CU-BCOM-SEM-V-Corporate Strategy-Second Draft

employees and loyal customers. Perhaps you will decide it was luck. Apple simply was in the right place at the right time. Or maybe you will attribute the company’s success to management’s willingness to take calculated risks. Perhaps you will attribute Apple’s initial accomplishments and re-emergence to its cofounder, Steve Jobs. After all, Jobs was instrumental in the original design of the Apple I and, after being ousted from his position with the company, returned to save the firm from destruction and lead it onto its current path. Before we decide what made Apple what it is today and what will propel it into a successful future, let’s see if you have all the facts about the possible choices: its products, its customers, luck, willingness to take risks, or Steve Jobs. We’re confident that you’re aware of Apple’s products and understand that “Apple customers are a loyal bunch. Though they’re only a small percentage of all computer users, they make up for it with their passion and outspokenness. “Ellen Lee, “Faithful, sometimes fanatical Apple customers continue to push the boundaries of loyalty,” San Francisco Chronicle, March 26, 2006. We believe you can understand the role that luck or risk taking could play in Apple’s success. But you might like to learn more about Steve Jobs, the company’s cofounder and CEO, before arriving at your final decision. As the story of Apple suggests, today is an interesting time to study business. Advances in technology are bringing rapid changes in the ways we produce and deliver goods and services. The Internet and other improvements in communication now affect the way we do business. Companies are expanding international operations, and the workforce is more diverse than ever. Corporations are being held responsible for the behaviour of their executives, and more people share the opinion that companies should be good corporate citizens. Plus and this is a big plus businesses today are facing what many economists believe is the worst financial crisis since the Great Depression. JonHilsenrath, Serena Ng, and Damian Paletta, “Worst Crisis Since ’30s, With No End Yet in Sight,” Wall Street Journal, Markets, September 18, 2008, http://online.wsj.com/article/ SB122169431617549947.html. Economic turmoil that began in the housing and mortgage industries as a result of troubled subprime mortgages quickly spread to the rest of the economy. Credit markets froze up and banks stopped making loans. Lawmakers tried to get money flowing again by passing a $700 billion Wall Street bailout, yet businesses and individuals were still denied access to needed credit. Without money or credit, consumer confidence in the economy dropped and consumers cut back their spending. Businesses responded by producing fewer products, and their sales and profits dropped. Unemployment rose as troubled companies shed the most jobs in five years and 760,000 the stock market reacted to the financial crisis and its stock prices dropped by 44 percent while millions of Americans watched in shock as their savings and retirement accounts took a nose dive. In fall 2008, even Apple, a company that had enjoyed strong sales growth over the past five years, began to cut production of its popular phone. Without jobs or cash, consumers would no longer flock to Apple’s fancy retail stores or buy a prized phone .Dan Gallagher, “Analyst says Apple is cutting back production as economy weakens,” Market Watch, November 3, 2008. 151 CU IDOL SELF LEARNING MATERIAL (SLM)

A business1 is any activity that provides goods or services to consumers for the purpose of making a profit. When Steve Jobs and Steve Wozniak created Apple Computer in Jobs’ family garage, they started a business. The product was the Apple I, and the company’s founders hoped to sell their computers to customers for more than it cost to make and market them. If they were successful they’d make a profit. Before we go on, let’s make a couple of important distinctions concerning the terms in our definitions. First, whereas Apple produces and sells goods, many businesses provide services. Your bank is a service company, as is your Internet provider. Airlines, law firms, movie theatres, and hospitals are also service companies. Many companies provide both goods and services. For example, your local car dealership sells goods and also provides services. Second, some organizations are not set up to make profits. Many are established to provide social or educational services. Such not-for- profit organizations include the United Way of America, Habitat for Humanity, the Boys and Girls Clubs, the Sierra Club, the American Red Cross, and many colleges and universities. Most of these organizations, however, function in much the same way as a business. They establish goals and work to meet them in an effective, efficient manner. Thus, most of the business principles introduced in this text also apply to non-profits. 9.2 CONCEPT The concept of competitive business-level strategy is somewhat confusing, as several writers have tried to articulate dimensions of strategy using different labels. Moreover, a number of partial theories or typologies of business strategy have been developed. Organizational theorists have explored the linkages between environment, organizational and managerial characteristics, and in some cases business performance. The results have come to be called contingency theory. However, the major shortcoming for those interested in strategic management is that obvious this theory does not incorporate a strategy concept. There has been considerable discussion about the central role strategy should assume in organization theory. As White and Hamermesh argued, \"it is through strategy that the firm interprets its environment and that strategy guide the choice of organization structure”. This interpretive view of strategy would contend that the organization must cope with the demands of its chosen strategy rather than directly with its environment, although the choice of strategy should take into account environmental conditions. Perhaps the most popular business strategy typologies have been based upon assessing the attractiveness of the industry or competitive environment, and the business's capabilities relative to other competitors. By arranging its portfolio of businesses in a matrix with industry attractiveness on one dimension and business position on the other, multi-business companies could assign each business a strategic mission: divest / harvest, defend / maintain or grow / build. For example, the portfolio models: BC, GE / McKinsey / Shell with their industry growth / market share matrix, deal with strategy in terms of the relative investment the firm should make in each of 152 CU IDOL SELF LEARNING MATERIAL (SLM)

its business, depend on its relative position in the industry and the industry's attractiveness. Many variations on this theme are the works: strategies of building, holding and harvesting strategies of explosion, expansion, continuous growth, slip, consolidation and contraction; strategies of share increasing, growth, profit and liquidation However, these theories do not more to address the corporate strategy problem - which business should we be in?, than the business strategy problem - how should we compete in this business? There has been considerable discussion about the central role strategy should assume in organization theory. As White and Hamermesh argued, \"it is through strategy that the firm interprets its environment and that strategy guide the choice of organization structure”. This interpretive view of strategy would contend that the organization must cope with the demands of its chosen strategy rather than directly with its environment, although the choice of strategy should take into account environmental conditions. Perhaps the most popular business strategy typologies have been based upon assessing the attractiveness of the industry or competitive environment, and the business's capabilities relative to other competitors. By arranging its portfolio of businesses in a matrix with industry attractiveness on one dimension and business position on the other, multi-business companies could assign each business a strategic mission: divest / harvest, defend / maintain or grow / build. For example, the portfolio models: BC, GE / McKinsey / Shell with their industry growth / market share matrix, deal with strategy in terms of the relative investment the firm should make in each of its business, depend on its relative position in the industry and the industry's attractiveness. Many variations on this theme are the works: strategies of building, holding and harvesting; strategies of explosion, expansion, continuous growth, slip, consolidation and contraction; strategies of share increasing, growth, profit and liquidation. However, these theories do not more to address the corporate strategy problem - which business should we be in?Than the business strategy problem - how should we compete in this business? Other typologies are based on products-market evolution stage, and include those of Fox and Glueck. These show some marketing considerations, in addition to using some of the same variables contained in other typologies. Structural aspects are the central focus of Burn's and Stalker’s typology, as they are with life cycle theories of Chandler, Scott, Wrigley,Rumelt, and James. More comprehensive typologies have been empirically tested, including those of Galbraith and Schendel and Miles and Snow. Miles and Snow identified four types of \"organizational\" strategies: defender, prospector, analyser and reactor. These represent strategies, organizational structure and processes that occur together. Unfortunately this typology does not clearly distinguish between strategic choices and organizational choices. Business strategy deals with two part of the overall question of how a firm should compete in a given business/industry. The first part related to investment decisions among its businesses. The second involves how the firm should integrate its activities in order to optimize these resources. The above-mentioned models do not deal sufficiently with the latter issue of the specifics of the strategy. Other typologies have been developed that deal exclusively with a business's competitive strategy within an industry. For example, Utterback and Abernathy's 153 CU IDOL SELF LEARNING MATERIAL (SLM)

strategies of performance maximizing, sales maximizing and costs minimizing; and Porter's three generic strategies. According to Porter, cost leadership, differentiation and focus are ways businesses deal with the five competitive forces that make up his general model, to create sustainable competitive advantage. He also proposed common organizational attributes that best fit cost leadership and differentiation strategies. Any attempt to categorize the complex phenomenon of business strategy into a limited number of strategy types will necessarily involve simplification. For example, Porter's generic strategies do not correspond directly to other strategy types, like Miles and Snow approaches. But these conceptions are not necessarily mutually exclusive. For example, pursuing a cost leadership strategy does not necessarily preclude building, maintaining or harvesting the business, or prospecting for a new market area. However, in studying business strategy-organization fit relationships it makes sense to proceed by selecting a simple business strategy concept which incorporates a few critical dimensions. Porter's generic business strategies meet these tests. Moreover, Porter's applications of mobility barriers, industry analysis, and generic strategies become broadly accepted and used in teaching, consultation, and many research projects. Therefore, a set of generic business strategies based on this conception should be crucial in the organization of the business unit. As Porter goes on to argue: Effectively implementing any of these generic strategies usually requires total commitment and supporting organizational arrangements that are diluted if there is more than one primary target. This view is supported by evidence from companies that have recognized the importance of cost and differentiation as an organizing principle. Business-level strategy addresses the question of how a firm will compete in a particular industry. This seems to be a simple question on the surface, but it is actually quite complex. The reason is that there are a great many possible answers to this question. Consider, for example, the restaurants in your town or city. Chances are that you live fairly close to some combination of McDonald’s, Earls, Boston Pizza, The Keg, and dozens of other national chains, and a variety of locally based eateries that have just one location. Each of these restaurants competes using a business model that is at least somewhat unique. When an executive in the restaurant industry analyses her company and her rivals, she needs to avoid getting distracted by all the nuances of different firm’s business-level strategies and losing sight of the big picture. 9.3TYPES Everything you need to know about the types of business level strategies. A strategy is a pattern or a plan which integrates an organization’s major policies, goals and actions, sequences in a coherent linear of decision. It is not a simple one, strategy have a number of implications. It can be described as A plan, or a similar idea that is direction, guide, course of action,a perspective on an organization’s fundamental way of doing things, iii. A pattern that 154 CU IDOL SELF LEARNING MATERIAL (SLM)

provides for consistent behaviour over time and A play or a specific “manoeuvre” intended to defeat a competitor. Strategy is a “military” term. It was Peter Drucker who pointed out the importance of strategic decision in 1955 in his book, “The Practice of Management”. Here he defined strategic decision as “all decision on business objectives and on the means to reach them. “Strategy is a “military” term. It was Peter Drucker who pointed out the importance of strategic decision in 1955 in his book, “The Practice of Management”. Here he defined strategic decision as “all decision on business objectives and on the means to reach them. “However the importance of the concept was fully realized when pioneers like Alfred Chandler and Michael Porter have developed the work strategic, which is regarded as the Classical Approach. It involved the use of formal and systematic design techniques. It concentrated on long-term plans and not concerned with implementation. More or less it ignores the human element. It is also based on quantitative aspect and focused externally,on the other hand, later writers emphasized on human and qualitative aspect of strategy. They saw “strategy” as evolutionary. It showed that “organizational behaviour” as part of organizational processes. Cost Leadership Cost Leadership is a situation in which market leader sets the price of a product or service, and competitors feel compelled to match that price. Cost Leadership is perhaps the clearest of the three generic strategies. In it, a firm set out to become the low-cost producer in its industry. The firm has a broad scope and serves many industry segments, and may even operate in related industries, the firm’s breadth is often important to its cost advantage. The sources of cost advantages are varied and depend on the structure of the industry. They may include the pursuit of economies of scale, proprietary technology, preferential access to raw materials, and other factors. A low-cost product must find and exploit all sources of cost advantage. Low-cost producers typically sell a ‘standard’ or ‘no frills’ product and place considerable emphasis on reaping scale or absolute cost advantages from all sources. If a firm can achieve and sustain cost leadership, then it will be an above average performer in its industry provided it can command prices at or near the industry average. At equivalent or lower prices than its rivals, a cost leader’s low-cost position translates into higher returns. A cost leader, however, cannot ignore the bases of differentiation. If its product is not perceived as comparable or acceptable by buyers, a cost leader will be forced to discount prices well below competitors, to gain sales. This may nullify the benefits of its favourable cost position. A cost leader must achieve parity or proximity in the bases of differentiation relative to its competitors to be an above-average performer, even though it relies on cost leadership for its 155 CU IDOL SELF LEARNING MATERIAL (SLM)

competitive advantage. Parity in the bases of differentiation allows a cost leader to translate its cost advantage directly into higher profits than competitors. Proximity in differentiation means that the price discount necessary to achieve an acceptable market share does not offset a cost leader’s cost advantage and hence the cost leader earns above-average returns. The strategic logic of cost leadership usually requires that a firm be the cost leader, not one of several firms vying for this position. Many firms have made serious strategic errors by failing to recognize this. When there is more than one aspiring cost leader, rivalry among them is usually fierce because every point of market share is viewed as crucial. Unless one firm can gain a cost lead and “persuade” others to abandon their strategies, the consequences for profitability (and long-run industry structure) can be disastrous, as has been the case in a number of petrochemical industries. Thus, cost leadership is a strategy particularly dependent on pre-emption, unless major technological change allows a firm to radically change its cost position. Investing in cost leadership by rapidly down the experience curve is a common way to establish a firm’s competitive advantage. Its success depends, in part, on the factors that underlie the experience curve. In cost leadership, the distinction between cost declines that occur at any point in time and cost declines that may occur over time can be known. This leads us to consider a revised experience concept in which the dynamic interrelationship between a firm’s production rate, cumulative production and unit cost is explicitly considered. It provides a detailed analysis of various scale- learning relationships and their strategic implications for establishing competitive advantage through an investment in cost leadership. It also proves analytically that such investment should take place only in the presence of learning. A firm pursuing a cost leadership strategy attempts to gain a competitive advantage primarily by reducing its economic costs below its competitors. This policy once achieved provides high margins and a superior’s return on investments. The skills and resources required to be successful in this strategy are sustained capital investment and access to capital; superior process engineering skills; good supervision and motivation of its labour force; product designed for ease in manufacturing; low-cost distribution system. This strategy requires tight cost control. This is often done by using a full costing method or activity based costing with frequent and detailed control reports the structure of the organization should be clear-cut and responsibilities clearly lay out. Organizations often provide incentives based on meeting strict quantitative targets, etc. In order to remain a cost leader, the firm attempts to avoid those factors that can cause the economies of scale to be affected. It has to work within the physical limits to efficient size, 156 CU IDOL SELF LEARNING MATERIAL (SLM)

workers motivation, and focus on markets and suppliers, sometimes, in restricted geographical areas. The low-cost producer strategy works best when buyers are large and have significant bargaining power; price competition among rival sellers is a dominant competitive force; the industry’s product is a standard item readily available from a variety of sellers; there are not many ways to achieve product differentiation that have value to the buyer; buyers incur low switching costs in changing from one seller to another and are prone to shop for the best price. A low-cost leader is in the strongest position to set the floor on market price and this strategy provides attractive defences against competitive forces. Its cost position gives it a defence from competitors because its lower costs mean that it can still earn returns after its competitors have competed away their profits through rivalry. It is protected from powerful buyers because buyers can exert power only to lower prices, and this will be possible only with next most efficient competitor. Lower cost provides protection against suppliers because there is more flexibility in the organization to cope with input cost increases. Any new entrant will find it difficult to overcome entry barriers because of required economies of scale, and also because the activities taken to achieve low costs are both rare and costly to imitate. Finally, it places the organization in a favourable position when pitted against substitutes compared to competitors in the industry. There are a number of risks in using this strategy. These risks relate to the fast changing business environment. The most serious risk to cost leadership is technological change that nullifies past investment or learning of the organization. Sometimes the inability of the management to see or anticipate the changes required in the product or market change, is a grave handicap. The organization’s advantage can also be neutralized if there is low cost learning by industry newcomers or inflation in costs of supplies or processes that provide the organization a competitive advantage. Differentiation The second generic strategy is Differentiation. In a Differentiation Strategy, a firm seeks to be unique in its industry along some dimensions that are widely valued by buyers. It selects one or more attributes that many buyers in an industry perceive as important, and uniquely positions it to meet those needs. It is rewarded for its uniqueness with a premium price. The means for Differentiation are peculiar to reach industry. Differentiation can be based on the product itself, the delivery system by which it is sold, the marketing approach, and a broad range of other factors. In construction equipment, for example, Caterpillar Tractor’s Differentiation is based on product durability, service, spare parts availability, and an excellent dealer network. In cosmetics, Differentiation tends to be based more on product image and the positioning of counters in the stores. 157 CU IDOL SELF LEARNING MATERIAL (SLM)

A firm that can achieve and sustain Differentiation will be an above-average performer in its industry if its price premium exceeds the extra costs incurred in being unique. A Differentiator, therefore, must always seek ways of differentiating that lead to price premium greater than the cost of differentiating. A differentiator cannot ignore its cost position, because its premium prices will be nullified by a markedly inferior cost position. A differentiator, thus, aims at cost parity or proximity relative to its competitors, by reducing cost in all areas that do not affect differentiation. The logic of the Differentiation Strategy requires that a firm choose attributes in which to differentiate itself that are different from its rivals. A firm must truly be unique at something or be perceived as unique if it is to expect a premium price. In contrast to cost leadership, however, there can be more than one successful differentiation strategy in an industry if there are a number of attributes that are widely valued by buyers. In a differentiation strategy, a firm seeks to be unique in its industry along some dimensions that are widely valued by buyers. It selects one or more attributes that many buyers in an industry perceive as important, and uniquely positions it to meet those needs. Differentiation will cause buyers to prefer the company’s product/service over the brands of rivals. An organization pursuing such a strategy can expect higher revenues/margins and enhanced economic performance. The challenge in finding ways to differentiate that creates value for buyers and that are not easily copied or matched by rivals. Anything a company can do to create value for buyers represents a potential basis for differentiation. Successful differentiation creates lines of defence against the five competitive forces. It provides insulation against competitive rivalry because of brand loyalty of customers and hence lower sensitivity to price. The customer loyalty also provides a disincentive for new entrants who will have to overcome the uniqueness of the product or service. Competitors are not likely follow a similar approach if buyers value the differentiated products and services. If they do, this will lead to a loose situation for them. The higher returns of the strategy provide a higher margin to deal with supplier power. Buyer power is mitigated as there are no comparable alternatives. Finally, a company that has differentiated itself to achieve customer loyalty should be better placed to compete with substitutes than its competitors. Competitive advantage through differentiation is sustainable if the activities taken to achieve differentiation are rare and costly to imitate. The most appealing types of differentiation strategies are those least subject to quick or inexpensive imitation. Differentiation is most likely to produce an attractive, long-lasting competitive edge when it is based on technical superiority, quality, giving customers more support services, and on the core competencies of the organization. 158 CU IDOL SELF LEARNING MATERIAL (SLM)

Differentiation strategy works best when there are many ways to differentiate the product/service and these differences are perceived by buyers to have value or when buyer needs and uses of the item are diverse. The strategy is more effective when not many rivals are following a similar type of differentiation approach. There are risks in this strategy when the cost of differentiation becomes too great or when buyers become more sophisticated and need for differentiation falls. Focus and Niche Strategies The third generic strategy is focus. This strategy is quite different from the others because it rests on the choice of a narrow competitive scope within an industry. The focuser selects a segment of group of segments in the industry and tailors its strategy to serving them to the exclusion of others. By optimizing this strategy for the target segments, the focuser seeks to achieve a competitive advantage in its target segments even though it does not possess a competitive advantage overall. The focus strategy has two variants, in cost focus, a firm seeks a cost advantage in its target segment, while in differentiation focus, and a firm seeks differentiation in its target segment. Both variants of the focus strategy rest on differences between a focuser’s target segments and other segments in the industry. The target segments must either have buyers with unusual needs or else the production and delivery system that best serves the target segment must differ from that of other industry segments. Cost focus exploits differences in cost behaviour in some segments, while differentiation focus exploits the special needs of buyers in certain segment. Such differences imply that the segments are poorly served by broadly targeted competitors who serve them at the same time as they serve others. The focuser can thus achieve competitive advantage by dedicating itself to the segments exclusively. Breadth of target is clearly a matter of degree, but the essence of focus is the exploitation of a narrow target’s differences from the balance of the industry. Narrow focus in and/or itself is not sufficient for above-average performance. A focuser takes advantage of sub-optimization in either direction by broadly-targeted competitors. Competitors may be underperforming in meeting the needs of a particular segment, which opens the possibility for differentiation focus. Broadly-targeted competitors may also be over performing in meeting the needs of a segment, which means that they are bearing higher than necessary cost in serving it. An opportunity for cost focus may be present in just meeting the needs of such a segment and no more. A generic strategy of focus rests on the choice of a narrow competitive scope within an industry. The focuser selects a segment or group of segments in the industry, or buys groups or a geographical market and tailors its strategy to serving them to the exclusion of others. The attention of the organization concentrated on a narrow section of the total market with an objective to do a better job serving buyers in the target market niche than the rivals. Each functional policy of the organization is built with this mind. 159 CU IDOL SELF LEARNING MATERIAL (SLM)

There are two aspects to this strategy, the cost focus and the differentiation focus. In the cost focus, a firm seeks a cost advantage in its target market. The objective is to achieve lower costs than competitors in serving the market; this is how cost producer strategy focused on the target market only. This requires the organization to identify buyer segments with needs/preferences that are less costly to satisfy as compared to the rest of the market. Differentiation focus offers niche buyers something different from other competitors. The firm seeks product differentiation it its target market. Both variants of the focus strategy rest on differences between a focuser’s target market and other markets in the industry. The target markets must either have buyers with unusual needs or else the production and delivery system that best serves the target market must differ from that of other industry segments. Cost focus exploits differences in cost behaviour in some markets. While differentiation focus explants its special needs of buyers in certain markets. A focuser may do both to earn a sustainable competitive advantage though this is difficult. Focus strategy is successful if the organization can choose a market niche where buyers have distinctive preferences, special requirements, or unique needs and they developing a unique ability to serve the needs of the target buyer segments. Even though the focus strategy does not achieve low cost or differentiation from the perspective of the market as a whole, it does achieve this in its narrow target. However, the market segment has to be big enough to be profitable and it has growth potential. The organization has to identify a buyer group or segment of a product line that demands unique product attributes. Alternatively, it has to identify a geographical region where it can make such offerings. Focusing organizations develop the skills and resources to serve the market effectively. They defend themselves against challengers via the customer goodwill they have built up and their superior ability to serve buyers in the market. The competitive power of a focus strategy is greatest when the industry has fast-growing segments that are big enough to be profitable but small enough to be of secondary interest to large competitors and no other rivals are concentrating on the segment. Their position is strengthened as the buyers in the segment require specialized expertise or customized product attributes. A focuser’s specialized ability to serve the target market niche builds a defence against competitive forces. Its focus means that either organization has a low cost option as its strategic target, high differentiation, or both. The logic that has been laid out earlier for cost leadership and differentiation also is applicable here. 160 CU IDOL SELF LEARNING MATERIAL (SLM)

9.4ADVANTAGES Corporate Strategy can be understood as an all-embracing scope and direction along with the means, mediums, methods, and mechanisms through which different business operations of your company function together for accomplishing specific goals. Without a strategy, a company cannot be structured appropriately. As a company needs investment, governance, optimization for resources, and also to build up a good business strategy, strategy plays a vital role in any business by playing a pivotal role in the decision-making process. Corporate Strategy is the initial process of any business strategy. In case you want to succeed in the long run with your business, or you are looking to optimize your profits, or you want to beat all your competitors to enjoy the sustainable presence in the market, this strategy can never be avoided. Let us dive deep into the world of Corporate Strategy and understand what it is, how important corporate strategy is and its key components. Corporate Strategy is the most crucial factor when it comes to expanding the business and drawing the overall growth of the company. It covers the broadest range of strategy levels when it comes to organizational strategies. From visioning to objective setting to resource-allocations and prioritization, the strategy looks across all of the businesses of a company for determining the best ways of creating the most value. Decision-making must reflect the strategy because, without such a strategy, one cannot find a solution to build up a proper vision of any company. We already know that competition is increasing in the corporate sector, and that is the reason it must be strong enough to develop better changes in any company. After proper research and development, one must come up with better strategic levels for the overall growth and evolution of business. An appropriate strategy can not only expand the company, but it also grows several opportunities in the market.  Establishing direction- A business strategy will first and foremost set the direction for your company. With a clear direction, your business will have something clear to work towards. While it might be your dream to be the biggest supplier of a certain product, a business strategy will set this as a clear target to aim towards.  Making wise decisions- Without direction and sense of purpose, it is difficult to assess the merit of certain decisions. Investing in a new asset may make clear sense with a goal to expand distribution, but may not seem like a wise choice otherwise. A business strategy will give you a clear vision that will help you to determine between good and bad decisions.  Avoid competitive convergence- Companies without a business strategy will often look at their competitors for ‘best practice’ and this can lead to competitive convergence. With competitive convergence it can become impossible to determine between the companies and the market can become diluted. With a business strategy, 161 CU IDOL SELF LEARNING MATERIAL (SLM)

however, you can implement a unique plan that will make you stand out from the crowd instead of just following trends.  Measure success- Without a business strategy, it can be difficult to measure success because you won’t know what you are trying to achieve. A business strategy will set targets that will allow you to measure success by comparing yourself to them. This can help to keep you focused on success and ensure that you are constantly progressing.  Increase satisfaction- A business strategy can also help to keep your employees focused and driven. As the most common reason for leaving a company is a lack of job satisfaction, it is important to ensure that there is always a drive to achieve within the company. A business strategy can set the goals for a company and in doing so ensures that there will be an increased level of satisfaction amongst employees. 9.5 LIMITATIONS Diversification is a form of corporate strategy designed to improve opportunities for growth and profitability. Companies can diversify their business by offering new products to existing customers or entering new markets with existing products or new products. A successful diversification strategy can help a company increase sales and revenue, as well as grow market share.  Financial Considerations - Introducing new products or modifying existing products can provide new revenue streams and increase overall turnover and profit. Diversifying a product range May also give a company higher margins compared with existing products. Entering new markets where there is little competition can enable a company to set prices that win market share without sacrificing profit margins. However, diversification also incurs development, sales and marketing costs. If those costs exceed the potential revenue and profit gains, diversification can be a disadvantage. Diversification can also divert investment and operating funds away from existing activities, limiting potential growth in those areas.  Resource Constraints - Diversification also requires additional management and operational resources. A successful diversification can make better use of a company’s existing resources. For example, a company entering new markets with existing products makes more productive use of its sales, marketing and manufacturing resources. However, diversifying into new markets with new products or developing new products for existing markets may require skills that the company does not possess, or it may stretch existing resources. Companies that try to sell to new markets using an existing sales team may find that representatives are unable to provide a consistent level of service across the customer base, leading to potential dissatisfaction and customer losses. 162 CU IDOL SELF LEARNING MATERIAL (SLM)

 Stakeholder Perceptions - Companies are under scrutiny from many different groups of stakeholders, including customers, suppliers, employees, investors and analysts. A diversification strategy can generate positive perceptions by showing that a company is innovative and ambitious. A successful diversification can help attract new investors, retain employees and build strong relations with industry analysts. On the negative side, diversification may raise concerns among existing customers that the company is less interested in their business, and those customers may look for alternative suppliers. A failed diversification strategy can negatively impact a company’s reputation and damage relationships with investors and analysts, as well as dampen employee morale.  Impact on Risk- Choosing different diversification strategies can either increase or reduce a company’s risk. Entering a new market, for example, can reduce the risk of revenue loss due to a downturn in existing sectors. However, if the new market strategy fails, that can increase the risk of reduced profits, because the company will have incurred additional costs with no incremental revenue gain. A diversification strategy that enables a company to operate in a number of different markets reduces the risk of overall failure. However, the management and resource requirements of operating in multiple markets may mean that companies do not focus on their most profitable sectors. 9.6 SUMMARY  This chapter explains generic business-level strategies that executives select to keep their firms competitive. Executives must select their firm’s source of competitive advantage by choosing to compete based on low-cost versus more expensive features that differentiate their firm from competitors. In addition, targeting either a narrow or broad market helps firms further understand their customer base. Based on these choices, firms will follow cost leadership; differentiation, focused cost leadership, or focused differentiation strategies. Another potentially viable business strategy, best cost, exists when firms offer relatively low prices while still managing to differentiate their goods or services on some important value-added aspects. All firms can fall victim to being “stuck in the middle” by not offering unique features or competitive prices.  This chapter explains corporate-level strategy. Executives grappling with corporate- level strategy must decide in what industry or industries their firms will compete. Many of the possible answers to this question involve growth. Concentration strategies involve competing within existing domains to expand within those domains. This can take the form of market penetration, market development, or product development. Integration involves expanding into new stages of the value chain. Backward integration occurs when a firm enters a supplier’s business while forward 163 CU IDOL SELF LEARNING MATERIAL (SLM)

vertical integration occurs when a firm enters a customer’s business. Diversification involves entering entirely new industries; this can be an industry that is related or unrelated to a firm’s existing activities. Sometimes being smart about corporate-level strategy requires shrinking the firm through retrenchment or restructuring. Finally, portfolio planning can be useful for analysing firms that participate in a wide variety of industries.  This study intends to find out whether and how corporate strategy as whole is employed and engineered in terms of this differentiation at MNEs, as well as to explore the additional factors to well-known ones, affecting strategy development on both levels. Even though, a decent amount of studies have been done on a field, the views on which questions should be answered by corporate level strategies or business unit strategies are significantly differ. Hence, in order to develop understanding and contribute to the further research, this study has been undertaken.  The multiple case study method has been chosen for the research. Personal interviews with corporate-level executives in five different MNEs were conducted. The selection of participants was based on their authority levels and experience in working with strategy. In addition, the authors tried to test research questions on people with different background and business experience (e.g. marketing, business development, sales, etc.), in order to avoid one-side functional view  The notion of corporate strategy lies in defining the general direction for a company. Furthermore, corporate strategy is a process of selection a possible ways to achieve the goal. Corporate-level strategy is value oriented, conceptual and less concrete than business level. It consists of three dimensions: “where, when, how”, “knowledge” and “coordination and control”. This level of strategy will most likely be concerned with expectations of owners and investors. Business-level strategies are about to take next steps, to create action plans, aiming to deliver goals stated at corporate level. Their aim is to transfer high-level strategy into execution strategy. The interaction between two levels of strategy works both ways, back and forth. Corporate level affects business level through coordination, control and knowledge sharing. The business- level strategy 4 interacts with the corporate strategy through communication of local successful initiatives, which can be implemented on other markets. Two additional factors to consider in strategy development are government and corporate confidence. The government relates to business level and is external factor. The corporate confidence is an internal characteristic of organization and can be described as the company’s belief in its products and people.  Corporate strategy is a foundation for companies operations, processes and the ways in which its various businesses work together to achieve particular goals. Scholars and managers recognize different levels of strategy for organizations. One of the differentiations is based on governance structure of the organization, and divides 164 CU IDOL SELF LEARNING MATERIAL (SLM)

corporate strategy on two levels: corporate strategy and business-unit strategy. In many cases, some might think that business and corporate dimensions are the same. However, when divided into strategies, there is a difference. This especially relates to MNEs with their massive and sometimes complicated structure and business units all over the world.  Short introduction to the topic and research objects have been presented so far. In this chapter the discussion will continue with describing the corporate strategy as a whole. By aiming to create the deeper awareness at reader’s minds, the views by different authors on “what is the corporate strategy” will be presented below. In addition, the key words from each definition given will be highlighted, pointing to stress out the similarities and differences among them. According to Andrews: “the corporate strategy is the pattern of decisions in a company that determines and reveals its objectives, purposes or goals, produces the principal policies and plans for achieving those goals and defines the range of business the company pursues, the kind of economic and noneconomic contribution it intends to make for its shareholders, employees, customers and communities  The research on corporate strategy has started in 1950’s and till nowadays emerged to strategic management discipline. At one of the first works related to corporate strategy, Chandler highlighted the need of coordinating different aspects of management under one, all-covered strategy. Before, the different functions of management had low level of coordination and have been separated often. In addition, he stressed the importance of time at strategy definition, by presenting strategies as a long-term aimed action. He came with concept, that long-term coordinated strategy should be a starting point for development company structure, defining direction and focus of their operations. By his words: “the structure follows strategy” Igor Ansoff built on Chandler’s works and developed strategy grid, which also can be found in literature under the name “product/market growth matrix”. The grid represents the choices, which company may select in order to growth, and among them: product development strategies, market penetration strategies, horizontal and vertical integration and diversification strategies. 9.7 KEYWORDS  Operational Alignment – The means to and/or state of alignment of an organization’s day-to-day activities with its strategic goals or objectives, operational alignment helps ensure that an organization’s daily activities are advancing its longer- term goals and mission.  Operational Performance Management – A type of performance management that addresses the growing pressure to increase revenue while managing costs, while 165 CU IDOL SELF LEARNING MATERIAL (SLM)

meeting ever-evolving and expanding customer demands. Other types of performance management include business performance management and IT performance management.  Operational Reviews – Usually used to describe the regularly scheduled internal status meetings of an organization. Going by different names based on the organization, manufacturing companies typically call them Operational Excellence meetings, other organizations sometimes just refer to them as Performance reviews.  Outcome – Commonly used within the Logic Model, outcomes (also called outcome- impacts) describe the benefits that result as a consequence of an organization’s investments and activities. A central concept within logic models, outcomes occur along a path from shorter-term achievements to medium-term and longer-term achievements. They may be positive, negative, neutral, intended, or unintended. Examples of outcomes include changes in knowledge, skill development, behaviour, capacities, decision-making, and policy development.  Output – Commonly applied within the Logic Model, outputs describe what an organization gets done; e.g., “what we do” or “what we offer” and may include workshops, delivery of services, conferences, community surveys or facilitation. 9.8 LEARNING ACTIVITY 1. Create a session on concept of Business Level Strategy. ___________________________________________________________________________ ___________________________________________________________________________ 2. Create a session on objectives Business Level Strategy. ___________________________________________________________________________ ___________________________________________________________________________ 9.9UNIT END QUESTIONS A. Descriptive Questions Short Questions 1. What is Business Level Strategy? 2. How many levels of Business Level Strategy are there and what are they? 3. Write the main type of Business Level Strategy? 4. Define Cost leadership? 5. Define the term focus in Business Level Strategy? 166 CU IDOL SELF LEARNING MATERIAL (SLM)

Long Questions 1. Explain the advantages of Business Level Strategy. 2. Explain the disadvantages of Business Level Strategy. 3. Illustrate the Types of Business Level Strategy. 4. Illustrate the concept of Focus and Niche Strategies. 5. Examine the advantages of Cost leadership. B. Multiple Choice Questions 1. Which of the following is NOT a characteristic of the critical incident method for performance appraisal? a. Providing examples of excellent work performance b. Comparing and ranking employees within a group c. Connecting specific incidents with performance goals d. Reflecting performance throughout the appraisal period 2. Which appraisal method combines the benefits of narrative critical incidents and quantified scales by assigning scale points with specific examples of good or poor performance? a. Behaviourally anchored rating scale b. Constant sums rating scale c. Graphic rating scale d. Alternation ranking 3. Which of the following best describes a behaviourally anchored rating scale? a. Chart of paired subordinates ranked in order of performance b. Combination of narrative critical incidents and quantified performance scales c. Diary of positive and negative examples of a subordinate's work performance d. Predetermined percentages of subordinates in various performance categories 4. What is the primary disadvantage of developing a behaviourally anchored rating scale? a. Costly b. Time consuming c. Unreliable d. Lack of feedback for subordinates 167 CU IDOL SELF LEARNING MATERIAL (SLM)

5. Which of the following terms refers to setting specific measurable goals with each employee and then periodically reviewing the progress made? a. Behaviourally anchored rating scale b. Management by objective c. Narrative form technique d. Forced distribution Answers 1-b, 2-a, 3-b, 4-c, 5-b 9.10 REFERENCES References book  Gale, Bradley T. 1972. Market share and rate-of-return. The Review of Economics and Statistics; Cambridge.  Garvin, David. 1998. Harvard business review on knowledge management. Harvard Business Review Series.  Garvin, David. 2003. Learning in action: Guide to putting the learning organization to work. Boston: Harvard Business School Press. Textbook references  Ghemawat, Pankaj. 2002. Competition and business strategy in historical perspective. Business History Review 76,  Grant, R. M. 1996. Toward knowledge based theory of the firm. Strategic Management Journal.  Halbert, Terry, and Elaine Ingulli. 2008. Law and ethics in the business environment. South-Western College/West. Website  http://www.diva-portal.org/smash/get/diva2:563234/fulltext01.pdf  https://www.marketing91.com/corporate-strategy/  https://www.economicsdiscussion.net/strategic-management/types-of-business-level- strategies/31507 168 CU IDOL SELF LEARNING MATERIAL (SLM)

UNIT10: PORTER’S GENERIC BUSINESS STRATEGY STRATEGIC CHOICE STRUCTURE 10.0 Learning Objectives 10.1 Introduction 10.2 Concept 10.3 ProcessofStrategicChoice. 10.4 Summary 10.5 Keywords 10.6 Learning Activity 10.7 Unit End Questions 10.8 References 10.0 LEARNING OBJECTIVES After studying this unit, you will be able to:  Elaborate the concept of Generic Business.  Illustrate the concept of Porter’s Generic Business Strategy Strategic Choice.  Examine the ProcessofStrategicChoice. 10.1 INTRODUCTION There is a growing interest in understanding business processes and information systems from a communicative action perspective. Many researchers and practitioners recognize that it is not enough to view data flow and its control when redesigning organizations and developing information systems. An \"information factory\" metaphor of an organization has its severe restrictions, since - when focusing data objects and data flows - it tends to neglect human actors and their action and co-action. A communicative action framework puts human actors and action in the foreground when looking at organizations and information systems. Such a framework emphasizes that information does not only have content but also an action aspect. Information says something about something; but what is stated, is uttered by someone to someone else. Information cannot be excluded from human agency. Theories of speech acts and communicative action have been a source of inspiration for establishing a new framework for information systemsin organizations. There have been many contributors 169 CU IDOL SELF LEARNING MATERIAL (SLM)

for this attempt to challenge the prevailing mechanistic and objectivistic \"information factory\" paradigm. There is a seminal paper by Flores & Ludlow later followed by an influential book by Winograd & Flores. Other theoretical contributions in this directions are made by e.g. Gold Kuhl&, Goldkuhl, Lyytinenand Winograd. Early contributions concerning communicative action approach to IS were mainly theoretical in nature. Only fragments of methodological procedures were presented. Later on there has been a growing interest in how to translate communicative action theory on IS into development and design methods. The most well-known approach is probably Action Workflow which also consists of supporting software for analysis, design and implementation. Another method in this connection is SAMPO by Auramäki et al. Lee has presented an approach where Petri Nets have been expanded with communicative action concepts. Cf also Johannes son for a speech act based approach to information systems design. The communicative action perspective can also be related to the growing interest into business processes in approaches as Business Process Reengineering and Total Quality Management. In such approaches the main focus lies on redesigning organizations as business processes. In BPR radical transformation is preferred and in TQM continuous improvement is preferred. There seems to be a general agreement on the notion of process as a structured collection of activities performed in order to satisfy an (internal or external) customer. The process view of an organization is a horizontal view on it, emphasizing what is done in order to satisfy its customers. In spite of this general agreement on the business process notion, there seem to be great variations in how the process notion is applied in analysis, definition and redesigning in different organizations. Davenport accounts for different cases showing problems with how to delimit processes. \"Considerable controversy resolves around the number of processes appropriate to a given organization. The difficulty derives from the fact that processes are almost infinitely divisible\", In my opinion these difficulties seem to derive from unclear criteria for delimitation, and thus from an unclear business process theory. Communicative action frameworks can contribute with theoretical clarity to the business process concept and how to delimit processes. Frameworks as Action Workflow are important for this kind of theoretical clarity, which has been acknowledged by Keen. The purpose of this paper is to investigate communicative action oriented approaches to business and information systems modelling Keen has argued that it is important to embed the new thinking of \"total quality\", \"customer satisfaction\" and \"business process\" in methodologies, otherwise these notions will just be clichés. I will study Action Workflow, as a prevalent conceptual and methodological approach of this kind, and relate it to another generic business framework and another action modelling method. In section 3 below I present an alternative business action framework and relate it to Action Workflow. In section 4 I am presenting and discussing an alternative action modelling method (Action diagrams of SIMM). This method is here extended with explicit communicative action features and it is briefly compared with Action Workflow. In this short paper it is not possible or meaningful to investigate further methods. More arguments for selection and features of these approaches are to be found in section 3 and 4 below. This 170 CU IDOL SELF LEARNING MATERIAL (SLM)

paper should be seen as a contribution to the theory and method of language/action in information systems. I have made characterizations and comparisons between frameworks respective methods. Through such comparisons new knowledge can be gained in an inductive way 10.2 CONCEPT Basically, strategy is about two things: deciding where you want your business to go, and deciding how to get there. A more complete definition is based on competitive advantage, the object of most corporate strategy: “Competitive advantage grows out of value a firm is able to create for its buyers that exceeds the firm's cost of creating it. Value is what buyers are willing to pay, and superior value stems from offering lower prices than competitors for equivalent benefits or providing unique benefits that more than offset a higher price. There are two basic types of competitive advantage: cost leadership and differentiation.” Michael Porter Competitive strategies involve taking offensive or defensive actions to create a defendable position in the industry. Generic strategies can help the organization to cope with the five competitive forces in the industry and do better than other organization in the industry. Generic strategies include ‘overall cost leadership’, ‘differentiation’, and ‘focus’. Generally firms pursue only one of the above generic strategies. However some firms make an effort to pursue only one of the above generic strategies. However some firms make an effort to pursue more than one strategy at a time by bringing out a differentiated product at low cost. Though approaches like these are successful in short term, they are hardly sustainable in the long term. If firms try to maintain cost leadership as well as differentiation at the same time, they may fail to achieve either. Michael Porter has described a category scheme consisting of three general types of strategies that are commonly used by businesses to achieve and maintain competitive advantage. These three generic strategies are defined along two dimensions: strategic scope and strategic strength. Strategic scope is a demand-side dimension (Porter was originally an engineer, then an economist before he specialized in strategy) and looks at the size and composition of the market you intend to target. Strategic strength is a supply-side dimension and looks at the strength or core competency of the firm. In particular he identified two competencies that he felt were most important: product differentiation and product cost. Empirical research on the profit impact of marketing strategy indicated that firms with a high market share were often quite profitable, but so were many firms with low market share. The least profitable firms were those with moderate market share. This was sometimes referred to as the hole in the middle problem. Porter’s explanation of this is that firms with high market share were successful because they pursued a cost leadership strategy and firms with low market share were successful because they used market segmentation to focus on a small but profitable market niche. Firms in the middle were less profitable because they did not have a viable generic strategy. Combining multiple strategies is successful in only one case. Combining a 171 CU IDOL SELF LEARNING MATERIAL (SLM)

market segmentation strategy with a product differentiation strategy is an effective way of matching your firm’s product strategy (supply side) to the characteristics of your target market segments (demand side). But combinations like cost leadership with product differentiation are hard (but not impossible) to implement due to the potential for conflict between cost minimization and the additional cost of value-added differentiation. Since that time, some commentators have made a distinction between cost leadership, that is, low cost strategies, and best cost strategies. They claim that a low cost strategy is rarely able to provide a sustainable competitive advantage. In most cases firms end up in price wars. Instead, they claim a best cost strategy is preferred. This involves providing the best value for a relatively low price. The below defines the choices of \"generic strategy\" a firm can follow. A firm's relative position within an industry is given by its choice of competitive advantage (cost leadership vs. differentiation) and its choice of competitive scope. Competitive scope distinguishes between firms targeting broad industry segments and firms focusing on a narrow segment. Generic strategies are useful because they characterize strategic positions at the simplest and broadest level. Porter maintains that achieving competitive advantage requires a firm to make a choice about the type and scope of its competitive advantage. There are different risks inherent in each generic strategy, but being \"all things to all people\" is a sure recipe for mediocrity - getting \"stuck in the middle\". For the financial year ending January 31, 2003, retailing giant Wal-Mart reported revenues of $244.5 billion, making it the world's largest company. The company topped Fortune's list of the world's largest companies for the second year in succession. Considering the modest beginning of this company four decades ago, nobody, including the company officials expected Wal-Mart to emerge such a dominant player in the retailing industry. Wal-Mart's success story is a classic example of a company, which became successful by rigorously pursuing its core philosophy of cost leadership, right from the day it began operations in 1962. Wal-Mart was founded by an ambitious entrepreneur, Sam Walton, who figured out early that retailing, was a volume-driven business, and his company could achieve success by offering consumers better value for their money. Wal-Mart's growth during the first two decades was propelled primarily by following the strategy of establishing discount stores in smaller towns and capturing significant market share. The company was able to foster its growth in the 1980s by making heavy investments in information technology to manage its supply chain and by expanding business in bigger metropolitan cities. In the late 1980s, when Wal-Mart felt that the discount stores business was maturing, it ventured into food retailing by introducing Supercentres. In the late 1990s, Wal-Mart launched exclusive groceries/drug stores known as \"neighbourhood markets\" in the US for the various types of Wal-Mart stores). Though Wal-Mart had achieved huge success over the decades, the company drew severe criticism from industry analysts for its strategies that aimed at killing competition. At the speed at which Wal-Mart was growing, analysts feared that the company would soon face an anti-trust suit for its monopolistic practices. Christopher Hoyt, president of Scottsdale, an Arizona-based supermarket store, Hoyt & Company, said, \"The only thing that could stop 172 CU IDOL SELF LEARNING MATERIAL (SLM)

Wal-Mart is if the government gets involved, just as it did with Microsoft. “Offering products at EDLP, especially during its early years, when Wal-Mart was not an established retail player, was quite difficult. The company aggressively followed a cost leadership strategy that involved developing economies of scale and making consistent efforts to reduce costs. The surplus generated was reinvested in building facilities of an efficient scale, purchasing modern businessrelated equipment and employing the latest technology. The reinvestments made by the company helped it to maintain its cost leadership position. From the start, Wal- Mart imposed a strict control on its overhead costs. The stores were set up in large buildings, while ensuring that the rent paid was minimal. The company imposed an upper limit for its rent payment at $1.00 per square foot during the late 1960s. Not much emphasis was laid on the interiors of the stores. The company did not invest on standardized ordering programs and on basic facilities to sort and replenish the stock The first Target Store was opened by the Dayton Company in 1962, in Roseville, a suburb of the twin cities Minneapolis-St. Paul, Minnesota. The Dayton Company was started by George Dayton who opened his first store called Good fellows in Minneapolis in 1902. In 1903, he changed the corporate name to The Dayton Dry Goods Company and in 1910 he changed it to The Dayton Company. By the 1940s, it was a thriving family business that operated department stores called Dayton's in the upper Midwest region of the U.S. In 1956, Dayton opened South dale, the world's first fully enclosed two-level shopping centre, in Minneapolis. In the 1950s, the discount store retail format was taking shape and the pioneers of this format were just establishing themselves. After the success of its department stores, Dayton began exploring the possibilities of starting its own chain of discount stores. John Giesse (Giesse), who was a vice-president at Dayton, was extremely interested in the discount retail format and was even contemplating leaving Dayton had the capital, they said, and asked Geisse to submit a report on his observations and ideas for a chain of discount stores. Geisse, who studied the existing discount stores, was of the opinion that there was a place for an upscale discount store. Dayton decided to launch a discount store chain as a subsidiary and named it Target, Dayton to open his own discount stores. Executives at Dayton, who knew about Geisse's ambitions, pointed out to him that he would need capital for the project. In 1962, Dayton launched the first Target in Roseville, Minnesota, and three more in Crystal, St. Louis Park, and Duluth, Minnesota, the same year. The first four stores made about $11 million in sales but did not make any profits in 1962. Slowly, sales began increasing and in 1965, sales were worth about $39 million. In the same year, another Target was opened in Minneapolis. In 1966, Target decided it was time to open stores outside Minneapolis. It opened two stores in Denver. In 1967, Target's parent company Dayton, went public. The same year, two stores were opened in Minnesota, bringing the total number of stores to nine, and by 1968, Target opened two more stores in St. Louis. A major change occurred at Dayton in 1969 - Dayton merged with the J. L. Hudson Company to form the Dayton Hudson Corporation (DHC). The J. L. Hudson Company operated a chain of department stores called Hudson's in Detroit. Also in 1969, Target decided to open stores without supermarkets. Even though Target believed 173 CU IDOL SELF LEARNING MATERIAL (SLM)

that providing discount groceries was essential to providing a one-stop shopping experience to the customer, it decided to open its new stores with only general merchandise. By the end of the 1960s, Target had opened stores in Texas and Oklahoma, and a Northern Distribution Centre in Fridley, Minnesota, which had a computerized distribution system. In 1970, it expanded into Wisconsin and the next year into Colorado and Iowa. For its expansion in Colorado, Iowa, and Oklahoma, it acquired Arlans stores and converted them into Target Stores. In addition, it opened six new stores in these states. In 1972, Target started testing electronic point-of-sale terminals with two Minneapolis stores and four stores in Dallas the next year. However, in 1972, the operating income and profits of the Target Stores started declining. Target's top executives had limited experience in the discount retail business and they found the rapid expansion to 46 stores by 1973 difficult to manage. 10.3 PROCESS OF STRATEGIC CHOICE Strategic choice or strategic decision is the process of systematically comparing the impact of the possible strategies on product-market and the firm. Selection strategy is a careful conscious deliberate and creative activity. It involves trade-offs between different courses of action. Professor Henry Mint berg says “Strategy formulation is interplay among three basic forces –  A dynamic environment that changes continuously but irregularly with frequent discontinuities and wide swings in the rate of change;  The operating system of the organisation which seeks to stabilise its activities despite the characteristics of the environment it serves; and  The role of leadership mediating between two forces so as to maintain stability of the organisation, operating system while at the same time adapting it to the environmental change. 174 CU IDOL SELF LEARNING MATERIAL (SLM)

Figure 10.1: Factors affecting strategic choice Environmental Constraints The very survival and growth and hence, prosperity of a unit rest on its exposure to and interaction with its environment which is external. External environment is made up of its publics namely shareholders, suppliers, competitors, customers, lenders, government and the community. These elements are the external constraints. The flexibility in the choice of a strategy, is governed by the extent of the firm’s dependence on these elements and the extent to which these constraints cooperate. Comparatively, those organisations which are well settled, deep rooted and large in industries are much more powerful as against their counterpart namely, the environment. They enjoy greater flexibility and leeway in strategic 175 CU IDOL SELF LEARNING MATERIAL (SLM)

choice For example, a company which gets bulk supply of inputs raw-material and component parts in a highly sensitive market has greater degree of flexibility in strategic choice as compared to the company which depends for its inputs on a market which is monopolistic. The strategies of competitors in any area of business will have impact on choice of a strategy. What financial or production or marketing, or personnel strategies the firm is to follow will depend on what competitors are doing. A shareholder holding majority of shares has say in strategy the company is to formulate because his preferences cannot be ignored. Customers are the real decision makers whose likes and dislikes cannot be thrown to winds. Changing governmental policies will have to be respected. Again, it is community in which company is working decides what company should do and should not do. In House Forces and Managerial Power Relations The in house forces play a significant role. Let us confine to only decision making process. In a highly controlled or centralised company, it is the top management which has the total power to configure the strategic choice. That is, the decision-strategic decision-made is by centralised management, is quick and not diluted. Another very important variable is that of managerial power relations. It is normally found that the major decisions are influenced by the power play among interest groups that differ widely. Even the strategic choice is influenced by this variable. In case a influencing chief executive is in favour of a strategic choice which also benefits other top management members, it may be endorsed easily by other senior member. This happens when unity prevails. However, this can be opposed in case there is power politics or power game as we find in Indian Parliamentary Affairs. Managerial Attitudes Towards Risk Managerial attitudes towards risk are yet another significant factor that affects the choice of a strategy. The managerial decision is guided by the attitude of the decision- maker towards risk. Based on this “attitude towards risk” decision-makers can be of three types namely, Risk lover, Risk Averse and Risk neutral. Then one may distinguish between the following attitudes reflecting the order of risk preferences. On the other hand, the risk averse or people who want to take least risks are those who want to be followers than leaders and challengers, they prefer stable conditions, low returns and go in for safer options. Age factor also plays decisive role. The old managers tend to take no extra risk unlike young people who are yet to make mark. Those who deal with risk and uncertainty easily are able to face successfully the complex problems than those who are risk averse. Risk prone decision makers limit the amount of information and make decisions quickly as if it is an impulsive task. Influence of Past Strategy 176 CU IDOL SELF LEARNING MATERIAL (SLM)

Future has its roots in the past. To this, past strategy is no exception. That is, choice of the current and the future is influenced by the past strategy due to number of reasons. The foundation for formulation of new strategies is the past strategy. In the light of the past strategy, the strategist either might not have thought of altering it or it is also possible that the strategists might have taken the things lightly and might not have thought of alternatives with the seriousness that they deserve due to inertia. Personal involvement of the decision maker with the past strategy will continue to do so. Thus, the present and future strategies will be influenced by personal involvement. Time Dimension of strategic choice Yet another very important factor in the process of strategic decision making is the time dimension of strategic choice. This time dimension has four elements which one cannot ignore, these are-time pressure, time frame, time horizon and timing of the decision. Reaction of Competitors The strategic choice of a strategy option is bound to reflex in the competitors’ reaction. Therefore, a wise strategist places himself in the shoes of the competitor or competitors to know where exactly the shoe bites. Only after studying the reactions, he may be able to take correct decision than ignoring the impact of competitor reaction. Much depends on your market position. That is, whether you are leader, challenger, follower or nicher. Say, both your firm and your arch-rival firm are challengers. In this case, it is quite possible that your competitor may take your strategic option as very aggressive and makes the competitor to have counter strategy to overpoweryou. Say, you reduced the price of your branded product, and then other company might reduce equally and give some addition incentive in kind. If you are followers, then the strategy of follow the suit operates. We know the case of price war going on between arch rivals namely Hindustan Lever and Proctor and Gamble. If the first company has reduced the price of Surf Excel from 85 to 70 for a half kilo pack, Proctor and Gamble has done so in case of Arial. Later, Surf Excel has been introduced with new proposition.” The followers say Nirma and others being followers, have no choice than to follow the suit without option. Thus, the competitor’s reaction has far reaching impact on the choice of a strategy. Availability of Relevant Information When it is a question of choice rather rational choice, the quality and quantity of information decide the strategy choice. The choice or strategic decision that is based on facts, the considered opinions other sources of information written as oral are sounder and more acceptable that is, the degree of risk and uncertainty depends on the amount and quality of information made available to the decision makers. There is inverse relationship between the available information and the degree of accuracy of strategic choice. That is, the greater the amount of high quality information, lesser the risk and uncertainty. The decision maker is a risk-prone or a risk averter or risk neutral. Risk 177 CU IDOL SELF LEARNING MATERIAL (SLM)

prone and risk averters need the information to decide whether to take or not the calculated risks which are unavoidable in the world of business. Hence, the decision makers need a package of relevant information to analyse and interpret and act. The information is not easily available which costs in terms of treasure, time and talent. Focusing on Alternatives The aim of this step is to narrow down the choice to a manageable number of feasible strategies. It can be done by visualizing a future state and working backwards from it. Managers generally use GAP analysis for this purpose. By reverting to business definition it helps the managers to think in a structured manner along any one or more dimensions of the business. Analysing the Strategic Alternatives The alternatives have to be subjected to a thorough analysis which relies on certain factors known as selection factors. These selection factors determine the criteria on the basis of which the evaluation will take place. Advantages of Strategic Choice  Discharges Board Responsibility The first reason that most organizations state for having a strategic management process is that it discharges the responsibility of the Board of Directors.  Forces an Objective Assessment Strategic management provides a discipline that enables the board and senior management to actually take a step back from the day-to- day business to think about the future of the organization. Without this discipline, the organization can become solely consumed with working through the next issue or problem without consideration of the larger picture.  Provides a Framework For Decision-Making - Strategy provides a framework within which all staff can make day-to-day operational decisions and understand that those decisions are all moving the organization in a single direction. It is not possible (nor realistic or appropriate) for the board to know all the decisions the executive director will have to make, nor is it possible (nor realistic or practical) for the executive director to know all the decisions the staff will make. Strategy provides a vision of the future, confirms the purpose and values of an organization, sets objectives, clarifies threats and opportunities, determines methods to leverage strengths, and mitigate weaknesses (at a minimum). As such, it sets a framework and clear boundaries within which decisions can be made. The cumulative effect of these decisions (which can add up to thousands over the year) can have a significant impact on the success of the organization. Providing a framework within which the executive director and staff can make these decisions helps they better focus their efforts on those things that will best support the organization’s success. 178 CU IDOL SELF LEARNING MATERIAL (SLM)

 Supports Understanding & Buy-In - Allowing the board and staff participation in the strategic discussion enables them to better understand the direction, why that direction was chosen, and the associated benefits. For some people simply knowing is enough; for many people, to gain their full support requires them to understand.  Enables Measurement of Progress - A strategic management process forces an organization to set objectives and measures of success. The setting of measures of success requires that the organization first determine what is critical to its ongoing success and then forces the establishment of objectives and keeps these critical measures in front of the board and senior management.  Provides an Organizational Perspective - Addressing operational issues rarely looks at the whole organization and the interrelatedness of its varying components. Strategic management takes an organizational perspective and looks at all the components and the interrelationship between those components in order to develop a strategy that is optimal for the whole organization and not a single component. Disadvantages of Strategic Choice  The Future Doesn’t Unfold As Anticipated - One of the major criticisms of strategic management is that it requires the organization to anticipate the future environment in order to develop plans, and as we all know, predicting the future is not an easy undertaking. The belief being that if the future does not unfold as anticipated then it may invalidate the strategy taken. Recent research conducted in the private sector has demonstrated that organizations that use planning process achieve better performance than those organizations that don’t plan – regardless of whether they actually achieved their intended objective. In addition, there are a variety of approaches to strategic planning that are not as dependent upon the prediction of the future.  It Can Be Expensive - There is no doubt that in the not-for-profit sector there are many organizations that cannot afford to hire an external consultant to help them develop their strategy. Today there are many volunteers that can help smaller organizations and also funding agencies that will support the cost of hiring external consultants in developing a strategy. Regardless, it is important to ensure that the implementation of a strategic management process is consistent with the needs of the organization, and that appropriate controls are implemented to allow the cost/benefit discussion to be undertaken, prior to the implementation of a strategic management process.  Long Term Benefit vs. Immediate Results - Strategic management processes are designed to provide an organization with long-term benefits. If you are looking at the strategic management process to address an immediate crisis within your organization, it won’t. It always makes sense to address the immediate crises prior to allocating resources to the strategic management process. 179 CU IDOL SELF LEARNING MATERIAL (SLM)

 Impedes Flexibility - When you undertake a strategic management process, it will result in the organization saying “no” to some of the opportunities that may be available. This inability to choose all of the opportunities presented to an organization is sometimes frustrating. In addition, some organizations develop a strategic management process that become excessively formal. Processes that become this “established” lack innovation and creativity and can stifle the ability of the organization to develop creative strategies. In this scenario, the strategic management process has become the very tool that now inhibits the organization’s ability to change and adapt.  A third way that flexibility can be impeded is through a well-executed alignment and integration of the strategy within the organization. An organization that is well aligned with its strategy has addressed its structure, board, staffing, and performance and reward systems. This alignment ensures that the whole organization is pulling in the right direction, but can inhibit the organization’s adaptability. Again, there are a variety of newer approaches to strategy development used in the private sector (they haven’t been widely accepted in the not-for-profit sector yet) that build strategy and address the issues of organizational adaptability. Case Study On Focus Strategy In early 1997, US based PepsiCo,3 one of the largest packaged food companies in the world, announced a dismal financial performance for the fiscal year 1996. Although the company's revenues had increased marginally (4%) from $30.421 billion (bn) in 1995 to $31.645 bn in the fiscal 1996, the net income had witnessed a major decline (28.45%) from $1.606 bn to $1.149 bn in the same period. Analysts pointed at PepsiCo's lack of focus on its core operations as one of the major reasons for its poor financial performance. In its efforts to sharpen focus on its core beverage (Pepsi-Cola), and snack food businesses (Frito-Lay), PepsiCo underwent a major restructuring by spinning-off its restaurant businesses as an independent publicly traded company. The spin-off was completed in October 1997. In July 1998, PepsiCo acquired Tropicana, the world leader in the marketing and production of branded juices, in its efforts to strengthen its position in the non-carbonated beverages segment. Despite its restructuring efforts, analysts felt that PepsiCo still had a lot of distance to cover to catch up with it’s about a century old archival, Coke. In 1998, PepsiCo accounted for 31.4% of the US soft-drinks market as compared to Coca-Cola's 44.5%. In the same year, Coca Cola generated 63% of its sales as compared to PepsiCo's 31% from its overseas operations. In its attempt to catch up with Coke, PepsiCo took several initiatives throughout the late 1990s and early 2000s. One of the major initiatives undertaken to focus on its core businesses was hiving-off its bottling operations into a separate new company called Pepsi Bottling Group (PBG), in September 1998. In January 1999, PepsiCo sold its 65% equity stake in PBG to the public and raised $2.3 bn in cash. PepsiCo's restructuring efforts paid off handsomely as its operating profits rose from $2.584 bn in the financial year 1998 to $3.225 180 CU IDOL SELF LEARNING MATERIAL (SLM)

bn in the fiscal 2000 (Refer Exhibit I & II). The company made further attempts to strengthen its market position in the noncarbonated beverages segment. This was achieved through the acquisitions of South Beach Beverage Company 4 in October 2000, and Quaker Oats, a leading food and drinks company in December 2000. PepsiCo was formed in 1965 by the merger of Pepsi-Cola and Frito-Lay5 (#1 maker of snack chips in the world). The company's popular drink, Pepsi-Cola6 had been invented in 1898. In a bid to generate faster growth for the company, PepsiCo diversified into the restaurant business through a series of takeovers. It purchased Pizza Hut in 1977, Taco Bell in 1978 and Kentucky Fried Chicken in 1986. Soon, PepsiCo emerged as a world leader in the restaurant business. In 1986, PepsiCo was reorganized and decentralized by combining its beverage operations under PepsiCo Worldwide Beverages and snack food operations under PepsiCo Worldwide Foods. In 1986, PepsiCo purchased 7-Up International, the third largest franchise soft drink outside the US. In 1988, the company reorganized along geographic lines - East, West, South and Central regions - each with its own president and senior management staff. Over the years, PepsiCo took several steps to bring its three restaurant chains together into a single division so that they could grow rapidly. The company brought all operations under a single senior manager and combined many back office operations like payroll, accounts payable and data processing, purchasing real estate, construction, and information technology. The company also took up aggressive re-franchising to improve financial returns and restaurant operations. With revenues of $17.80 bn, in 1990, PepsiCo was ranked among the top 25 of the Fortune 500 companies. By 1995, PepsiCo's sales had crossed $30.42 bn, and with 480,000 employees, Pepsi had become the third largest employer in the world after Wal-Mart and GM. Roger Enrico became the CEO of PepsiCo in 1996. Immediately afterwards, PepsiCo's performance deteriorated as it faced intense competition from Coca- Cola in both the domestic and overseas markets. For the fiscal year 1996, PepsiCo's beverages division reported an operating profit of just $582 mn on $10.5 bn in revenues as compared to Coca-Cola, which reported an operating profit of $3.9 bn on $18.5 bn revenues. In the same year, Pepsi Cola's market share lagged behind Coca Cola by the maximum margin in over two decades. According to Beverage Digest, an industry newsletter, Coca- Cola's Sprite brand had replaced Diet Pepsi as the fourth-largest selling soft drink in the US while Diet Pepsi had dropped to seventh... PepsiCo announced plans, in early 1997, to restructure its business. As a first step, the company decided to spin-off its restaurant business as an independent publicly traded company. PepsiCo also decided to sell-off its food distribution company. Justifying his decision to spin-off the restaurant business, Enrico said that when the company acquired the restaurant business in the 1970s, the company had many reasons to do so. PepsiCo had enough cash, quality people, and the ability to build restaurant brands. When PepsiCo bought them, the brands like Pizza Hut and Taco Bell were very small businesses. The company allocated its resources to them and soon became the leader in the restaurant business. 181 CU IDOL SELF LEARNING MATERIAL (SLM)

According to the executives of PepsiCo, the restaurant business had sufficient cash and quality personnel working for it. However, the restaurant culture and processes did not align with PepsiCo's organizational culture. Another reason for the spin-off was the management's efforts to make PepsiCo a focused packaged foods company, to compete with its archival Coca-Cola. In September 1998, in continuation of its restructuring efforts, PepsiCo decided to separate its bottling operations from the company. PepsiCo's Pepsi-Cola business included two units - a bottling company and a concentrate company. The bottling operations, which were called Pepsi Bottling Group (PBG) after the spin-off, consisted of certain North American, Canadian, Russian, and other selected overseas bottling operations. With sales of more than $7 bn, PBG was the world's largest Pepsi Cola bottler accounting for more than half of Pepsi Cola's North American volume. The concentrate company focused on product innovations and marketing Pepsi Cola's brands. It manufactured and sold beverage concentrate syrup to PBG and other Pepsi-Cola bottlers. The company also supported PBG and other bottlers in advertising, marketing, sales, and promotion programs. Analysts felt that PepsiCo's decision to spin-off its bottling operations would help the company compete more effectively in the beverage business and serve its retail customers better. PepsiCo was also expected to improve margins on its beverage operations, as bottling operations were less profitable than the supplying of beverage concentrate through the spin-off of the restaurant business and bottling operations, PepsiCo aimed to bring consistency in financial performance and improve market performance. In the fiscal 1998, Pepsi Cola's volume grew by 7% worldwide with a growth of 10% in North America. This growth was attributed to the strong sales of Pepsi One, Mountain Dew, Brand Pepsi, Aquafina, and Lipton Brisk. The volume growth of Frito-Lay was 5%, in the same year. Although the restructuring resulted in lower sales for the first year it led to higher profits. The margins and return on investment were also high. After spinning- off the bottling business, PepsiCo's return on equity increased from 17% in the fiscal 1996 to 30% in the fiscal 1998. According to the executives of the company, the company had strengthened its financials and wanted to concentrate on innovations and productivity improvements. PepsiCo seemed to have strengthened its position in the 'cola wars,' in the late 1990s. In 1998, the company witnessed soft-drink volume gains of 6%, which was the biggest gain since the fiscal 1994. Even though PepsiCo had spun off its unrelated businesses, a few analysts argued that PepsiCo needed to further strengthen its competitive position in the beverages business, which made up about one-third of the company's total revenues in the fiscal year 1998-1999. In its efforts to enhance the revenues from its beverages business, PepsiCo acquired a majority equity stake in SBBC in October 2000. SBBC had emerged as one of the successful companies in the non-carbonated beverages industry after the launch of its brand SoBe. SBBC offered a variety of drinks with herbal ingredients and SoBe was one of the fastest growing brands in the non-carbonated beverages market. PepsiCo, in December 2000, 182 CU IDOL SELF LEARNING MATERIAL (SLM)

acquired Quaker Oats, a leading food and drinks company, in a deal worth $13.4 bn. In an all-stock deal, one share of Quaker was swapped for 2.3 shares of PepsiCo, up to a value of $105 for each Quaker share. According to analysts, this acquisition was expected to increase PepsiCo's beverages revenues significantly. 10.4 SUMMARY  Generic strategies can help the organization to cope with the five competitive forces in the industry and do better than other organization in the industry. By producing high volumes of standardized products, the firm hopes to take advantage of economies of scale and experience curve effects. Maintaining cost leadership strategy requires a continuous search for cost reductions in all aspects of the business. The associated distribution strategy is to obtain the most extensive distribution possible. Differentiation is a viable strategy for earning above average returns in a specific business because the resulting brand loyalty lowers customers' sensitivity to price. Research does suggest that a differentiation strategy is more likely to generate higher profits than is a low cost strategy because differentiation creates a better entry barrier.  A low-cost strategy is more likely, however, to generate increases in market share. Focus strategy is most suitable for relatively small firms but can be used by any company. As a focus strategy it may be used to select targets that are less vulnerable to substitutes or where a competition is weakest to earn above-average return on investment. Generally firms pursue only one of the above generic strategies. However some firms make an effort to pursue only one of the above generic strategies. However some firms make an effort to pursue more than one strategy at a time by bringing out a differentiated product at low cost.  Though approaches like these are successful in short term, they are hardly sustainable in the long term. If firms try to maintain cost leadership as well as differentiation at the same time, they may fail to achieve either. Combining multiple strategies is successful in only one case. Combining a market segmentation strategy with a product differentiation strategy is an effective way of matching your firm’s product strategy to the characteristics of your target market segments (demand side). But combinations like cost leadership with product differentiation are hard (but not impossible) to implement due to the potential for conflict between cost minimization and the additional cost of value-added differentiation.  Like any process or tool, there are both advantages and disadvantages to a strategic management process. Unfortunately, many of the disadvantages are because of inappropriate application (often by poor consultants) as opposed to inherent limitations. As with any tool or process, you as the client have the final responsibility to ensure that the strategic management process you are using is appropriate for your 183 CU IDOL SELF LEARNING MATERIAL (SLM)

needs. While I believe that strategic management in some form can be beneficially applied to most organizations, it is you – the client – who is ultimately responsible for its use or lack thereof.  Ron Robinson is the president of ABARIS Consulting Inc. He can be reached at 472- 9788 or [email protected]. This article is provided free of charge, for information purposes only and is not intended, represented or to be inferred as providing advice. ABARIS Consulting Inc. makes no warranty, express or implied, or assumes any legal liability for accuracy, completeness, or usefulness of any information provided in whole or in part within this article.  The first phase can in turn be divided into three sub phases: The development of offers together with identification of potential market and customers can be seen as the initial stage by the supplier. Corresponding identification of problems and needs leading to purchase interest by the customer is also part of the initial stage of the business transaction process. I call this initial stage the business identification phase. The offers (the capacity to sell actual products) must be communicated to potential buyers. There must be an exposure of offers and a search for contact with potential customers. The customer can in a similar way try to get into contact with potential suppliers. I call this second stage: Exposure and contact search phase. After finding each other the supplier and customer must establish contact and exchange their business possibilities and expectations (offers and inquiries). I call this the contact establishment and negotiation phase.  First I will state that Action Workflow and Business as Action game share the same theoretical basis; i.e. communicative action theory. There are more similarities than differences. In this section I will try to put forth some differences and discuss the reasons for the deviating features in the Business as Action game Theory (BAT). Action Workflow is intended to be a more general framework. It can be used for all kinds of work including a customer and a performer. The notion of customer is used both as an ordinarily external customer and as an internal customer; i.e. the recipient of the result of a work process. BAT is restricted to business transactions between companies. It is not intended to be used describing internal relations within a company. It is intended to describe the circumstance consisting of genuine business relations between different parties. These different application domains have an impact on what is focused on in the two frameworks. There is a difference in the general character of the frameworks. I would like to call Action Workflow a \"one- way around model\". It starts with customer request, and through the performer´s commitments and work, it ends up with customer satisfaction.  BAT emphasizes the mutual character of the business transaction. It is an exchange process with mutual commitments, fulfilments and satisfaction. I would characterize it as a \"two-direction co-action model\". There is co-action in Action Workflow, but the 184 CU IDOL SELF LEARNING MATERIAL (SLM)

essence of this generic model is a workflow from customer via performer back to customer. In Action Workflow there is a focus on communicative actions, and an emphasis on commitments. One example of this communication emphasis can be found in the description of the performance phase. Here the communicative action of reporting completion is stressed. To me, this is an overemphasis on communication.  The most important is of course the actions performed leading to the delivery of products. In many situations there is no separate message of delivery. The delivery itself has an informative character to the customer. BAT tries to catch the wholeness of the business exchange logic in a generic sense. It comprises a wholeness of communicative and material actions which builds up the business logic. It also has a broader focus on business actors. Action Workflow has a typical customer focus. To me this is theoretically asymmetric. I would like to emphasize both parties in the business transaction process; i.e. a customer and supplier focus. I find Action Workflow and similar approaches as rather one-sided in their customer emphasis. I ask where the commitments and the fulfilment of commitments by the customer and also the satisfaction of the supplier are to be found. To me it is important to make a symmetric framework with clear definitions of the actor roles of both supplier and customer.  This is not to be conceived as a denial of the need for customer focus. I am fully aware of the importance of having a customer focus in design, manufacturing and marketing of products. I claim however the importance of not disregarding essential acts and aspects of the business process and the need for the mutual satisfaction of the supplier and the customer. It is important to let the supplier be visible too! To disregard the commitments of the customer is to cut away necessary parts of the business transaction, and, hence, reduce it from its generic business character. The business transaction is built from the business interchange relations and the different business acts which must be formed in a communicative congruent pattern. 7 The business exchange orientation of BAT implies another scope. This framework starts earlier than Action Workflow with business identification and contact search. It includes also more generic actions in the later parts.  The two-direction co-action character of BAT involves description of customer fulfilment and supplier satisfaction and possible mutual claims. These important generic actions are missing or implicit in Action Workflow. The broader focus and scope of the Business as Action game Theory implies a more complex framework. Action Workflow is simpler and perhaps easier to grasp; at least initially. The more semantic richness of BAT has these disadvantages of complexity. The framework can however be presented in a more abstract and condensed form. Presented in this way, it competes with Action Workflow in simplicity. I have summarized the differences between Action Workflow and Business as Action game Theory in a table. I will here 185 CU IDOL SELF LEARNING MATERIAL (SLM)

once again emphasize that there are more similarities than differences between the two frameworks. BAT owes Action Workflow for theoretical inspiration. I have tried to point out differences in order to explain why I have found it motivated to develop an alternative framework. 10.5 KEYWORDS  Performance Driver – Measures that indicate progress against a process or behaviour. These measures are helpful in predicting the future outcome of an objective.  Performance-Based Budgeting – A performance budget is an integrated annual performance plan and budget that shows the relationship between program funding levels and expected results. It indicates that a goal or a set of goals should be achieved at a given level of spending.  Performance Gap – The “difference” between actual and target, the trend of the performance or target gap shows an organization’s momentum.  Perspective – Representing the various stakeholders, internal and external, critical to achieving an organization’s mission. Together, the perspectives provide a holistic, or balanced, framework for telling the “story of the strategy” in cause-and-effect terms. While the traditional Balanced Scorecard includes the four perspectives of Financial, Customer, Internal Process, and Employee Learning and Growth, an organization may choose to modify and/or add to these to adequately translate and describe their unique strategy.  Process Diagram – Process diagrams typically are used to represent specific processes that are undertaken in an organization and the key steps involved in the process. An example might be a high-level diagram that highlights the customer experience. 10.6 LEARNING ACTIVITY 1. Create a session on Generic Business Strategy ___________________________________________________________________________ ___________________________________________________________________________ 2. Create a survey on Process of Strategic Choice ___________________________________________________________________________ ___________________________________________________________________________ 186 CU IDOL SELF LEARNING MATERIAL (SLM)

10.7 UNIT END QUESTIONS A. Descriptive Questions Short Questions 1. What is Generic Business Strategy? 2. What is Business Strategy? 3. Define the term Time Dimension? 4. Define Low-cost competency? 5. How to determine the Segmentation Strategy? Long Questions 1. Explain the overview and concept of Generic Business Strategy. 2. Elaborate the Process of strategic choice. 3. Illustrate the Environmental Constraints in Process of strategic choice. 4. Illustrate the Advantages of Strategic choice. 5. Illustrate the Disadvantages of Strategic choice. B. Multiple Choice Questions 1. Which of the following enables supervisors to oversee the amount of computerized data an employee is processing each day? a. Computerized performance appraisal system b. Online management assessment centre c. Digitized high-performance work centre d. Electronic performance monitoring system 2. Which of the following is a performance appraisal problem that occurs when a supervisor's rating of a subordinate on one trait biases the rating of that person on other traits? a. Recency effect b. Halo effect c. Central tendency d. Discrimination 3. Which of the following terms refers to an appraisal that is too open to interpretation? a. Unclear standards 187 CU IDOL SELF LEARNING MATERIAL (SLM)

b. Halo effects c. Strictness d. Biased 4. Which is the best way for a supervisor to correct a performance appraisal problem caused by unclear standards? a. Focusing on performance instead of personality traits b. Using graphic rating scales to rank employees c. Avoiding the use of extremely low ratings d. Using descriptive phrases to illustrate traits 5. Which performance appraisal problem is associated with supervisors giving all of their subordinate’s consistently high ratings? a. Central tendency b. Leniency c. Strictness d. Recency effect Answers 1-d, 2-b, 3-a, 4-d, 5-b 10.8 REFERENCES References book  Hall, M., and L. Weiss. 1967. Firm size and profitability. Review of Economics and Statistics.  Hamel, Gary, and C. K. Prahalad. 1996. Competing for the future. Boston: Harvard Business School Press.  Hartman, Laura. 1991–2005. Perspectives in business ethics. New York: McGraw- Hill/Irwin. Textbook references  Hax, A. 1990. Redefining the concept of strategy and the strategy formation process. Planning Review.  Hofstede, Geert. 2004. Cultures and organizations: Software of the mind. New York: McGraw-Hill. 188 CU IDOL SELF LEARNING MATERIAL (SLM)

 Holter man, S. 1973. Market structure and economic performance in U.K. manufacturing industry. Journal of Industrial Economics. Website  https://charityvillage.com/the_advantages_and_disadvantages_of_strategic_managem ent/  https://www.pdffiles.in/strategic-choice/  https://sswm.info/sites/default/files/reference_attachments/TANWAR%202013%20P orter%E2%80%99s%20Generic%20Competitive%20Strategies.pdf 189 CU IDOL SELF LEARNING MATERIAL (SLM)

UNIT 11: BCG MATRIX STRUCTURE 11.0 Learning Objectives 11.1 Introduction 11.2 BCG Matrix 11.3 GE Nine Cell Matrix 11.4 Porter Five Forces Model 11.5 Hofer’s Product-Market Evolution Matrix 11.6 Industry Analysis 11.7 Summary 11.8 Keywords 11.9 Learning Activity 11.10 Unit End Questions 11.11 References 11.0 LEARNING OBJECTIVES After studying this unit, you will be able to:  Elaborate the concept of BCG Matrix.  Illustrate the GE Nine Cell Matrix.  Explain the Porter five forces model. 11.1 INTRODUCTION As you embark on your study of business, you may be thinking that so much of what you will learn in school isn’t applicable to your career or future—you aren’t really going into business, for instance. Here’s a challenge that may change your mind. Stop what you are doing and take a minute to look around you. What do you see? Perhaps you see your living room, where you’re sitting at your desk doing your homework. You might be at a local coffee shop, hanging out with some friends who are going to help you study. Or maybe you’re sitting on the beach, reading this on your tablet or phone while you listen to the sounds of the ocean and children playing in the sand. Now, look around again but this time consider everything within your view and ask yourself what all of these things have in common? If you said that they are all the product of business, then you’re right! How can that be, you 190 CU IDOL SELF LEARNING MATERIAL (SLM)

ask? Business is everywhere, in everything we touch, we eat, we see, we smell, and we feel. Oh, not always directly, but in one way or another business is there. It’s like the air that we breathe—mostly invisible, but always present. The next part of the challenge is this: As you work through this first section, keep trying to think of something, anything that you can say with certainty has no relationship to business. We will check back later and see what you came up with! The world of business today can be summed up in a single word: change. And not just change, but rapid change. In order to remain profitable and competitive, businesses today are finding that they need to be more responsive than ever to customer demands. This is not only true of big companies like Apple, Nike, and Whole Foods but of smaller businesses, too—like your local hardware or grocery store. The rapidly changing business environment affects them all. What is the business environment? In some ways it resembles the natural environment in which we live: It’s all around us but not always noticeable. It includes things like technology, competitors advertising, regulations, consumer demands, and money. When these elements of the business environment change—in the same way that seasons and weather change—companies need to be able to predict, react, and adapt accordingly. Those who fail to do so may find themselves out in the rain or cold and struggling to survive. Although the environment in which businesses operate is always changing, the accelerated pace of change presents special challenges and opportunities for businesses today. To get a sense of this rapid and dramatic change, consider something that’s fairly routine for Americans: getting a prescription filled. A couple of decades ago, you would have taken a written prescription from your doctor to your local drugstore and presented it to the pharmacist. Then, while waiting for it to be filled, you might have leafed through magazines or browsed the store for extra items—perhaps shampoo or a greeting card. When your name was called, you probably paid in cash or wrote a check. All such transactions took place during normal business hours—Monday–Friday, 9 am–5 pm; larger pharmacies may have been open for a few hours on Saturday. What about now? Think about the last time you had a prescription filled. Did you ever even see it? Chances are you went to the doctor, and at the end of your visit she faxed the prescription straight to the pharmacy (perhaps a Rite-Aid, Walgreen’s, or Duane Reed). A little while later, you may have received a text message notifying you that your prescription was ready. Since it wasn’t convenient for you to pick it up during the workday, and because it’s a 24-hour pharmacy, you went at night. You pulled up to the drive-through window and paid using Apple Pay or Google Wallet. Afterward you verified that you received points on your customer loyalty card, which means savings or cash that can be applied to future purchases. You never set foot inside the store. Alternatively, you may have gotten your prescription filled online and mailed right to your home by a national discount supplier or maybe chosen to pick it up at Wal-Mart or Target when you stopped in to shop for a new garden hose. You can see from this example that the way companies “do business” is very different today. Some of these changes are the result of developments in technology, while others are the result of shifting consumer demands and trends. Regardless of the particular cause, though, all businesses have to cope with the 191 CU IDOL SELF LEARNING MATERIAL (SLM)

changing nature and pressures of the business environment. A large part of this course will focus on the ways in which they do just that. So, what is this thing we call “business”? A business is any activity that provides goods or services to consumers for the purpose of making a profit. Examples of goods provided by a business are tangible items such as cars, televisions, or soda. A service is a consumable, one- time benefit. Services include things such as haircuts, hotel stays, or roller-coaster rides. Business can generate profits from the sale of goods and/or services, and profits are the financial reward that comes from taking the risk of running or owning a business. More specifically, profit is the amount of revenue or income that a business owner retains after paying all the expenses associated with the operation of the business. If the expenses of the business exceed the revenue or income generated from operations, then the business will suffer a loss. Businesses that suffer extraordinary losses during a short period of time, or slowly see their profits decline, may end up closing or filing for bankruptcy. Clearly the goal of most businesses is to generate a profit by increasing revenue while holding expenses in check, and one of the chief ways they do this is by providing their customers with value. When businesses talk about value, they are referring to the relationship between the price a customer pays for the good or service and the perceived benefits the customer receives in exchange for his or her time and money. Value has become such a key component of today’s business model that if you go to almost any fast-food restaurant you’ll find a “value meal” or “value menu” advertised. Such businesses are sending the message to their customers that they’ll receive the most “bang for the buck” or theA non-profits or not-for-profit business is one that provides goods or services to consumers, but its primary goal is not to return profit to the owners of the business (as is the case with a for-profit business). Instead, it uses those profits to provide a public service, advance a cause, or assist others. The American Red Cross, the local SPCA, and the American Cancer Society are all examples of non-profits businesses. They use any revenue generated from operations to support the continued mission of the organization. In addition, most non-profits also rely on donations from individuals and businesses, grants, and government funding to help fund their work, since the revenue they raise rarely covers all their operating costs. Much of what differentiates a for-profit business from a non-profits business goes on behind the scenes and isn’t very visible to the customer. For example, a non-profits organization is subject to government regulation and oversight in ways that differ significantly from a for-profit business: Non-profits do not pay taxes on their revenue, but how their funds are disbursed and their operations are managed is tightly regulated. 11.2 BCG MATRIX The Boston Consulting Group growth-share matrix is a planning tool that uses graphical representations of a company’s products and services in an effort to help the company decide what it should keep, sell, or invest more in. 192 CU IDOL SELF LEARNING MATERIAL (SLM)

The matrix plots a company’s offerings in a four-square matrix, with the y-axis representing the rate of market growth and the x-axis representing market share. It was introduced by the Boston Consulting Group in 1970. The BCG growth-share matrix breaks down products into four categories, known heuristically as \"dogs,\" \"cash cows,\" \"stars,\" and “question marks.” Each category quadrant has its own set of unique characteristics. If a company’s product has a low market share and is at a low rate of growth, it is considered a “dog” and should be sold, liquidated, or repositioned. Dogs, found in the lower right quadrant of the grid, don't generate much cash for the company since they have low market share and little to no growth. Because of this, dogs can turn out to be cash traps, tying up company funds for long periods of time. For this reason, they are prime candidates for divestiture.2 Products that are in low-growth areas but for which the company has a relatively large market share are considered “cash cows,” and the company should thus milk the cash cow for as long as it can. Cash cows, seen in the lower left quadrant, are typically leading products in markets that are mature. Generally, these products generate returns that are higher than the market's growth rate and sustain itself from a cash flow perspective. These products should be taken advantage of for as long as possible. The value of cash cows can be easily calculated since their cash flow patterns are highly predictable. In effect, low-growth, high-share cash cows should be milked for cash to reinvest in high-growth, high-share “stars” with high future potential. BCG matrix is a framework created by Boston Consulting Group to evaluate the strategic position of the business brand portfolio and it’s potential. It classifies business portfolio into four categories based on industry attractiveness and competitive position (relative market share). These two dimensions reveal likely profitability of the business portfolio in terms of cash needed to support that unit and cash generated by it. The general purpose of the analysis is to help understand, which brands the firm should invest in and which ones should be divested. Business models are based on providing products or services that are profitable now, but they also attempt to identify changes in offerings that will keep the company profitable in the future. The current moneymakers are easy to identify now, but a good business strategy also asks, \"What about the future?\" Created by the Boston Consulting Group, the BCG matrix – also known as the Boston or growth share matrix – provides a strategy for analysing products according to growth and relative market share. The BCG model has been used since 1968 to help companies gain insights on what products best help them capitalize on market share growth opportunities and give them a competitive advantage. To analyse your own company, first, you'll need data on the relative market share and growth rate of your products or services. 193 CU IDOL SELF LEARNING MATERIAL (SLM)

When examining market growth, you need to objectively determine your competitive advantage over your largest competitor and think in terms of growth over the next three years. If your market is extremely fragmented, however, you can use absolute market share instead. Next, you can either draw a BCG matrix or find a BCG matrix template program online. There are several that are free, available for subscription or are part of another charting program, such as the free one by Micro. In this four-quadrant BCG matrix template, market share is shown on the horizontal line (low left, high right) and growth rate is found along the vertical line (low bottom, high top). The four quadrants are designated Stars (upper left), Question Marks (upper right), Cash Cows (lower left) and Dogs (lower right). Place each of your products in the appropriate box based on where they rank in market share and growth. Where you choose to set the dividing line between each quadrant depends in part on how your company compares to the competition. 11.3 GE NINE CELL MATRIX GE nine-box matrix is a strategy tool that offers a systematic approach for the multi business enterprises to prioritize their investments among the various business units. It is a framework that evaluates business portfolio and provides further strategic implications. Each business is appraised in terms of two major dimensions – Market Attractiveness and Business Strength. If one of these factors is missing, then the business will not produce desired results. Neither a strong company operating in an unattractive market, nor a weak company operating in an attractive market will do very well Industry attractiveness indicates how hard or easy it will be for a company to compete in the market and earn profits. The more profitable the industry is the more attractive it becomes. When evaluating the industry attractiveness, analysts should look how an industry will change in the long run rather than in the near future, because the investments needed for the product usually require long lasting commitment. Along the X axis, the matrix measures how strong, in terms of competition, a particular business unit is against its rivals. In other words, managers try to determine whether a business unit has a sustainable competitive or not.  Total market share  Market share growth compared to rivals  Brand strength (use brand value for this)  Profitability of the company  Customer loyalty 194 CU IDOL SELF LEARNING MATERIAL (SLM)

 VRIO resources or capabilities  Your business unit strength in meeting industry’s critical success factors  Strength of a value chain Level of product differentiation  Production flexibility One afternoon a new BMW drove into the car wash. A young man stepped out of the car, he looked to be around 18 to 19. I was always amazed how young people could earn so much money. I said to myself quietly: “What do you have to do to drive a car like that?” But he heard me and laughed. “Binary options” – he said and went away. Those two words changed my life forever. When I got home, I sat down at the computer and started looking for some mentions of binary options. And so, a month passed: during the day I would work at the car wash, and by night I would read dozens of forums to understand how to use binary options. I found the Olymp Trade web page and registered on there for free. They let me open a demo account for $10,000 using virtual money, as well as providing free instructions. This helped me a lot in the beginning, when I still didn’t know how to work with binary options and I didn’t want to invest my own money. On the Olymp Trade web page, all the calculations are done in US dollars I received the payments in US dollars as well. After two or three weeks, there was $10,000 in my account. The only problem was that this was only some algorithms on the screen; I couldn’t actually withdraw any cash. That was when I decided to invest $100 in my account. I don’t trust some of the Internet web pages, so I didn’t want to risk too much That night I didn’t sleep much – I traded all night, then I went to work. And guess what? That night I earned $153! All day at work, all I could think of was binary options. As soon as I got back home, I sat down at the computer, but tiredness got the better of me. That night I didn’t trade much – I earned just $33 and went to sleep. I remember those days well, the only thing that mattered to me was binary options – I would arrive home and start trading right away. After a week, my account had $1220 in it!!! I know, it’s not a huge amount, but this was only the beginning; I didn’t dare trade using large sums of money. This didn’t stop me trading though, because to earn money, all I needed was a laptop, or a mobile phone with Internet access. When we returned home, I bought myself BENTLEY and decided to write this blog just for you – workers like I was, who are fed up of working every day from morning until night, for a measly wage. Remember that life wasn’t given to us for that. Register now, and be sure to complete the instruction course in the demo account without risking losing real money. Nowadays, I don’t see any real way to earn money while sitting at the computer or telephone, except binary options. After buying the BENTLEY, there was still $27,183 left 195 CU IDOL SELF LEARNING MATERIAL (SLM)

over in my account. My goal was to earn $300,000 by the summer and buy a house for my beloved family. Good luck everyone, and thank you for your attention. 11.4 PORTER FIVE FORCES MODEL Porter's Five Forces is a model that identifies and analyzes five competitive forces that shape every industry and helps determine an industry's weaknesses and strengths. Five Forces analysis is frequently used to identify an industry's structure to determine corporate strategy. Porter's model can be applied to any segment of the economy to understand the level of competition within the industry and enhance a company's long-term profitability. The Five Forces model is named after Harvard Business School professor, Michael E. Porter. Porter's Five Forces is a business analysis model that helps to explain why various industries are able to sustain different levels of profitability. The model was published in Michael E. Porter's book, \"Competitive Strategy: Techniques for Analysing Industries and Competitors\" in 1980.1The Five Forces model is widely used to analyse the industry structure of a company as well as its corporate strategy. Porter identified five undeniable forces that play a part in shaping every market and industry in the world, with some caveats. The five forces are frequently used to measure competition intensity, attractiveness, and profitability of an industry or market. Porter's Five Forces Framework is a method for analysing competition of a business. It draws from industrial organizationeconomics to derive five forces that determine the competitive intensity and, therefore, the attractiveness of an industry in terms of its profitability. An \"unattractive\" industry is one in which the effect of these five forces reduces overall profitability. The most unattractive industry would be one approaching \"pure competition\", in which available profits for all firms are driven to normal profit levels. The five-force perspective is associated with its originator, Michael E. Porter of Harvard University. This framework was first published in Harvard Business Review in 1979. Porter refers to these forces as the microenvironment, to contrast it with the more general term macroenvironment. They consist of those forces close to a company that affect its ability to serve its customers and make a profit. A change in any of the forces normally requires a business unit to re-assess the marketplace given the overall change in industry information. The overall industry attractiveness does not imply that every firm in the industry will return the same profitability. Firms are able to apply their core competencies, business model or network to achieve a profit above the industry average. A clear example of this is the airline industry. As an industry, profitability is low because the industry's underlying structure of high fixed costs and low variable costs afford enormous latitude in the price of airline travel. Airlines tend to compete on cost, and that drives down the profitability of individual carriers as well as the industry itself because it simplifies the decision by a customer to buy or not buy a ticket. A few carriers – Richard Branson's Atlantic is one –have tried, with limited success, to use sources of differentiation in order to increase profitability. 196 CU IDOL SELF LEARNING MATERIAL (SLM)

Porter's five forces include three forces from 'horizontal' competition – the threat of substitute products or services, the threat of established rivals, and the threat of new entrants – and two others from 'vertical' competition – the bargaining power of suppliers and the bargaining power of customers. Porter developed his five forces framework in reaction to the then-popular SWOT analysis, which he found both lacking in rigor and ad hoc.Porter's five-forces framework is based on the structure–conduct–performance paradigm in industrial organizational economics. Other Porter strategy tools include the value chain and generic competitive strategies. Competition in the Industry The first of the five forces refers to the number of competitors and their ability to undercut a company. The larger the number of competitors, along with the number of equivalent products and services they offer, the lesser the power of a company. Suppliers and buyers seek out a company's competition if they are able to offer a better deal or lower prices. Conversely, when competitive rivalry is low, a company has greater power to charge higher prices and set the terms of deals to achieve higher sales and profits. Potential of New Entrants Into an Industry A company's power is also affected by the force of new entrants into its market. The less time and money it costs for a competitor to enter a company's market and be an effective competitor, the more an established company's position could be significantly weakened. An industry with strong barriers to entry is ideal for existing companies within that industry since the company would be able to charge higher prices and negotiate better terms. Power of Suppliers The next factor in the five forces model addresses how easily suppliers can drive up the cost of inputs. It is affected by the number of suppliers of key inputs of a good or service, how unique these inputs are, and how much it would cost a company to switch to another supplier. The fewer suppliers to an industry, the more a company would depend on a supplier. As a result, the supplier has more power and can drive up input costs and push for other advantages in trade. On the other hand, when there are many suppliers or low switching costs between rival suppliers, a company can keep its input costs lower and enhance its profits. Power of Customers The ability that customers have to drive prices lower or their level of power is one of the five forces. It is affected by how many buyers or customers a company has, how significant each customer is, and how much it would cost a company to find new customers or markets for its output. A smaller and more powerful client base means that each customer has more power to negotiate for lower prices and better deals. A company that has many, smaller, independent customers will have an easier time charging higher prices to increase profitability. 197 CU IDOL SELF LEARNING MATERIAL (SLM)

Threat of Substitutes The last of the five forces focuses on substitutes. Substitute goods or services that can be used in place of a company's products or services pose a threat. Companies that produce goods or services for which there are no close substitutes will have more power to increase prices and lock in favourable terms. When close substitutes are available, customers will have the option to forgo buying a company's product, and a company's power can be weakened. Understanding Porter's Five Forces and how they apply to an industry can enable a company to adjust its business strategy to better use its resources to generate higher earnings for its investors. Bargaining power of customers  Buyer concentration to firm concentration ratio  Degree of dependency upon existing channels of distribution  Bargaining leverage, particularly in industries with high fixed costs  Buyer switching costs  Buyer information availability  Availability of existing substitute products  Buyer price sensitivity  Differential advantage of industry products  RFM (customer value) Analysis Bargaining power of suppliers  Supplier switching costs relative to firm switching costs  Degree of differentiation of inputs  Impact of inputs on cost and differentiation  Presence of substitute inputs  Strength of distribution channel  Supplier concentration to firm concentration ratio  Employee solidarity  Supplier competition: the ability to forward vertically integrate and cut out the buyer. 11.5 HOFER’S PRODUCT-MARKET EVOLUTION MATRIX The GE Business Screen is not without controversy. Some observers argue that there is too much subjectivity in the construction of the matrix. 198 CU IDOL SELF LEARNING MATERIAL (SLM)

According to Hofer and Schendel, \"The Principal difficulty with GE Business Screen is that it does not depict as affectively at it might the positions of new businesses that are just starting to grow in new industries.  In such instances, it may be preferable to use a fifteen-cell matrix in which businesses are plotted in terms of their competitive position and their stage of product/market evolution\". Thus, Hofer developed the Product/Market Evolution Portfolio Matrix, or Life Cycle Matrix.  Several useful ideas concerning the strategic alternatives available to each business unit emerge from an analysis.  -Business unit A would to be a developing winner. Its relatively large share of the market combined with its being at the development stage of product- market evolution and its potential for being in a strong competitive position makes it a good candidate for receiving more corporate resources.  Business unit B is somewhat similar to A. However, it has a relatively small share of the market given its strong competitive position. A strategy would have to be developed to overcome this low market share in order to justify more investments.  Business unit C might be classified as a potential loser. A strategy must be developed to overcome the low market share and weak competitive position in order to justify future investments.  Business unit D is in a shakeout period, has a relatively large share of the market, and is in a relatively strong position. Investment should be made to maintain that position.  Business units E and F are cash cows and should be used for cash generation.  Business unit G appears to be a dog. It should be managed to generate cash in the short run, if possible; however, the long-run strategy will more the likely be divestment or liquidation.  It has been suggested that most portfolios are variations of one of three ideal types: growth, profit, balanced. 11.6 INDUSTRY ANALYSIS Industry analysis is a tool that facilitates a company's understanding of its position relative to other companies that produce similar products or services. Understanding the forces at work in the overall industry is an important component of effective strategic planning. Industry analysis enables small business owners to identify the threats and opportunities facing their businesses, and to focus their resources on developing unique capabilities that could lead to a competitive advantage. 199 CU IDOL SELF LEARNING MATERIAL (SLM)

\"Many small business owners and executives consider themselves at worst victims, and at best observers of what goes on in their industry. They sometimes fail to perceive that understanding your industry directly impacts your ability to succeed. Understanding your industry and anticipating its future trends and directions gives you the knowledge you need to react and control your portion of that industry,\" Kenneth J. Cook wrote in his book The AMA Complete Guide to Strategic Planning for Small Business. \"However, your analysis of this is significant only in a relative sense. Since both you and your competitors are in the same industry, the key is in finding the differing abilities between you and the competition in dealing with the industry forces that impact you. If you can identify abilities you have that are superior to competitors, you can use that ability to establish a competitive advantage.\" An industry analysis consists of three major elements: the underlying forces at work in the industry; the overall attractiveness of the industry; and the critical factors that determine a company's success within the industry. One way in which to compare a particular business with the average of all participants in the industry is through the use of ratio analysis and comparisons. Ratios are calculated by dividing one measurable business factor by another, total sales divided by number of employees, for example. Many of these ratios may be calculated for an entire industry with data available from many reports and papers published by the U.S. Departments of Commerce and Labour. By comparing a particular ratio for one company with that of the industry as a whole, a business owner can learn much about where her business stands in comparison with the industry average. For example, a small nursing home business can compare its \"payroll per employee\" ratio with the average for all residential care operators in the U.S. in order to determine if it is within a competitive range. If her business's \"payroll per employee\" figure is higher than the industry average, she may wish to investigate further. Checking the \"employees per establishment\" ratio would be a logical place to look next. If this ratio is lower than the industry average it may justifying the higher per-employee payroll figure. This sort of comparative analysis is one important way in which to assess how one's business compares with all others involved in the same line of work. There are various sources for the industry average ratios, among them is the industry analysis series published by Thomson Gale as the USA series. Ease of entry refers to how easy or difficult it is for a new firm to begin competing in the industry. The ease of entry into an industry is important because it determines the likelihood that a company will face new competitors. In industries that are easy to enter, sources of competitive advantage tend to wane quickly. On the other hand, in industries that are difficult to enter, sources of competitive advantage last longer, and firms also tend to benefit from having a constant set of competitors. The ease of entry into an industry depends upon two factors: the reaction of existing competitors to new entrants; and the barriers to market entry that prevail in the industry. Existing competitors are most likely to react strongly against new entrants when there is a 200 CU IDOL SELF LEARNING MATERIAL (SLM)