different models used in strategic management..............

1. WHAT IS THE 7-S FRAMEWORK? DESCRIPTION
The 7-S Framework of McKinsey is a management model that describes 7 factors to organize a company in an
holistic and effective way. Together these factors determine the way in which a corporation operates. Managers
should take into account all seven of these factors, to be sure of successful implementation of a strategy. Large or
small. They're all interdependent, so if you fail to pay proper attention to one of them, this may effect all others as
well. On top of that, the relative importance of each factor may vary over time.
ORIGIN OF THE 7-S FRAMEWORK. HISTORY
The 7-S Framework was first mentioned in "The Art Of Japanese Management" by Richard Pascale and Anthony
Athos in 1981. They had been investigating how Japanese industry had been so successful. At around the same
time that Tom Peters and Robert Waterman were exploring what made a company excellent. The Seven S model
was born at a meeting of these four authors in 1978. It appeared also in "In Search of Excellence" by Peters and
Waterman, and was taken up as a basic tool by the global management consultancy company McKinsey. Since then
it is known as their 7-S model.
THE MEANING OF THE 7 SS
Shared Values (also called Superordinate Goals).
The interconnecting center of McKinsey's model is:
Shared Values. What does the organization stands
for and what it believes in. Central beliefs and
attitudes. Compare: Strategic Intent
Strategy
Plans for the allocation of a firms scarce resources,
over time, to reach identified goals. Environment,
competition, customers.
Structure
The way in which the organization's units relate to
each other: centralized, functional divisions (top-
down); decentralized; a matrix, a network, a holding, etc.
Systems
The procedures, processes and routines that characterize how the work should be done: financial systems; recruiting,
promotion and performance appraisal systems; information systems.
Staff
Numbers and types of personnel within the organization.
Style
Cultural style of the organization and how key managers behave in achieving the organization's goals. Compare:
Management Styles.
Skills
Distinctive capabilities of personnel or of the organization as a whole. Compare: Core Competences.
STRENGTHS OF THE 7-S MODEL. BENEFITS
Diagnostic tool for understanding organizations that are ineffective.
Guides organizational change.

2. Combines rational and hard elements with emotional and soft elements.
Managers must act on all Ss in parallel and all Ss are interrelated.
Inside-out strategy. Explanation of Core Competence of Hamel and Prahalad.
The Core Competence model of Hamel and
Prahalad is a corporate strategy model that
starts the strategy process by thinking about
the core strengths of an organization.
INSIDE-OUT CORPORATE STRATEGY
The Outside-in approach (such as the Five
Forces model from Porter) places the
market, the competition, and the customer at
the starting point of the strategy process.
The Core Competence model does the
opposite by stating that in the long run,
competitiveness derives from an ability to
build a Core Competence, at lower cost and
more speedily than competitors. The Core
Competence may result in unanticipated
products. The real sources of advantage are
to be found in management's ability to
consolidate corporate-wide technologies and
production skills into competencies, through
which individual businesses can adapt
quickly to changing circumstances. A Core
Competence can be any combination of
specific, inherent, integrated and applied
knowledge, skills and attitudes.
In their article "The Core Competence of the Corporation" (1990), Prahalad and Gary Hamel dismiss the
portfolio perspective as a viable approach to corporate strategy. In their view, the primacy of the Strategic
Business Unit is now clearly an anachronism. Hamel and Prahalad argue that a corporation should be built
around a core of shared competences. Compare: Horizontal Integration.
Business units must use and help to further develop the CC(s). The corporate center should not be just
another layer of accounting, but must add value by articulating the strategic architecture that guides the
process of competence building.
THREE TESTS FOR IDENTIFYING A CORE COMPETENCE
1. Provides potential access to a wide variety of markets.
2. Makes a significant contribution to the benefits of the product as perceived by the
customer.
3. A CC should be difficult for competitors to imitate.
BUILDING A CORE COMPETENCE
A Core Competence is built through a process of continuous improvement and enhancement (compare:

3. Kaizen). It should constitute the focus for corporate strategy. At this level, the goal is to build world
leadership in the design and development of a particular class of product functionality. Top management can
not be just another layer of accounting, but must add value by articulating the strategic architecture that
guides the process of competence building.
Once top management (with the help of Strategic Business Units managers) have identified an all-
embracing Core Competence, it must ask businesses to identify the projects and the people that are closely
connected with it. Corporate auditors should perform an audit of the location, number, and quality of the
people related to the CC. CC carriers should be brought together frequently to share ideas.
CORE RIGIDITIES?
Care must be taken not to let core competencies develop into core rigidities. A Corporate Competence is
difficult to learn, but is difficult to unlearn as well. Companies that have spared no effort to achieve a
competence, sometimes neglect new market circumstances or demands. They risk to be locked in by
choices that were made in the past.
Portfolio Management based on Market Share and Market Growth.
Explanation of BCG Matrix. ('70)
The BCG Matrix method is the most well-known portfolio management tool. It is based on product life cycle
theory. It was developed in the early 70s by the Boston Consulting Group. The BCG Matrix can be used to
determine what priorities should be given in the product portfolio of a business unit. To ensure long-term value
creation, a company should have a portfolio of products that contains both high-growth products in need of
cash inputs and low-growth products that generate a lot of cash. The Boston Consulting Group Matrix has 2
dimensions: market share and market growth. The basic idea behind it is: if a product has a bigger market
share, or if the product's market grows faster, it is better for the company.

4. THE
FOUR
SEGME
NTS OF
THE
BCG
MATRIX
Placing
products
in the
BCG
matrix
provides
4
categorie
s in a
portfolio
of a
company
:
S
t
a
r
s
(high growth, high market share)
o Stars are using large amounts of cash. Stars are leaders in the business.
Therefore they should also generate large amounts of cash.
o Stars are frequently roughly in balance on net cash flow. However if needed any
attempt should be made to hold your market share in Stars, because the rewards will be
Cash Cows if market share is kept.
Cash Cows (low growth, high market share)
o Profits and cash generation should be high. Because of the low growth,
investments which are needed should be low.
o Cash Cows are often the stars of yesterday and they are the foundation of a
company.
Dogs (low growth, low market share)
o Avoid and minimize the number of Dogs in a company.
o Watch out for expensive ‘rescue plans’.
o Dogs must deliver cash, otherwise they must be liquidated.
Question Marks (high growth, low market share)
o Question Marks have the worst cash characteristics of all, because they have high
cash demands and generate low returns, because of their low market share.
o If the market share remains unchanged, Question Marks will simply absorb great
amounts of cash.
o Either invest heavily, or sell off, or invest nothing and generate any cash that you
can. Increase market share or deliver cash.
THE BCG MATRIX AND ONE SIZE FITS ALL STRATEGIES

5. The BCG Matrix method can help to understand a frequently made strategy mistake: having a one size fits all
strategy approach, such as a generic growth target (9 percent per year) or a generic return on capital of say
9,5% for an entire corporation.
In such a scenario:
Cash Cows Business Units will reach their profit target easily. Their management have an
easy job. The executives are often praised anyhow. Even worse, they are often allowed to reinvest
substantial cash amounts in their mature businesses.
Dogs Business Units are fighting an impossible battle and, even worse, now and then
investments are made. These are hopeless attempts to "turn the business around".
As a result all Question Marks and Stars receive only mediocre investment funds. In this
way they can never become Cash Cows. These inadequate invested sums of money are a waste of
money. Either these SBUs should receive enough investment funds to enable them to achieve a
real market dominance and become Cash Cows (or Stars), or otherwise companies are advised to
disinvest. They can then try to get any possible cash from the Question Marks that were not
selected.
OTHER USES AND BENEFITS OF THE BCG MATRIX
If a company is able to use the experience curve to its advantage, it should be able to
manufacture and sell new products at a price that is low enough to get early market share
leadership. Once it becomes a star, it is destined to be profitable.
BCG model is helpful for managers to evaluate balance in the firm’s current portfolio of
Stars, Cash Cows, Question Marks and Dogs.
BCG method is applicable to large companies that seek volume and experience effects.
The model is simple and easy to understand.
It provides a base for management to decide and prepare for future actions.
LIMITATIONS OF THE BCG MATRIX
Some limitations of the Boston Consulting Group Matrix include:
It neglects the effects of synergy between business units.
High market share is not the only success factor.
Market growth is not the only indicator for attractiveness of a market.
Sometimes Dogs can earn even more cash as Cash Cows.
The problems of getting data on the market share and market growth.
There is no clear definition of what constitutes a "market".
A high market share does not necessarily lead to profitability all the time.
The model uses only two dimensions – market share and growth rate. This may tempt
management to emphasize a particular product, or to divest prematurely.
A business with a low market share can be profitable too.
The model neglects small competitors that have fast growing market shares.
Measuring corporate reputation by capturing the perceptions of stakeholder
groups. Explanation of Corporate Reputation Quotient of Harris-Fombrun.
The Corporate Reputation Quotient of Harris-Fombrun is a comprehensive measuring method of corporate
reputation that was created specifically to capture the perceptions of any corporate stakeholder group such as
consumers, investors, employees, or key influencers. The instrument enables research on the drivers of a

6. company's reputation, and allows to compare reputations both within and across industries.
SIX DRIVERS OF THE CORPORATE REPUTATION QUOTIENT
This business reputation model has the following 6 drivers of corporate reputation with subsequent 20
attributes:
Emotional Appeal Workplace Environment
- good feeling about the company - is well managed
- admire and respect the company - appears to be a good company to work for
- trust the company - appears to have good employees
Products and Services Financial Performance
- company believes in its products and services - history of profitability
- company offers high quality products and services - appears a low risk investment
- develops innovative products and services - strong prospects for future growth
- offers products and services that are good value - tends to outperform its competitors
Vision and Leadership Social Responsibility
- has excellent leadership - supports good causes
- has a clear vision for the future - environmentally responsible
- recognizes and takes advantage of market opportunities - treats people well
Making random checks, these criteria taken together result in lists of most reputable and/or visible companies
The basis of performing above-average within an industry. Explanation of
Competitive Advantage of Michael Porter.
According to the
Competitive Advantage
model of Porter, a
competitive strategy
takes offensive or
defensive action to
create a defendable
position in an industry,
in order to cope
successfully with
competitive forces and
generate a superior
Return on Investment.
According to Michael
Porter, the basis of
above-average
performance within an
industry is sustainable
competitive advantage.
2 BASIC TYPES OF COMPETITIVE ADVANTAGE
1. Cost Leadership (low cost)

7. 2. Differentiation
Both can be more broadly approached or narrow, which results in the third viable competitive strategy:
3. Focus
COMPETITIVE ADVANTAGE TYPE 1: COST LEADERSHIP
Achieving Cost Leadership means that a firm sets out to become the low cost producer in
its industry.
A cost leader must achieve parity or at least proximity in the bases of differentiation, even
though it relies on cost leadership for its competitive advantage.
If more than one company try to achieve Cost Leadership, this is usually disastrous.
Often achieved by economies of scale.
COMPETITIVE ADVANTAGE TYPE 2: DIFFERENTIATION
Achieving of Differentiation means that a firm seeks to be unique in its industry along some
dimensions that are widely appreciated by buyers.
A differentiator can not ignore its cost position. In all areas that do not affect its
differentiation it should try to decrease cost; in the differentiation area the costs should at least be
lower than the price premium it receives from the buyers.
Areas of differentiation can be: product, distribution, sales, marketing, service, image, etc.
COMPETITIVE ADVANTAGE TYPE 3: FOCUS
Achieving Focus means that a firm sets out to be best in a segment or group of segments.
2 variants: Cost Focus and Differentiation Focus.
STUCK IN THE MIDDLE
This is usually a recipe for below-average profitability compared to the industry.
Still, attractive profits are possible if and as long as the industry as a whole is very
attractive.
Manifestation of lack of choice.
Especially dangerous for Focusers that have been successful, and then start neglecting
their focus. They must seek other Focus niches. Rather then compromise their focus strategy.
OVERVIEW OF THE BOOK "COMPETITIVE STRATEGY"
In Part I, Porter discusses the structural analysis of industries (with the five forces), the
three generic competitive strategies (overall Cost Leadership, Focus, and Differentiation), offering
an excellent framework for competitor analysis, competitive moves, strategy toward buyers and
suppliers, structural analysis within industries (strategic groups, strategic mapping, mobility
barriers), and industry evolution (life cycle, evolutionary processes).
In Part II, Porter discusses competitive strategy within various generic industry
environments. Such as: fragmented industries (with no real market leader), emerging industries,
mature industries, declining industries, and global industries.
In Part III, Porter discusses strategic decisions which businesses/firms can take. Such as:
vertical integration (forward, backward, partnerships), capacity expansion, and entry into new
industries/businesses.
Outside-in Business Strategy. Explanation of Five Competitive Forces of
Michael Porter.

8. WHAT IS THE FIVE
FORCES MODEL OF
PORTER?
DESCRIPTION
The Five Forces model
of Porter is an Outside-in
business unit strategy
tool that is used to make
an analysis of the
attractiveness (value) of
an industry structure.
The Competitive Forces
analysis is made by the
identification of 5
fundamental competitive
forces:
1. Entry of competitors. How easy or difficult is it for new entrants to start competing, which barriers
do exist.
2. Threat of substitutes. How easy can a product or service be substituted, especially made
cheaper.
3. Bargaining power of buyers. How strong is the position of buyers. Can they work together
in ordering large volumes.
4. Bargaining power of suppliers. How strong is the position of sellers. Do many potential
suppliers exist or only few potential suppliers, monopoly?
5. Rivalry among the existing players. Does a strong competition between the existing
players exist? Is one player very dominant or are all equal in strength and size.
Sometimes a sixth competitive force is added:
6. Government.
Porter's Competitive Forces model is probably one of the most often used business strategy tools. It has
proven its usefulness on numerous occasions. Porter's model is particularly strong in thinking Outside-in.
THREAT OF NEW ENTRANTS DEPENDS ON:
Economies of scale.
Capital / investment requirements.
Customer switching costs.
Access to industry distribution channels.
Access to technology.
Brand loyalty. Are customers loyal?
The likelihood of retaliation from existing industry players.
Government regulations. Can new entrants get subsidies?
THREAT OF SUBSTITUTES DEPENDS ON:
Quality. Is a substitute better?
Buyers' willingness to substitute.
The relative price and performance of substitutes.
The costs of switching to substitutes. Is it easy to change to another product?

9. BARGAINING POWER OF SUPPLIERS DEPENDS ON:
Concentration of suppliers. Are there many buyers and few dominant suppliers? Compare:
Kraljic Model.
Branding. Is the brand of the supplier strong?
Profitability of suppliers. Are suppliers forced to raise prices?
Suppliers threaten to integrate forward into the industry (for example: brand manufacturers
threatening to set up their own retail outlets).
Buyers do not threaten to integrate backwards into supply.
Role of quality and service.
The industry is not a key customer group to the suppliers.
Switching costs. Is it easy for suppliers to find new customers?
BARGAINING POWER OF BUYERS DEPENDS ON:
Concentration of buyers. Are there a few dominant buyers and many sellers in the industry?
Differentiation. Are products standardized?
Profitability of buyers. Are buyers forced to be tough?
Role of quality and service.
Threat of backward and forward integration into the industry.
Switching costs. Is it easy for buyers to switch their supplier?
INTENSITY OF RIVALRY DEPENDS ON:
The structure of competition. Rivalry will be more intense if there are lots of small or equally
sized competitors; rivalry will be less if an industry has a clear market leader.
The structure of industry costs. Industries with high fixed costs encourage competitors to
manufacture at full capacity by cutting prices if needed.
Degree of product differentiation. Industries where products are commodities (e.g. steel,
coal) typically have greater rivalry.
Switching costs. Rivalry is reduced when buyers have high switching costs.
Strategic objectives. If competitors pursue aggressive growth strategies, rivalry will be more
intense. If competitors are merely "milking" profits in a mature industry, the degree of rivalry is
typically low.
Exit barriers. When barriers to leaving an industry are high, competitors tend to exhibit
greater rivalry.
STRENGTHS OF THE FIVE COMPETITIVE FORCES MODEL. BENEFITS
The model is a strong tool for competitive analysis at industry level. Compare: PEST
Analysis
It provides useful input for performing a SWOT Analysis.
LIMITATION OF PORTER'S FIVE FORCES MODEL
Care should be taken when using this model for the following: do not underestimate or
underemphasize the importance of the (existing) strengths of the organization (Inside-out
strategy). See: Core Competence
The model was designed for analyzing individual business strategies. It does not cope with
synergies and interdependencies within the portfolio of large corporations. See: Parenting
Advantage
From a more theoretical perspective, the model does not address the possibility that an
industry could be attractive because certain companies are in it.
Some people claim that environments which are characterized by rapid, systemic and

10. radical change require more flexible, dynamic or emergent approaches to strategy formulation. See:
Disruptive Innovation
Sometimes it may be possible to create completely new markets instead of selecting from
existing ones. See: Blue Ocean Strategy
OVERVIEW OF THE BOOK "COMPETITIVE STRATEGY"
In Part I, Porter discusses the structural analysis of industries (with the five forces), the
three generic competitive strategies (overall Cost Leadership, Focus, and Differentiation), offering
an excellent framework for competitor analysis, competitive moves, strategy toward buyers and
suppliers, structural analysis within industries (strategic groups, strategic mapping, mobility
barriers), and industry evolution (life cycle, evolutionary processes).
In Part II, Porter discusses competitive strategy within various generic industry
environments. Such as: fragmented industries (with no real market leader), emerging industries,
mature industries, declining industries, and global industries.
In Part III, Porter discusses strategic decisions which businesses/firms can take. Such as:
vertical integration (forward, backward, partnerships), capacity expansion, and entry into new
industries/businesses.

11. Analyse activities through which firms can create value. Explanation of Value
Chain Framework of Michael Porter. ('85)
The Value Chain framework of Michael Porter is a model that helps to analyze specific activities through
which firms can create value and competitive advantage.
THE ACTIVITIES
OF THE VALUE
CHAIN
P
rimary
activities
(line
functions)
o I
n
b
o
u
n
d
L
o
g
i
s
t
ics. Includes receiving, storing, inventory control, transportation planning.
o Operations. Includes machining, packaging, assembly, equipment maintenance,
testing and all other value-creating activities that transform the inputs into the final
product.
o Outbound Logistics. The activities required to get the finished product at the
customers: warehousing, order fulfillment, transportation, distribution management.
o Marketing and Sales. The activities associated with getting buyers to purchase
the product, including: channel selection, advertising, promotion, selling, pricing, retail
management, etc.
o Service. The activities that maintain and enhance the product's value, including:
customer support, repair services, installation, training, spare parts management,
upgrading, etc.
Support activities (Staff functions, overhead)
o Procurement. Procurement of raw materials, servicing, spare parts, buildings,
machines, etc.
o Technology Development. Includes technology development to support the value
chain activities. Such as: Research and Development, Process automation, design,
redesign.
o Human Resource Management. The activities associated with recruiting,

12. development (education), retention and compensation of employees and managers.
o Firm Infrastructure. Includes general management, planning management, legal,
finance, accounting, public affairs, quality management, etc.
CREATING A COST ADVANTAGE BASED ON THE VALUE CHAIN
A firm may create a cost advantage:
by reducing the cost of individual value chain activities, or
by reconfiguring the value chain.
Note that a cost advantage can be created by reducing the costs of the primary activities, but also by reducing
the costs of the support activities. Recently there have been many companies that achieved a cost advantage
by the clever use of Information Technology.
Once the value chain has been defined, a cost analysis can be performed by assigning costs to the value
chain activities. Porter identified 10 cost drivers related to value chain activities:
1. Economies of scale.
2. Learning.
3. Capacity utilization.
4. Linkages among activities.
5. Interrelationships among business units.
6. Degree of vertical integration.
7. Timing of market entry.
8. Firm's policy of cost or differentiation.
9. Geographic location.
10. Institutional factors (regulation, union activity, taxes, etc.).
A firm develops a cost advantage by controlling these drivers better than its competitors do. A cost advantage
also can be pursued by "Reconfiguring" the value chain. "Reconfiguration" means structural changes such as:
a new production process, new distribution channels, or a different sales approach.
Normally, the Value Chain of a company is connected to other Value Chains and is part of a larger Value
Chain. Developing a competitive advantage also depends on how efficiently you can analyze and manage the
entire Value Chain. This idea is called: Supply Chain Management. Some people argue that network is
actually a better word to describe the physical form of Value Chains: Value Networks.
Alleviate world poverty. Do not treat the poor as victims or as a burden.
Explanation of Bottom of the Pyramid of C.K. Prahalad. ('02, '05)

13. WHAT IS THE
BOTTOM OF THE
PYRAMID?
DESCRIPTION
The bottom of the
(economic) pyramid
consists of the 4 billion
people living on less
than $2 per day. For
more than 50 years, the
World Bank, donor
nations, various aid
agencies, national
governments, and,
lately, civil society
organizations have all
done their best, but
they were unable to
eradicate poverty.
Aware of this frustrating fact, C.K. Prahalad begins his book: "The Fortune at the Bottom of the Pyramid" with
a simple yet revolutionary proposition: If we stop thinking of the poor as victims or as a burden and start
recognizing them as resilient and creative entrepreneurs and value-conscious consumers, a whole new world
of opportunity will open up.
Prahalad suggests that four billion poor can be the engine of the next round of global trade and prosperity,
and can be a source of innovations. Serving the Bottom of the Pyramid customers requires that large firms
work collaboratively with civil society organizations and local governments. Furthermore, market development
at the Bottom of the Pyramid will also create millions of new entrepreneurs at the grass roots level.
Prahalad presents his new view regarding solving the problem of poverty as a Co-Creation solution towards
economic development and social transformation (figure), of which the parties involved are:
Private enterprises
Development and aid agencies
Bottom of the Pyramid consumers
Bottom of the Pyramid entrepreneurs
Civil society organizations and local government
12 PRINCIPLES OF INNOVATION FOR BOTTOM OF THE PYRAMID MARKETS
Prahalad provides the following building blocks for creating products and services for Bottom of the Pyramid
markets:
1. Focus on (quantum jumps in) price performance.
2. Hybrid solutions, blending old and new technology.
3. Scaleable and transportable operations across countries, cultures and languages.
4. Reduced resource intensity: eco-friendly products.
5. Radical product redesign from the beginning: marginal changes to existing Western
products will not work.
6. Build logistical and manufacturing infrastructure.
7. Deskill (services) work.
8. Educate (semiliterate) customers in product usage.

14. 9. Products must work in hostile environments: noise, dust, unsanitary conditions, abuse,
electric blackouts, water pollution.
10. Adaptable user interface to heterogeneous consumer bases.
11. Distribution methods should be designed to reach both highly dispersed rural markets
and highly dense urban markets.
12. Focus on broad architecture, enabling quick and easy incorporation of new features.
ORIGIN OF THE BOTTOM OF THE PYRAMID. HISTORY
Before his 2005 book, Prahalad published two articles regarding this framework about alleviating poverty:
Jan 2002: The Fortune at the Bottom of the Pyramid (Strategy+Business), with Stu Hart
Sep 2002: Serve the World's Poor, Profitable (Harvard Business Review), with Allen
Hammond
USAGE OF THE BOTTOM OF THE PYRAMID. APPLICATIONS
This framework provides an impetus for a more active involvement of the private sector in
building the marketing ecosystems for transforming the Bottom of the Pyramid.
Helps to reconsider and change long held beliefs, assumptions and ideologies.
Provides clues on developing products and services for Bottom of the Pyramid consumers.
STRENGTHS OF BOTTOM OF THE PYRAMID THINKING. BENEFITS
The biggest strengths of the Bottom of the Pyramid approach by Prahalad is, that it helps to reconsider and
change long held beliefs, assumptions, and ideologies, which are all based on and are supporting victim- and
burden thinking:
There is money at the Bottom of the Pyramid: it is a viable market.
Access to Bottom of the Pyramid markets is not necessarily difficult. Unconventional
approaches such as the Avon ladies approach may work.
The poor are very brand-conscious.
The Bottom of the Pyramid market has been connected (mobile phones, TV, Internet).
Bottom of the Pyramid consumers are very much open towards advanced technology.
ASSUMPTIONS OF THE BOTTOM OF THE PYRAMID. CONDITIONS
1. The poor can not participate in the benefits of globalization without an active involvement of
the private sector and without access to products and services that represent global quality
standards.
2. The Bottom of the Pyramid market provides a new growth opportunity for the private sector
and a forum for innovations. Old and tried solutions cannot create markets at the Bottom of the
Pyramid.
3. Bottom of the Pyramid markets must become an integral part of the work and of the core
business of the private sector. Bottom of the Pyramid markets can not merely be left to the realm of
Corporate Social Responsibility (CSR) initiatives.