August 27, 2016

Evaluating a Company’s External Environment - Summary and Key Points

Crafting and Executing Strategy: Concepts and Readings


By Arthur Thompson and A. J. Strickland III and John Gamble
Copyright: 2016, Mcgraw Hill
Publication Date: January 19, 2015

Observing, studying and analyzing company's external situation involves probing for answers to the following seven questions:

Does the industry offer attractive opportunities for growth? 

Identifying the industry's basic economic features and growth potential sets the stage for the analysis to come, since they play an important role in determining an industry's potential for providing sales revenue and profits. Industries differ significantly on such factors as market size and growth rate, geographic scope, life-cycle stage, the number and size of competitors,  industry capacity, and other conditions that describe the industry's demand-supply balance and opportunities for growth.

What kinds of competitive forces are industry members facing, and how strong is each force? 

This analysis examines: (1) competitive pressures exerted by industry rivals, (2) competitive pressures created by the sellers of substitutes, (3) Threat of new entrants into the market, (4) supplier bargaining power, and (5) buyer bargaining power. The nature and strength of the competitive pressures have to be examined force by force and their collective strength must be evaluated. Porter's five-forces model forces strategy makers to assess competitive forces and come out with ideas of capturing or growing market share in the presence of the competitive forces. How do you neutralize the competitive force and gain your market share and profit is determined in the competitive force analysis.

What factors are driving changes in the industry, and what impact will these changes have on competitive intensity and industry profitability? 

Industry and competitive conditions change because due to industry's macro-environment and changes originating within the industry. Such changes include: increasing globalization, changing buyer demographics, technological change, Internet-expansion, product and marketing innovations, entry or exit of major firms, diffusion of know-how, efficiency improvements in adjacent markets, reductions in uncertainty and business risk, government policy changes, and changing societal factors. Once an industry's change drivers have been identified, the analytical task becomes one of determining  the effect on of them industry growth and competition.

Are the change drivers causing demand for the industry's product to increase or decrease?
Are they acting to make competition more or less intense?
Will they lead to higher or lower industry profitability?

What market positions do industry rivals occupy—who is strongly positioned and who is not?

Strategic group mapping is a valuable tool for understanding the similarities, differences, strengths, and weaknesses inherent in the market positions of rival companies. Rivals in the same or nearby strategic groups are close competitors, whereas companies in distant strategic groups usually pose little or no immediate threat. The profit potential of different strategic groups varies due to strengths and weaknesses in each group’s market position. Often, industry competitive pressures and change drivers favor some strategic groups and hurt others. A strategic group analysis can be done to select the most profitable and suitable strategic group in which the company wants to enter, or even shift. The second use is that of creating a competitive strategy within the strategic group.

What strategic moves are rivals likely to make next? 

Competitor intelligence is collected to  anticipate their actions and take effective counteraction. Managers have to take rivals' probable actions into account in designing their own company's best course of action. Managers who fail to study competitors and know their strategies, risk being caught unprepared by the strategic moves of rivals.

What are the key factors for competitive success? 

An industry's key success factors (KSFs) are the strategy elements, product attributes,   and capabilities that all industry members must have in order to survive and prosper in the industry. KSFs vary by industry and may vary over time as well.

For any industry, KSFs can be deduced by answering three basic questions:

(1)Customer related - On what basis do buyers of the industry's product choose between the competing brands of sellers,

(2) Competition related - what resources and competitive capabilities must a company have to be competitively successful, and

(3) Weaknesses -  what shortcomings are almost certain to put a company at a significant competitive disadvantage?

Correctly diagnosing an industry's (KSFs) raises a company's chances of crafting a sound strategy.

What is the outlook for the company in the industry with the present strategy?  

Analysis of economy and industry analysis has to be summed to provide a forecast of performance of the company with the present strategy.  Clearly, insightful diagnosis of a company's external situation is an essential first step in crafting strategies that are well matched to industry and competitive conditions.

To do cutting-edge strategic thinking about the external environment, managers have to use analytical tools to answer the relevant questions.

Analytical Tools

PESTEL Analysis

Competitive Weapons for Increasing Market Share

Discounts, Clearance Sales
Offering discounts through coupons
Improving warranties
Offering attractive financing terms
Building a bigger and better dealer network
Increasing Advertising
Innovating and increasing product features and benefits
Innovating and improving quality so that external failures are minimum
Innovating and reducing cost and decreasing the price
Increasing the number packsizes, flavours, styles etc. so that customer gets a bigger choice
Increasing the customisation of the product or service

What weapons are being used by competitors?

Charting a Company’s Direction: Its Vision, Mission, Objectives, and Strategy - Summary and Important Points

Crafting and Executing Strategy: Concepts and Readings


By Arthur Thompson and A. J. Strickland III and John Gamble
Copyright: 2016, Mcgraw Hill
Publication Date: January 19, 2015

The strategic management process consists of five interrelated and integrated stages:

Mission defines the company's current purpose.  A set of core values guide the pursuit of the mission. Strategic vision defines the company's future in pursuit of the mission.  These strategic plans are the  managerial decisions that provide direction for the company. The strategic vision has to envisage good performance at the company level so that associates in the company can be given good rewards. A strategic vision that promises performance and rewards motivates and inspires company personnel, aligns and guides actions throughout the organization. The mission, values and vision are to be communicated to all stakeholders. They are the  management's aspirations for the company's future.

Objectives are to be derived from  the mission and vision. The objectives are further converted into performance targets which are used  as yardsticks for measuring the company's performance. Objectives need to spell out how much of what kind of performance by when. Objectives are required in many areas. They also have to be spelt out in relation to all stakeholders. But strategic objectives and financial objectives derived from strategic objectives in business plan are important. A balanced-scorecard approach provides a popular method for visualizing financial objectives and objectives in other areas.

Crafting strategy calls for strategic analysis. Strategic analysis has an external component and an internal component. Strategies created by top management are mostly top-down,  but  require two-way interaction between different types of managers. In large, diversified companies, there are four levels of strategy, each of which involves a corresponding level of management: corporate strategy (multibusiness strategy), business strategy (strategy for individual businesses that compete in a single industry), functional-area strategies within each business (e.g., marketing, R&D, logistics), and operating strategies (for key operating units, such as manufacturing plants). Thus, strategy making is an inclusive, collaborative activity involving not only senior company executives but also the heads of major business divisions, functional-area managers, and operating managers on the frontlines. The larger and more diverse the operations of an enterprise, the more points of strategic initiative it has and the more levels of management that play a significant strategy-making role.

Managing the execution of strategy is an operations-oriented activity in both marketing and sales and product related departments aimed at shaping the performance of business activities in a strategy-supportive manner. Management's handling of the strategy implementation process can be considered successful if things go efficiently, and the company meets or beats its strategic and financial performance targets,

As a part of strategy execution, developments in the external environment and internal environment are to be monitored, company performance is to be monitored, and corrective adjustments are to be done in light of actual experience, changing conditions, new ideas, and new opportunities.

The sum of a company's strategic vision and mission, objectives, and strategy constitutes a strategic plan for coping with industry conditions, outcompeting rivals, meeting objectives, and making progress toward the strategic vision. A company with an unwavering commitment to execute its strategic plan is said to have strategic intent.

Boards of directors have to play a vigilant role in overseeing management's handling of a company's strategy-making, strategy executing process. This consists of  four important activities: (1) Critically appraise the company's strategic plan and strategy execution, (2) evaluate the caliber of senior executives' strategic leadership skills, (3) institute a compensation plan for top executives that rewards them for actions and results that serve stakeholder interests— especially those of shareholders, and (4) ensure that the company issues accurate financial reports and has adequate financial controls. Board of directors use financial reports to assess the performance of top management of the company and hence they have to ensure that the financial accounts are properly maintained and financial statement are made to report the performance accurately.

What Is Strategy and Why Is It Important? - Summary and Important Points

What Is Strategy and Why Is It Important?

Chapter 1 of
Crafting and Executing Strategy: Concepts and Readings


By Arthur Thompson and A. J. Strickland III and John Gamble
Copyright: 2016, Mcgraw Hill
Publication Date: January 19, 2015

The tasks of crafting and executing company strategies important for a business enterprise to win in the marketplace by getting an economic market share and produce and deliver the goods or services demanded at profit to the organization.

A company's strategy is the plan management is using to identify a favorable market position, conduct its operations, attract and please customers, compete successfully, and achieve the desired performance targets.

The central thrust of a company's strategy is undertaking marketing and operations moves to build and strengthen the company's long-term competitive position and financial performance by undertaking value chain activities differently from rivals so that customers are attracted to its offerings and thus provide a  sustainable competitive advantage over competitors.

A company achieves a sustainable competitive advantage when it can meet customer needs more effectively or efficiently (at lower cost and price) than rivals and when the basis for this is durable, despite the best efforts of competitors to match or surpass this advantage.

A company's strategy typically evolves over time, emerging from a blend of (1) proactive and deliberate actions on the part of company managers to improve the strategy and (2) reactive, as-needed adaptive responses to unanticipated developments and actions by customers and competitors.

A company's business model is management's estimate of revenues and costs that indicates  profit. It contains two crucial elements: (1) the customer value proposition —a plan for satisfying customer wants and needs at a price customers will consider good value, and (2) the profit formula —a plan for a cost structure that will enable the company to deliver the customer value proposition profitably. In effect, a company's business model sets forth the economic logic for making money in a particular business, given the company's current strategy. Both demand estimates and cost estimates have to satisfy the theories of economics in the area of consumer or business demand and production/productivity economics.

A winning strategy will pass three tests: (1) Fit (external, internal, and dynamic consistency - It satisfies all stakeholders and all constraints of the company resources and market demand), (2) Competitive Advantage (durable competitive advantage), and (3) Performance (outstanding financial and market performance).

Crafting and executing strategy are core management functions of top management of a company. How well a company performs and the degree of market success it enjoys are directly attributable to the caliber of its strategy and the strategy is execution of the strategy. Strategy is a plan and is the primary step of top management. Execution phase consists of the next four steps of management organizing, resourcing, execution (allocation or resources, directing and leadership) and control.  

Readings in Strategic Management - Bibliography

Readings Included in in Crafting and Executing Strategy 17 Edition

1 . Can You Say What Your Strategy Is?
David J. Collis, Harvard Business School
Michael G. Rukstad, Harvard Business School
lL. Enabling Bold Visions
Douglas A. Ready, London Business School
Jay A. Conger, London Business School
3 . Location, Location: The Geography of Industry Clusters
Holger Schiele, Leibniz University
4 . Identifying Valuable Resources
Cliff Bowman, Cranfield School of Management
Veronique Ambrosini, Cranfield School of Management
5 . The Battle of the Value Chains: New Specialized versus Old
Gillis Jonk, A. T. Kearney
Martin Handschuh, A. T. Kearney
Sandra Niewiem, A. T. Kearney
6 . Playing Hardball: Why Strategy Still Matters
George Stalk, The Boston Consulting Group
7. Hitting Back: Strategic Responses to Low-Cost Rivals
Jim Morehouse, A. T. Kearney
Bob O 'Meara, A. T. Kearney
Christian Hagen, A. T. Kearney
Todd Huseby, A. T. Kearney
8 . Limited-Potential Niche or Prospective Market Foothold? Five Tests
Ken Hutt, Deloitte Consulting
Ruben Gravieres, Deloitte Consulting
Betosini Chakraborty, Deloitte Consulting
9 . Value Innovation: A Leap into the Blue Ocean •
W. Chan Kim, INSEAD
Renee Mauborgne, INSEAD
10 . Racing to Be 2nd: Conquering the Industries of the Future
Costas Markides, London Business School
Paul A. Geroski, London Business School
11 . Globalization Is an Option, Not an Imperative. Or,
Why The World Is Not Flat
Pankaj Ghemawat, Harvard Business School
12 . The Challenge for Multinational Corporations in China: Think Local, Act Global
Seung Ho Park, Samsung Economic Reseawrch Institute
Wilfried R. Vanhonacker, HKUST Business School
13 . How to Win in Emerging Markets
Satish Shankar, Bain & Co.
Charles Ormiston, Bain & Co.
Nicolas Bloch, Bain & Co.
Robert Schaus, Bain & Co.
Vijay Vishwanath, Bain & Co.
14 . Why Is Synergy So Difficult in Mergers of Related Businesses?
Sayan Chatterjee, Case Western Reserve University
15 . Corporate Social Responsibility: Why Good People Behave Badly
in Organizations
Pratima Bansal, University of Western Ontario
Sonia Kandola, University of Western Ontario
16 . Competing Responsibly
Bert van de Ven, University ofTilburg
Ronald Jeurissen, Nyenrode Business University
17. The Secrets to Successful Strategy Execution
Gary L. Neilson, Booz & Company
Karla L. Martin, Booz & Company
Elizabeth Powers, Booz & Company
18 . Some Pros and Cons of Six Sigma: An Academic Perspective
Jiju Antony Caledonian Business School
19 . Linking Goals to Monetary Incentives
Edwin A. Locke, University of Maryland
20. The Seven Habits of Spectacularly Unsuccessful Executives
Sydney Finkelstein, Dartmouth College

Values of Business Schools

Melbourne Business School -  Mission, Vision & Values

We enable individuals and organisations to be global leaders through the creation, application and dissemination of business and economics knowledge.

Our aspiration is to become one of the leading global providers of business and economics education and research.
We aim to critically evaluate and influence policy design, corporate governance, and business practices to secure the best possible outcomes for our stakeholders and for the broader societies in which we operate.

We are a non-discriminatory learning community in which there is respect for our diverse backgrounds and interests and where there is a shared joy in learning and scholarship.
Rigour and relevance are the foundations of all that we do.
Integrity and ethical behaviour guide all of our actions, policies and decision making.
Openness and transparency characterise our organisational culture.
Academic freedom is paramount.

Olin Business School - Mission and Values

We live our mission everyday. Since our founding in 1917, Olin Business School has been guided by these words: Create knowledge. Inspire individuals. Transform business.

Core Values

Excellence: We have an unwavering commitment to excellence in all that we do, continually striving to provide the highest level of educational experience, learning opportunities and research.

Leadership: Olin cultivates a leadership mind-set, infusing students with both the value of acting responsibly and the desire to make an impact in whatever path they pursue.

Integrity: Our Midwestern heritage is the cornerstone of our character – we are honest, hard working, authentic, loyal and supportive.

Collaboration: Our culture fosters a collaborative community that creates innovative ideas, unique opportunities, and strong personal bonds.

Diversity: We embrace the diversity of individuals, cultures, ideas, and opinions for the richness it brings to our school.

The UNC Kenan-Flagler:  Core Values

The UNC Kenan-Flagler community lives by its core values: excellence, leadership, integrity, community and teamwork.


We, the members of the UNC Kenan-Flagler community, strive for the very highest standards in everything that we do. We challenge each other to produce important new knowledge at the leading edge of our disciplines, to create an intellectually rigorous learning environment and to show uncompromising dedication to those we serve.


Leadership Development: We offer the best, most comprehensive leadership program of any top business school.
UNC Kenan-Flagler Faculty: The thought leadership of UNC-Kenan Flagler professors is recognized in both academic and corporate circles and makes an impact on the practice of business. R.O.I. Magazine, a school publication, features UNC Kenan-Flagler experts.


We cultivate an environment of honesty, sincerity and trust in which we hold ourselves to the highest ethical standards. We believe integrity is the foundation of all moral character and is an essential trait for truly successful professional and personal lives.

Required Ethics Course: While other schools offer ethics courses as an elective, all UNC Kenan-Flagler MBAs take ethics during their first year as part of the required curriculum.
Graduate Honor Court: The business school joins the graduate and professional programs of law, dentistry, pharmacy and medicine with its own student-run honor court.


From its earliest days, UNC Chapel Hill has honored and cherished its special responsibility to serve the people of North Carolina. We at UNC Kenan-Flagler extend this notion of responsibility to include service to the nation and the world through research, teaching and community leadership.


We create at UNC Kenan-Flagler a unique atmosphere of collaboration, mutual support and genuine interest in each other's success. Our diverse mix of cultures, races and experiences provides a variety of perspectives and talents that, when united through teamwork, strengthens our ability to achieve our goals.

University of Leeds Business School - Mission - Values

Our Mission is to make an exceptional impact on business and society globally through leadership in research and teaching.

Professor Peter Moizer, Dean of Leeds University Business School

We Are International
Create knowledge. Make an impact.


To produce and disseminate research of world-class quality, within the School and through international partnerships, which increases knowledge, skills, understanding and impact.

Student education

To enable individuals to develop their academic potential, their employability, their global and cultural insight and their ethical awareness to enhance their potential to benefit business and society.

Building an Organization Capable of Good Strategy Execution - Summary

Crafting and Executing Strategy: Concepts and Readings
By Arthur Thompson and A. J. Strickland III and John Gamble
Copyright: 2016, Mcgraw Hill
Publication Date: January 19, 2015

Executing strategy is an operations-driven activity revolving around the management of people and business processes involving man-machine systems. The way for managers to start in implementing a new strategy is with a probing assessment of what the organization must do differently in the coming peridos to carry out the strategy successfully. This requires changes in the value chain that consists of number of activities. They should then determine how to make the necessary internal changes as rapidly as possible so that the strategy implementation process starts with focus on the new strategy.

All managers have strategy executing responsibility in their areas of authority, and all employees are active participants in the strategy execution process. Hence strategy needs to be communicated to all managers and their involvement in organization structure design has to be ensured.

The managerial tasks involved in the company's efforts to execute strategy: (1) Designing the new organization structure and staffing the organization well, (2) Acquiring the new resources required and  building the necessary organizational capabilities, (3) Finetuning a supportive organizational structure though feedback from all employees (4) allocating sufficient resources to each value chain activity, (5) instituting policies and procedures that support new strategy, (6) Implementing processes for continuous improvement of all value chain activities, (7) installing systems that enable effective and efficient company operations, (8) tying incentives to the achievement of desired targets, (9) Making efforts to bring into existence right corporate culture, and (10) exercising internal strategic leadership.

The two best signs of good strategy execution are whether a company is meeting or beating its performance targets and performing value chain activities in a manner that is conducive to companywide operating excellence. Shortfalls in performance signal weak strategy, weak execution, or both.

Building an organization capable of good strategy execution entails three types of organization-building actions:  (1) structuring the organization and work effort —instituting organizational arrangements that facilitate good strategy execution, deciding how much decision-making authority to delegate, and managing external relationships. (2) staffing the organization —assembling a talented management team, and recruiting and retaining employees with the needed experience, technical skills, and intellectual capital; and (3) building and strengthening core competencies and competitive capabilities —developing proficiencies in performing strategy-critical value chain activities and updating them to match changing market conditions and customer expectations;

Building new core competencies and competitive capabilities  can be approached in three ways: (1) developing capabilities internally, (2) acquiring capabilities through mergers and acquisitions, and (3) accessing capabilities via collaborative partnerships.

In building capabilities internally, the first step is to develop the ability to do something, through experimentation, active search for alternative solutions, and learning by trial and error. As experience grows and company personnel learn how to perform the activities consistently well and at an acceptable cost, the ability evolves into a tried-and-true capability. The process can be accelerated by making learning a more deliberate endeavor and providing the incentives that will motivate company personnel to achieve the desired ends. At the third level, the capability development concentrates of trying make it an above industry average capability in the industry so that it provides scope for above average profit earning.

As firms get better at executing their strategies, they develop capabilities in the domain of strategy execution. Superior strategy execution capabilities allow companies to get the most from their organizational resources and competitive capabilities. But excellence in strategy execution can also be a more direct source of competitive advantage, since more efficient and effective strategy execution can lower costs and permit firms to deliver more value to customers. Superior strategy execution capabilities are internal to a company and they are  hard to imitate and have no good substitutes. As such, they can be an important source of sustainable competitive advantage.

While strategy may be same, lasting competitive advantage can be gained through execution excellence.

Structuring the organization and organizing the work effort in a strategy supportive fashion has four aspects: (1) deciding which value chain activities to perform internally and which ones to outsource; (2) aligning the firm's organizational structure with its strategy; (3) deciding how much authority to centralize at the top and how much to delegate to down-the-line managers and employees; and (4) facilitating the necessary collaboration and coordination with external partners and strategic allies.

To align the firm's organizational structure with its strategy, it is important to make strategy-critical activities the main building blocks. There are four basic types of organizational structures: the simple structure, the functional structure, the multidivisional structure, and the matrix structure. Which is most appropriate depends on the firm's size, complexity, employee acceptance and strategy.

Crafting and Executing Strategy: Concepts and Readings -20th Edition - Thompson, Gamble and Strickland - Book Information

Crafting and Executing Strategy: Concepts and Readings


By Arthur Thompson and A. J. Strickland III and John Gamble
Copyright: 2016, Mcgraw Hill
Publication Date: January 19, 2015

Crafting and Executing Strategy: Concepts and Readings
Table of Contents 

PART 1 Concepts and Techniques for Crafting and Executing Strategy

Section A: Introduction and Overview
1 What Is Strategy and Why Is It Important?  Summary by NRao
2  Charting a Company’s Direction: Its Vision, Mission, Objectives, and Strategy - Smmary by NRao

Section B: Core Concepts and Analytical Tools
3 Evaluating a Company’s External Environment - Summary by NRao
4 Evaluating a Company’s Resources, Capabilities, and Competitiveness

Section C: Crafting a Strategy
5 The Five Generic Competitive Strategies
6 Strengthening a Company’s Competitive Position
7 Strategies for Competing in International Markets
8 Corporate Strategy
9 Ethics, Corporate Social Responsibility, Environmental Sustainability, and Strategy

Section D: Executing the Strategy
10 Building an Organization Capable of Good Strategy Execution
11 Managing Internal Operations
12 Corporate Culture and Leadership

PART 2 Readings in Crafting and Executing Strategy

Section A: What Is Strategy and How Is the Process of Crafting and Executing Strategy Managed?
1 The Perils of Bad Strategy
2 The Role of the Chief Strategy Officer
3 Managing the Strategy Journey
4 The Balanced Scorecard in China: Does It Work?

Section B: Crafting Strategy in Single-Business Companies
5 Competing in Network Markets: Can the Winner Take All?
6 BlackBerry Forgot to Manage the Ecosystem R-357 Dynamic Capabilities: Routines versus Entrepreneurial Action
8 Meta-SWOT: Introducing a New Strategic Planning Tool
9 Are You Ready for the Digital Value Chain?
10 Limits to Growing Customer Value: Being Squeezed Between the Past and the Future
11 Organizational Ambidexterity: Balancing Strategic Innovation and Competitive Strategy in the Age of Reinvention
12 Pioneering and First Mover Advantages: The Importance of Business Models
13 Adding Value through Offshoring

Section C: Crafting Strategy in International and Diversified Companies
14 Reverse Innovation: A Global Growth Strategy That Could Pre-empt Disruption at Home
15 How Emerging Giants Can Take on the World
16 Why Conglomerates Thrive (Outside the U.S.)
17 Diversification: Best Practices of the Leading Companies

Section D: Strategy, Ethics, Social Responsibility, and Sustainability
18 Pragmatic Business Ethics
19 Leaders as Stewards

Section E: Executing Strategy
20 Attract Top Talent
21 Building Superior Capabilities for Strategic Sourcing
22 How Collaboration Technologies Are Improving Process, Workforce, and Business Performance
23 The ROI of Employee Recognition
24 The Critical Few: Components of a Truly Effective Culture
25 How Strategists Lead

August 25, 2016

Principles Based Management

Principles of Management were first given by F.W. Taylor in modern management theory. Henri Fayol gave a list of 14 principles as important principles that he followed as CEO and Managing Director of a Mining Organization. Koontz has expanded these principles into function wise principle. He gave first principles related to planning and control. Then he gave principles related to organizing, staffing and directing.

Narayana Rao now advocates that the list of functions of management should be Planning, Organizing, Resourcing,  Executing and Control. The two new functions proposed, resourcing and execution have good support in literature now. Resource based view (RBV) in strategic management literature highlights the need for entrepreneurs and managers to acquire resources as an important activity of them. Similarly in strategy management literature, it is being emphasized that execution is the key to get results. So far execution did not get the emphasis it deserved and planning only got highlighted.

Management has to be undertaken keeping in view the principles of management that are now well established will almost a century of existence. Many of these principles are converted into methods and techniques. Various tools were developed to aid in the use of these methods and techniques. Every management student and industrial engineering student has to know these principles and the methods of applying them in practice.

Principles of Management - Weihrich, Cannice and Koontz (14th edition)

Formerly Koontz and O'Donnell

List of Principles

Principles of Planning

Principle of primacy of planning
Principle of objectives
Principle of contribution to objectives
Principle of efficiency of plans

Principle of planning premises
Principle of strategy and policy framework

Principle of limiting factor
Principle of of commitment
Principle of flexibility
Principle of of navigational change

Principles of Organizing

Principle of unity of objectives
Principle of organizational efficiency

Principle of span of management

Scalar Principle
Principle of delegation by results expected
Principle of absoluteness of responsibility
Principle of parity of authority and responsibility
Principle of unity of command
Authority level principle

Principle of balance
Principle of flexibility
Principle of leadership facilitation

Principles of Staffing

Principle of objective of staffing
Principle of staffing

Principle of job definition
Principle of managerial appraisal
Principle of open competition

Principle of management training and development
Principle of training objectives
Principle of continuous development

Principles of Leading

Principle of harmony of objectives
Principle of motivation
Principle of of Leadership

Principle of communication clarity
Principle of integrity of the leader and communications
Principle of supplemental use of informal organization

Principles of Control

Principle of the purposes of control
Principle of future directed controls
Principle of control responsibility
Principle of efficiency of controls
Principle of preventive control

Principle of reflection of plans
Principle of organizational suitability
Principle of individuality of controls

Principle of standards
Principle of critical point control
The exception principle

Principle of flexibility of controls
Principle of action

More detail on each principle

Page numbers refer to 14th Edition of Heinrich, Cannice and Koontz

Principles of Planning

Principle of primacy of planning

Planning logically precedes all other planning functions.

Principle of objectives

If objectives are to be meaningful to people, they must be clear, (attainable and verifiable).

Goals derived from objectives for various periods have to be clear, attainable and verifiable.

Principle of contribution to objectives

The purpose of every plan and all supporting plans is to  promote the accomplishment of enterprise objectives.

Planning - Principle of alternatives

Planning - Principle of timing

Principle of efficiency of plans

The efficiency of a plan is measured by the amount it contributes to purpose and objectives offset by the costs required to formulate and operate it and by unsought consequences.

Return on investment best captures the principle of efficiency. But if human element of an organization becomes unhappy or the customers becomes unhappy or suppliers become unhappy or any group stakeholders become unhappy, ROI may not be able to capture it. But the negative consequences follow from the unhappiness. Managers have to take that also into account.

Principle of planning premises

The more thoroughly individuals charged with planning understand and agree to utilize consistent planning premises, the more coordinated enterprise planning will be.

Principle of strategy and policy framework

The more strategies and policies are clearly understood and implemented in practice, the more consistent and effective will be the framework of enterprise plans.

Alignment of all persons in the organization to work in favor of the strategy has to be achieved. This issue was highlighted by Harrington Emerson in 1912 in his book, 12 Principles of Efficiency. The first principles, ideals, is concerned with this.

Planning - Principle of competitive strategies

Principle of limiting factor

In choosing among alternatives, the more accurately individuals recognize and allow for factors that are limiting or critical to the attainment of the desired goals, the more easily and accurately can they select the most favorable alternative.

Critical Success Factors, is the term under which research is being carrried in all important areas of business activities and management activities to identify the variables that determine the success. The The planners have to evaluate their internal environment to judge whether they can provide those critical success factors. If the answer is negative, they have to postpone implementation of plans requiring those CSFs till they acquire physical resources,  competencies and capabilities

Principle of of commitment

Logical planning should cover a period of time in the future necessary to foresee as well as possible, through a series of actions, the fulfillment of commitments involved in a decision made today.

Principle of flexibility

Building flexibility into plans will lessen the danger of losses incurred through unexpected events,but the cost of flexibility should be weighed against its advantages.

Principle of of navigational change

The more that planning decisions commit individuals to a future path, the more important it is to check on events and expectations periodically and redraw plans as necessary to maintain a course toward desired goal.

Principles of Organizing

Principle of unity of objectives - Principle of contributing to  objectives

An organization structure is effective if it enables individuals to contribute to enterprise objectives.

Organization - explanation (p.198)
Aim:Achieving Objectives (p.229)

Principle of organizational efficiency

An organization is efficient if it is structured to aid the accomplishment of enterprise objectives with a minimum of unsought consequences or costs.

Principle of span of management

In each managerial position, there is a limit to the number of persons an individual can effectively manage, but the exact number will depend on the impact of underlying variables.

Organizational Levels and Span of Management (pp.200-202)

Scalar Principle

The clearer the line of authority from the ultimate management position in an enterprise to every subordinate position, the clearer will be the responsibility for decision making and the more effective will be organizational communication.

Principle of delegation by results expected

Authority delegated to all individual managers should be adequate to ensure their ability to accomplish expected results.

Delegation of Authority (p.240)
The Art of Delegation (pp. 240-241)

Principle of absoluteness of responsibility

The responsibility of subordinates to their superiors for performance is absolute, and superiors cannot escape responsibility for the organizational activities of their subordinates.

Principle of parity of authority and responsibility

The responsibility for actions should not be greater than thatimplied by the authority delegated, nor should it be less.

Empowerment (p.236)

Principle of unity of command

The more complete an individual's reporting relationships to a single superior, the smaller the problme of conflicting instructions and the greater the feeling of personal responsibility for results.

Authority level principle

Maintenance of intended delegation requires that decision within the authority of individual managers should be made by them and not be referred upward in the organization structure.

Principle of Functional definition

The more a position or a department has a clear definition of the results expected, activities to be undertaken, and organizational authority delegated, as well as an understanding of authority and informational relationships with other positions, the more adequately the individual responsible can contribute toward accomplishing enterprise objectives.

Principle of balance

In every structure, there is need for balance. The application of principles or techniques must be balanced to ensure overall effectiveness of the structure in meeting enterprise objectives.

Need for Balance (p.203)

Principle of flexibility

The more that provisions are made for building flexibility into an organization structure, themore adequately an organization structure can fulfill its purpose.

Principle of leadership facilitation

The more an organization structure and its delegation of authority enables managers to design and maintain an environment for performance, the more they will help the leadership abilities of those managers.

Principles of Staffing

Principle of objective of staffing
The objectives of staffing is to ensure that organizational roles are filled by qualified people who are able and willing to occupy them.

Definition of Staffing (p.275)

Principle of staffing

The clearer the definition of organizational roles and their human resource requirements, and the better the techniques of manager appraisal and training employed, the higher the managerial capacity.

Principle of job definition

The more precisely the results expected of managers are identified, the more the dimensions of their positions can be defined.

Position Descriptions (p.255)
Position Requirements and Job Design (pp.289-290)

Principle of managerial appraisal

The more clearly verifiable objectives and required managerial activities are identified, the more precise can be the appraisal of managers against these criteria.

Choosing Appraisal Criteria (pp.305-306)
Appraising Managers against Verifiable Objectives (pp. 306-311)
A Suggested Program for Appraising Managers (pp. 311-313)

Principle of open competition

The more an enterprise is committed to the assurance of quality management, the more it will encourage open competition among all candidates for management positions.

The Policy of Open Competition (pp. 285 - 286)

Principle of management training and development

The more management training and development is integrated with the management process and enterprise objectives, the more effective the development programs and activities will be.

Manager Development Process and Training (pp. 327 -329)

Principle of training objectives

The more precisely the training objectives are stated, the more likely are the chances of achieving them.

Evaluation and Relevance of Training Programs (pp.336)

Principle of continuous development

The more an enterprise is committed to managerial excellence, the more it requires that managers practice continuous self development.

Principles of Leading

Principle of harmony of objectives

The more managers can harmonize the personal goals of individuals with the goals of the enterprise, the more effective and efficient the enterprise will be.

Principle of motivation

Since motivation is not a simple matter of cause and effect, the more managers carefully assess a reward structure, look upon it from a situational and contingency point of view, and integrate it into the entire system of managing, the more effective, a motivational program will be.

Principle of of Leadership

Since people tend to follow those who, in their view, offer them a means of satisfying their personal goals, the more managers understand what motivates their subordinates and how these motivators operate, and the more they reflect this understanding in carrying out their managerial actions, the more effective they are likely to be as leaders.

Ingredients of Leadership (pp. 387-389)

Principle of communication clarity

Communication tends to be clear when it expressed in a language and transmitted in a way that can be understood by the receiver.

Principle of integrity of the leader and communications

The greater the integrity and consistency of written, oral,or nonverbal messages, as well as of moral behavior of the sender, greater the acceptance of the message by the receiver.

Principle of supplemental use of informal organization

Communication tends to be more effective when managers utilize the informal organization to supplement the communication channels of the formal organization.

Principles of Control

Principle of the purposes of control

The task of control is the ensure the success of plans by detecting deviations from plans and furnishing a basis for taking action to correct potential or actual undesired deviations.

Principle of future directed controls

Because of time lags in the total system of control, the more a control system is based on feedforward rather than simple feedback of information, the more managers have the opportunity to perceive undesirable deviations from plans before they occur and to take action in time to prevent them.

Principle of control responsibility

The primary responsibility for the exercise of control rests in the manager charged with the performance of the particular plans involved.

Principle of efficiency of controls

Control techniques and approaches are efficient if they detect and illuminate the nature and causes of deviations from plans with a minimum of costs or other unsought consequences.

Achieving Economy of Controls (pp. 481)

Principle of preventive control

The higher the quality of managers in a managerial system, the less will be the need for direct controls.

Feed forward or Preventive Control (pp. 473 - 476)

[Remember: Principle of continuous development

The more an enterprise is committed to managerial excellence, the more it requires that managers practice continuous self development.]

Principle of reflection of plans

The more that plans are clear, complete, and integrated, and the more that controls are designed to reflect plans, the more effectively controls will serve the needs of managers.

Tailoring Controls to Plans (pp. 479)

Principle of organizational suitability

The more that an organization structure is clear, complete, and integrated,and the more that controls are designed to reflect the place in the organization structure where responsibility for action lies, the more controls will facilitate correction of deviations from plans.

Fitting the Control System to the Organization Culture (pp. 481)

Principle of individuality of controls

The more that control techniques and information are understandable to individual managers who must utilize them, the more they will actually be used and the more they will result in effective control.

Tailoring Controls to Individual Managers (pp. 479 - 480)

Principle of standards

Effective control requires objective, accurate, and suitable standards.

Establishment of Standards (pp.466)
Critical Control Points, Standards and Benchmarking (pp. 468 - 470)

Principle of critical point control

Effective control requires special attention to (measuring) those factors critical to evaluating performance against plans.

Critical Control Points, Standards and Benchmarking (pp. 468 - 470)

The exception principle

The more that managers concentrate control efforts on significant exceptions from planned performance, the more efficient will be the results of their control.

Designing Controls to Point up Exceptions at Critical Points (pp. 480)

Principle of flexibility of controls

If controls are to remain effective despite failure or unforeseen changes of plans, flexibility is required in their design.

Ensuring Flexibility of Controls (pp. 481)

Principle of action

A control activity is justified only if indicated or actual deviations from plans are corrected through appropriate planning, organizing, staffing and leading based on the output of the control activity.

Establishing Controls that Lead to Corrective Action (pp. 481)

Stephen Covey's Principle-Centered Leadership Model - Summary

Principles Based Leadership

Seven Strategies for Delivering Profits with Principles

Value Based Management - Shareholder Value Based Management

Results Based Management


Management Subject-wise Principles

Principles of Strategic Management

Principles of Software Engineering

Updated 28 August 2016,  28 July 2016

Principles of Strategic Management

Porter 2001

• It must start with the right value guide: superior long-term return on investment. Only by grounding strategy in sustained profitability will real economic value be generated. Economic value is created when managers create a value chain that provides a good or service at a cost below the price  customers are willing to pay for the product or service.

• A company’s strategy must enable it to deliver a value proposition, or set of benefits, different from those that competitors offer.

• Strategy needs to be reflected in a distinctive value configuration. To establish a sustainable competitive advantage, a company must perform different activities than rivals or perform similar activities in different ways.

• Strategies involve trade-offs. A company must abandon or forego some product features, services, or activities in order to be unique at others.

• Strategy defines how all the elements of what a company does fit together. A strategy involves making choices throughout the value configuration; all a company’s activities must be mutually reinforcing to create value to the customer and the organization.

• Strategy involves continuity of direction. A company must define a distinctive value proposition that it will stand for and be consistent with it.

Porter (2001)

Thompson, Strickland, Gamble

20th Edition - Crafting and Executing Strategy

External Analysis

Whether an industry’s entry barriers ought to be considered high or low depends on the resources and capabilities possessed by the pool of potential entrants.

High entry barriers and weak entry threats today do not always translate into high entry barriers and weak entry threats tomorrow.

A company’s strategy is increasingly effective the more it provides some insulation from competitive pressures, shifts the competitive battle in the company’s favor, and positions firms to take advantage of attractive growth opportunities.

The most important part of driving forces analysis is to determine whether the collective impact of the driving forces will be to increase or decrease market demand, make competition more or less intense, and lead to higher or lower industry profitability.

The real payoff of driving-forces analysis is to help managers understand what strategy changes are needed to prepare for the impacts of the driving forces.

Strategic group maps reveal which companies are close competitors and which are distant competitors.

Some strategic groups are more favorably positioned than others because they confront weaker competitive forces and/ or because they are more favorably impacted by industry driving forces.

Studying competitors’ past behavior and preferences provides a valuable assist in anticipating what moves rivals are likely to make next and outmaneuvering them in the marketplace.

The degree to which an industry is attractive or unattractive is not the same for all industry participants and all potential entrants.

Updated  28 August 2016, 18 October 2015

August 24, 2016

Operations Research - An Efficiency Improvement Tool for Industrial Engineers

In the IE journals and magazines we need to read articles and papers that point out how IEs are able to come out with solutions to data development challenges of OR models.

Operations Research methods are characterized as efficiency improvement techniques by many scholars.

1. From efficiency measurement to efficiency improvement: The choice of a relevant benchmark, Eduardo González, and Antonio Álvarez, European Journal of Operational Research, Volume 133, Issue 3, 16 September 2001, Pages 512-520

2. Measuring Efficiency in Primary Health Care Centres in Saudi Arabia, ASMA M. A. BAHURMOZ,

3. Improving Transportation Efficiency at the Nanzan Educational Complexeral Motors

4. Operations Research: The Productivity Engine: How to create unassailable productivity gains in your business, Lew Pringle, OR/MS Today, June 2000

Lew Pringle wrote:

"Operations research, as a field, is all about the creation and management of Productivity Gain. In fact, in a very real sense, productivity gain is virtually the sole purpose of OR. It's what we do. To raise the question of improvement in an organization's productivity without taking full advantage of all that OR offers would be analogous to pursuing a required improvement in one's health while ignoring the entire medical community. The realm of operations research is Productivity Gain.

OR people, in turn, are identifiable by: 1. our focus on productivity, and 2. the way we find, identify and come to describe, understand, appreciate and represent a problem. Operations research people are problem-conceptualizers. Our "solutions," in this sense, can (and should) be seen as flowing naturally and easily from the unique way in which we have visualized the problems/opportunities in the first place. We operate on such traditional quantities as profit, cost, efficiency and other practical, measurable items. Our goal, ordinarily, is to achieve higher and higher levels of performance. We are the people whose job it is to create productivity. We are, in fact, the productivity engine of an organization."

5. Productivity Improvement through Operational Research
G. W. Sears
Journal of the Royal Statistical Society. Series A (General) Vol. 126, No. 2 (1963), pp. 267-269

6. The Necessity of Implementation of Operations Research for Managers for Decision-Making and Productivity Increase in Production
M. K. Amoli, S. M. T. Hosseini, M. Salehi, "The Necessity of Implementation of Operations Research for Managers for Decision-Making and Productivity Increase in Production", Advanced Materials Research, Vols. 488-489, pp. 1651-1656, 2012


Synergy Between Industrial Engineering and Operations Research

Industrial engineering is developed by engineers working in engineering departments of business companies engaged in manufacture using machines and metals. No doubt construction which is the earliest engineering activity also contributed in the development of industrial engineering as Frank Gilbreth was from construction sector. Operations Research as a discipline is identified with persons from science background working in the area of military operations. Industrial engineering and Departments of Mathematics and Statistics embraced the discipline of operations research in a big way. What is the synergy between industrial engineering and operations research?

Industrial engineering is system efficiency improvement. It examines proposed ways of doing work and improve them. Operations research has number of efficiency improvement tools. Operations researchers developed various standard models and have the ability to develop custom models that improve the efficiency of operations. Linear programming models, transportation, and assignment can be cited as examples using which the operations of an organization can be evaluated for efficiency of resource use subject to the constraints and optimal or efficient solutions can be found. Hence industrial engineers have to be the first group among various corporate organizations to recognize and implement OR models in the business organizations. This opportunity was correctly identified by the industrial engineering profession and OR was adopted as an important technique in the arsenal of industrial engineering.

What is the Contribution of IE to OR?

Industrial engineers could have promoted the practical utilization of OR by proving data in the form the OR models require. In systems engineering, there is mention of this step. From the synthesized design for a system design problem, various models are to be developed to evaluate the proposed design. To use OR models, various types of data are required and industrial engineers have the advantage of developing the required data. Why IEs have the advantage? Industrial engineers have the advantage because they have a strong attachment to measurement in one of their core subjects work measurement. Industrial engineers also are given inputs in understanding the financial and cost accounting data. Thus they are in the unique position to develop and provide the data that OR models required and come out the most efficient solutions and help the operating managers in implementing the solutions. But this does not seem to have happened in big scale.

The reason for the lack of popularity for OR in many organizations is the lack of this viewpoint in IEs. IEs have to use OR models as efficiency improvement avenues. To use OR models they have to develop the required data from the operations of the organization. They have to interact with the accounting departments meaningfully and acquire the required accounting data and statements. They have to develop engineering data and then use appropriate OR models. In the IE journals and magazines we need to read articles and papers that point out how IEs are able to come out with solutions to data development challenges of OR models.


Problem Areas for Applying Operations Research

Loading machine centers for maximum utilization of equipment.
Controlling raw materials nd in-process inventories.
Planning the minimum production costs schedules through the sequencing and allocation of men and machines.
Minimizing waiting times between opeartions
Determining the true incremental benefits of adding new production equipment.
Scheduling direct labour.
Determining the most favourable preventive maintenance plans.
Assigning individuals to specific jobs
Specifying least-cost shipment patterns in multiplant multivendor purchasing situations.
Locating warehouses so as to minimize freight and production costs.
Allocating advertising budget in the most efficient manner.

"Opeartions Research", Chaper 9-3 in Industrial Engineering Handbook, H.B.Maynard (Ed.) 2nd Edition


OR Case Studies Discussed in Chapter 11.2 of Maynard's Industrial Engineering Handbook, 5th Edition


Leachman, R. C., R. F. Benson, C. Liu and D. J. Raar, "IMPReSS: An Automated Production-Planning and Delivery-Quotation System at Harris Corporation - Semiconductor Sector," Interfaces, 26:1, pp. 6-37, 1996.
Rigby, B., L. S. Lasdon and A. D. Waren, "The Evolution of Texaco's Blending Systems: From OMEGA to StarBlend," Interfaces, 25:5, pp. 64-83, 1995.
Flanders, S. W. and W. J. Davis, "Scheduling a Flexible Manufacturing System with Tooling Constraints: An Actual Case Study," Interfaces, 25:2, pp. 42-54, 1995.
Subramanian, R., R. P. Scheff, Jr., J. D. Quillinan, D. S. Wiper and R. E. Marsten, "Coldstart: Fleet Assignment at Delta Air Lines,", Interfaces, 24:1, pp. 104-120, 1994.
Kotha, S. K., M. P. Barnum and D. A. Bowen, "KeyCorp Service Excellence Management System," Interfaces, 26:1, pp. 54-74, 1996.

Recent Case Study Papers

Energy Cost Optimization in a Water Supply System Case Study
Daniel F. Moreira and Helena M. Ramos
Journal of Energy
Volume 2013 (2013), Article ID 620698, 9 pages

Cost Minimizing Coal Logistics for Power Plants Considering Transportation Constraints
Ahmet Yucekaya
Industrial Engineering Department, Kadir Has University, istanbul, Turkey
Journal of Traffic and Logistics Engineering, Vol, 1, No. 2 June 2013

Related Knols

Knol Handbook of Industrial Engineering (Year 2010 Version)
By Narayana Rao K.V.S.S.



OR Models - Good brief description of Linear programming, Network Flow Programming, Integer programming, Nonlinear programming, Dynamic programming, Stochastic programming and Simulation etc.

The Periodic Vehicle Routing Problem: A Case Study

A Review of Integrated Analysis of Production-Distribution Systems, 1995

Optimization of Container Process at Multimodal Container Terminals, Phd Thesis, 2008, Andy Wong

Operations Research Models for Railway Rolling Stock Planning, Ph.d thesis, (2006), Gabor Maroti

IFORS 2002 Conference Proceedings - Abstracts only 285 page file


Recent papers about OR models and applications

The costs of poor data quality
Summary of Anders Haug, Frederik Zachariassen, Dennis van Liempd, "The costs of poor data quality", Journal of Industrial Engineering and Management, 2011 – 4(2): 168-193 – Online ISSN: 2013-0953 Print ISSN: 2013-8423

Updated 23 July 2013
Posted in the blog 14 December 2011
Article originally posted at

Industrial Engineering Knowledge Revision Plan - One Year Plan

January - February - March - April - May - June

July - August - September - October - November - December

Updated 27 August 2016,  15 July 2016, 13 July 2016,  23 July 2013

Flashback Friday Project

I just signed up the new blogging event.

Flashback Friday Project

For Details visit the page

Flashback Friday Posts by Narayana Rao K.V.S.S.

26 August 2016

Building Resource Strengths and Organizational Capabilities - Review Notes

Updated 26 August 2016,

August 22, 2016

Building Resource Strengths and Organizational Capabilities - Review Notes

Based on Thompson and Strickland's Book

Implementing and executing strategy involves technology organization, resource acquisition, people organization, staffing, management of people and business processes. The managerial emphasis is on converting strategic plans into actions and good results.

The starting point for managers to start in implementing and executing a new or different strategy is a list of activities which the organization has to do differently from now onwards to achieve the strategic goals in the time frame envisaged. Then, the necessary steps to make the internal changes have to be instituted as early as possible.

Top-level managers have to rely on the middle and lower managers to understand and develop their unit levels plans to support strategy and explain strategy changes and related business process changes to department members and see that the organization actually operates in accordance with the strategy at department levels. Every step in the organization has certain people questioning it and the middle and lower managers must have the understanding to explain and persuade people to follow strategy .

Thompson and Strickland described eight managerial tasks as cropping up repeatedly in company efforts to execute strategy:

1. Building an organization with the competencies, capabilities, and resource strengths to execute strategy successfully.
2. Marshaling people behind the drive for strategy execution.
3. Instituting policies and procedures that facilitate rather than impede strategy execution.
4. Adopting best practices and pushing for continuous improvement in both marketing and operations activities.
5. Installing information and operating systems that enable company personnel to carry out their strategic roles proficiently.
6. Tying rewards directly to the achievement of strategic and financial targets.
7. Shaping the work environment and corporate culture to fit the strategy.
8. Exercising management control to drive execution forward, keep improving on the details of execution, and achieve operating and marketing excellence as rapidly as feasible.

In the book three chapters are devoted strategy execution. One chapter (that is this chapter) deals with developing the organization. Developing the organization involves plan of organizations and acquiring the resources indicated in the plan. The second chapter is concerned with topics 2 to 6. The third chapter deals with topic 7 and 8 related to culture change and leadership.

Building a Capable Organization

Successful strategy execution depends on competent personnel, better than adequate customer satisfying and competitive capabilities, and effective internal organization that facilitates communication and control.

Building an organization capable of good strategy execution involves three dimensions:

 (1) Acquiring adequate Resources and Staff: Appropriate infrastructure, adequate equipment and a talented, can-do team with the needed experience, technical skills, and intellectual capital;
(2) Building core competencies and competitive capabilities
 (3)Structuring the organization and work effort - Organizing value chain activities  and business processes and developing communication and authority delegation lines that complete the tasks assigned to them after required operational planning with effectiveness and efficiency.

Staffing the Organization

Assembling a capable senior management team is a cornerstone of the organisation - building task. The personal chemistry among the members of the team needs to be right, and the competencies of the need to be appropriate for the chosen strategy. People of the senior management team have to be persons who can be counted on to get things done. Sometimes the existing management team is suitable; at other times it may requires changes.

Even at other levels, the organization must have a recruitment and selection procedure that gives best of the available persons to the organization. The organization must have training and development processes that convert the average performers into competent persons.

Building Core Competencies and Competitive Capabilities

Building core competencies and competitive capabilities is a time-consuming development activity that involves three stages:

(1) Developing the ability to do something as novice act as a team.

 (2) Learning from the initial performances, and developing methods to perform the activity consistently well at marketable and profitable costs, setting the stage to transform the ability into a tried-and-true business getting competence or capability; and

(3) Continuing to polish and refine the organization's know-how and otherwise sharpen performance such that it becomes better than competitors at performing the activity, and make efforts to raise it to the core competence level  (or capability) or to the rank of a distinctive competence (or competitively superior capability) thus opening an avenue to competitive advantage. Many companies manage to get through stages 1 and 2 but comparatively few achieve sufficient proficiency to qualify for the third stage. The idea of top three in any industry illustrates this idea of many not being able to develop that superiority in competitive scenario.

Four ideas regarding the process of developing core competencies or capabilities

1. Core competencies grow out of combined efforts of many in the department. Core capabilities grow out of the combined efforts of cross-functional work groups.
2. A core competence and capability emerges incrementally out of company efforts to strengthen skills that contributed to successful customer related outcomes.
3. Only by concentrating more effort and talent than rivals in deepening the knowledge and skills that a company develops core competence and capability.
4. Evolving changes in customer needs and competitor successes demand changes in competencies and the organization has to recognize the change in the environment and determine the new competencies required and start taking steps to put into motion  the three steps - Do as novice - Make it market acceptable - Develop it into competency and then into core competency.

Competitive Advantage

While competitors can readily duplicate some strategy features, core competencies and capabilities are very difficult or costly for imitations and they give durable competitive edge.  They become difficult to imitate when they are based on research and development inside an organization.

Developing Organization Structure Matched  to Strategy

Outsourcing of Value Chain Activities

Partnering for Value Chain Activities

Pure functional departments are impeding strategy execution.

Determining the Degree of Authority and Independence to Give Each Unit and Each Employee

Contingency theory of management is applicable here.

Providing for Internal Cross-Unit Coordination

Supply Chain Development based Partnership Model

Organizational Structures of the Future

Five new ideas are being emphasized in organization:

1. Empowered managers and workers.
2. Reengineering of work processes.
3.Self directed work teams
4. Rapid incorporation of internet.
5. Networking with outsiders to improve existing organization capabilities.

Presentation slides

Resources, Competencies and Capabilities

Competence is the quality or state of being functionally adequate or having sufficient knowledge, strength and skill. Competence is another word for an individual’s knowhow or skill. When we are asking whether we have the right competencies aren’t we really asking, “Who knows how?” and
“How well do they know?” Booz, Allen and Hamilton (one of the first management consulting
firms) used competence as an essential principle when they recognized that management and leadership are all about getting the right people in the right place at the right time.

Capability is a collaborative process that can be deployed and through which individual competences can be applied and exploited. The relevant question for capability is not “who knows how?” but “How can we get done what we need to get done?” and “How easily is it to access, deploy or
apply the competencies we need?”

 Capacity is really about “amount” or “volume.” of competencies or capabilities. The relevant question related to capacity is “Do we have enough?” and the related question, “How much is needed?”

Differentiating Competence, Capability and Capacity
by Lanny Vincent

Edith Penrose

The firm, she said, is “both an administrative organization and a collection of productive
resources, both human and material” (p. 320). The services rendered by these resources
are the primary inputs into a firm’s production processes and are firm specific in the sense that they are a function of the knowledge and experience that the firm has acquired over time. When services that are currently going unused are applied to new lines of business, these services also function
as a growth engine for the firm. Learning enables the organization to use its resources more efficiently. As a result, even firms that maintain a constant level of capital may nevertheless be able to grow as services are freed up for new uses as a result of organizational learning.

The dynamic capability perspective follows Hayek (1945) (and the behavioral and evolutionary
theorists) in emphasizing that coordination as an economic problem only occurs because of change. In a static environment a short period of “set up” would be required to organize economic activity; but absent change in consumer tastes or technology, economic agents (both traders and managers) would sort out the optimal flows of goods and services (together with methods of production). Thereafter, there would be no need for their services.

In an economic system, principals and/or their agents must design and implement processes to manage change, must direct the reinvestment of cash flow, and must configure asset portfolios, including allocating resources between exploitation and exploration (March, 1991, 1994). They
must also stand ready to reconfigure them as circumstances change. In a strict evolutionary
views of the world, there is no specific agent and no hierarchy responsible for regulating the evolutionary process (Cohendet, Llerena and Marengo 2000).

Strategic Management and Entrepreneur (and leader-)ship However, in a less evolutionary view of the world, there is room for a managerial and entrepreneurial function.

The manager/entrepreneur need not be an individual; in the modern corporation it is a function. As
Schumpeter (1949) noted: “The entrepreneurial function may be and often is filled cooperatively – in many cases, therefore, it is difficult or even impossible to name an individual that acts as “the entrepreneur.” (pp. 71-72).

The manager/entrepreneur must articulate goals, set culture, build trust, and play a critical role in the key strategic decisions. Clearly the role of the entrepreneur and the manager overlap to a considerable extent and in some contexts they refer to the same person.

The manager/entrepreneur plays a key role in achieving asset-resource selection and the “coordination” of economic activity, particularly when complementary assets/resources must be assembled. The manager/entrepreneur has to search for people willing to sell the required asset and has to bargain and negotiate and buy or sell or swap investments/assets, orchestrate internal
assets (intrapreneurship) and transact with the owners of external assets (entrepreneurship).
He needs to have strong skills in working out new “business models”, which define the architecture of new businesses.  The astute performance of this function will help achieve what Porter (1996)
calls “strategic fit”, not just with internally controlled assets, but with the assets of alliance
partners. The manager/entrepreneur also has to shape learning processes with the firm. These are not functions which can be achieved by markets divorced from managers/entrepreneurs.

Thus the entrepreneur/manager function in the dynamic capabilities framework is in part Schumpeterian (the entrepreneur introduces novelty and seeks new combinations) and in part evolutionary (the entrepreneur endeavors to promote and shape learning). Whether intrapreneur or entrepreneur, the function senses new opportunities and leads the organization forward to seize them.
The entrepreneur/ manager must therefore lead. These are roles not recognized by economic theory; Management theory develops them.  These roles are the essence of dynamic capabilities. They are also  part of the theory of strategic management.

Conceptual Framework for Modeling Business Capabilities

Updated 26 August 2016, 24 Mar 2014, 19 Dec 2011