Business Strategy

Strategic management is the continuous process of analysing the internal and external environment, formulating a vision, mission and objectives, choosing strategies, implementing them and evaluating results so that the organization achieves and sustains competitive advantage and long-term performance.

A retrenchment strategy is a defensive corporate strategy in which a firm reduces the scale or scope of its operations to cut costs and recover from poor performance. It includes turnaround, divestment (selling off a unit) and liquidation.

A strategic decision is a major, long-term decision taken by top management that commits significant resources, sets the overall direction of the organization and affects its relationship with the environment, for example entering a new market, merging with a rival or launching a new product line.

The Value Net (Brandenburger and Nalebuff) is a game-theory based map of an organization's business environment showing four players: customers, suppliers, competitors and complementors. Interactions among them may be competitive or cooperative, and the model helps a firm see how to create and capture value. A complementor is a player whose product makes the firm's product more valuable to customers.

Vision statement (sample, for a Nepali commercial bank): "To be the most trusted and customer-friendly financial institution in Nepal, empowering every household and enterprise to prosper."

A good vision is short, inspiring, future-oriented and realistic.

Techniques of comparative analysis include:

• Benchmarking
• Historical (trend) analysis
• Industry (competitor) analysis
• Ratio analysis against industry averages
• Value chain comparison
• SWOT comparison with rivals

Portfolio analysis is a technique used by a diversified firm to evaluate its various business units or products, using tools such as the BCG matrix and GE matrix, on criteria like market growth and market share or industry attractiveness and business strength. It helps management decide where to invest, hold, harvest or divest.

Threshold resources are the basic resources and capabilities needed just to compete in a market (for example a plant, standard technology, trained staff); they give no lasting advantage because rivals have them too.

Unique resources are rare, valuable and hard-to-imitate resources (for example a patent, brand reputation or exclusive know-how) that give a sustainable competitive advantage.

Features of a strategic group:

• Firms within it follow similar strategies (pricing, quality, distribution, scope).
• They have similar resources and cost structures.
• They compete most directly with each other.
• Mobility barriers protect the group from firms in other groups.
• Firms in the group respond to the environment in similar ways.

• PESTLG: Political, Economic, Social, Technological, Legal, Global (environmental) factors.
• RBV: Resource-Based View.

Strategy is the pattern of choices that determines what a firm does, for whom, and how it does it better than rivals. If every firm did the same things in the same way, none would earn above-average returns; strategy is therefore about being different and making that difference valuable.

How strategy shows difference

• Positioning: A firm chooses a distinct market position (low cost, differentiation or focus), for example Unilever for mass-market FMCG and a boutique brand for premium customers.
• Activities: As Porter argues, strategy means performing different activities, or the same activities differently, from rivals, as in a bank that relies on digital channels while competitors rely on branches.
• Resources and capabilities: Unique, hard-to-copy assets such as brand, technology or know-how make the firm's offer distinct.
• Trade-offs: A strategy states what the firm will not do, so it avoids being "all things to all people".
• Fit: Activities reinforce each other, so rivals find the whole system hard to imitate.

Result

Distinctiveness gives customers a reason to choose the firm, supports premium prices or lower costs, and builds sustainable competitive advantage. A firm that merely copies competitors (operational effectiveness only) competes on price and earns thin margins. Hence the statement is correct: a firm's strategy shows how it differs from its competitors.

Environmental analysis (scanning) is the study of external forces so that a firm can identify what it can exploit and what it must guard against. Opportunities and threats come from outside the firm, so this analysis is the main source of the O and T in a SWOT.

How it helps

• Macro environment (PESTLG): Reveals favourable trends such as economic growth, a young population, digital adoption or a supportive policy (opportunities), and adverse ones such as inflation, new regulation, political instability or currency risk (threats).
• Industry environment (Porter's Five Forces): Shows the intensity of rivalry, threat of new entrants and substitutes, and the bargaining power of buyers and suppliers, which tells whether the industry is attractive and where threats lie.
• Competitor analysis: Reveals rivals' strengths, weaknesses and likely moves, exposing gaps (opportunities) and competitive moves (threats).
• Market and customer analysis: Highlights unmet needs, new segments and changes in tastes.
• Forecasting and scenario planning: Anticipates future changes so the firm can act early.

Outcome

Management matches its strengths to opportunities, builds defences against threats, sets realistic objectives, and chooses strategies that fit the environment. Without it, a firm risks being surprised by change.

Acceptability is the extent to which a strategic alternative meets the expectations of stakeholders (shareholders, employees, customers, government, community) in terms of returns, risk and consequences. A strategy may be suitable and feasible but still be rejected if stakeholders do not accept it.

Methods of acceptability screening

1. Financial analysis (return): Estimate ROI, NPV, IRR, payback, EPS, and the effect on the share price and cash flow. A strategy that does not give the required return is unacceptable.
2. Risk analysis: Examine the level of financial and business risk by sensitivity analysis, scenario or break-even analysis, and the effect on gearing and liquidity.
3. Stakeholder analysis: Assess how each stakeholder group (owners, lenders, employees, customers, government) will react, using a power/interest map.
4. Cost-benefit and social acceptability: Weigh social and environmental impact, legal and ethical consequences.
5. Shareholder value analysis and "what-if" simulation: Test how each alternative changes shareholder value under different assumptions.

An alternative that passes suitability, acceptability and feasibility is selected.

Strategic change is a major shift in strategy, structure, systems or culture. Strategic leadership (the CEO and top team) is the main driver because change meets resistance and needs direction.

Role of strategic leadership

• Creating a vision and urgency: Leaders explain why change is needed and describe the desired future, building a shared purpose.
• Building a guiding coalition: Support from senior managers and change champions gives the change credibility.
• Aligning structure and systems: They redesign structure, processes, budgets, reward and information systems to fit the new strategy.
• Managing culture: They reshape values and behaviour through role-modelling, symbols and stories.
• Developing people: They train, empower and recruit people with the needed skills, and reduce resistance through participation, communication and negotiation.
• Allocating resources: They commit money, people and time to priority initiatives.
• Managing the process: They set milestones, deliver quick wins and monitor progress with strategic control, adjusting as needed.
• Embedding the change: They institutionalise new practices so that people do not revert to old ways (Kotter's final step).

Thus strategic leaders act as visionaries, communicators, change agents and controllers, so that change is accepted and sustained.

Both matrices are portfolio tools for allocating resources among strategic business units (SBUs), but they differ in depth.

Conclusion: BCG is simple and highlights cash flows, while GE is more comprehensive and flexible, and suits diversified firms with varied businesses.

The resource-based view (RBV) (Wernerfelt, Barney) holds that a firm's sustainable competitive advantage comes mainly from its internal resources and capabilities rather than from its industry position. Resources are tangible (plant, finance), intangible (brand, patents, reputation) and human; capabilities are the ability to combine them.

VRIO test (Barney): a resource gives sustained advantage if it is Valuable, Rare, hard to Imitate, and the firm is Organised to exploit it. Resources that are only valuable give parity; valuable and rare give temporary advantage; all four give sustained advantage.

Strengths

• Focuses on internal sources of advantage and explains why firms in the same industry perform differently.
• Gives a practical guide to resource development and investment.
• Complements industry-based models such as Porter's.

Criticisms

• It is somewhat tautological: valuable resources are defined by their value to the firm.
• It is vague about what counts as a resource and hard to measure.
• It pays little attention to the external environment and to market change; resources may become obsolete (for example, core rigidities).
• Rare and inimitable resources are difficult to identify and may be only partly controllable.
• It says little about how resources are developed over time (addressed by dynamic capabilities).

Conclusion: RBV is a valuable lens, but it must be combined with external analysis and dynamic capabilities for sound strategy.

(a) Main issues raised in the case

• City Hospital is a new entrant in a market with strong, established rivals (Chirayu, Grande, Green City, Teaching Hospital, Om, National Medicare, HAMS), so competition is intense.
• A central location gives convenience but also puts it right beside competitors, giving it low brand awareness and credibility.
• It must pick a clear positioning: many services (ENT, paediatric, surgery, cardiology and others) against a focus on diabetes and thyroid patients.
• It needs to deliver customised and home-based services, which requires investment, trained staff and operating systems.
• It must attract patients, doctors and specialists while still unproven, and win trust in a service where quality is critical.

(b) SWOT analysis

(c) Differentiation strategies

1. Service differentiation: Make diabetes and thyroid care the signature specialty, with integrated clinics, dietician and regular follow-up.
2. Convenience: Home sample collection, home lab, tele-consultation and one-call or e-mail appointment, with minimal queues.
3. Personalisation: Customised treatment plans, health records and reminders for patients.
4. Quality and people: Recruit reputed specialists, train staff for courteous service and use modern diagnostic equipment.
5. Brand and trust: Promote through health camps, awareness programmes, partnerships with corporates and insurers, and testimonials.
6. Value pricing: Package pricing and membership plans for chronic patients.

(d) Suitable organisational structure

A divisional (product-line) structure combined with a matrix element suits the hospital. Clinical divisions or centres of excellence (such as the Diabetes and Thyroid Centre, Surgery, Cardiology) can each have specialised teams and accountability, while shared functions (lab, home service, finance, marketing, HR) serve all divisions. A flat hierarchy with a small top team would support quick decisions and customer responsiveness. As the hospital is new, it can begin with a simple functional structure and move to divisional when it grows.

Approaches to strategy include:

• Classical (rational planning) approach
• Evolutionary approach
• Processual approach
• Systemic approach
• Emergent (incremental/logical incrementalism) approach
• Deliberate (planned) approach

Two operational objectives:

1. Reduce the order-processing time by 20% within the next fiscal year.
2. Cut the defect rate in production to below 2% within six months.

Strategic vision is a clear, inspiring picture of what the organization wants to become in the long run. It gives direction to management and employees, expresses aspirations and guides the choice of mission, objectives and strategies.

Two sources of competitive advantage:

1. Cost leadership, achieved through economies of scale and efficient operations that allow lower prices.
2. Differentiation, achieved through unique product quality, brand, technology or customer service that customers value.

Scenario planning is a technique in which managers build several plausible pictures of how the future environment may unfold (for example optimistic, pessimistic and most likely) and prepare strategies for each. It helps organizations deal with uncertainty and respond quickly to change.

In the BCG-style symbolism linked to the life cycle, the growth stage is symbolised by the star (high growth, high share) and the maturity stage by the cash cow (low growth, high share, generating cash).

In the strategy selection process, portfolio analysis helps a multi-business firm compare its business units, using matrices such as BCG and GE, to decide the corporate strategy for each unit: grow (invest in stars and question marks), maintain (cash cows) or retrench/divest (dogs). It thus guides allocation of limited resources among the businesses and supports choosing among strategic alternatives.

Three core characteristics of the holding company structure:

1. A parent company owns controlling shares in several independent subsidiaries.
2. Subsidiaries operate with a high degree of autonomy and have their own management.
3. The parent exercises control mainly through ownership, financial monitoring and board representation rather than day-to-day operations, and risk is separated across units.

Strategic control is the process of monitoring and evaluating the implementation of strategy and the environment to ensure that the strategy is achieving the intended objectives, and taking corrective action or revising the strategy when assumptions, performance or conditions change.

Yes, I agree with this statement, as the central purpose of strategic management is to gain a competitive advantage and then sustain it.

Justification

• Gaining advantage: Through environmental and internal analysis, a firm identifies opportunities and its distinctive strengths, then formulates strategies (cost leadership, differentiation, focus) that give it an edge over rivals, for example Unilever's wide distribution reach or a bank's digital services.
• Maintaining advantage: Advantage is eroded by imitation, new entrants, technology and changing tastes. Strategic management therefore requires continuous implementation, monitoring and adjustment: building resources that are rare and hard to imitate, innovating, and strengthening capabilities (VRIO, dynamic capabilities).
• Sustained performance: A sustained advantage leads to above-average profit, market share and long-term survival.
• The process itself: Vision, objectives, strategy choice, implementation and control are all designed to align the firm with its environment so that its edge persists.

Qualification: Strategic management also covers other aims such as long-term direction, stakeholder expectations and social responsibility, but these support the central goal of competitive advantage. Hence the statement is largely correct.

Porter's Five Forces applied to banking in Nepal:

1. Rivalry among existing competitors (high): Nepal has many commercial banks, development banks and finance companies, with similar products and a limited market. Competition is on interest rates, fees and technology, which squeezes spreads. Mergers have reduced the number but rivalry stays intense.
2. Threat of new entrants (low to moderate): Nepal Rastra Bank licensing, high minimum capital and regulatory requirements limit new banks. Digital entrants such as wallets, fintech and payment service providers (eSewa, Khalti) are a growing threat.
3. Threat of substitutes (moderate to high): Digital wallets, remittance companies, cooperatives, microfinance institutions, informal lenders and capital-market instruments substitute for some bank services.
4. Bargaining power of buyers (moderate to high): Depositors and borrowers can easily switch banks as products are standardised and switching costs are low. Large corporate clients negotiate rates strongly.
5. Bargaining power of suppliers (moderate): Suppliers are depositors, shareholders, employees and technology vendors. Depositors have power when liquidity is tight, skilled staff are mobile, and core-banking vendors have some power.

Conclusion: The industry is moderately attractive but highly competitive. Banks should differentiate through digital services, customer service, rural reach and niche segments, and manage costs and risk.

A sustainable competitive organisation is one whose advantage over rivals lasts over time and cannot be quickly copied. Its key components are:

1. Strategic vision and leadership: Clear direction and committed top management who guide the firm.
2. Unique resources and capabilities: Valuable, rare, inimitable and non-substitutable resources (VRIO) such as brand, technology, patents and know-how.
3. Core competencies: Skills the whole organisation does exceptionally well, which rivals find hard to copy.
4. Appropriate strategy: A clear competitive position (cost, differentiation or focus) that fits the environment.
5. Innovation and learning: Constant product, process and business-model innovation, and a learning culture, to stay ahead of imitators.
6. Effective structure, systems and culture: Structure that supports the strategy, with strong processes, incentives and shared values.
7. Skilled and motivated people: Human capital that is hard to replicate.
8. Customer focus and relationships: Superior value, loyalty and brand reputation.
9. Financial strength and flexibility: Funds to invest and withstand shocks.
10. Strategic control and adaptability: Continuous scanning and adjustment to environmental change, with social and ethical responsibility.

A growth strategy is a corporate strategy by which a firm seeks to increase its sales, profit, market share or scale of operations beyond its present level, through intensification, integration, diversification or by mergers, acquisitions and alliances.

Conditions for adopting growth strategies

• Growing market: The industry or market is expanding and there are untapped customers or segments.
• Strong internal capability: The firm has sufficient financial, managerial and technological resources, and strong core competencies.
• Competitive pressure: Competitors are growing, and the firm must grow to avoid losing share and to benefit from economies of scale and experience.
• Opportunities from the environment: Favourable economic conditions, policies, technology or changing consumer tastes.
• Top management's ambition: Stakeholders and managers desire greater size, prestige and returns.
• Synergy and strategic fit: Possibility of synergies through acquisition, integration or diversification.
• Saturated or risky core business: Where current business is mature or risky, diversification spreads risk.
• Need to build entry barriers or secure inputs and distribution: This calls for vertical integration.

The GE (General Electric-McKinsey) matrix is a nine-cell portfolio tool that rates each business unit on industry attractiveness (market size, growth, profitability, competition, regulation) and business unit strength (market share, brand, technology, cost position, management). The results fall into three zones: invest/grow (high-high), selectivity/hold (middle diagonal), and harvest/divest (low-low).

Practical applications

1. Resource allocation: A diversified company decides which units get capital, for example investing in strong units in attractive markets.
2. Strategy selection for each SBU: Choose to build, hold, harvest or divest.
3. Portfolio balance: Check that the firm has not too many weak units and is not dependent on a single one.
4. Acquisition and divestment decisions: Identify attractive targets or units to sell.
5. Performance review and planning: Compare units and track movement over time.

Examples

• A conglomerate such as Chaudhary Group might place its noodle and consumer-goods business (strong share, attractive market) in the invest zone, a moderately placed hotel unit in the selectivity zone, and a declining low-share unit in the harvest or divest zone.
• A bank with a strong digital-banking arm in a fast-growing market would invest in it, while keeping a mature branch business in "hold" and closing unprofitable branches.
• General Electric itself used the matrix to divest weak appliance units and invest in high-potential ones.

Strategy implementation turns plans into action, and several barriers can obstruct it:

1. Lack of leadership commitment and clarity: Unclear direction or weak top-management support.
2. Poor communication: Employees do not understand the strategy or their role in it.
3. Resistance to change: Fear, habit and loss of power or status lead people to oppose change.
4. Misfit of structure and systems: Structure, processes, budgets and information systems not aligned with the new strategy.
5. Culture conflict: Existing values and norms clash with the strategy.
6. Inadequate resources: Shortage of funds, skills, time or technology.
7. Weak planning and short-term focus: No clear action plans, milestones, responsibility or reward linked to the strategy; the day-to-day crowds out long-term goals.
8. Poor control and feedback: No system to track progress and correct deviations.
9. Unrealistic strategy and poor coordination: The strategy was not feasible, or departments do not coordinate.
10. External factors: Political instability, regulation and market changes.

(a) Vision, mission and goals

• Vision: "To be Nepal's most trusted and accessible provider of everyday personal and home care products, improving the daily lives of every household."
• Mission: "To offer high-quality, affordable products to customers in every income group across Nepal, through wide distribution, local partnerships, consumer education and a talented, empowered workforce, while creating value for shareholders and society."
• Goals: Retain at least 60 percent market share; maintain the highest dividend payout among NEPSE-listed companies; extend distribution to all rural markets and grocery stores; expand local sourcing and entrepreneur development programmes; maintain employee satisfaction and attract top graduates.

(b) Scan of the business environment

• Political and legal: Government policy encouraging local industry, import and tax rules, consumer protection and labour laws; political instability.
• Economic: Growing consumption, rising rural incomes, inflation and currency effects on imported inputs, and price-sensitive customers.
• Social: A young population, growing hygiene awareness, a large rural market and a preference for small packs.
• Technological: Digital marketing, e-commerce and supply-chain technology.
• Environmental: Sustainability expectations and packaging waste.
• Industry (Five Forces): Rivalry from Nepali and imported brands (including Indian ones) is high; buyers have low switching cost; suppliers are the local outsourced producers; the threat of new entrants and substitutes is moderate.
• Internal strengths: Market leadership, a wide distribution network, strong profitability, global brand and know-how, and decentralised culture. Weaknesses: Dependence on outsourcing and on a few categories.

(c) Corporate and business strategies for the next couple of years

• Corporate strategy: Stability and selective growth: market penetration, product development (new variants and pack sizes), market development into remoter areas, backward integration through supplier development and local partnerships, and growth by alliances with local producers.
• Business strategy: A combined cost leadership and differentiation (best-cost) strategy: affordable small packs and economies of scale, together with brand quality, innovation, trade loyalty schemes, retailer programmes and consumer education. Functional support: strengthening distribution, digital ordering for retailers, sustainability, training and HR development.

(d) Change of strategy

If the firm wishes to change strategy, I suggest:

1. Diversify into adjacent categories (for example foods and beverages, herbal or natural personal care, or premium segments) to reduce dependence on a few product lines and defend against competition.
2. Digitise the channels (e-commerce, retailer apps and data analytics) to improve reach and efficiency.
3. Deepen sustainability and local sourcing with local entrepreneurs, supporting brand and cost.
4. Consider selective premium or niche products for urban customers.

Justification: The core market share is already about 60 percent, so further growth from the existing products is limited. Diversification and digital channels use existing strengths (distribution, brand, finance) and open new revenue, while local sourcing lowers cost and risk. Changes should be phased in with careful change management, and an acceptability and feasibility test.