digital notes

1. MBA III SEMESTER: STRATEGIC MANAGEMENT (KMB N 301)
Index
UNIT I ........................................................................................................................ 5
Strategic Intent: ................................................................................................... 5
Vision ............................................................................................................... 5
Advantages of a Good Vision: .............................................................................. 5
Mission ............................................................................................................. 5
Characteristics of Mission Statement: ................................................................... 6
UNIT II .............................................................................................................. 21
Environmental analysis (scanning or appraisal). ........................................................... 21
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The importance of environmental analysis .................................................................. 21
Procedure of Environmental Analysis: ................................................................. 21
 Competitive analysis.................................................................................. 21
 Porter's model .......................................................................................... 22
PESTEL Analysis:.............................................................................................. 22
EXTERNAL FACTORS ......................................................................................... 23
STEPS IN DEVELOPING THE EFE MATRIX:............................................................ 24
Competitive Advantage..................................................................................... 28
Flexibility and Responsiveness........................................................................... 29
Knowledgeable Workforce................................................................................. 29
Improved Customer Relationships...................................................................... 29
A real-life VRIO framework example is Google. ....................................................... 32
Classification of Value Chain Analysis:................................................................. 34
UNIT III.................................................................................................................... 42
Types of Strategies in Strategic Management: ........................................................ 42
Types of Strategies in Strategic Management: ......................................................... 42
1. Competitive Strategy: ................................................................................... 43
2. Corporate Strategy: ...................................................................................... 43
3. Business Strategy: ........................................................................................ 44
4. Functional Strategy:...................................................................................... 44
5. Operating Strategy: ...................................................................................... 44
Levels of Strategy-Making................................................................................. 44
1. Market Penetration ................................................................................... 48
2. Market Development ................................................................................. 48
3. Product Development ................................................................................ 48
Advantages and Disadvantages Of Strategic Alliances: ............................................. 64

2. UNIT IV.............................................................................................................. 73
Advantages and disadvantages: ......................................................................... 82
Benefits of the matrix: .......................................................................................... 82
 Ansoff Matrix - The Product/Market Expansion Grid ................................... 84
Understanding the Ansoff Matrix.............................................................................. 84
The Ansoff Matrix: Market Penetration....................................................................... 85
The Ansoff Matrix: Product Development.................................................................... 85
The Ansoff Matrix: Market Development .................................................................... 86
UNIT V............................................................................................................... 99
Benefits of activity-based costing ............................................................................101
Drawbacks of an ABC system.................................................................................102
Risk Response Strategies for Enterprise Risk Management..............................................103
Example of an Enterprise Risk Management Process .....................................................104
Balanced Scorecard ............................................................................................105
QUESTION BANK.......................................................................................................114
UNIT I...............................................................................................................114
UNIT II .............................................................................................................114
UNIT III ............................................................................................................115
UNIT IV.............................................................................................................115
UNIT V..............................................................................................................116
PREVIOUS YEARS QUESTION PAPERS ...................................................................117
VIDEO TUTORIAL LINKS......................................................................................126
 https://www.youtube.com/watch?v=icROuBkh7NU ...........................................126

..https://www.youtube.com/watch?v=aG7f4fFGfBA&list=PLoVRJrAl0FT31sy7moe9mK
Wk9MB93i2dX&index=9 ................................................................................126

https://www.youtube.com/watch?v=OFX1NmgO9CY&list=PLoVRJrAl0FT31sy7moe9m
KWk9MB93i2dX&index=17.............................................................................126

https://www.youtube.com/watch?v=56DZg1Gbb60&list=PLoVRJrAl0FT31sy7moe9mK
Wk9MB93i2dX&index=70...............................................................................126

https://www.youtube.com/watch?v=fFdWaATFLjw&list=PLoVRJrAl0FT31sy7moe9mK
Wk9MB93i2dX&index=73...............................................................................126
 https://www.youtube.com/watch?v=cg-
R4EMHyNA&list=PLoVRJrAl0FT31sy7moe9mKWk9MB93i2dX&index=76 ...............126

.https://www.youtube.com/watch?v=OlRBxVkGwpw&list=PLoVRJrAl0FT31sy7moe9m
KWk9MB93i2dX&index=79.............................................................................126

. https://www.youtube.com/watch?v=qLPQGJs4yi8&list=PLoVRJrAl0FT31sy7moe9mK

3. Wk9MB93i2dX&index=83...............................................................................126

https://www.youtube.com/watch?v=QuKTNICeo4Q&list=PLoVRJrAl0FT31sy7moe9mK
Wk9MB93i2dX&index=87...............................................................................126
 https://www.youtube.com/watch?v=vLJSsq-
rN5o&list=PLoVRJrAl0FT31sy7moe9mKWk9MB93i2dX&index=122 ......................126

https://www.youtube.com/watch?v=Hvph7JzGuVc&list=PLoVRJrAl0FT31sy7moe9mK
Wk9MB93i2dX&index=125 .............................................................................126

https://www.youtube.com/watch?v=1oL1Gn3dKR0&list=PLoVRJrAl0FT31sy7moe9mK
Wk9MB93i2dX&index=209 .............................................................................126

https://www.youtube.com/watch?v=fl7ajJTS5oQ&list=PLoVRJrAl0FT31sy7moe9mKW
k9MB93i2dX&index=268................................................................................126

.https://www.youtube.com/watch?v=FRprRP0nT5s&list=PLoVRJrAl0FT31sy7moe9mK
Wk9MB93i2dX&index=290 .............................................................................126

https://www.youtube.com/watch?v=E74unxD2oWw&list=PLoVRJrAl0FT31sy7moe9m
KWk9MB93i2dX&index=293 ...........................................................................126

.https://www.youtube.com/watch?v=mkO4FwI32b0&list=PLoVRJrAl0FT31sy7moe9m
KWk9MB93i2dX&index=302 ...........................................................................126
WEB REFERENCE LINKS ......................................................................................127
 https://www.investopedia.com/terms/s/strategic-management.asp ....................127
 https://higherstudy.org/types-strategies-strategic-management/ .......................127
 https://strategicmanagementinsight.com/tools/pest-pestel-analysis/ ..................127
 https://strategicmanagementinsight.com/tools/value-chain-analysis/..................127
 https://strategicmanagementinsight.com/tools/ ...............................................127
 https://businessjargons.com/strategy-implementation.html...............................127

. https://en.wikipedia.org/wiki/Strategic_control#:~:text=Strategic%20control%20is
%20the%20process,handle%20uncertainty%20and%20ambiguity%20at ............127
 https://www.cgma.org/resources/tools/essential-tools/enterpise-risk-
management.html#:~:text=Enterprise%20risk%20management%20(ERM)%20is,op
portunities%20to%20gain%20competitive%20advantage..................................127
 https://en.wikipedia.org/wiki/Enterprise_risk_management ...............................127
NPTEL LECTURE LINKS........................................................................................128
 https://www.youtube.com/watch?v=WKr-
lfE4QaE&list=PL1C1BA88BD78AE49A&index=1.................................................128

https://www.youtube.com/watch?v=dCvPZLQdw08&list=PL1C1BA88BD78AE49A&ind
ex=2...........................................................................................................128
 https://www.youtube.com/watch?v=8-
pcuDIQKUw&list=PL1C1BA88BD78AE49A&index=3 ...........................................128

.https://www.youtube.com/watch?v=J1d5z_Ew6Qo&list=PL1C1BA88BD78AE49A&ind

4. ex=4...........................................................................................................128
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https://www.youtube.com/watch?v=Fv2inTlaZF8&list=PL1C1BA88BD78AE49A&index
=7 ..............................................................................................................128
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https://www.youtube.com/watch?v=cezRB2qR3o0&list=PL1C1BA88BD78AE49A&inde
x=8 ............................................................................................................128
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https://www.youtube.com/watch?v=RnR2jJK0Gh8&list=PL1C1BA88BD78AE49A&inde
x=10...........................................................................................................128
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https://www.youtube.com/watch?v=fAyjznGzago&list=PL1C1BA88BD78AE49A&index
=11 ............................................................................................................128

https://www.youtube.com/watch?v=4vl_r79DBKU&list=PL1C1BA88BD78AE49A&inde
x=13...........................................................................................................128
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https://www.youtube.com/watch?v=oJNTKLYEnZk&list=PL1C1BA88BD78AE49A&inde
x=21...........................................................................................................128
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https://www.youtube.com/watch?v=0CoTb4yn3Ls&list=PL1C1BA88BD78AE49A&inde
x=22...........................................................................................................128

https://www.youtube.com/watch?v=qtT_6EfxLMM&list=PL1C1BA88BD78AE49A&inde
x=23...........................................................................................................128
 https://www.youtube.com/watch?v=vB1CG_iZ-
Gc&list=PL1C1BA88BD78AE49A&index=27 ......................................................128

https://www.youtube.com/watch?v=BzgrCwivdi8&list=PL1C1BA88BD78AE49A&index
=28 ............................................................................................................128

https://www.youtube.com/watch?v=rb67B5SFgAE&list=PL1C1BA88BD78AE49A&inde
x=29...........................................................................................................128

5. UNIT I
Strategic Intent:
Strategic intent as defined by Hamel and Prahalad is used to define and to communicate a sense of direction. The
direction is about the longer-term strategic position that the leaders of the organization wishes to achieve through its
processes of objective setting and strategy formulation. Strategic intent comprises a sense of direction, a sense of
discovering that will help in identifying opportunities to meet new challenges and a sense of destiny – that will create
inspiration and commitment on the part of managers, employees, and the stakeholders.
Vision:
According to Peter Senge, “ A vision provides shared pictures of the future that foster genuine commitment and
enrollment rather than compliance”
Accodring to Miller and Dess, Vision simply as the “Category of intentions that are broad, all inclusive and forward
thinking”.
Advantages of a Good Vision:
 Good vision are inspiring and exhilarating
 It clarifies the path where organization wants to proceeds.
 It helps the organization to prepare for future.
 It clearly indicates top management views about the firm’s long range direction.
 It directs in decision making process.
 It provides base for lower level managers to set departmental mission and objectives.
 It creates common identity and a shared sense of purpose.
 Good vision foster risk taking.
International Business Machines Corporation (IBM) has a vision statement and mission statement strongly associated
with the organization and its brand. A firm’s corporate vision statement sets the desired future state of the business to
guide strategic direction. IBM’s corporate vision is “to be the world’s most successful and important information
technology company. Successful in helping out customers apply technology to solve their problems. Successful in
introducing this extraordinary technology to new customers.Important, because we will continue to be the basic
resource of much of what is invested in this industry.” This vision statement depicts IBM’s developmental path as it
maintains its position as one of the top players in the global market. IBM’s vision statement marks the importance of
leadership of the business in the information technology industry.
Mission :
Organization defines the basic reason for their existence in terms of a mission statement. Mission statement defines the
role of the organization in the society. It describes the organization reasons for being. For some companies the mission
statement may be in the form of very long statement or may be a just paragraph. Mission statement includes a
statement on organizational philosophy and purpose. It indicates the fundamental purpose of the organization. The
mission statement also includes the firm’s philosophy about how it does business and treats its employees. Some experts

6. are of the opinion that mission statement describes what the organization is now and a vision statement highlights on
what the organization like to be in the near future.
According to Thompson (1997) mission is the “Essential purpose of the organization, concentrating
particularly why it is in existence, the nature of the businesses it is in and customers it seeks to serve and
satisfy”
Characteristics of Mission Statement:
Mission statement indicates the strategic thinking of the organization on its stakeholders namely shareholders,
employees, customers, suppliers and the environment. It should answer the following questions:
1. What are the values, beliefs of the organization?
2. What is major competitive advantage of the company?
3. Who are the company’s customers?
4. Are employees a valuable asset for the organization?
Mission statement framed should have following characteristics:
It should clearly indicate the organizational purpose and outlook.
It should have customer orientation
It should also highlights on social objectives
1. Clarity :The mission statement should be clearly stated so that it leads to effective action. The dream must be
presented in a positive way.
2. Realistic: It should be realistic and achievable.
3. Broad: The mission statement should be presented as the grand design of the firm’s future.
4. Specific: Mission should be specific. It describes the scope within which the organization has to function.
5. Dynamic: The mission statement should be dynamic to balance between narrow and broad ways of doing things. It
should bring balance between present requirements and future expectations.
6. Vision: The mission statement is the expansion of thevision of the company.
Example of Mission Statement:
IBM’s Mission Statement
IBM’s mission is “to lead in the creation, development andmanufacture of the industry’s most advanced information
technologies,including computer systems, software, networking systems, storagedevices and microelectronics. And our
worldwide network of IBMsolutions and services professionals translates these advancedtechnologies into business value
for our customers. We translatethese advanced technologies into value for our customers throughour professional
solutions, services and consulting businessesworldwide.”
The mission statement indicates what the business of IBM is. Itdetailed out company’s aims and its activities on how to
fulfill theseaims. It also highlights on :
• To be the leader in the IT sector with most advancedtechnologies.
• Delivering better value to the customers.
• Providing professional solutions to the clients worldwide.
Vision and Mission statement of Tata International:
Vision
To be globally significant in each of our chosen businesses by 2025.

7. Mission
To be the most reliable global network for customers and suppliers, that delivers value through products and services.
To be a responsible value creator for all our stakeholders.
Comparison Table Between Vision and Mission :
Parameter of
Comparison
Vision Mission
Meaning
The ultimate goal to be
achieved
A statement indicating the activities to be
pursued for accomplishing a goal
In simple words how to
describe?
Where are we heading towards? How will we reach there?
Main Purpose
To inspire and hope to the
people to contribute towards
attaining the goal
To provide guidance or roadmap for
achieving the goal
Benefit to employees
Helps understand why they are
doing a particular task
Help recognize what exactly are they doing
Benefit to organization
The company understands what
it wants to achieve in future
The company recognizes what it should do
in the present
Whether it can change or
is flexible?
Ideally will remain constant,
changes will be minimal
Yes, it can change as per changing
circumstances or on the client perception
but will relate to the main goal
Whether it is focussed on
the present or future?
Future i.e. focussed on
tomorrow
Present i.e. focussed on today
Example of how a
statement can look like or
how it can be designed
Where does the company
intend to go in the future? By
when?
What does the company need to perform
today? For whom should the company
serve?
Example of a real
statement of a company
The vision of LinkedIn is-
“Create economic opportunity
for every member of the global
workforce”
The mission of LinkedIn is- “The mission of
LinkedIn is simple: connect the world’s
professionals to make them more
productive and successful”
Whether vision comes
first or mission?
Vision comes first as it guides
the overall structure for mission
The mission comes after vision

8. Parameter of
Comparison
Vision Mission
Timeline
Long timeline because it
focuses on achieving the final
goal
Short timeline because it can be changed as
per prevailing circumstances
Scope Wide Narrow
What is Objective?
The objective is a person’s actions or efforts that plan to achieve goals or purpose. It is the milestones that help
individual or organization to achieve goals.
The objective is narrow in scope, precise, tangible, and easily measured when the target is achieved. Objectives form a
part of the goals to be achieved in a given deadline. It is challenging but possible and fact-oriented.
Objectives are tangible, has a timeframe, and measure how much target has been achieved. The organizations use the
S.M.A.R.T goal setting method to define and measure the objectives.
S.M.A.R.T is defined as:
1. S – Specific
2. M – Measurable
3. A – Attainable
4. R – Realistic
5. T – Time-bound
What is Goal?
The goal is an achievement that individuals or organizations hoping to achieve in the future. It is a long-term outcome
that wants to be achieved. The goal is where you want to be in the future.
The goal is broad in scope, and generic as well. It is intangible and may not be measurable where we are specifically. It
is large waiting for the final result in a longer period.
The goal is based on the ideas of an individual or organization to accomplished in a longer period. the goal is a direction
for a business plan where you want to be in the future.
The goal can be used in company strategy, financial achievement, project accomplishment, or position in a company.
The right goal gives the inspiration to achieve where you want to be. The goals have no specific time-bound or action on
how to reach your goal.
Objective vs Goal
The difference between Objective and goal is that objective is an action plan taken to achieve the goals with the limited
time on a specific target. And Goal is a long-term outcome that individuals or organizations want to achieve.
The objective is the effort put to achieve a part of the goal that is set. It is time-related to achieve a specific target of
general goals. It is a kind of milestone for individuals or organizations to direct achieve goals.
Goals are individual’s or organization’s hope to achieve a certain target in the future. It is a long-term outcome that is to
be achieved. It is completely generic, at the same time huge and broad in the vision. A goal is the destined target set

9. while the objective is one of the ladders to achieve it.
Comparison Table Between Objective and Goal:
Parameter of
Comparison
Objective Goal
Plan of action
Scope – Narrow
Target – Specific
Scope – Broad
Target – General
Period
Usually, a smaller period compared
with the goal’s duration
The goal has a longer period.
Measurement Easily measurable
Not as easy as compared to the
objectives
Principle
Objectives are facts that obtained to
achieve goals
Goals are based on ideas
Function
The objective is the steps taken to
achieve a goal.
The goal is a destination decided to
reach. It is an achievement.
Corporate Governance:
Corporate governance is a system of structuring, operating and controlling a company with a view to achieve long-term
strategic goals to satisfy shareholders, creditors, employees, customers and suppliers, and complying with the legal and
regulatory, apart from meeting environmental and local community needs."
Corporate governance can be defined as a set of systems and processes which ensure that a company is managed
to the best interests of all the stakeholders. The set systems that help the task of corporate governance should
include certain structural and organizational aspects; the process that helps corporate governance will embrace how
things are done within such structure and organizational systems.
Corporate governance is of interest to us as it determines the strategy of the organization and how it is to be
implemented. It is also important to us because the Corporate Governance framework determines who the organization
is there to serve and how the priorities and purpose of the organization are determines.
Corporate governance is the set of mechanisms used to manage the relationship among stakeholders that is used to
determine and control the strategic directions and performance of organization.
Significance of Corporate Governance
Good corporate governance has assumed great importance and urgency in India due to the following reasons:
1) Changing Ownership Structure: The profile of corporate ownership has changed significantly. Public
financial institutions are the single largest shareholder in most of the large corporation in the private sector. Institutional
shareholders have reversed the trend of scattered shareholders. Institutional investors (foreign as well as Indian) and
mutual funds have now become singly or jointly direct challenges to managements of companies. Due to threat of
hostile takeover bids and the growth of institutional investors the big business houses started talking about corporate
governance.

10. 2) Social Responsibility: A company is a legal entity without physical existence. Therefore, it is managed by
board of directors which is accountable and responsible to shareholders who provide the funds. Directors are also
required to act in the interests of customers, lenders, suppliers and the local community of enhancing shareholders'
value. An effective system of corporate governance provides a mechanism for regulating the duties of directors so that
they act in the best interests of the companies. Control systems are established either through law or self-regulations.
3) Scams: In recent years several corporate frauds have shaken the public confidence. Harshad Mehta scandal,
CRB Capital case and other frauds have caused tremendous loss to the small meetings. Shareholders, associations,
investors, education and awareness have not emerged as a countervailing force.
4) Globalization: As Indian companies went to overseas markets for capital, corporate governance became a
buzzword. Sinking capital markets in India from 1994 through 1998 and the desire of more and more companies in India
to get listed on international stock exchanges also prompted them to pay attention to corporate governance. We must,
however, remember that corporate governance is not a trick to prop up the sensex of to bring in foreign capital. It
implies management of the corporate sector within the constraints of fair play, responsibility and conscience with regard
to all the stakeholders.
Concerning issues of corporate governance:
Basic issues
1) Ethical Issues: Ethical issues are concerned with the problem of fraud, which is becoming wide spread in
capitalist economies. Corporations often employ fraudulent means to achieve their goals. They form cartels to exert
tremendous pressure on the government to formulate public policy, which may sometimes go against the interests of
individuals and society at large. At times corporations may resort to unethical means like bribes, giving gifts to potential
customers and lobbying under the cover of public relations in order to achieve their goal of maximizing long-term owner
value.
2) Efficiency issues: Efficiency issues are concerned with the performance of management. Management is
responsible for ensuring reasonable returns on investment made by shareholders. In developed countries, individuals
usually invest money through mutual, retirement and tax funds. In India, however small shareholders are still an
important source of capital for corporations as the mutual funds industry is still emerging. The issues relating to
efficiency of management is of concern to shareholders as, there is no control mechanism through which they can
control the activities of the management, whose efficiency is unfavorable for returns on their (shareholders)
investments.
3) Accountability Issues: Accountability issues emerge out of the stakeholders' need for transparency of
management in the conduct of business. Since the activities of a corporation influence the workers, customers and
society at large, some of the accountability issues are concerned with the social responsibility that a corporation must
shoulder.
Structural Issues
Corporate governance is viewed as interactions among participants in managerial functions (e.g., management),
oversight functions (e.g., the board of directors and audit committee), audit functions (e.g., internal auditors and
external auditors), monitoring functions (e.g., the SEC, standard setters, regulations), and user functions (e.g.,
investors, creditors, and other stakeholders) in the governance system of corporations.
Corporate governance consists of internal and external mechanisms, directing, and monitoring corporate activities to
create and increase shareholder value. Organizations that strive to develop effective corporate governance systems
consider a number of internal and external issues.

11. These issues affect most organizations, although individual businesses may face unique factors that create additional
governance questions. For example, a company operating in several countries will need to resolve issues related to
international governance policy
1) Boards of Directors: Members of a company's board of directors assume legal and ethical responsibility for
the firm's resources and decisions, and they appoint its top executive officers. Board members have fiduciary duty,
meaning they have assumed a position of trust and confidence that entails certain requisite responsibilities, including
acting in the best interests of those they serve. Thus, board membership is not designed as a vehicle for personal
financial gain; rather, it provides the intangible benefit of ensuring the success of the organization and the stakeholders
affected and involved in the fiduciary arrangement.
2) Shareholders and Investors: Because they have allocated scarce resources to the organization,
shareholders and investors expect to reap rewards from their investments. This type of financial exchange represents a
formal contractual arrangement that provides the capital necessary to fund all types of organizational initiatives, such as
developing new products and constructing new facilities. Shareholders are concerned with their ownership investment in
publicly traded firms, whereas "investor" is a more general term for any individual or organization that provides capital
to a firm. Investments include financial, human, and intellectual capital.
3) Internal Control and Risk Management: Controls and a strong risk management system are fundamental
to effective operations because they allow for comparisons between the actual performance and the planned
performance and goals of the organization. Controls are used to safeguard corporate assets and resources, protect the
reliability of organizational information, and ensure compliance with regulations, laws, and contracts. Risk management
is the process used to anticipate and shield the organization from unnecessary or overwhelming circumstances, while
ensuring that executive leadership is taking the appropriate steps to move the organization and its strategy forward.
4) CEO Compensation: How executives are compensated for their leadership, organizational service, and
performance has become an extremely troublesome topic.
Many people believe that no executive is worth millions of dollars in annual salary and stock options, even one who has
brought great financial returns to investors. The reality, however, is that some executives continue to receive extremely
high pay packages while their companies fall into ruin.
Factors which have contributed to the evolution of corporate governance:
Many factors have contributed to the evolution of corporate governance. Some of these are:
1) The Responsibility for Ensuring Good Corporate Shifted from Government to a Free market
Economy: With the relaxation of direct indirect administrative controls by the government, alternative mechanisms
became necessary to monitor the performance of corporations in free-markets. Shareholders believed that market forces
could ensure good corporate conduct (self imposed) by way of rewarding success and punishing failures of corporations.
Many free-market economies laid down effective regulations to monitor the corporations. However, regulations alone not
ensure good governance. To become effective, they must be enforceable by law.
2) Active Participation of individual and Institutional Investors: The second factor that boosted corporate
governance is the growth of global fund management business. Institutional investors such as insurance companies,
pension and tax funds account for more than half the capital in the corporations of USA. This trend is also growing in
India. Earlier Institutional investors did not monitor the activities of the corporations in which they invested. But the
competition in the fund management business has forced them to take an active role in governance in order to
safeguard their investments in the corporations. Now, many institutional investors express their views strongly with

12. regard to various matters such as financial and operational performance, business strategy, remuneration of top-level
managers etc. Along with the non-executive directors, these institutional investors monitor the performance of
corporations.
The active investor demands good performance in the form of return on investment and they also expect timely and
accurate information regarding the performance of the company. Institutional investors can exert pressure on the
management as they own a considerable share in the capital and any criticism from these investors can have a major
impact on the share prices. Investors believe that only strong corporate governance mechanisms and practices can save
them from the ever-growing power of corporations, which can influence public policy to the detriment of investors.
3) Increasing Competition in Global Economy : The enhanced competition in the global economy has
compelled corporations to perform better by going in for cost-cutting, corporate restructuring, mergers and acquisitions,
downsizing, etc. All these activities can be carried out successfully only if there is proper corporate governance. Thus,
market forces, active individual and institutional investor participation, and enhanced governance. Thus market forces,
active individual and institutional investor participation, and enhanced competition have helped corporate governance to
evolve beyond a set of static rules. In India, the concept of corporate governance is still in its nascent stage.
CSR is a process by which an organization thinks about and evolves its relationships with stakeholders for the common
good and demonstrates its commitment in this regard by adoption of appropriate business processes and strategies.
Thus, CSR is no charity or mere donations.
CSR is a way of conducting business, by which corporate entities visibly contribute to the social good. Socially
responsible companies use CSR to integrate economic, environmental and social objectives with the company’s
operations and growth.
• “Corporate Social Responsibility” (CSR) Means and include but not limited to :-
1) Projects or programs relating to activities specified in the schedule VII of the Act; or
2) Projects or Programs relating to activities undertaken by BODs of the company in pursuance of the recommendations
of the CSR committee of the Board as per declared CSR Policy of the company enumerated in schedule VII of the Act.
• “CSR Policy” relates to the activities to be undertaken by the company as specified in schedule VII of the act and the
expenditure thereon, excluding activities undertaken in pursuance of normal course of business of a company.

13. In the new Companies Act 2013, there is the new provision for the “Corporate Social Responsibility” under the
Section 135 of the Companies Act 2013. By following the provision of the CSR, the companies are giving something

14. back to the society.
APPLICABILITY OF THE CSR:
The applicability of the CSR provisions on the certain class of Companies having:
(a) net worth of the company rupees Five hundred crore or more; OR
(b) turnover of the company rupees One thousand crore or more; OR
(c) net profit of the company rupees five crore or more.
during any financial year to constitute a Corporate Social Responsibility (CSR) Committee of the Board. Any
financial year has been clarified as to imply any of the three preceding financial years.
The CSR committee shall be constituted with 3 or more directors, out of which at least one director shall be an
Independent Director.
DIRECTOR
Director: “Director means a director appointed to the Board of a company.” {Sec. 2(34)}
According to the Supreme Court of India. “A Person, who guides policy and superintends the working of the company, is
a director. The name by which he is called is immaterial.
As per Section 149 of the Companies Act, 2013, the Board of Directors of every company shall consist of
individual only. Thus, no body corporate, association or firm shall be appointed as director.
A few Facts about Directors:
1. Director is an individual person who is appointed as director to the Board of a company. {Sec. 2(34)}
2. A director is an officer of the company if the Board of directors of a company is accustomed to act with the directors
of him {Sec. 2(59)}
3. There must be at least 3 directors in a public company and 2 directors in a private company and one director in case
of a One Person Company. {Sec. 149(1)}
4. Usually a company can have maximum of 15 directors. But it may appoint more than 15 directors after passing a
special resolution. {Sec. 149(1)}
5. Subject to any regulation in the articles. Subscribers of the memorandum (who are individuals) shall be deemed to be
the first directors of the company until the directors are duly appointed. {Sec. 152}
6. The directors collectively are referred to as ‘Board of directors’ or ‘Board’. {Sec. 2(10)}
7. The ultimate responsibility for management and control of the affairs of a company vests in the Board of directors.
8. Only individuals can be appointed as directors. No body corporate, association or firm can be appointed as directors of
a company. {Sec. 149 (1)}
COMPOSITION OF BOARD OF DIRECTORS –
The provisions with respect to composition of Board of directors of companies are as follows:
Every Company to have Board of Directors:
Every company shall have a Board of directors consisting of individuals as directors. {Sec. 149(1)}
Minimum Number of Directors:
I. In case of public company- Every public company shall have a minimum of 3 directors on its Board
II. In case of private company- Every private company (other than OPC) shall have a minimum of 2 directors on its
Board.
III. In case of OPS- Every One Person Company shall have minimum of one director on its Board. {Sec. 149(1)}
Maximum Number of Directors:
Every company may have maximum of 15 directors on its Board. However, any company may appoint more than 15

15. directors after passing a special resolution. {Sec. 149(1) and its first proviso}
NUMBER OF DIRECTORSHIPS:
Maximum Number of Directorships:
No person shall hold office as a director, including any alternate directorship, in more than 20 companies at the same
time.
Directorships Held in Public Companies:
The maximum number of public companies in which a person can be appointed as a director shall not exceed 10. {Sec.
165(1)}
Members’ Right to Limit Directorships:
The members of a company may, by special resolution, specify any lesser number of companies in which a director of
the company may act as director {Sec. 165(2)}
METHODS OF APPOINTMENT OF DIRECTOR:
The methods or ways of appointing directors of a company are as follows:
I. Appointment of first directors.
II. Appointment by company/members:
1. In the first general meeting
2. In the first annual general meeting and subsequent general meeting.
III. Appointment by the Boards of directors:
1. Additional director
2. alternate director
3. Appointment to fill up casual vacancy
4. Nominee director.
IV. Appointment by proportional representation.
V. Appointment by the order of the Tribunal.
VI. Appointment by the Central Government.
DIRECTOR IDENTIFICATION NUMBER:
No person shall be appointed as a director of a company unless he has been allotted the Director Identification Number
or DIN. {Sec. 152(3)}
Director Identification Number (DIN) is an unique identification number allotted by the Central Government to any
individual, intending to be appointed as director or to any existing director of a company, for the purpose of his
identification as a director of a company.
DIN is specific to a person, which means even if he is a director in two or more companies, he has to obtain only one
DIN and if he leaves a company and joins some other, the same DIN would work in the other company as well.
“Director Identification Number” (DIN) includes the Designated Partnership Identification Number (DPIN) issued under
section 7 of the Limited Liability Partnership Act, 2008 and rules made thereunder.
Section 152 (4) mandates that every person proposed to be appointed as a director by the company in general meeting
or otherwise, shall furnish his Director Identification Number or such other number as may be prescribed under section
153 and a declaration that he is not disqualified become a director under this Act.
As per Section 153 of the Act, every individual intending to be appointed as director in an existing company shall make
an application electronically in Form DIR-3 for allotment of director Identification Number to the Central Government
along with the prescribed fees.

16. Documents required for obtaining DIN:
1) Proof of identity of applicant
In case of Indian nationals, duly attested copy of Income-tax PAN is a mandatory requirement for proof of identity.
In case of foreign nationals, duly attested copy of passport is a mandatory requirement for proof of identity. (Proof of
identify enclosed should contain the name, father’s name, date of birth of the applicant and the same should match the
date of birth filled in the application form. In case the proof of identify does not indicate the Date of Birth then additional
proof of Date of Birth, duly certified/ attested, should be attached). Proof of father’s name is not required in the case of
foreign nationals. 2) Proof of residence of applicant
Duly attested Address proofs like passport, election (voter identity) card, ration card, driving license, electricity bill,
telephone bill or aadhaar etc., shall be attached and should be in the name of applicant only. (In case of proofs which
are in languages other than Hindi / English, the proofs should be translated in Hindi / English from professional
translator carrying his details (name, signature, address) and seal. In the case of foreign nationals, translation done by
the notary of home country is also acceptable.)
3) Photograph (DIR-3)
4) Board resolution proposing his appointment as director in an existing company
5) Specimen signature duly verified.
Procedure for application for allotment of DINs to the proposed first Directors in respect of new companies: e-Form
SPICe + (Simplified Proforma for Incorporating company Electronically Plus: INC-32)
A director to the Board may be appointed as
First Director
Resident Director
Women Director
Independent Director
Alternate Director
Additional Director
Small Shareholder Director
Nominee Director
Casual Vacancy
Professional Director
First Director: Section 152 of the Act provides that where there is no provision made in Articles of Association of the
company for appointment of first directors then the subscribers to the memorandum who are individuals shall be
deemed to be the first directors of the company until the directors are duly appointed. Section 152(1) of the Act is
applicable to all companies, whether public or private.
Resident Director: Section 149(3) provides that every company shall have at least one director who has stayed in
India for a total period of not less than one hundred and eighty-two days during the financial year: However, in case of
a newly incorporated company the requirement under this sub-section shall apply proportionately at the end of the
financial year in which it is incorporated.
Women Director: Second proviso to Section 149(1) read Rule 3 of Companies (Appointment and Qualification of
Directors) Rules, 2014 following class of companies must have at least one Women Director.
i) All Listed Companies

17. ii) Public Companies - with paid up capital of Rs. 100 crore or more or with turnover of Rs. 300 crore or more
Director elected by Small Shareholders [Section 151]:
According to section 151 of the Act every listed company may have one director elected by such small
shareholders in such manner and on such terms and conditions as may be prescribed.
“Small shareholder” means a shareholder holding shares of nominal value of not more than twenty thousand
rupees or such other sum as may be prescribed.
Independent Director – Section 149(6):
Section 2(47) of the Companies Act, 2013 provides that the “independent director” means an independent director
referred to in sub-section (6) of section 149 of the Companies Act, 2013.
An independent director means a director other than a managing director or a whole-time director or a nominee director
who does not have any material or pecuniary relationship with the company/ directors.
Such individual shall not be a promoter or related to promoter of the company or its holding, subsidiary or associate
company.
Additional Director:
Section 161(1) of the Companies Act, 2013, provides that the articles of a company may confer on its Board of Directors
the power to appoint any person, other than a person who fails to get appointed as a director in a general meeting, as
an additional director at any time who shall hold office up to the date of the next annual general meeting or the last
date on which the annual general meeting should have been held, whichever is earlier.
In case of default in holding annual general meeting, the additional director shall vacate his office on the last day on
which the annual general meeting ought to held.
A person who fails to get appointed as a director in a general meeting cannot be appointed as Additional Director.
Section 161(1) of the Act applies to all companies, whether public or private.
Alternate Director:
Section 161(2) of the Act empowers the Board, if so authorized by its articles or by a resolution passed by the company
in general meeting, to appoint a person, not being a person holding any alternate directorship for any other director in
the company or holding directorship in the same company, to act as an alternate director for a director during his
absence for a period of not less than three months from India.
Conditions for appointment of an alternate director:
(a) The Board of Directors of a company must be authorised by its articles or by a resolution passed by the company in
general meeting for appointment of the alternate director.
(b) The person in whose place the Alternate Director is being appointed should be absent for a period of not less than 3
months from India.
(c) The person to be appointed as the Alternate Director shall be the person other than the person holding any alternate
directorship for any other Director in the company or holding directorship in the same company.
(d) If it is proposed to appoint an Alternate Director to an Independent Director, it must be ensured that the proposed
appointee also satisfies the criteria of Independence as per section 149(6) of the Act.
Nominee Director:
Section 161(3) of the Companies Act, 2013, provides that subject to the articles of a company, the Board may appoint
any person as a director nominated by any institution in pursuance of the provisions of any law for the time being in
force or of any agreement or by the Central Government or the State Government by virtue of its shareholding in a
Government company.
Professional Director:

18. The term “professional director” has not been defined in the Companies Act, 2013. However, Proviso to subsection (4) of
Section 197 of the Companies Act, 2013 has reference to professional services by a director. Section 200 has reference
to the professional qualification in relation to managerial remuneration.
Appointment of Directors in Casual Vacancy:
Section 161(4), if the office of any director appointed by the company in general meeting is vacated before his term of
office expires in the normal course, the resulting casual vacancy may, in default of and subject to any regulations in the
articles of the company, be filled by the Board of Directors at a meeting of the Board which shall subsequently approved
by the members in the immediate next general meeting. The person so appointed shall hold office only upto the day
upto which the director in whose place he has been appointed, would have held office if he had not vacated as
aforesaid. Where a person appointed by the Board vacates his office, it is not a case of casual vacancy and cannot be
filled by the Board in the place.
DISQUALIFICATION OF DIRECTORS:
The following persons cannot be appointed as a director or an additional director or an alternate director:
(i) Declared to be of unsound mind.
(ii) An undercharged insolvent.
(iii) Adjudicated insolvent.
(iv) Convicted by a Court of Law and sentenced to at least 6 months of imprisonment for an offence and a period of not
less than 5 years has not lapsed from the date of expiry of such sentence.
(v) Failed to pay call on his shares for the last six months.
(vi) Has been disqualified by the Court of Law for fraudulent activities in the promotion or management of the company.
(vii) Has not applied for and allotted [under sec. 152(3)] the Director Identification Number or DIN. [Sec. 164(1)]
(viii) A private company may add any other disqualifications in its article of association for appointment of a director.
REMOVAL OF DIRECTORS:
A director of a company may be removed by any of the following ways:
I. Removal by company/Members.
II. Removal by the Tribunal.
1. Removal by Company/Members:
I. Ordinary Resolution- A company (the members of company) may by ordinary resolution at its general meeting,
remove a director before the expiry of his period of office. However, the company may remove a director only after
giving him a reasonable opportunity of being heard. But a company can not remove any of the following directors:
a. Directors appointed (under Sec. 242) by the Tribunal
b. Directors appointed (under Sec. 163) according to the principle of proportional representation. {Sec. 169(1)}
II. Special Notice- Any member intending to propose a resolution at a general meeting to remove a director shall give
a special notice of the resolution to the company. {Sec. 169(2)} This notice shall be given at least 14 days before the
meeting.
2. Removal by the Tribunal:
Sometimes, an application is made by a member or members of a company to the Tribunal for prevention of oppression
and mismanagement (under Section 241) in the company. In such a case, if the Tribunal finds that a relief ought to be

19. granted, it may terminate of modify any agreement between the company and its director or other managerial
personnel. Consequently, such directors are removed from their office. (Sec. 242)
When appointment of a director etc. is so terminated, it shall be necessary for the Tribunal to satisfy the following
conditions:
I. Notice of the intention to apply for leave has been served on the Central Government.
II. The Government has been given a reasonable opportunity of being heard in the matter. {Sec. 243(1)}
DUTIES OF DIRECTORS:
Duties of directors may be classified under two heads:
I. General duties under the companies Act.
II. Special duties under the companies Act.
1. General Duties under the companies Act:
I. To act in accordance with articles
II. To act in good faith to promote objects of the company
III. To perform duties with due and reasonable care and diligence
IV. Not to act in conflict of interest with the company
V. Not to achieve any undue gain
VI. Not to assign office
2. Special Duties under the Companies act:
I. To ensure full and correct disclosure in prospectus
II. To Sign the prospectus
III. To deliver prospectus to Registrar before issue
IV. To keep deposited application money in a scheduled bank
V. To deliver share certificates
VI. To sign and file annual return
VII. To call AGM
VIII. To lay financial statements before AGM
IX. To recommend dividend and pay
X. To prepare and attach directors ‘ report
XI. To file the financial statement with the Registrar
XII. To call Board meeting
POWERS OF DIRECTOR:
1. The Board of Director of a company shall be entitled to exercise all such powers, and to do all such acts and things,
as the company is authorized to exercise and do.
2. No regulation made by the company in general meeting shall invalidate any prior act of the board which would have
been valid if that regulation had not been made.
3. The Board of Directors of a company shall exercise the following powers on behalf of the company by means of
resolution passed at meeting of the Board, namely:-
A. To make calls on shareholders in respect of money unpaid on their shares.
B. To authorize buy-back of securities under section 68.

20. C. To issue securities, including debentures, whether in or outside India.
D. To borrow monies.
E. To invest the funds of the company
F. To grant loans or give guarantee or provide security on respect of loans.
G. To approve financial statement and the Board’s report
H. To diversify the business of the company
I. To approve amalgamation, merger or reconstruction
J. To take over a company or acquire a controlling or substantial stake in another company.
K. Any other matter which may be prescribed.
4. Nothing in this section shall be deemed to affect the right of the company in general meeting to impose restriction
and conditions on the exercise by the Board of any powers specified in the section.
LIABILITIES OF DIRECTORS:
The liabilities of directors may be discussed under the following heads:
1. Liability to outsiders/third parties.
2. Liability to the company.
3. Civil/criminal liability to the law.
4. Liability for acts of co-directors.
1. Liability to outsiders/third parties:
I. Breach of implied warranty of authority
II. Omission or misstatement in the prospectus
III. Failure to repay application money on non-receipt of minimum subscription
IV. Failure to repay application money on refusal to list shares
V. Fraudulent trading
2. Liability to the company:
I. Ultra vires acts
II. Mala fide acts
III. Negligence
3. Civil/criminal liability to the law:
I. Issuing prospectus which includes any untrue statements
II. Fraudulently inducing persons to invest money
III. Failure to repay excess application money
IV. Failure to file return of allotment
V. Failure to make application for listing of securities in stock exchange
VI. Failure to deliver share/debenture certificate within prescribed time after allotment or transfer.

21. UNIT II
Environmental analysis (scanning or appraisal) is the process by which corporate planners monitor the economic,
governmental, supplier, technological and market setting to determine the opportunities for and threats to their
enterprise. In other words, environmental scanning consists of identifying and analyzing environmental influences
individually and collectively to determine their potential effects on an organization and the consequent problems and
opportunities.
The process by which organizations monitor their relevant environment to identify opportunities and threats affecting
their business is known as 'environmental scanning'.
The importance of environmental analysis lies in its usefulness for evaluating the present strategy, setting strategic
objectives and formulating future strategies. The fortunes of business enterprises are known to have been determined
by changes in the social, economic, political, business and industrial conditions.
According to L.R. Jauch and W.F. Glueck, "Environmental analysis is the process by which strategists monitor the
environmental factors to determine opportunities for and threats to their firms. Environmental diagnosis consists of
managerial decisions made by assessing the significance of the data of the environmental decisions made by assessing
the significance of the data of the environmental analysis."
Procedure of Environmental Analysis:
Step 1: Assess the Nature of the Environment: It is useful to take a view of
the nature of the organization's environment in terms of how uncertain it is. Is it relatively static or does it show signs of
change, and in what ways and is it simple or complex to comprehend? This helps in deciding what focus of the rest of
the analysis is to take.
Step 2: Audit Environmental Influences: The aim is to identify which of
the many different environmental influences have affected the organization's development or performance in the past. It
may also be helpful to construct pictures - or scenario - of possible futures to consider the extent to which strategies
might need to change.
Step 3: Identify key Competitive Forces through Structural Analysis: It
aims to identify the key forces at work in the immediate or competitive environment and why they are significant.
Step 4: Identify Strategic Position: It means to analyze the organization's
strategic position, i.e., how it stands in relation to those other organizations competing for the same resources, or
customers, as itself.
 Competitive analysis focuses on each company with which a firm competes directly. Competitive analysis,
therefore, deals with the actions and reactions of individual firms within an industry or strategic group. It becomes
especially important in the case of oligopolistic industries where there are a few powerful competitors and each needs to
keep track of the strategic moves of the others.
According to Porter, the purpose of conducting a competitive analysis is to :

22. 1) Determine each competitor's probable reaction to the industry and environmental changes.
2) Anticipate the response of each competitor to the likely strategic moves by the other firm, and
3) Develop a profile of the nature and success of the possible strategic changes each competitor might undertake.
 Porter's model is one of the most useful conceptual frameworks used to assess the nature of the competitive
environment and to describe an
industry's structure. A highly attractive industry is one where a firm is able to make profits easily. In an unattractive
industry, the profitability is generally low or consistently depressed. To remain an effective competitor, a firm should:
i) Appreciate which of the five forces is the most significant (it can be different for different industries), and
concentrate strategic attention in this area.
ii) Position itself for the best possible defense against any threats from rivals.
iii) Influence the forces detailed above through its own corporate and competitive strategies.
iv) Anticipate changes or shifts in the forces - the factors that are generating success in the short-term may not
succeed long-term
PESTEL Analysis:
PESTEL analysis includes Political, Economic, Social, Technological, Environmental and Legal analysis. It is an external
environment analysis for conducting a strategic analysis or carrying out market research. It offers a certain overview of
the varied macro-environmental factors that the company has to consider.
PESTEL

23.  Political factors analysis is related with how and to what extent a government interferes in the economy.
Specifically, political factors include tax policy, labor law, environmental law, trade restrictions, tariffs, and political
stability. Political factors may also be related with goods and services which the government allows (merit goods) and
those that the government does not want to allow (demerit goods). The government can have a great influence on the
overall health, education, and infrastructure of a country.
 Economic factors contain factors such as economic growth, interest rates, exchange rates and the inflation
rate. These factors may have an influential effect on how the businesses operate and make decisions. For example,
interest rates can affect the firm’s cost of capital and thereby influence business growth and expansion. Exchange rates
can affect the costs of export and the supply and price of imports.
 Social factors contain issues such as health consciousness, population growth rate, age distribution, career
attitudes and emphasis on safety. Trends in the social factors may affect the demand for a company’s goods and how
the company operates. For example, ageing population leads to smaller and less-willing workforce (and increases the
cost of labor). Moreover, companies may change various management strategies in sync with the social trends (such as
recruiting more females).
 Technological factors include ecological and environmental aspects, such as R&D activity, automation,
technology incentives and the rate of technological change. They can determine barriers to entry, minimum efficient
production level and influence outsourcing decisions. Furthermore, technological shifts can affect costs, quality, and lead
to innovation.
 Environmental factors are the conditions such as weather, climate, and climate change, which may
especially influence tourism, farming, and insurance sectors. Growing awareness to climate change are increasing the
interest in how companies operate and what products they offer; it is both creating new markets and damaging the
existing ones.
 Legal factors include laws pertaining to discrimination, consumer affairs, antitrust, employment, and health
and safety. These factors can affect the operations, costs, and the demand for the products. Legal factors can also
influence the brand value and reputation of a company. They are increasingly paid more attention to in the current
decade.
 THE EFE AND IFE MATRIX - Fred R. David
EFE MATRIX
The EFE matrix is the strategic tool used to evaluate firm existing strategies, EFE matrix can be defined as the strategic
tool to evaluate external environment or macro environment of the firm include economic, social, technological,
government, political, legal and competitive information.
The EFE matrix is similar to IFE matrix the only difference is that IFE matrix evaluate the internal factors of the company
and EFE matrix evaluate the external factors.
The EFE matrix consists of following attributes mentioned below.
EXTERNAL FACTORS
External factors are extracted after deep analysis of external environment. Obviously there are some good and some bad
for the company in the external environment. That’s the reason external factors are divided into two categories

24. opportunities and threats.
Opportunities
Opportunities are the chances exist in the external environment, it depends firm whether the firm is willing to exploit the
opportunities or maybe they ignore the opportunities due to lack of resources.
Threats
Threats are always evil for the firm, minimum no of threats in the external environment open many doors for the firm.
Maximum number of threats for the firm reduce their power in the industry.
RATING
Rating in EFE matrix represent the response of firm toward the opportunities and threats. Highest the rating better the
response of the firm to exploit opportunities and defend the threats. Rating range from 1.0 to 4.0 and can be applied to
any factor whether it comes under opportunities or threats.
There are some important point related to rating in EFE matrix.
 Rating is applied to each factor.
 The response is poor represented by 1.0
 The response is average is represented by 2.0
 The response is above average represented by 3.0
 The response is superior represented by 4.0
WEIGHT
Weight attribute in EFE matrix indicates the relative importance of factor to being successful in the firm’s industry. The
weight range from 0.0 means not important and 1.0 means important, sum of all assigned weight to factors must be
equal to 1.0 otherwise the calculation would not be consider correct.
WEIGHTED SCORE
Weighted score value is the result achieved after multiplying each factor rating with the weight.
TOTAL WEIGHTED SCORE
The sum of all weighted score is equal to the total weighted score, final value of total weighted score should be between
range 1.0 (low) to 4.0(high). The average weighted score for EFE matrix is 2.5 any company total weighted score fall
below 2.5 consider as weak. The company total weighted score higher then 2.5 is consider as strong in position.
STEPS IN DEVELOPING THE EFE MATRIX:
1. Identify a list of KEY external factors (critical success factors).
2. Assign a weight to each factor, ranging from 0 (not important) to 1.0 (very important).

25. 3. Assign a 1-4 rating to each critical success factor to indicate how effectively the firm’s current strategies
respond to the factor. (1 = response is poor, 4 = response is extremely good)
4. Multiply each factor’s weight by its rating to determine a weighted score.
5. Sum the weighted scores.
Internal Factor Evaluation (IFE) Matrix is a strategy tool used to evaluate firm’s internal environment and to reveal
its strengths as well as weaknesses.
External Factor Evaluation (EFE) Matrix is a strategy tool used to examine company’s external environment and to
identify the available opportunities and threats.
External Factor Evaluation Matrix
Key External Factors Weight Rating Weighted
Score
Opportunities
1. New trade agreement that lifts the ban of
imported food is signed with a neighboring
country.
0.11 3 0.33
2. Signing a contract with a new supplier. 0.09 1 0.09
3. Processed food market growing by 15% next
year in our largest market.
0.24 2 0.48
4. Incorporating a new company in neighboring
country, where the tax rate is decreasing by 3%
0.10 1 0.10

26. External Factor Evaluation Matrix
Key External Factors Weight Rating Weighted
Score
next year.
Threats
5. The contract with the main customer expires in
2 months.
0.17 4 0.68
6. Extreme cases of natural disasters occurring
next year.
0.03 2 0.06
7. New law, requiring decreasing the amount of
sugar in the food by 20%, could be passed next
year.
0.14 3 0.42
8. Competitors opening 3 new stores in the town. 0.12 2 0.24
Total 1.00 - 2.40
The Internal Environment

27. The assessment of the internal position is of importance in evaluating the enterprise’s capabilities in the light of its
resources. So we should be in a situation to judge the organization’s capability in view of its resource profile, and as a
consequence of our external appraisal, to decide what it ought to be doing considering the environment in which it is
operating.
 For the internal analysis to be effective, the process must be underpinned by a strategic view, preferably in a
creative manner, which will allow multidimensional insights to be obtained.
 In the process of strategy-formulation the objective of internal appraisal is to produce a picture of the
organization, its resources and capabilities which provides a segmented and integrated internal perspective of the
strengths and weaknesses of the firm as a whole.
 To determine the current position involves consideration of the firm’s resources, the business the firm is in,
what its objectives are, and how well it achieves them. The results of this analysis are crucial elements in determining
the firm’s future strategy.
 Internal appraisal not only indicates what resources the firm has but also evaluates how well they have been
used by management.This may also lead to a judgement on how well resources may be used in the future by the same
management.
 The scope of internal analysis is more than just identifying and tabulating the organization’s resources. It
involves appraising management’s utilization of resources
The internal environment consists mainly of the organization’s owners, the board of directors, employees and culture.
1. Owners

28. Owners are people who invested in the company and have property rights and claims on the organization. Owners can
be an individual or group of person who started the company; or who bought a share of the company in the share
market.
They have the right to change the company’s policy at any time.
2. Board of Directors
The board of directors is the governing body of the company who are elected by stockholders, and they are given the
responsibility for overseeing a firm’s top managers such as the general manager.
3. Employees
Employees or the workforce, the most important element of an organization’s internal environment, who performs the
tasks of the administration. Individual employees and also the labor unions they join are important parts of the internal
environment.
If managed properly they can positively change the organization’s policy. But ill-management of the workforce could
lead to a catastrophic situation for the company.
4. Culture
Organizational culture is the collective behavior of members of an organization and the values, visions, beliefs, habits
that they attach to their actions.
An organization’s culture plays a major role in shaping its success because culture is an important determinant of how
well their organization will perform.
As the foundation of the organization’s internal environment, it plays a major role in shaping managerial behavior.
Organisational Capability Factors:
An organizational capability is a company’s ability to manage resources, such as employees, effectively to gain an
advantage over competitors. Organizational capabilities are anything a company does well that improves business and
differentiates the business in the market.
 The company’s organizational capabilities must focus on the business’s ability to meet customer demand.
 organizational capabilities must be unique to the organization to prevent replication by competitors.
 Developing and cultivating organizational capabilities can help small business owners gain an advantage in a
competitive environment by focusing on the areas where they excel.
Competitive Advantage
Organizational capabilities provide a company with an advantage in the marketplace. When an organization continues to
create new capabilities and develops existing ones, it will maintain the advantage over its competitors. Capabilities that
provide a competitive advantage include knowledge, product licenses and innovative designs.

29. Flexibility and Responsiveness
The responsiveness of an organization is its ability to change in response to customer demand. Knowledge and
skilled employees are organizational capabilities that provide a company with the ability to respond to customer
demands and remain flexible to changes in the business environment.
Knowledgeable Workforce
The skills and knowledge of a company’s workforce allow the organization to direct those skills to achieve the business’s
goals. Training programs, education assistance and effective recruiting and hiring programs are
organizational capabilities that ensure a knowledgeable workforce. To maintain the capability, companies should ensure
the workforce has the resources available to improve continuously. Managing a talented workforce is an organizational
capability that provides a competitive advantage in the marketplace.
Improved Customer Relationships
Good customer relationships ensure the continued growth and competitiveness in the market. The relationship
between the organization and its customers is an organizational capability that affects sales, reputation and loyalty
for future business. Maintaining existing relationships with customers as well as developing new ones ensures the
company will grow and thrive in the future. A lean manufacturing environment is an organizational capability that
focuses on the voice of the customer and meeting demand. This organizational capability improves the relationship with
the customer for the business.
The resource-based view (RBV) is a model that sees resources as key to superior firm performance. If a resource
exhibits VRIO attributes, the resource enables the firm to gain and sustain competitive advantage.
RBV is an approach to achieving competitive advantage that emerged in 1980s and 1990s, after the major works
published by Wernerfelt, B. (“The Resource-Based View of the Firm”), Prahalad and Hamel (“The Core Competence of
The Corporation”),and others. The supporters of this view argue that organizations should look inside the company to

30. find the sources of competitive advantage instead of looking at competitive environment for it.
According to RBV proponents, it is much more feasible to exploit external opportunities using existing
resources in a new way rather than trying to acquire new skills for each different opportunity. In RBV
model, resources are given the major role in helping companies to achieve higher organizational performance.
There are two types of resources: tangible and intangible.
Tangible assets are physical things. Land, buildings, machinery, equipment and capital – all these assets are tangible.
Physical resources can easily be bought in the market so they confer little advantage to the companies in the long run
because rivals can soon acquire the identical assets.
Intangible assets are everything else that has no physical presence but can still be owned by the company. Brand
reputation, trademarks, intellectual property are all intangible assets. Unlike physical resources, brand reputation is built
over a long time and is something that other companies cannot buy from the market. Intangible resources usually stay
within a company and are the main source of sustainable competitive advantage.
The two critical assumptions of RBV are that resources must also be heterogeneous and immobile.
Heterogeneous
The first assumption is that skills, capabilities and other resources that organizations possess differ from one company to
another. If organizations would have the same amount and mix of resources, they could not employ different strategies
to outcompete each other. What one company would do, the other could simply follow and no competitive advantage
could be achieved. This is the scenario of perfect competition. Therefore, RBV assumes that companies achieve
competitive advantage by using their different bundles of resources.
Case reference: The competition between Apple Inc. and Samsung Electronics is a good example of how two companies
that operate in the same industry and thus, are exposed to the same external forces, can achieve different
organizational performance due to the difference in resources. Apple competes with Samsung in tablets and
smartphones markets, where Apple sells its products at much higher prices and, as a result, reaps higher profit margins.
Why Samsung does not follow the same strategy? Simply because Samsung does not have the same brand reputation or
is capable to design user-friendly products like Apple does. (heterogeneous resources)
Immobile
The second assumption of RBV is that resources are not mobile and do not move from company to company, at least in
short-run. Due to this immobility, companies cannot replicate rivals’ resources and implement the same strategies.
Intangible resources, such as brand equity, processes, knowledge or intellectual property are usually immobile.
VRIO ANALYSIS: - Jay B. Barney
VRIO Analysis is an analytical technique briliant for the evaluation of company’s resources and thus the
competitive advantage. VRIO is an acronym from the initials of the names of the evaluation dimensions: Value,
Rareness, Imitability, Organization.

31. The VRIO framework is a strategic analysis tool designed to help organizations uncover and protect the resources and
capabilities that give them a long-term competitive advantage. The framework should be put into play after the creation
of a vision statement, but before the strategic planning process. Why? The differentiators and advantages you
identify will determine how to approach the marketplace and inform strategic decisions that shape the fate of your
company.
The VRIO framework uncovers “sustained competitive advantage.”
VRIO is an acronym for a four-question framework of value, rarity, imitability, and organization. These four components
are typically approached in the style of a decision tree:
 Value: Do you offer a resource that adds value for customers? Are you able to exploit an opportunity or
neutralize competition with an internal capability?
o No: You are at a competitive disadvantage and need to reassess your resources and capabilities to
uncover value.
o Yes: If value is established, move on in your VRIO analysis to rarity.
 Rarity: Do you control scarce resources or capabilities? Do you own something that’s hard to find yet in
demand?
o No: You have value but lack rarity, putting your company in a position of competitive parity. Your
resources are valuable but common, which makes competing in the marketplace more challenging (but not impossible).
It’s recommended to go back one step and reassess.
o Yes: With value and rarity identified, your next hurdle is imitability.

32.  Imitability: Is it expensive to duplicate your organization’s resource or capability? Is it difficult to find an
equivalent substitute to compete with your offerings?
o No: If your resource has value and rarity, but is affordable or easy to copy, you have a temporary
competitive advantage. It will require considerable effort to stay ahead of competitors and differentiate your
services—go back one step and reassess.
o Yes: You offer something that’s valuable, rare, and hard to imitate—now the focus is on your
organization.
 Organization: Does your company have organized management systems, processes, structures, and culture
to capitalize on resources and capabilities?
o No: Without the internal organization and support, it will be difficult to fully realize the potential of
your valuable, rare, and costly-to-imitate resources. Your company will have a unused competitive advantage and
will need to reassess how to attain the needed organization.
o Yes: Your company has achieved the ultimate goal of sustained competitive advantage when it
has successfully identified all four components of the VRIO framework.
Company has achieved the ultimate goal of sustained competitive advantage when it successfully identified all
four components of VRIO framework.
Case Example:
A real-life VRIO framework example is Google.
There’s no doubt that Google is one of the most powerful companies in the world, and its success arguably stems from a
sustained competitive advantage in human capital management. If we were to break down Google’s VRIO framework
from the HR perspective, it might look something like this:
 Value: Use human capital management data to hire and retain innovative, productive employees. These
employees consistently create some of the most popular consumer products and services in the world.
 Rarity: No other companies are using data-based employee management so extensively.
 Imitability: Data-based human capital management is both costly and difficult to imitate, at least for the near
future. Companies have to build the software and invest in training their HR staff on the new technology and
strategy.
 Organization: Google is organized to capture value from this capability. The IT department has the skills to
collect and maintain the data, while HR and team leaders are trained on how to use the data to hire, promote, manage,
and improve performance of employees.

33. Having a VRIO framework in place allowed Google to take a completely different approach to human capital
management and make decisions using massive amounts of objective data. For example, Google’s People Operations
team set out to identify which characteristics make a great manager. The data used to determine this included surveys,
performance evaluations, and great-manager nominations. Google also conducted double-blind interviews with the
company's highest- and lowest-rated managers. By determining what qualifies as a great manager, Google strengthens
its internal team and the foundation of its sustained competitive advantage.
VALUE CHAIN ANALYSIS - Michael Porter
Fig. : A broken chain link illustrating poorly managed business’ value chain
M. Porter introduced the generic value chain model in 1985. Value chain represents all the internal
activities a firm engages in to produce goods and services. VC is formed of primary activities that add
value to the final product directly and support activities that add value indirectly.
Value chain analysis (VCA) is a process where a firm identifies its primary and support activities that add value to its
final product and then analyze these activities to reduce costs or increase differentiation.
Value chain analysis is used as a tool for identifying activities, within and around the firm and relating these activities to
an assessment of competitive strength.

34. As shown in the figure, Michael Porter classified the entire value chain into nine activities which are interrelated to one
another. While primary activities include the activities that are performed to satisfy external demand, secondary activities
are those which are performed to satisfy internal requirements.
Classification of Value Chain Analysis:
Value Chain Analysis is grouped into primary or line activities, and support activities discussed as under:
1. Primary Activities: The functions which are directly concerned with the conversion of input into output and
distribution activities are called primary activities. It includes:
o Inbound Logistics: It includes a range of activities like receiving, storing, distributing, etc. which
make available goods and services for operational processes. Some of those activities are material handling,
transportation, stock control, etc.
o Operations: The activity of transforming input raw material to final product ready for sale, is termed
as operation. Machining, assembling, packaging are the activities covered under operations.
o Outbound Logistics: As the name suggests, the activities that help in collecting, storage and
delivering the product to the customer is outbound logistics.
o Marketing and Sales: All the activities like advertising, promotion, sales, marketing research, public
relations, etc. performed to make the customer aware of the product or service and create demand for it, comes under
marketing.
o Service: Service means service provided to the customer so as to improve or maintain the value of
the product. It includes financing service, after-sales service and so on.
2. Support Activities: Those activities which assist primary activities in accomplishment, are support activities.
These are:
o Procurement: This activity serves the organization, by supplying all the necessary inputs like
material, machinery or other consumable items, that required by the organization for performing primary activities.

35. o Technology Development: At present, technology development requires heavy investment, which
takes years for research and development. However, its benefits can be enjoyed for several years and by a multitude of
users in the organization.
o Human Resource Management: It is the most common plus important activity which excel all
primary activities of the organization. It encompasses overseeing the selection, retention, promotion, transfer, appraisal
and dismissal of staff.
o Infrastructure: This is the management system, which provides, its services to the whole
organization and includes planning, finance, information management, quality control, legal, government affairs, etc.
In the fast paced world, the main focus of the organization is customer satisfaction, and value chain analysis is the
technique that helps to attain that level. Under this, each business activity is considered as essential, which contributes
value and is constantly analyzed, to increase value as regards the cost incurred.
Using the tool : Value Chain Analysis Framework
There are two different approaches on how to perform the analysis, which depend on what type of competitive
advantage a company wants to create (cost or differentiation advantage). The table below lists all the steps needed
to achieve cost or differentiation advantage using VCA.
Competitive advantage types
Cost advantage Differentiation advantage
This approach is used when organizations try
to compete on costs and want to understand
the sources of their cost advantage or
disadvantage and what factors drive those
costs.(good examples: Amazon.com, Wal-
Mart, McDonald's, Ford, Toyota)
The firms that strive to create
superior products or services use
differentiation advantage
approach. (good
examples: Apple, Google, Samsung
Electronics, Starbucks)
Step 1. Identify the firm’s primary and support
activities.
Step 2. Establish the relative importance of
each activity in the total cost of the product.
Step 3. Identify cost drivers for each activity.
Step 4. Identify links between activities.
Step 5. Identify opportunities for reducing
costs.
Step 1. Identify the customers’
value-creating activities.
Step 2. Evaluate the differentiation
strategies for improving customer
value.
Step 3. Identify the best
sustainable differentiation.

36. Cost advantage:
To gain cost advantage a firm has to go through 5 analysis steps:
Step 1. Identify the firm’s primary and support activities. All the activities (from receiving and storing materials
to marketing, selling and after sales support) that are undertaken to produce goods or services have to be clearly
identified and separated from each other. This requires an adequate knowledge of company’s operations because value
chain activities are not organized in the same way as the company itself. The managers who identify value chain
activities have to look into how work is done to deliver customer value.
Step 2. Establish the relative importance of each activity in the total cost of the product. The total costs of
producing a product or service must be broken down and assigned to each activity. Activity based costing is used to
calculate costs for each process. Activities that are the major sources of cost or done inefficiently (when benchmarked
against competitors) must be addressed first.
Step 3. Identify cost drivers for each activity. Only by understanding what factors drive the costs, managers can
focus on improving them. Costs for labor-intensive activities will be driven by work hours, work speed, wage rate, etc.
Different activities will have different cost drivers.
Step 4. Identify links between activities. Reduction of costs in one activity may lead to further cost reductions in
subsequent activities. For example, fewer components in the product design may lead to less faulty parts and lower
service costs. Therefore identifying the links between activities will lead to better understanding how cost improvements
would affect he whole value chain. Sometimes, cost reductions in one activity lead to higher costs for other activities.
Step 5. Identify opportunities for reducing costs. When the company knows its inefficient activities and cost
drivers, it can plan on how to improve them. Too high wage rates can be dealt with by increasing production speed,
outsourcing jobs to low wage countries or installing more automated processes.
Differentiation advantage:
VCA is done differently when a firm competes on differentiation rather than costs. This is because the source of
differentiation advantage comes from creating superior products, adding more features and satisfying varying customer
needs, which results in higher cost structure.
Step 1. Identify the customers’ value-creating activities. After identifying all value chain activities, managers
have to focus on those activities that contribute the most to creating customer value. For example, Apple products’
success mainly comes not from great product features (other companies have high-quality offerings too) but from
successful marketing activities.
Step 2. Evaluate the differentiation strategies for improving customer value. Managers can use the following
strategies to increase product differentiation and customer value:
 Add more product features;
 Focus on customer service and responsiveness;

37.  Increase customization;
 Offer complementary products.
Step 3. Identify the best sustainable differentiation. Usually, superior differentiation and customer value will be
the result of many interrelated activities and strategies used. The best combination of them should be used to pursue
sustainable differentiation advantage.
Internal Factor Evaluation (IFE):Fred R. David
Internal Factor Evaluation (IFE) Matrix is a strategy tool used to evaluate firm’s internal environment and to reveal its
strengths as well as weaknesses. The internal and external factor evaluation matrices have been introduced by
Fred R. David in his book Strategic Management. According to the author, both tools are used to summarize the
information gained from company’s external and internal environment analyses.
Strengths:
Strengths are the strong areas or attribute of the company, which are used to overcome weakness and capitalize to take
advantage of the external opportunities available in the industry. The strengths could be tangible or intangible; such as
brand image, financial position, income, human resource.
Weaknesses:Weaknesses are the risky areas which needs to be addressed on priority to minimize its impact. The
competitors always searching for the loop holes in your company and put their best effort to capitalize on the identified
weaknesses.
Rating in IFE Matrix. The ratings in internal matrix refer to how strong or weak each factor is in a firm. The numbers
range from 4 to 1, where 4 means a major strength, 3 – minor strength, 2 – minor weakness and 1 – major weakness.
Strengths can only receive ratings 3 & 4, weaknesses – 2 & 1. The process of assigning ratings in IFE matrix can be
done easier using benchmarking tool.
 Rating is applied to each factor.
 Major weakness is represented by 1.0
 Minor weakness is represented by 2.0
 Minor strength represented by 3.0
 Major Strength represented by 4.0
WEIGHT
Weight attribute in IFE matrix indicates the relative importance of factor to being successful in the firm’s industry. The
weight range from 0.0 means not important and 1.0 means important, sum of all assigned weight to factors must be
equal to 1.0 otherwise the calculation would not be consider correct.
WEIGHTED SCORE

38. Weighted score value is the result achieved after multiplying each factor rating with the weight.
TOTAL WEIGHTED SCORE
The sum of all weighted score is equal to the total weighted score, final value of total weighted score should be between
range 1.0 (low) to 4.0(high). The average weighted score for IFE matrix is 2.5 any company total weighted score fall
below 2.5 consider as weak. The company total weighted score higher then 2.5 is consider as strong in position.
The total score of 2.5 is an average score.
In internal evaluation a low score indicates that the company is weak against its competitors.
Both matrices have the following benefits:
 Easy to understand. The input factors have a clear meaning to everyone inside or outside the company. There’s
no confusion over the terms used or the implications of the matrices.
 Easy to use. The matrices do not require extensive expertise, many personnel or lots of time to build.
 Focuses on the key internal and external factors. Unlike some other analyses (e.g. value chain analysis, which
identifies all the activities in the company’s value chain, despite their importance), the IFE and EFE only highlight the key
factors that are affecting a company or its strategy.
 Multi-purpose. The tools can be used to build SWOT analysis, IE matrix, GE-McKinsey matrix or for
benchmarking.
Limitations
 Easily replaced. IFE and EFE matrices can be replaced almost completely by PEST analysis, SWOT analysis,
competitive profile matrix and partly some other analysis.
 Doesn’t directly help in strategy formation. Both analyses only identify and evaluate the factors but do not help
the company directly in determining the next strategic move or the best strategy. Other strategy tools have to be used
for that.
 Too broad factors. SWOT matrix has the same limitation and it means that some factors that are not specific
enough can be confused with each other. Some strengths can be weaknesses as well, e.g. brand reputation, which can
be a strong and valuable brand reputation or a poor brand reputation. The same situation is with opportunities and
threats. Therefore, each factor has to be as specific as possible to avoid confusion over where the factor should be
assigned.
IFE Matrix Example

39. Key Internal Factors Weight Rating Weighted Score
Strengths
1. Diversified income (5 different brands
earning more than $4 billion each)
0.10 4 0.40
2. Brand reputation valued at $35 billion 0.08 3 0.24
3. Strong patents portfolio (13,000
patents)
0.07 4 0.28
4. Excellent employee management 0.02 3 0.06
5. Competency in mergers and
acquisitions
0.06 3 0.18
6. Extensive distribution channels 0.11 4 0.44

40. IFE Matrix Example
Key Internal Factors Weight Rating Weighted Score
7. Strong product ecosystem 0.08 4 0.32
Weaknesses
8. High debt level ($3 billion) 0.10 1 0.10
9. Over-dependence on sales
from U.S.
0.13 2 0.26
10. Too low net profit margin 0.07 2 0.14
11. Competition based on
prices
0.09 2 0.18
12. Rigid (bureaucratic)
organizational culture impeding
fast introduction of new
products
0.04 1 0.04

41. IFE Matrix Example
Key Internal Factors Weight Rating Weighted Score
13. Negative publicity 0.05 2 0.10
Total 1.00 - 2.74

42. UNIT III
Types of Strategies in Strategic Management:
1. Competitive Strategy
2. Corporate Strategy
3. Business Strategy
4. Functional Strategy, and
5. Operating Strategy
Some of the major economic reasons for choosing a particular type strategy are:
(a) Exploiting operational economies and financial economies of scope.
(b) Uncertainty avoidance and efficiency.
(c) Possession of management skills that help create corporate advantage.
(d) Overcoming the inefficiency in factor markets and
(e) Long term profit potential of a business.
The non-economic reasons for the choice of strategy elements include :
(a) Dominant view of the top management,
(b) Employee incentives to diversify (maximizing management compensation),
(c) Desire for more power and management control,
(d) Ethical considerations and
(e) Corporate social responsibility.
Types of Strategies in Strategic Management:

43. Strategic
Management Types
Meaning
Competitive Strategy
Combines the clout of the external situation, along with the integrative concerns of the personal
status of an organization
Corporate Strategy The top-level by the senior management of a diversified company
Business Strategy Business-unit level or business-unit strategy
Functional Strategy Pointing up a particular functional area of an organization
Operating Strategy Operating units of an organization
The types of strategies in strategic management. Such as:-
1. Competitive Strategy
2. Corporate Strategy
3. Business Strategy
4. Functional Strategy, and
5. Operating Strategy
1. Competitive Strategy:
Firstly, competitive strategy is the first of the kinds of strategies in strategic management. It refers to a plan that
combines the clout of the external situation along with the integrative concerns of the personal status of an organization.
The competitive strategy aims at gaining a competitive advantage in the marketplace against
competitors. Competitive advantage comes from strategies that lead to some uniqueness in the market. Winning a
competitive strategy is grounded in sustainable competitive advantage. Examples of the competitive strategy include
contrast strategy, low-cost strategy, and focus or market-niche strategy.
The competitive strategy consists of business approaches and initiatives. It undertakes a company to attract clients and
deliver superior values to them through fulfilling their looking forward as well as to strengthen its market position. The
definition of Thompson and Strickland emphasizes the ‘tactics and ingenuities’ of directors in outlining the strategy. It
means that competitive strategy is concerned with actions. It’s managers undertake to improve the company’s market
position by satisfying the customers. The enlightening market situation infers undertaking actions contrary to
competitors in the industry.
2. Corporate Strategy:
Secondly, corporate strategy is a type of strategy in strategic management. It draws up at the top level by the senior
management of a diversified company. In our country, a diversified company is known as a ‘group of companies’, such