Final step in the strategic management process is Strategy Evaluation. Once the strategy is formulated and implemented it is important to monitor, evaluate and control the process.

Company’s vision sets up the mission and after going through its internal and external environment, company specifies its strategies. Monitoring and controlling of implemented strategies is necessary to evaluate achievement of objectives. The purpose of control mechanism is to take corrective actions, if needed. The corrective actions have qualitative and well as quantitative components. There are many frameworks to evaluate strategy.

Evaluation Process

Strategy evaluation is not the destination. Strategy evaluation is a continuous process and may warrant immediate corrective action. An error may manifest in the form of a blunder over a period of time if the corrective action is not taken. Management thus must develop evaluation system and undertake continuous evaluation.

The evaluation system should clearly define the key result areas, develop measure and set up standards. Control process primarily is to monitor if the events match with the plan. If there are any deviations, then to alter the performance, management has to initiate action wherever necessary. The initiated action could relate to implementation, human resources, strategy formulation, and may even stretch to re-evaluating the organizational strengths, weakness, opportunities and challenges to redefining mission and vision. Thus, it could be tactical, strategic or both. For instance, if the sale of a particular business is not as expected, it may be necessary to reformulate say marketing strategies. A closer evaluation may reveal strategies related to product, price, physical distribution or promotion may require revision. Company may relook at the objectives which were set. If the objectives were too ambitious company may scale down its expectations or increase promotional efforts. If it is noticed that the market itself has moved to another product category, company may consider altering the product portfolio, adding new products and/or withdrawing poorly performing products. Company may even withdraw the complete division if most products in the division are not performing well.

Companies also need to look at the external environment. The political, economic, technological, socio-cultural, ecological and regulatory factors. Changes in these factors can positively as well as negatively impact a business. Thus, while taking any corrective initiatives due consideration to these changes should be given.

The entire evaluation process can be put as follows….

	Values
	Vision
	Mission
Strength	Weakness	Opportunities	Challenges
	Objectives
	Performance Standard
	Strategizing
	Monitoring
	Implementation
	Analysing Results

The two major parameters in the evaluation process are effectiveness and efficiency. Effectiveness refers to the degree to which the organization has achieved its objectives and the efficiency refers to the manner of resource utilization for achieving the output.

Mathematic equation for the two can be:

 

Output

1. a) Effectiveness = ––––––––––

Objectives

 

Output

1. b) Efficiency = ––––––

Input

Efficiency is relatively easy to evaluate as input as well as output are quantifiable. A comparison of output to input ratio of organizations indicates the efficiency of various organizations. Since the inputs are mostly quantifiable, an organization can be considered more efficient if it uses less resources for the same output or gives more output for same resources.

However, measurement of effectiveness is more difficult as both numerator and denominator are comparatively more difficult to quantify. Hence assessment of effectiveness is comparatively more difficult than the assessment of efficiency of an organization. While assessing success of corporate strategy, both efficiency and effectiveness should be evaluated.

If an organization has singular objective, for instance, profit, then both efficiency and effectiveness are measured in terms of profit only, the difference between revenue and expense. So, the organization is considered more effective or more efficient if profits are higher. However, if the organization has multiple objectives, and not just profit, then one has to identify and develop multiple measures for evaluating the strategy.

Once the key variables are identified or the key result areas are identified and are developed as measures of performance of the organizations, evaluating strategy becomes relatively transparent.

Business Portfolio Analysis

Portfolio analysis helps organization in analysing how effectively and efficiently the resources are allocated. Diversified organizations have multiple business units operating in different markets. These business units have different vision & mission statements based on the market conditions they operate in, though the vision and mission statements are in line with the corporate objectives, resource allocation is based on the prospects of the business unit.

Portfolio analysis monitors investments in the products that the business units deal with. The decisions makers allocate resources on the basis of growth potential of the product lines. If the decisions makers do not see better prospects for the product, more specifically, the brand, then prunes investment in the brand. Business unit needs to plan for the future as well. Evaluation of the market preferences also leads to introduction of new products. These products may not be profitable for the unit immediately but once the critical mass is achieved these products starts contributing to business unit’s profitability and contributions to the organizational objectives.

Performance of the business unit depends on other factors like, competitive reaction, new entrants in the market, technology advances and ability of the organization to adapt to these changes, socio and cultural changes.

Considering all these parameters, portfolio analysis helps in investment decisions with respect to business units and well as products the unit in particular and organization as whole deals with. Particularly for the diversified and multi-product organizations, portfolio analysis is very useful tool.

All business units have to address to three fundamental needs…

Cash Flow

Growth and

Challenges.

Portfolio analysis is one the tools to help managers in evaluating the strategy.

Display Matrices

A number of display matrices have been developed for helping managers choose in what business to have in a portfolio. Each matrix gives more or less focus on one of the three criteria[i]…

The balance of the portfolio;

The attractiveness of the businesses in the portfolio in terms of how profitable they are or are likely to be and how fast they are growing; and

The degree of the fit that the businesses have with each other in terms of potential synergies or the extent to which the corporate parent will be good at looking after them.

 

BCG’s Growth-Share Matrix

Boston Consulting Group developed The Growth Share Matrix, considering that large number of firms carry out multiple business activities in a number of different product-market segments. The growth share matrix enables business units to be evaluated in relation to company’s relative market share for the business, representing the organization’s competitive positions; and the overall growth rate of that business.

The BCG model, a two-by-two matrix, suggests that for each business activity within the corporate portfolio, a separate strategy must be developed depending on its location of high and low segments on each of the two axes.

Relative Market Share emphasises that the relative competitive position of the company would determine the rate at which the business creates cash. A firm with a higher relative share of the market compared to its competitors will have higher profit margins and therefore higher cash flows.

Relative Market Share is calculated by dividing the market share of the relevant business by the market share of its largest competitor. For instance, if…

Company A has 10 per cent market share,

Company B has 20 per cent market share, and

Company C has 60 per cent share of the market, then

A’s Relative Market Share is 1/6,

B’s Relative Market Share is 1/3, and

C’s Relative Market Share 60/20 = 3.

Company C has Company B as its leading competitor, whereas Companies A and B have Company C as their largest competitor.

Market growth rate is important for a business unit seeking to dominate a market because it may be easier to gain dominance when a market is in its growth state. High growth rate would facilitate expansion of the operations of the participating company. It will also be comparatively easier for the company to increase its market share, and have profitable investment opportunities. A business with high growth rate allows company to reinvest cash in the business and consolidate return on investment. On the other hand, if the market growth is slow, it would be quite difficult for the company to have a fair return on investment. In a slow growth business, if the company has high market share, it may further consolidate its position from reduction in competitor’s market share.

Following figure represents the BCG matrix and the terms typically used to refer to the types of businesses in such a portfolio.

BCG Matrix

Market Growth	High	Star	Question Mark
	Low	Cash Cow	Dog
		High	Low
		Relative Market Share

 

The BCG matrix classifies the business activities along the y – axis according to the ‘Business Growth Rate” (meaning growth of the market for the product), and the ‘Relative Market Share’ along the x – axis. The two axes are divided into Low and High sectors, so that the BCG matrix is divided into four quadrants. Businesses falling into each of these quadrants are classified with broadly different strategic categories, as explained below:

A star is a business unit which has a high market share in a growing market. the business unit may be spending heavily to gain that share, but experience curve benefit should mean that costs are reducing over time and, it is to be hoped, at a rate faster than that of competitors. These types of businesses generate as well as use large amounts of cash. The Stars generate high profits and represent the best investment opportunities for growth. The best strategy regarding Stars is to make the necessary investments and consolidate the company’s high relative competitive position.

A question mark is a business unit in a growing market, but without a high market share. It may be necessary to spend heavily to increase market share, but if so, it is unlikely that the business unit is achieving sufficient cost reduction benefits to offset such investments. As the business growth rate is high, one strategic option is to invest more to gain market share, pushing from low share to high. The Question Mark business then moves to a STAR quadrant, and subsequently has the potential to become cash cow, when the business growth rate reduces to a lower level.
Another strategic option is when the company cannot improve its low competitive position (represented by low market share). The management may then decide to divest the Question Mark business. These businesses are called Question Marks because they raise the question as to whether more money should be invested in them to improve their relative market share and profitability, or they should be divested and dropped from the portfolio.
A Cash Cow is a business unit with a high market share in a mature market. because growth is low and market conditions are more stable, the need for heavy marketing investment is less. But high relative market share means that the business unit should be able to maintain unit cost levels below those of competitors. The cash cow should then be a cash provider to finance question marks. High market share leads to high generation of cash and profits. The low rate of growth of the business implies that the cash demand for the business would be low. Thus, Cash Cows normally generate large cash surpluses. Cows can be ‘milked’ for cash to help to provide cash required for running other diverse operations of the company. Cash Cows provide the financial base for the company. These businesses have superior market position and invariably low costs. But, in terms of their future potential, one must keep in mind that these are mature businesses with low growth rate.

Dogs are business units with a low share in static or declining markets and are thus the worst of all combinations. They may be a cash drain and use up a disproportionate amount of company time and resources. The low market share normally also means poor profits. As the growth rate is also low, attempts to increase market share would demand prohibitive investments. Thus, the cash required to maintain a competitive position often exceeds the cash generated, and there is a net negative cash flow. Under such circumstances, the strategic solution is to either liquidate, or if possible, harvest or divest the DOG business.

Methodology for Building BCG Matrix
The Boston Consulting Group recommends the following step-by-step approach to develop the business portfolio matrix and identify the suitable strategies for different businesses.
1. Categorize different endeavours of the company into different business segments or Strategic Business Units (SBUs).
2. For each SBU determine the growth rate of the market which is to be plotted on a linear scale later.
3. Bring together the assets employed for each SBU and establish the relative size of the business within the company.
4. Estimate the relative market shares for the different SBUs.
5. Plot the position of each business on a matrix of business growth rate and relative market share.
Strategic Implications
A diversified organization has the advantage of allocating resources to have a balance portfolio of Stars, Cash Cows, Question Mark and Dog. A diversified organization thus can employ the BCG model to actualize its growth and profit objectives.
Hill and Jones (1989) observed that “the objective of the BCG’s portfolio is to identify how corporate cash resources can be used to maximize a company’s growth and profitability” (p, 189). To ensure optimal cash resource allocation and a balanced portfolio, BCG made the following recommendations as outlined by Hill & Jones:
1. Use the cash surplus from any Cash Cow to support the development of selected Question Marks and to nurture emerging Stars. The long-term objective is to consolidate the position of Stars and to turn favoured Question Marks into Stars, thus making the company’s portfolio more attractive.
2. Question Marks with the weakest or most uncertain long-term prospects are divested so that the demands on the company’s cash resources are reduced
3. The company should exit from any industry where the SBU is a Dog – by divestment, harvesting market share, or liquidation.
4. If the company lacks sufficient Cash Cows or Question Marks, it should consider acquisition and divestment to build a more balanced portfolio. Such a portfolio has to contain enough Stars and Question Marks to ensure a healthy growth and profit outlook for the company and enough Cash Cows to support the investment requirements of the Stars and Question Marks (p.189-190).
Companies mostly will have different SBUs spread throughout the four quadrants of BCG matrix, conforming to Cash Cow, Dog, Question Mark and Star businesses. A broad strategy of a company with diverse portfolio is to retain its competitive position in the Cash Cows, at the same time avoid over-investing, as the market is not growing. The excess cash generated by Cash Cows should be invested primarily in Star businesses, if they are not self-sufficient, to maintain their relative competitive position. Any surplus cash left with the company may be directed towards carefully chosen Question Mark businesses to improve market share for them. Those businesses with low market share, and which cannot be sufficiently funded, may be deliberated for divestment. The Dogs are largely considered as the feeble segments of the company with limited or no new investments allocated to them.
The BCG Growth-share matrix associates the industry evolution characteristic with the company’s competitive strength (market share), and constructs a visual display of the company’s market involvement, thereby indirectly designating current resource deployment. The fundamental logic is that investment is essential for growth while maintaining or building market share. But, while doing so, a strong competitive business in an industry with low growth rate will offer surplus cash for deployment elsewhere in the organization. Thus, growth uses cash whereas market competitive strength is a prospective foundation of cash.
Limitations of BCG Matrix
The Growth-share BCG Matrix has a few limitations and weak points which must be considered while using portfolio analysis for developing strategic options.
The limitations are…
1. Predicting Profitability from Growth and Market Share
BCG analysis believes that profits depend on growth and market share. However, there are several other factors that make industry attractiveness other than simple growth rate, and the organization’s competitive position may not be revealed in its market share. Nokia’s dominant market share did not reflect its true competitive position. Some other refined approaches have been evolved to overcome such limitations.
There have been specific research studies which show that the well-managed Dog businesses can also become good cash generators. These organizations relying on high-quality goods, with medium pricing and judicious expenditure on R & D and marketing, can still provide impressive return on investment of above 20 per cent.
2. Difficulty in Determining Market Share
BCG Matrix gives lot of importance to the market share of a business as a pointer of its competitive strength. The calculation of market share is intensely affected by the way the business activity and the total market are defined. For instance, the market for printers may encompass all types of printers, or only dot-matrix printers or inkjet printers or laser printers. Furthermore, from geographical point of view the market may be defined on global, national or an even regional base. In case of multifaceted and mutually dependent industries, it may also be quite difficult to determine the market share established on the sales turnover of the final product only.
3. No Consideration for Experience Curve Synergy
The BCG approach, for strategic purposes, views businesses in each of the different quadrants independently. Suggesting, Dogs are to be liquidated or divested. However, within the structure of the inclusive corporation, valuable experiences and skills can be picked up by operating low-profit Dog businesses which may help in reducing the costs of Star or Cash Cow businesses. And this may contribute to higher corporate profits.
4. Disregard for Human Aspect
The BCG Matrix, while taking into consideration different businesses does not take into account the human aspects of administration in an organization. Cash generated within a business unit may come to be symbolically linked with the power of the concerned manager. As such managing a Cash Cow business may be unwilling to part with the extra cash generated by his unit. Likewise, the workers of a Dog business which has been decided to be divested may counter strongly against changes in the ownership. They may believe the divestiture as a risk to their livelihood or security.
Thus, BCG analysis could throw up strategic options which may or may not be easy to implement.

BCG Modifications
It was in 1981 that the Boston Consulting Group realised the limitations of equating market share with the competitive strength of the company. They have acknowledged that the calculation of market share is intensely affected by the way the business activity and the total market are defined.
A broadly defined market will give lower market share, whereas a narrow market definition will result in higher market share resulting in the company as the leader. For instance, if we consider who has the largest share in digital camera market, company having maximum market share of handset becomes the leader, but when we define photographic equipment market, the leader will change. The concept of served market is ignored in BCG approach. It was, therefore, recommended that products should be rearranged according to the manufacturing process to highlight the economies of scale manufacturing, instead of stressing the market leadership.
On the other hand, BCG still uphold that for branded goods it is important to be the market leader so that the advantages of economies of scale and price leadership can be fully utilised. But they also concede that such advantages may still be achieved even if the company is not the largest producer in the industry. Some other versions of portfolio analysis have however developed much beyond these trivial alterations of BCG analysis.
Udo-Imeh, Philip T., et al. listed major criticism of the matrices . They observed that BCG matrix has had a larger share of the criticisms levelled against portfolio matrix in the literature of portfolio analysis. Faultfinders have criticized this strategic planning tool on the following grounds:

1. Thompson & Strickland, (1996) observed that a four-cell matrix on high-low classification system does not reveal the fact that many businesses are in markets with an average growth rate and have market shares that are neither high nor low, but in between or intermediate . They therefore wonder which cells these average businesses belong in the BCG classification scheme. Sharing this view are Hofer & Schendel, (1994) who argued that the use of four-cell matrix ignored the fact that the world contains not only high and low, but middle position as well.

2. The association between market share and profitability does not always hold true. This link between market share and profit is based on scale economies and experience curve. But the “…profit potential of high market share businesses may be overestimated” (Hooley et al, 1998; p.63) if each SBU has “…its own manufacturing operation and operate on its own experience curve….uses a differentiated technology…. (and) has a different market structure” (Aaker, 1995; p.164) .
Though the BCG share-profitability relationship may be theoretically supported, empirical evidence, however, questioned such link. Furthermore, the link between market share and profitability is premised on cost leadership strategy. But there are other ways an SBU can compete – differentiation strategy and focus strategy.

3. Simplicity, which is BCG utmost strength, is also its ultimate weakness. Assessing the attractiveness of a business unit based only on two indicators – market share and industry growth – is too simplistic and deceptive.
A lot of other relevant factors which determined market attractiveness (e.g. market size, industry profit margin, entry barriers) and competitive strengths (e.g. price competitiveness, product quality, geographical advantage) are not taken into account.

4. The BCG matrix mistakenly believes that SBUs are independent. A good strategic decision, therefore, on one business unit may be a bad one for another business unit, which invariably becomes dangerous for the company as a whole

5. Concentrating on market share and market growth rate may becloud marketing strategists from paying attention to fundamental issues like developing a sustainable competitive advantage. In the event of competitive retaliation to share gain, for example, the costs to the company may outweigh it gain.

6. The analysis is highly sensitive to how the market is defined (Doyle & Stern, 2006), which is often vague . Hax & Majluf (1990a, p.64) commented :
Relative market share compares a business’s strength to its competitors. If the market is defined too narrowly the business invariably ends up as the leader of the segment; it is defined too broadly the business is unrealistically represented as weak. Proper market definition is a very subtle issue, and unfortunately, this approach to business analysis rests heavily on this difficult matter

7. The matrix assumes that all SBUs have the same lifecycle which is not the reality. Drummond & Ensor (2001) suggested that, some Stars facing a short lifecycle, should be harvested than committing further investment.

8. The BCG matrix was developed principally to balance cash flow in a multi-business company. A contrary position to the advocacy of the BCG was given by Marakon, a management consulting firm. Marakon , (1980) argued that “…ideal business portfolios are not necessarily balanced in terms of internal cash flow.” The result of a study carried out by the company shows that “…a highly profitable portfolio may well be out of cash balance, while a rather poor portfolio may be perfectly balanced”.
Despite all the criticism and limitations of the BCG matrix it gave guidelines for strategic decision making.

GE’s Strategic Business Planning Grid
Directional Policy Matrix, General Electric (or McKinsey) matrix positions SBUs (Strategic Business Units) according to industry attractiveness as not merely the growth rate of sales of the product, but as a compound variable dependent on multiple factors influencing the future profitability of the business sector and the competitive strength of the SBU in that market. The typical indicators of industry attractiveness are market size, market growth, nature of demand (cyclical or continuous), level of competition, entry barriers, industry profitability, regulation etc.
These factors are either subjectively judged or objectively computed on the basis of certain weightages, to arrive at the Industry Attractiveness Index. The Index is thus based on a thorough environmental assessment influencing the sector profitability.
Factors determining Industry Attractiveness:
Typical weightage
1) Size of market 10%
2) Rate of growth of sales and cyclic nature of business 15%
3) Nature of competition including vulnerability to 15%
foreign competition
4) Susceptibility to technological obsolescence and new products 10%
5) Entry conditions and social factors 10%
6) Profitability 40%

To arrive at the Industry Attractiveness Index for the business under consideration, against each of these factors, the concerned business is rated on a scale of 1 to 10.

Factors determining Competitive Position or business strength of the Company as with Industry attractiveness, the business strength of the Company is analysed not only in terms of company’s market share, but also in terms of other factors. These factors are, sales force effectiveness, managerial competence, knowledge about market and customer, R & D, perceived quality of product, favourable geographical location and plant capacity, besides market share.

A typical scoring of company’s Competitive Position would be as illustrated below:

Factor                                                                   weightage          rating(1 to 10)   score

1) Market Share and Capacity                     20%                        7                              1.4

2) Growth Rate                                                                 10%                        7                              0.7

3) Location and Distribution                         10%                        5                              0.5

4) Management Skill                                       15%                        6                              0.9

5) Workforce Harmony                                  20%                        7                              1.4

6) Technical Excellence including

Product and Process Engg.                           20%                        8                              1.6

7) Company Image                                          5%                          8                              0.4

The Industry Attractiveness Index is then plotted along the y – axis and divided into low, medium and high sectors. Correspondingly, the Competitive Position/business strength is plotted along the x – axis divided into Strong, Average and Weak segments.

For each business in the portfolio, a circle denoting the size of the industry is shown in the 3 x 3 matrix grid while shaded portion corresponds to the company’s market share as shown in Figure

Company should rate each of its businesses on such a framework. If Industry’s Attractiveness as well as company’s Competitive Position is low, a no-growth red stoplight strategy is adopted. Thus, the company should divest or harvest the business. If for a business the Industry Attractiveness is medium and company’s Competitive Position is high, a growth green stoplight strategy is evolved for further investment. But if a business has high Industry Attractiveness Index and low company’s Competitive Position, this is branded as yellow stoplight business that may be moved either to growth or no growth category. Such grids are developed at different managerial levels. The final strategic decisions should be made by company’s Corporate Policy Committee comprising the top management and senior executives of the business unit.

Industry Attractiveness Index

	Industry Attractiveness Index
Business Strength		High	Medium	Low
	Strong	Investment & Growth	Selective Growth	Selectivity
	Medium	Selective Growth	Selectivity	Harvest / Divest
	Weak	Selectivity	Harvest / Divest	Harvest / Divest

This portfolio logic is also about understanding the relative strengths of a business in the context of its markets so as to make decisions about investment, acquisition and divestment. The company can improve its business strength by acquiring company which has the complementary features. These could mostly be horizontal acquisition. Horizontal acquisitions improve market share, offer geographical location offering strategic advantage, price competitiveness as a result of economies of scale, as well as managerial skills. For instance, Tata’s acquisition of Tetley.

Similarly, if for lack of business strengths, a company may decide to divest. Tata’s decided to divest TOMCO, which was acquired by HLL (now HUL).

Matrix does not assist in acquiring a division or a company. It can as well be used to consolidate market share by acquiring brands as well.

As discussed in integration strategies in Chapter II, Aditya Birla Group promoted UltraTech Cement when was looking forward to improving its business strength in the highly competitive cement business; acquisition of Dubai based ETA Star Cement Co improved its business strength by offering access to Middle East and Bangladesh leading to better market share, increased its production capacity.

 

Criticism of the GE matrix

1. As in case of the BCG matrix GE matrix also overlooks the mutual dependencies of the SBUs in a company’s portfolio.
2. Similarly the definition of market, total market versus served market, the result of the analysis varies.
3. As multiple factors are considered while shaping both the indicators on which the matrix is based, aggregation of the indicators is difficult.
4. Hill & Jones (1989), noted that the GE matrix looks at the existing position of SBU but does not take into account how their future positions might change due to change in the industry. It does not also consider how their positions might change due to change in their lifecycle.
5. Lack of standardization with respect to list of critical external and critical success factors to be considered by business units, leads to variations and indistinctness in classification of business units.
6. Aaker (1995), observed that the selection and weighting of factors and the subsequent development of both firm’s position and market attractiveness are subjective process. Individual bias and historical perspective cannot be ruled out in the process.

Despite all the criticism, GE 9 Cell Matrix gives significant insight about strategic decision making. Particularly the factors considered for the industry attractiveness index and the business strength have higher degree of application. For instance, a company can use these parameters to determine the countries attractiveness index (CAI) while going for overseas business. Companies get a lot of insight about the customer (prospect) attractiveness index (C/PAI) to make investments. The application of the matrix thus is not restricted to corporate level decision making but also at the business level or even at operational/functional level decision making as well. A sales person can make a decision about the customer/prospect using GE 9 Cell Matrix. 

Arthur D. Little Company’s Matrix

Arthur D. Little Company’s matrix associates the phases of the industry life cycle with the business’s competitive position. On the Y – axis, the businesses are categorized with respect to their competitive position: Weak, Tenable, Favourable, Strong, or Dominant. Along the Y – axis four stages in the industry life-cycle stage, Embryonic, Growth, Mature and Decline are marked as shown in Figure

		Industry Life Cycle Stage
		Introduction / Embryonic	Growth	Maturity	Decline
Competitive Position	Dominant	Rapid development Act offensive	Rapid development Defend position Act offensive Cost leadership	Defend position Act offensive	Defend position Focus Consider retreat
	Strong	Rapid development Differentiation	Cut cost Differentiate Attack small competitors	Cut cost Differentiate Focus	Harvest
	Favourable	Rapid development Differentiation	Cut cost Differentiate Attack small competitors	Focus Differentiation Attack small competitors	Harvest
	Tenable	Market Development Focus	Maintain or retreat Identify a niche Aim growth	Maintain or retreat Identify a niche	Retreat
	Weak	Identify a Niche Follow the Competitor	Identify a niche Retreat	Retreat	Retreat

Source: Wilson, M.S. & Gilligan, C. (1992). Strategic marketing management: Planning. Implementation and control (2nd ed.). Elsevier Butterworth-Heinemann, p.318

A start-up should identify a niche in the embryonic stage of industry life cycle to build. In the embryonic stage experience curve is irrelevant as no player has experience with the technology or the industry. As the industry lifecycle moves to the next stage players with tenable and higher business strength can exploit the situation better by virtue of their presence in the industry and the new player finds it difficult to match their resources and business strengths. Various strategic options open to companies with various business strengths and at different industry life cycle stages are listed in the table above as suggested by Wilson (1992).

The Arthur D Little Matrix in Embryonic and Growth phases, recommends the businesses to adopt build strategy, except when the competitive position is weak. Matrix recommends Hold strategy for Mature stage businesses with dominant to favourable strength. Matrix proposes harvest strategy for businesses in Decline stage, with Strong or Dominant position. For weaker businesses in Mature/Decline stage unacceptable ROI is marked.

Qualitative Factors
A critical part of the strategy evaluation process is measuring the organizational performance. The process has qualitative as well as quantitative aspects.
Seymour Tilles (David, 1997), has suggested six qualitative questions that are useful in evaluating strategies.

They are:
Making an Evaluation
Is your strategy right for you? There are six criteria on which to base an answer. These are:
1. Internal consistency.
2. Consistency with the environment.
3. Appropriateness in the light of available resources.
4. Satisfactory degree of risk.
5. Appropriate time horizon.
6. Workability.

Some additional factors also have an impact on strategy evaluation. They can be:
1) How good is the firm’s balance of investments between high-risk and low-risk projects?
2) How good is the firm’s balance of investments between long-term and short-term projects?
3) To what extent are the firm’s alternative strategies socially responsible? etc.

The evaluation of Corporate Strategy may not have a uniform approach. Every organization may device its own approach to evaluation. There are no unconditional answers as to the appropriate evaluation principles. However, there are three basic questions to ask in strategy evaluation :

Is the existing strategy any good?
Will the existing strategy be good in the future?
Is there a need to change a strategy?
To know whether the current strategy is suitable and advantageous to the organization more specific description may be needed.
Seymour Tilles in his article on the qualitative assessment of organizational performance has suggested several specific questions to be asked for evaluation. These questions and the specification are as follows:

1. Is the strategy internally consistent?
This question evaluates the collective effect of several strategies on the achievement of corporate objective. According to Tilles, in a well-worked-out strategy, each policy fits into an integrated pattern. It should be judged not only in terms of itself, but also in terms of how it relates to other policies which the company has established and to the goals it is pursuing.
The principle of internal consistency is particularly significant one for evaluating strategies because it identifies those areas where strategic choices will ultimately have to be made. An inconsistent strategy does not inevitably mean that the company is at present in trouble. But it does mean that if management retains its appreciation on a particular area of operation, it may well be required to make a choice with very little time either to explore or to formulate attractive alternatives.
Internal consistency of every strategy has to be evaluated at every stage of organizational growth. For instance, at the time of acquisition of ETA Star Cement CO by UltraTech Cement , Kumar Mangalam Birla, Chairman Aditya Birla Group said, “The acquisition is in line with our long-term strategy of expanding our global presence across businesses and consistent with our vision of taking India to the world.”

2. Is the strategy consistent with the environment?
The organizations strategies have to resonate with its customers as well as prospects with respect to product policy, price policy, or its communication policy. Even organizations policies with respect to government contracts, collective bargaining, foreign investment, and so forth are manifestations of relationship with other groups and forces. Organizations consistency with the environment is an acid test of the strategy.
As discussed in the environmental analysis, there are two types of environment viz Internal and External. As every organization faces ever changing environment, developing strategies for long run success management must continuously evaluate the extent to which policies established earlier are consistent with the current environment; and whether the existing policies take into account the environment organizations is likely to face in future. Static and dynamic are the two aspects of consistency with the environment. The static aspect environmental consistency implies evaluating the efficacy and relevance of policies in the current environmental conditions. The dynamic aspect of consistency with the environment indicates evaluating the efficacy of policies with respect to the environment as it appears to be changing. A viable strategy is the one which ensure the long-run success of an organization.
Nestle, a marketer of convenience food, having realized, and observed by Sangeeta Talwar , that “The thing you change last is what you eat.” She adds, “We are not attaching any basic culinary habit. People change slowly. It’s a two-way process. There’s the environment and then there’s what the company does.” Nestle adapted to the Indian kitchen, especially to be able to sell in small towns. Nestle also ensured that the housewife doesn’t feel threatened by an over-convenient ready-mix that could rob her of her traditional source of praise, or a daily-eat cereal that could turn her redundant at breakfast. “She wants to be involved with food consumption in the house,” observed Talwar.
Nestle thus identified both the faces of changing environment. Static, involvement of the housewife in kitchen, and shifting culture towards convenient food.

3. Is the Strategy Appropriate in View of the Available Resources?
One of the key questions every organization has to answer and as we discussed in the last chapter, we consider this as a key to formulate strategies. One of the key ingredient of organizations internal environment is resources which determine the strength of the organization and the absence of which results in weakness of the organization. To achieve any objective more so a corporate objective resources are required.
Tilles included money, competence, and facilities; we considered relationships as well as a key resource. Though, as discussed earlier, these by no means complete the list. For instance, we had considered brand name as a major resource. While formulating strategies management must consider two basic issues in relating strategy and resources. These are:
What are our critical resources?
Is the proposed strategy appropriate for available resources? and
At how the criterion of resource utilization can be used as a basis for evaluating strategy.
Critical Resources
A “critical resource” is vital strategic features of resources and they represent action potential. Taken collectively, a company’s resources characterize its ability to respond to challenges and opportunities that may be observed in the environment.
A resource may be critical in two senses from an action-potential point of view,
1. As the factor limiting the achievement of corporate goals; and
2. As that which the company will exploit as the basis for its strategy.
The three resources most frequently identified as critical are money, competence, and physical facilities.

Money
Because of its paramount flexibility of reacting to the occasions as they arise, money is a predominantly valuable resource. Money may be pondered as the “safest” resource, as it permits to choose among the extensive range of future options.

Competence
Competence is usually not unidimensional. Organizational competence is multi-dimensional. Competence helps organizations sustain over a period of time. The scale of competence of a given organization is not identical across the wide-ranging skills essential to be the in business. Some companies are particularly good at marketing, others especially good at engineering, still others depend primarily on their financial superiority. “Distinctive competence” is the one at which company is particularly good at . While formulating a strategy, management must judiciously evaluate its own skill profile in order to determine where its strengths and weaknesses lie. It must then adopt a strategy which makes the greatest use of its strengths.

Physical facilities
The strategic impact of physical facilities as a resource is often misinterpreted. For technical men who are entranced of physical amenities as the palpable representation of corporate entity. The financial men view physical amenities as uninvited but essential restricting part of the company’s fund. The latter group is overriding. Return on investment has come out as practically the solitary standard for determining whether or not a particular facility should be acquired, in large number of organizations.
The assessment of a company’s physical facilities as a strategic resource necessarily should think through the relationship of the company to its environment. Facilities have no core value for their own sake. The value of physical facilities to the company is either because of its geographical location relative to markets, to sources of labour, or to raw materials; or in their efficiency relative to prevailing or imminent competitive installations. The essential considerations in any decision regarding physical facilities are an estimate of changes likely to come about in the environment and a prediction about what the company’s responses to these are likely to be.
Physical facilities have implication primarily in relationship to overall corporate strategy. It is, therefore, only in relationship to other aspects of corporate strategy that the acquisition or disposition of physical facilities can be determined. The total investment required and the projected return on it have a place in this determination—but only as an indication of the financial implications of a particular strategic decision and not as an exclusive criterion for its own sake.
When AV Birla Group acquired the L&T’s cement business, the group had changed the brand name from L&T, so the brand image, legacy was not of any use in time to come. But, the complementary nature of plant location with respect to existing locations of groups plants was a decisive factor. In cement manufacturing transportation cost of raw material as well as finished goods is very high. A geographical location of the plant proximal to raw material and market saves these transportation costs. AV Birla group was keener on having these physical facilities than the brand name to consolidate its cement business in India.

4. Does the Strategy Involve an Acceptable Degree of Risk?
When taken together, strategy and resources, fix the degree of risk which the company is assuming. This is a critical managerial choice. Every organization must decide what amount of risk it can take and live with. Organization can use multiple techniques to evaluate the degree of risk associated with a particular strategy.
Mathematical models can help an organization for selecting between a variety of strategies where you are willing to assess the payoffs and the probabilities related with them. However, the concern not with these quantitative traits but with the detection of some qualitative factors which may assist as a rough basis for evaluating the degree of risk intrinsic in a strategy.
These factors are:
1. The amount of resources (on which the strategy is based) whose continued existence or value is not assured.
2. The length of the time periods to which resources are committed.
3. The proportion of resources committed to a single venture.
The greater these quantities, the greater the degree of risk that is involved.
Uncertain Term of Existence
As the strategy is based on the resources, any resource may constitute a danger to the organization if it disappears before the payoff has been obtained. For several reasons the resources may disappear. The resource may lose its value. This commonly takes place to such resources such as physical facilities and product features. With continuously advancing technologies and better and faster computers, existing computers lose their value quickly. They may be accidentally destroyed. The supremely susceptible resource here is competence.
For many companies, the prospect that extremely important resources may lose their value shoots not so much from internal changes as from alterations in the environment. For instance, if a company develops a new product with high R&D costs, invest significant amount of money in marketing of the product and competitor develops better product for the same purpose, to make the matter worst the competing product is economical as well. The company’s all expenses right from R&D, marketing, distribution all are now of no value.
Duration of Commitment
Financial analysts repeatedly look at the ratio of fixed assets to current assets in order to evaluate the degree to which resources are committed to long-term programs. This may or may not give an acceptable answer. How important are the assets? When will they be paid for?
The cause of the risk grows as the time for payoff increases is the intrinsic uncertainty in any undertaking. Resources dedicated over long term extents the company’s susceptibility to changes in the environment. Since the complexity of foreseeing such changes escalates as the time span increases, long-term projects are fundamentally riskier than are short ones. Particularly for companies facing unstable environments. In today’s context, because of technological, political, or economic swings, most companies are distinctly in the category of those that face major turmoil in their corporate environments. The company fostering its future around technological equipment, the company selling to select segments, the company investing in underdeveloped nations, the company selling to the Common Market—all these have this prospect in common.
The corporate environment is becoming increasingly unstable is the reality and time span of decision is increasing. This warrants that the corporate decision makers should be more considerate to external trends today.

Size of the Stakes
The magnitude of the consequences is more pronounced if company commits more resources to a particular strategy. If the strategy is successful, the payoff will be great—both to managers and investors. If the strategy fails, the consequences will be dire—both to managers and investors. Thus, a critical decision for the executive group is: What proportion of available resources should be committed to a particular course of action?
This decision may be managed in a variety of ways. For instance, faced with a project that requires more of its resources than it is willing to commit, a company either may choose to refrain from undertaking the project or, alternatively, may seek to reduce the total resources required by undertaking a joint venture or by going the route of merger or acquisition in order to broaden the resource base.
The amount of resources management stands ready to commit is of particular significance where there is some likelihood that larger competitors, having greater resources, may choose to enter the company’s field. Cable operators entered into the field as there were low entry costs. But the moment larger players entered the market and DTH service started, cable operators found it difficult to match larger competitors.
It is not that the “best” strategy is the one with the least risk. High payoffs are frequently associated with high-risk strategies. Moreover, it is a frequent but dangerous assumption to think that inaction, or lack of change, is a low-risk strategy. Failure to exploit its resources to the fullest may well be the riskiest strategy of all that an organization may pursue, as Montgomery Ward and other companies have amply demonstrated.

5. Does the Strategy Have an Appropriate Time Horizon?
A workable strategy not only divulges what goals are to be achieved; it articulates approximately about when the aims are to be accomplished. A substantial part of every strategy is the time perspective on which it is established.
Like resources, goals, too have time-based utility. Various activities undertaken by an organization, such as, a new product developed, a plant put on stream, a degree of market penetration, become noteworthy strategic objectives only if achieved by a certain time frame. Entire strategic significance may be lost if these activities are delayed.
Organization must establish goals well in advance to allow the organization to adjust to them. In selecting a fitting time horizon, organization must pay careful attention to the goals being chased, and to the particular organization involved. Conventionally large organizations encountering highly unstable environment have to further extend the time horizon as their adjustment time is longer. Large organizations have to plan far ahead compared to smaller organizations. The implication of planning for the small but growing organization has often been ignored. As the companies grow bigger, they must not only change the way they operate but also gradually thrust into the future its time horizon. On a day to day basis, while supervising operations managers spend most of the time on key business results, budgetary control and performance. They fail to spend sufficient time on strategic issues like analysis of key resources, corporate direction, creating vision.
Organizations change slowly and need time to work through basic adaption in its strategy. Thus, there is a substantial gain in an assured consistency of strategy continued over long periods of time. Companies which do not carefully formulate strategies well in advance face a great danger as they are prone to fling themselves to disorder by frequent sweeping changes in policy.
If the time horizon is greater, an organization has a wider range of strategies to choose from. But, if the time horizon is short, goals have to be achieved in a relatively short time, then M&A are inevitable.
6. Is the Strategy Workable?
The first question that comes up while formulating a strategy is asking: Does it work? Further deliberation should divulge the criteria. What is the evidence of a strategy “working”?
The combined influence of two critical factors is measured by quantitative indices. The two critical factors are:
The strategy selected and
The skill with which it is being executed.
In the event of failure to attain projected results, both of these influences must be critically scrutinized. While selecting a strategy to be employed organization must take into account its business strength in executing the strategy.
Marico’s strategy of acquisition of Paras Pharmaceuticals’ personal care business from the UK consumer goods giant Reckitt Benckiser helped it make inroads into male grooming market. Marico’s dominant markets for long time have been edible oil (Saffola) and hair oil (Parachute) and a smaller extent, the lice treatment category (Mediker). The dominance in the market reflected its skills in effectiveness in selling. With one acquisition Marico gained access to skin creams (Borosoft and Recova), lip balms (Dr Lips), hair gels (Set Wet), hair serums (Livon), and deodorants (Zatak). Strategy of acquisition allowed company to participate in high-growth categories .

Seymour Tilles concludes . If a strategy cannot be assessed by results alone, there are some other indications that may be used to judge its influence to corporate progress:
• The degree of consensus which exists among executives concerning corporate goals and policies.
• The extent to which major areas of managerial choice are identified in advance, while there is still time to explore a variety of alternatives.
• The extent to which resource requirements are discovered well before the last minute, necessitating neither crash programs of cost reduction nor the elimination of planned programs. The widespread popularity of the meat-axe approach to cost reduction is a clear indication of the frequent failure of corporate strategic planning.

Changing micro and macro factors make it mandatory for every organization to evaluate its strategy on regular basis. There can be various questions which can have an impact on strategy evaluation. After assessing all the situations, the final step is to take corrective actions to reposition the firm.

Balanced Score Card (BSC)
Organizations use certain parameters as a tool for measuring performance. Performance evaluation and control processes are important for continuous improvement. Balance Score Card (BSC) is a measure to evaluate performance of a business and thereby evaluating the strategy.

Performance measures are the indicators of organizational achievement. To achieve organizational objectives care has to be taken to ensure that the indicators of organizational achievement are understood by employees at all levels of the organization. Every organization has its set of performance measurement framework.

Strategic management as a whole new concept emerged in 1990s. Around same time Dr. Robert Kaplan (Harvard Business School) and David Norton (Balance Score and Collaborative) developed a new approach to strategic management and named it as ‘Balanced Scorecard’. The concept attempts to provide a clearer prescription as to what companies should measure in order to ‘balance’ the financial perspective (www.hrfolks.com).

Organizations need feedback around the internal business processes and external outcomes in order to improve strategic performance and results continuously. The BSC is a management system that enables organizations to spell out their vision and strategy and convert them into action.

According to Kaplan & Norton “The balanced scorecard retains traditional financial measures. But financial measures tell the story of past events, an adequate strong for industrial age companies for which investments in long-term capabilities and customer relationships were not critical for success. These financial measures are inadequate, however, for guiding and evaluating the journey that information age companies must make to create future value through investment in customers, suppliers, employees, processes, technology, and innovation.” It is imperative to note that according to BSC we view the organization from four perspectives. The Balanced Scorecard Links Performance Measures:

The Financial perspective: How do allwe look to shareholders?
The Customer perspective: How do customers see us?
The Internal (Business Process) perspective: What must we excel at?
The Learning and Growth (Innovation and Learning) perspectives: Can we continue to improve and create value?

	The Financial perspective How do we look to shareholders?
The Customer perspective How do customers see us?		Balance Score Card	The Internal (Business) perspective What must we excel at?
	The Learning and Growth (Innovation and Learning) perspectives Can we continue to improve and create value?

The financial perspective relates to the handling and processing of financial data. The customer perspective aims at satisfying the customers’ needs and wants as the customer satisfaction is one of the performance indicators for any organization. The business process perspective denotes paternal business processes. Which includes the strategic management process. The learning and growth perspective comprises employee training and corporate cultural attitudes which are related to both individual and corporate self-improvements.

For instance, in a highly competitive air cooler market, a manufacturer will focus on reducing cost and optimizing the production facilities. A good trade relation is important for point of purchase visibility and promotion. A good post sale service to customer, an insight in understanding their problem of storing the product when not in use ensures better customer satisfaction. Similarly training employees for promoting product and offering better customer services are key to growing revenue.

The Financial perspective:
For an organization, usual financial aspirations are profitability, growth, and shareholder wealth etc. Financial performance measures point toward whether the company’s strategy, implementation, and execution are participating to bottom-line enhancement. The other measures are cash flow, success by quarterly sales growth and operating income by division, and prosperity by increased market share by segment and return on equity.
In contemporary business environment, should the senior managers pay attention to short-term financial measures like quarterly sales and operating income? Financial statements are well-documented with respect to their inherent limitations, their backward-looking focus, and their inability to reflect contemporary value-creating actions. Shareholder value analysis is based on cash flow rather than on the activities and processes that drive cash flow.
It is also observed that the requisites of competition have altered and that conventional financial measures do not increase customer satisfaction, quality, cycle time, and employee motivation. In conventional view, financial performance is the result of operational accomplishments, and financial success should be the rational outcome of doing the basics well. By making basic improvements in company’s operations, the financial numbers will take care of themselves.

Claims that financial measures are redundant are incorrect for at least two reasons. A well-designed financial control system can actually enhance rather than inhibit an organization’s total quality management program. Notably, the alleged connection between enhanced operating performance and financial success is actually quite unsubstantiated and uncertain. Introduction of new products and an inability to develop new market, new and perhaps more demanding customers prevent the organizations from realizing the benefits of its manufacturing achievements. The operational achievements are real, but the organizations may fail to capitalize on them.

The balanced scorecard translates a company’s strategy into particular quantifiable goals. Companies have to follow up their operational efficiencies with next round of actions. Quality and cycle-time improvements can create excess capacity. Organizations should be prepared to either put the excess capacity to work or else get rid of it. The excess capacity must be either used by improving revenues or eliminated by cutting expenses if operational improvements are to be reflected in the bottom line.

Customer Perspective:
Customers’ interests have a tendency to fall into four categories: time, quality, performance and service, and cost. Lead time refers to the time required for the company to meet its customers’ needs. For existing products, lead time refers to the time the company receives an order to the time it actually delivers the product or service to the customer. For new products, lead time refers to the time to market, or time required to take a new product from idea screening stage to the commercialization. Quality measures the defect level of incoming products as observed and assessed by the customer. Quality could as well refer to on-time delivery, the precision of the company’s delivery estimates. The combination of performance and service measures how the company’s products or services contribute to creating value for its customers .

Companies should formulate goals for time, quality, and performance and service and then translate these goals into specific measures.

Companies have to be considerate to the cost of their products as well apart from time, quality, and performance and service. The supplier-driven costs span from ordering, scheduling delivery, and paying for the materials; to receiving, inspecting, handling, and storing the materials; to the scrap, rework, and obsolescence caused by the materials; and schedule disturbances from improper deliveries. An exceptional supplier may charge a higher price for products than other vendors but on the other hand be a lower cost supplier because it can deliver defect-free products in precise quantities at accurate time straight to the production process and can minimize, through electronic data interchange, the administrative irritations of ordering, invoicing, and paying for materials.
Reducing customer pain points increases the value of goods and services that an organization offers to its customers.

The Internal (Business Process) perspective:
Organization while reducing customer pain points should ensure that the process of reducing customer pain point is not a cost centre for the organization, not affecting its bottom line adversely. Exceptional customer performance comes from processes, decisions, and actions taking place all throughout an organization. Organization needs to focus on those crucial internal operations that facilitate it to satisfy customer needs. This part of the balanced scorecard gives managers that internal perspective.

In order to realize goals on cycle time, quality, productivity, and cost, organization must formulate measures that have some bearing on employees’ actions. As large part of the action takes place at the department and workstation stages, organizations need to breakdown overall cycle time, quality, product, and cost measures to local stages. This is necessary to link top management’s judgment about key internal processes and competencies to the actions carried out by individuals that affect overall corporate objectives. These linkages make sure that employees at lower levels in the organization have clear objectives for actions, decisions, and improvement activities that will play a part to the company’s overall mission.

Companies should channelize its efforts to identify and measure its core competencies, the decisive technologies needed to safeguard, improve market leadership. Companies need to determine what processes and competencies they have to stand out at and indicate actions for each.
Blue Star to keep in tune and adapt with the changing market conditions, reinvented itself again and again. Strengthening its core and becoming more customer-centric. It reduced its cost structure and maintained its leadership position as a B2B company. McDonald’s has been working with Blue Star since inception of McDonald’s (West and South) in 1996 . Amit Jatia, Vice-Chairman, Westlife Development, the parent company of Hardcastle Restaurants, which runs McDonald’s noted, “Blue Star supplies air-conditioner for the restaurants and cold rooms. The company has an efficient and responsive sales service team, which led us to give all our new restaurants business to them. What sets them apart is that they are cost-competitive, while maintaining high quality standards. They have a highly competent and accessible senior technical management team which is process-and-solutions-driven. Blue Star invests in their people by training and encouraging them to take up dealerships thus developing their entrepreneurial skills. We are proud to work with a completely indigenous company like Blue Star, which is on a par with global giants”.
Anuj Agrawal, head, infrastructure management & services group, ICICI Bank and ICICI Foundation observed, “They (Blue Star) have been one of our partners for supply & comprehensive maintenance of air-conditioning equipment for our branches and offices, which are spread across the length and breadth of the country. Their project management and timeliness of service ensures that our branches/offices get set up on time, and also maintain the right ambient temperature for comfort and efficiency”.

The Learning and Growth (Innovation and Learning) perspectives:
Rivalry among the firms is getting more and more intense. Global competition necessitates that organizations make continual developments to their present products and processes and have the competence to launch completely new products with long-drawn-out capabilities. The customer-based and internal business process actions on the balanced scorecard ascertain the parameters that the organization deems most important for competitive success. But the customer is a moving target and the targets for success keep moving.

A company can penetrate new markets, increase revenue of margins, launch new products, create more value for customer and improve operating efficiencies by virtue of its ability to learn, improve and innovate. Organizations have to focus on processes as well apart from product development and operating efficiencies.
Camlin , was initially making inks and selling them to nearby schools. Favoured by the masses, prospered with its products which included ink tablets, inks, office adhesives, sealing wax, school chalks, pain balm etc. Apart from expanding its product range, Camlin wisely invested in creating an impressive distribution network to take its products across the length and breadth of the country.

In 1960s, Camlin realised that while it was solidly rooted in its niche segment, future growth would only be possible by expanding its portfolio and going in for value-added, high-margin products – the untapped market for art materials. Company forayed into new territories of art material with products such as artists’ and students’ oil and water colours, poster colours, geometry boxes, wax crayons, oil pastels and water markers. Camlin soon became a market leader in stationery and art materials, on the back of consistent product quality extensive distribution network and innovative marketing techniques like participation in internal trade shows and exhibitions and conducting painting contests and workshops . Camlin organized the ‘All-India Camel Colour Contest’ for children and Professional-level competitions for budding artists and hobby painters through its Art Foundation.
BSC is a strategic performance management system for the organization. By linking the financial, customer, internal process and innovation, and organizational learning perspectives, the balanced scorecard is also a communication tool to make strategy clear to all those who are working in the organization and tries to balance the financial and non-financial aspects of the organization. This insight can help organizations go beyond conventional philosophies about functional barriers and ultimately lead to improved decision making and problem solving. BSC is all about doing right thing at right time, but differently.

McKinsey 7-S Framework
Although structure is a significant variable in the management of change, organizational change is not simply a matter of structure. Strategy too is a critical aspect, there is no simple relationship between strategy and structure. According to Waterman et al., effective organizational change may be understood to be a complex relationship between strategy, structure, systems, style, skills, staff and super ordinate goals.
The framework suggests that there is array of factors that impact an organization’s ability to change and its appropriate mode of change. Because of the interconnectedness of the variables it would be challenging to make substantial advancement in one area without making headway in the others as well. There is no starting point or implicit hierarchy in the shape of the diagram, and it is not apparent which of the seven factors would be the motivating force in changing a particular organisation at a certain point in time. The decisive variables could be different across organizations and in the same organization at different points of time.

Super ordinate goals, shared goals, refer to “…a set of values and aspirations that goes beyond the conventional formal statement of corporate objectives. Super ordinate goals are the fundamental ideas around which a business is built. They are its main values. They are the broad notions of future direction. That is the way the top management as a team wants to express itself. Examples would include Theodore Vail’s ‘universal services’ objectives, which have dominated AT&T of USA; the strong drive to ‘customer service’ which guides IBM’s marketing; GE slogan, ‘progress is our most important product,’ which encourages engineers to tinker and innovate throughout the organization; Hewlett-Packard’s ‘innovative people at all levels in organization’, Dana’s obsession with productivity for the total organization, not just for the few at the top, and 3-M’s dominating culture of ‘new ventures’. Super ordinate goals may be compared with basic premises in a mathematical system. They are the basis on which the system is logically build but are not themselves logically derived…”
The super ordinate goals are articulated at the uppermost levels of concept and may not mean very much to outsiders who are not very acquainted with the organisation. But they have remarkable importance for those inside the organization. Super ordinate goals when appropriately expressed can offer a robust foundation for the stability of an organisation in a rapidly changing situation by providing a basic meaning to people working for the organisation.
Organizational structure refers to the relatively more durable organizational arrangements and relationships. It prescribes the formal relationships among various positions and activities. Arrangements about reporting relationships, how an organizational member is to communicate with other members, what roles he is to perform and what rules and procedures exist to guide the various activities performed by members are all part of the organizational structure. Organizational structure performs four major functions…
1. It reduces external uncertainty through forecasting, research and planning in the organization
2. Tt reduces internal uncertainty arising out of variables, unpredictable, random human behaviour within the organization through control mechanisms
3. It undertakes a wide variety of activities through devices such as departmentalization, specialisation, division of labour and delegation of authority
4. It enables organization to keep its activities coordinated and to have a focus in the midst of diversity in the pursuit of its objectives.
Organizational structure must be designed in accordance with the needs of the strategy. Changes in an organization’s strategy give rise to administrative problems which cannot be resolved with the help of the existing structure, thus necessitating a new structure.
7-S framework suggests link between strategy and structure, is an important addition to the organizational tool kit, seldom offers exclusive structural solutions. Quite often the main problem in strategy relates to execution.

System
In the 7 – S framework, system refers to all the rules, regulations, and procedures, both formal and informal that complement the organizational structure. System comprises of production planning and control systems, cost accounting procedures, capital budgeting systems recruitment, training and development system, planning and budgeting systems, performance evaluation systems, etc. Time and again changes in strategy may be employed with some changes in ‘system’ rather than in the organization’s structure. Changes in organizational structure, for instance from functional to divisional or functional to matrix or divisional to matrix would also necessitate changes in the systems in various degrees.
Style
Organizations differ from each other in their styles of working. Style is one of the seven levers which top management can use to bring about organizational change. According to the framework, style of an organization becomes evident through the patterns of actions taken by members of the top management team over a period of time. The McKinsey framework considers ‘Style’ as more than the style of top management. Offering the example of an organisation which acquired another company after a thorough analysis but failed to make it successful. Waterman, et al., contended that the failure was due to the mismatch of corporate culture of the acquired organization with that of the parent. They observe “…The acquisition had failed because it simply wasn’t consistent with the established corporate culture of the parent organization. It didn’t fit their view of themselves. Their will to make it work was absent. Time and again strategic possibilities are blocked – slowed down – by cultural constraints…” In the McKinsey framework, aspects of organizational culture also seem to be encompassed by the term ‘style’.
Staff
In the McKinsey 7 – S framework the term ‘staff’ has a specific connotation. Staff refers to the way organizations introduce young recruits into the mainstream of their activities and the manner in which they manage their careers as the new entrants develop into future managers. They found that superbly performing companies paid attention to the development of managers. Top managers took extraordinary care in moulding the young persons into future managers.
Skills
Waterman, et al., consider ‘skills’ as one of the most critical traits or capabilities of an organization. The term skills comprise those characteristics which most people use to describe a company. Skills in the framework are the distinctive competence. The leading skills or the distinctive competence of an organization are part of the organizational character. Organizations have strengths in a number of areas but their significant strengths or dominant skills are few. These are developed over a period of time and are a result of the interface of a number of factors; performing certain tasks successfully over a period of time, the kind of people in the organization, the top management style, the organization structure, the management systems, the external environmental influences etc. Thus, when organizations make a strategic shift it becomes necessary for them to consciously build new skills.
Structure for Evaluation
Effective implementation of strategy warrants effective systems and structure. Organizational growth can be achieved by executing strategy to improve quality, quantity and being quick, the three Qs. Structure should also aim at improving the three Qs. Organization should also look at improving deployment of resources R1 the 4Ms (money, material, machine and manpower) and R2, the relationships.
Structure, one of the 7S in the McKinsey framework and a hard factor. Structure represents the formal relation within the business divisions and units, the way they are organized and includes the information of who is accountable to whom. In other words, structure is the organizational chart of the firm. It is also one of the most visible and easy to change elements of the framework.
It is necessary that someone is made exclusively responsible for carrying out the operations for effective implementation of strategy. The formal relationship formed through the structure of an organization makes it possible to create responsibility centres.
The responsibility centres should have full autonomy to take operational decisions relevant to their businesses. To an extent the responsibility centres will be restricted in taking decisions relating to functional policies as those decisions will not be within their prerogative. There can be several types of responsibility centres. In an organization which is concerned with profit, there could be profit centre, there could be revenue centres or there could be expense or cost centres.
Profit centre managers have full autonomy to decide their level of sales, margins and production, what to make and what to buy, etc. and are responsible for the profits. Despite being responsible for profit, at times, they do not have authority over financial policies such sources of financing and basic personnel policies of the profit centre. The revenue centre heads are held responsible for making the revenue, within the approved costs and cost centre heads are responsible for a definite level of production or activities.
In the functional structure the only person who can be held responsible for profits is the chief executive, functional heads the very next level below CEO do not have operational jurisdiction over issues related to other functional areas, though they influence profits of the firm. Functional structure of the organizations has revenue and expense centres. The divisional structure empowers the divisions to make the key operational decisions under their jurisdiction. Hence, they can have profit centres for the success of strategy. The structure facilitates keeping of records for managerial accounting, which is very crucial for strategic decisions and strategy assessment, and acquiring or divesting a new product or a business. To implement strategy of growth through expansion or diversification, the most appropriate structure is divisional structure to create profit centres in the form of division. Functional executives can be effectively groomed to be general managers in divisional structure, though it is at the cost of diluting the functional specialisation to some extent. The holding company-subsidiary structure also offers parallel benefits from assessment and control point of view; however, it confines the scope of business portfolio management as different companies may be serving to different businesses.
In the product divisional structure little flexibility is available to the divisions involved in the intermediate stages of production and all of them stand or fall together with changes in environment. Thus, the product divisional structure does not provide any significant advantage for growth through expansion in the same business or through (backward/forward) vertical integration. It may be more appropriate in such cases to make the marketing divisions as revenue centres and production divisions as expense centres. The situation may be different if the intermediate product lines too, have a significant market of their own. In such cases, making all such divisions as profit centres may be advisable.
Evaluation System in A Multi-Business Company
In a multi-business company, inter-business unit transfers of goods and services makes identification of key success factors and their exact trend values a very complex process. One of the reasons for the complexities is the transfers of goods and services within the organization take place at price levels which might suppress the true profitability of the supplying division. In such cases transfer price adjustments are carried out for the purpose of fair evaluation of each unit.
A system of transfer pricing needs to be developed for a multi-product/multi-business company, having several divisions as profit centres, there may be several products/components which are manufactured and sold by one division and at the same time required by others for their product/business. In such cases a system of transfer pricing needs to be developed for transfer of products/components from one division to another, otherwise a situation may arise when two divisions may take decisions which may be against the overall interest of the company. For instance, consider two divisions A and B as profit centres. Division A produces a component which is a monopoly item and can fetch a margin as high as Rs. 30. The component price is say Rs. 100. Division B needs this component for one of its products. However, if it gets it at a price of Rs. 100, it cannot earn any profit on its product. Division A is not prepared to reduce its price to Rs. 85 as it cuts its margin by Rs. 15 to give 10% return on sales to Division B. Division B is left with two options to ensure 10% cut off return for its operations, either to drop the product or invest in facilities. The minimum size of facilities is far in excess of the requirements of the product in Division B, hence it will have to sell in open market.
The prices in that case are likely to fall to Rs. 75 a piece. Division B may also not like to divert its energies to sell the component separately. It will, therefore, decide to drop the product. The actions of Divisions A & B in maintaining profitability of their respective divisions thus lead to loss to the company as a whole on the margin that was available to it on product B, if only Division A had reduced the price a bit.
Similar would be the case if Division A has created capacity to meet the requirements of Division B. However, at a later stage, a situation of glut appears and the other suppliers’ resort to heavy price cutting, and B decides to purchase from open market at a price which A cannot afford to supply without running into losses. The situation may be even more damaging to the company, if the price
reduction by the other supplier was to force some of the manufacturers (like Division A) to close the manufacturing facilities for the component and to rise prices again after the closures. Not only the company as a whole but even Division B will be a loser.
It would be realised that there are two issues involved in situations of transfer pricing. Firstly, the sourcing decision, i.e., whether the product is to be bought/sold by a division internally or externally. In view of profit centres as independent responsibility centres, normally the divisions should be allowed to decide it themselves. But a situation may arise when the intervention of top management may be necessary to give sourcing decisions to ensure that buying/selling by divisions is in the interest of the company. The second question is what should be the (transfer) price for the transfer of goods from one division to another.
It should be remembered that the purpose of transfer pricing is not to encourage inefficient operation by dictating a transfer price that will fetch a profit, but to ensure a fair price to the concerned divisions in the absence of an open and free competitive market price. That unifies the interests of the divisions with the interest of the company. Thus, whenever market place prices are available and when the divisions can meet all their requirements of buying and selling there may be no need of intervention. Indeed, even when these conditions do not prevail, the level of inter-division transfer may not be significant or no intervention may be necessary/ advisable.
Characteristics of an Effective Evaluation Strategy
There are certain basics which should be followed for making the strategic evaluation effective. These characteristics are as follows:
1) The activities of evaluation must be economical.
2) The information should neither be too much nor too little.
3) The control should neither be too much nor too less. It should be balanced.
4) The evaluation activities should relate to the firm’s objectives.
5) It should be designed in such a manner so that a true picture is portrayed.
There can be many more such requirements. Large organizations require a more elaborate system than the smaller ones.

All frameworks have their own advantages and limitations. Thus, we recommend a combination of frameworks to evaluate a strategy. Moreover, for the organization growth we have recommended we have proposed the 3Q = 3S + 2R model.

Each framework offers an insight in to the one of more of 3Q, quality, quantity, and quickness and 2Rs. But no standalone model has been able to provide the answer organizations are looking forward to. We discuss what strategies an organization can employ to improve quality, quantity and quickness, similarly what structures are needed to improve the quality, quantity, and quickness. What structure an organization should build to improve on the 3Qs, and what systems the organization should keep in place the to improve the 3Qs.

The other two factors which will contribute are the relationship and the resource.

Reference:

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