-cultural context, the local public
acceptance was considered as important. At the
technological level, ALARP ( As
Low As Reasonably Practical)- a term used for safety –
involved systems, maintainability, sustainability, shielding
and protection, and flexibility were important. From the
environmental point of view, visual impact and the positive
impact of the project on the community were critical.
Finally a long term view of the legal implications was also
considered important.
Each of the main factors was given a score reflecting its
weightage on a scale of 100.
Political- 25
Economic- 20
Socio-cultural-15
Technical- 17
Legal- 5
Enviromental-18
ETOP Analysis
ETOP analysis (environmental threat and opportunity
profile) is the process by which organizations monitor
their relevant environment to identify opportunities
and threats affecting their business for the purpose of
taking strategic decisions.
 Why ETOP is required?
• Helps organization to identify opportunities and threats
• To consolidate and strengthen organizations position
•Provides the strategists of which sectors have a
favorable impact on the organization
• Help organization know where it stands with respect to
its environment
• Helps in formulating appropriate strategy
•Helps in formulating SWOT analysis (Strategic
weakness, opportunities and threats)
How to Prepare ETOP
➢Dividing the environment into different sectors such as
economical, market, social, international, legal,
technological, political, ecological, etc.
➢ Analyzing the impact of each sector on the
organization
➢ Sub-dividing each environmental sector into sub
factors
➢ Impact of each sub-sector on organization in form of a
statement
The profile contains mainly 3 issues, they are
1] Forecasting:- Forecasting means predicting the future events &
analyzing their impact on present plans business organizations analyze
the environment but applying various techniques to forecast
government is used to formulate business plans & strategies.
2] Verbal Written information:- Verbal information is collected but
hearing & written information is collected by reading articles, journals,
newspaper, newsletters etc.., common sources of information are radio,
television, workforce, outsiders. It informs changes in the environment
& prepares business organization to incorporate than in their business
plans & strategies.
 3] Management Information System [MIS]:- It is a formal method of
making available to management to management the accurate &
timely information necessary to facilitate the decision making
proceeds & enable the organization planning, control & operational
functions to be carried out effectively. It helps in making decisions
based on future environment. The profile involves,- Environment,
Threats & Opportunities Profile
 ETOP Analysis
- Favorable impact Unfavorable impact No impact
Micro Environment
The primary environment identifies the primary
industrial sectors in which the firm operates and it also
looks at competition and markets and quantitatively
describes its past and future.
These competitive forces determine profitability and
growth and therefore, are of foremost importance.
Porter’s 5 force model
Internal Appraisal
 Internal Appraisal is the study of internal
environment.
 In order to tap the opportunities
identified by the environment analysis, it
is necessary to find out whether the firm
has the requisite capabilities.
 This is done by internal Appraisal
Internal appraisal has three distinct parts
Assessment of the strengths and weaknesses
of the firm in different functional areas;
 Appraisal of the health of individual
businesses;
Assessment of the firm’s competitive
advantage and core competence.
Internal Environment- Organizational
Appraisal
Organizational Structures
 Bureaucratic Structure- Centralized management, where the key
decisions lie with the strategic leader
 Functional Structure-In a Functional organizational structure, the
organization is managed according to a delegation of command to
different functional areas; e.g., the chain of command may include
a CEO, followed by functional managers for the sales, marketing,
and production department, followed by their subordinates.
 Divisional Structure- In such organizations, functional areas are
divided in different divisions. In such a structure, each division
has its own resources for independent functioning.
 Matrix Structure- This type of organizational structure allocates
employees based on the product and functions. It contains aspects
from functional and divisional structures, where different teams
are used to complete tasks.
Dynamics of Internal Environment

Organizational Organizational
Resources Behavior
Organizational Resources ( Resource based
view)
 According to Barney (1991), a firm is a bundle of resources-
tangible and intangible
 These resources could be classified as physical, human, and
organizational resources.
Physical resources- Technology, Plant & equipment, Geographic
location, access to raw materials etc
Human resources- training, experience, judgment, intelligence,
relationships etc
Organization resources- formal systems and structures as well as
informal relations among groups
 The resource based theory of strategic management holds that
the firm possesses resources that are valuable and rare. And
these help them to achieve strategic advantage
Organizational Behavior
Strengths & Weaknesses
 Organization behavior and resources do not exist in isolation.
 They combine in a complex fashion to create strengths and
weaknesses within the internal environment of an
organization
 Strength is the inherent capability which an organization can
use to gain competitive advantage
 A weakness on the other hand, is an inherent limitation or
constraint which creates a strategic disadvantage
 Eg. – Financial strength could be due to simultaneous
availability of sources of funds
 Strengths and weaknesses do not exist in isolation but
combine with a functional area.
Synergistic Effect
Synergy is an idea that whole is greater or lesser than
the sum of its parts.
Synergistic effect
Two strong points in a particular functional area add
up to something more than double the strength
Eg.: A synergistic effect in marketing may be when the
product, pricing, distribution, and promotion aspects
support each other, resulting in high marketing
stynergy

Likewise two weaknesses acting together result in

more damage
Competencies
Competencies are special qualities possessed by an
organization that make them withstand pressures of
competition in the market
The capability to use the competencies exceedingly
well turn them into core competencies over time.
When a specific ability is possessed by a particular
organization exclusively or relatively in large
measures, it is called a distinctive competence
Eg.- Superior quality products, Skilled
Technology & Innovation, Superior R&D etc.
Organizational Capability
It is the inherent capacity or potential of an
organization to use its strengths and overcome its
weaknesses in order to exploit opportunities and
face threats in its external environment
It is also viewed as a skill for coordinating
resources and putting them to productive use
It is measured and compares through the process
of organizational appraisal
Organization Capability Factors
Financial Capability
Marketing Capability
Operations Capability
Personnel Capability
Information Management Capability
General Management Capability
Strategic Advantage
It is the outcome of organizational capabilities
They are the result of organizational rewards
Every firm has strategic advantages and
disadvantages. For example, large firms have
financial strength but they tend to move slowly,
compared to smaller firms, and often cannot react
to changes quickly
Methods & Techniques Used for
Organizational Appraisal
Internal Analysis
VRIO framework
Value Chain analysis
Quantitative analysis
Financial analysis
Non- Financial analysis
Qualitative analysis
Methods & Techniques Used for
Organizational Appraisal
Comparative Analysis
Historical analysis
Industry norms
Benchmarking

Comprehensive Analysis
Key factor rating
Business Intelligence systems
Balanced Score card
Barney’s VRIO Framework
Value
Does it provide customer value and competitive
advantage?
Rareness
Do no other competitors possess it?
Imitability
Is it costly for others to imitate?
Organization
Is the firm organized to exploit the resource?
VRIO Framework
Value chain Analysis
A value chain is a linked set of value-creating activities
that begin
with basic raw materials coming from suppliers,
moving on to a series of value added activities involved
in producing and
 marketing a product or service.
The focus of value chain analysis is to examine the
corporation in the context of the overall chain of value-
creating activities.
Very few corporations have a product’s entire value
chain in-house, E.g.- Ford Motors
VALUE CHAIN ANALYSIS- Porter’s
Generic Value Chain
Value Chain Analysis Requires:
Recognizing the activities that make up the
Organization’s value chain
Identifying the things done in those activities that
provide value to customers
Identifying how the value contribution can be
increased so that it costs less to provide more value –
increasing the profit margin
Identifying how the value configuration could be
improved by innovatively reconfiguring and
recombining activities.
Quantitative Analysis
Financial Analysis Non- Financial Analysis
Ratio analysis Employee turnover
Economic Value Added Absenteeism
Market ranking
(EVA) analysis
ABC ( Activity Based Rate of advertising recall
Total cycle time of
Cost) accounting
production
Inventory units used per
period
Service call rate
Number of patents
registered per period
Qualitative Analysis
It is used when quantification is not possible
It is based on informed opinion, judgment,
intuition, or hunch
A systematic qualitative analysis may use the
survey approach
It can effectively supplement the quantitative
analysis
It is considered as a soft analysis
Comparative Analysis
Historical analysis
Industry norms
Benchmarking
Comprehensive Analysis
Key Factor Rating
Business Intelligence systems
Balance Scorecard
Structuring Organizational Appraisal
Preparing the Preparing the
Organizational Strategic Advantage
Capability Profile Profile
Organizational Capability Profile
An organizational capability profile describes the
skills, knowledge and resources that enable your
company to provide quality products or services to
customers.
The profile provides useful background information
for your marketing and corporate communications.
 Functional Area Profile Matrix
 In this a matrix is prepared for all the functional areas of an
organization along with the characteristics common to each other.
 The functional area of an organization is finance, marketing,
production, human resources, research and development etc.
 Here the strategist are required to systematically assess the various
functional areas and subjectively assign values to the different
capability factors and sub factors along a scale ranging from -5 to 5.
 Each area must be considered with respect to what its policies and
approaches should be. This approach allows the firm to analyze the
strategic deployment of funds and its strength and weakness over a
period of time as compare to those of its competitors.
 With the help of this profile the strategists are in the position to
identify the gaps that needs to be corrected and the opportunities
that could be used.
 Hofer and Schendel have developed this technique to make a comparative
analysis of a firm’sown resources deployment position and focus of efforts
with those of competitors.
 First the technique requires the preparation of a matrix of functional areas
with common features. For e.g.focus of financial outlay, physical resources,
organizational systems and technologicalcapability.
 Second a matrix is prepared showing deployment of resources and focus of
effort over a period of time. This profile shows how key functional areas
stand in relation to each other and as compared to the competitors with
regard to deployment of resources and the focus of efforts in each
functional area.
 The matrix can be shown thus: The matrix gives data pertaining to resources
deployment in various functional areas over a period of time. It also shows
how the focus of efforts has changed within a time frame.
 Strategiests can draw their own conclusions based on past experience,
current trends and future expectations. They can find out whether the firm is
able to strengthen the areas of advantage or dissipate its energies over a
period of time. While drawing comparisons it is advisable to compare firms,
which are in the same phrase of product life cycle
Models of strategic management
Mckinsey’s 7’s framework
The McKinsey 7S Model refers to a tool that analyzes a
company’s “organizational design.”
The goal of the model is to depict how effectiveness can be
achieved in an organization through the interactions of
seven key elements – Structure, Strategy, Skill, System,
Shared Values, Style, and Staff.
The focus of the McKinsey 7s Model lies in the
interconnectedness of the elements that are categorized by
“Soft Ss” and “Hard Ss” – implying that a domino effect
exists when changing one element in order to maintain an
effective balance.
 Placing “Shared Values” as the “center” reflects the crucial
nature of the impact of changes in founder values on all
other elements.
Structure
Structure is the way in which a company is organized – chain of
command and accountability relationships that form its organizational
chart.
Strategy
Strategy refers to a well-curated business plan that allows the company
to formulate a plan of action to achieve a sustainable competitive
advantage, reinforced by the company’s mission and values.
Systems
Systems entail the business and technical infrastructure of the
company that establishes workflows and the chain of decision-making.
Skills
Skills form the capabilities and competencies of a company that
enables its employees to achieve its objectives.
Style
The attitude of senior employees in a company establishes
a code of conduct through their ways of interactions and
symbolic decision-making, which forms the management
style of its leaders.
Staff
Staff involves talent management and all human resources
related to company decisions, such as training, recruiting,
and rewards systems
Shared Values
The mission, objectives, and values form the foundation of
every organization and play an important role in aligning
all key elements to maintain an effective organizational
design.
Application of the McKinsey 7S Model

Step 1: Identify the areas that are not effectively

aligned
Is there consistency in the values, strategy, structure, and
systems? Look for gaps and inconsistencies in the
relationship of elements. What needs to change?
Step 2: Determine the optimal organization design
It is important to consolidate the opinions of top
management and create a generic optimal organizational
design that will allow the company to set realistic goals
and achievable objectives. The step requires a
tremendous amount of research and analysis since there
are no “organizational industry templates” to follow.
 Step 3: Decide where and what changes should be made
Once the outliers are identified, the plan of action can be
created, which will involve making concrete changes to the
chain of hierarchy, the flow of communication, and
reporting relationships. It will allow the company to
achieve an efficient organizational design.

 Step 4: Make the necessary changes

Implementation of the decision strategy is a make-or-break
situation for the company in realistically achieving what
they set out to do. Several hurdles in the process of
implementation arise, which are best dealt with a well-
thought-out implementation plan.
 Advantages of the Model
It enables different parts of a company to act in a
coherent and “synced” manner.
It allows for the effective tracking of the impact of the
changes in key elements.
It is considered a longstanding theory, with numerous
organizations adopting the model over time.
 Disadvantages of the Model
It is considered a long-term model.
With the changing nature of businesses, it remains to be
seen how the model will adapt.
It seems to rely on internal factors and processes and
may be disadvantageous in situations where external
circumstances influence an organization.
Further Reading- Example
1. https://strategicmanagementinsight.com/swot-analys
es/apple-swot-analysis/#:~:text=Apple's%20excellen
ce%20in%20creating%20spectacular,powerful%20br
and%20in%20the%20world
.
2. https://www.linkedin.com/pulse/strategic-analysis-ap
ple-inc-bidemi-ogedengbe