MBA III SEMESTER

Strategic Management and Social Capital (MBA008A)

Objectives:
The objective of this course is to develop a holistic perspective of an organization and to enable
the students to analyze the strategic situation facing the organization, to access strategic options
available to the organization and to implement the strategic choices made by it.

Unit I
Introduction: Business policy-evolution of the concept. Difference between business policy and
strategic management.Corporate governance- concept, issues, models, evolution and
significance. Introduction to Strategic Management-Concept importance of strategic
Management, Strategy & Competitive Advantage, Strategy Planning & Decisions, strategic
Management Process.
Unit II
Top management perspective: Establishing company direction-developing strategic vision,
setting objectives and crafting a strategy-Internal & External Environment, Formulating Long
Term objective & Strategy, Strategic Analysis & Choice.
Unit III
Analyzing business environment: Analysis of Business environment at 3 levels-Macro external
environment analysis, external environment analysis (Industry analysis and competitor analysis)
porter’s five forces and competitor analysis framework, and firm level internal analysis.
Identifying alternative strategies: Grand strategies: stability, growth, retrenchment &
combination strategies, Generic strategies. Organization structures and strategy.
Unit IV
Competitive strategy and competitive advantage: Industry and competitive analysis, strategy and
competitive advantage, Principles of Competitive Advantage-Identifying Value Activities,
Competitive Scope and the Value Chain.
Unit V
Social Capital-Social theory and social structure , Concept and characteristics ,concept of
bonding-bridging & linking : Putnam’s theory ,A paradigm for social capital, Leveraging social
capital in Business set-up &NGO's ,Social capital in the organisation, Social capital outside the
organisation , Social capital, exchange and contribution, Social capital, intellectual capital and
the organizational advantage.

Reference Books:
1.G.Saloner,A.Shepard,andJ.Padolny,StrategicManagement,WileyIndia,New Delhi,2008
2.AnthonyHenry,Understanding Strategic Management,OUP,New Delhi,2011
3.A.Haberberg and A.Rieple,StrategicManagement:Theory and Application,OUP,New
Delhi,2008
 Unit I

Introduction: Business policy-evolution of the concept

The term "Business Policy" comprises of two words, Business and Policy.
Business : "Business means exchange of commodities and services for increasing utilities."
Policy : Policies may be defined as "the mode of thought and the principles underlying the
activities of an organization or an institution." Policies are plans in they are general statements of
principles which guide the thinking, decision-making and action in an organization.

Business policy as a principle or a group of related principles, along with their consequent rule
(s) of action that provide for the successful achievement of specific organization / business
objectives. Accordingly, a policy contains both a "principle" and a "rule of action." Both should
be there for the maximum effectiveness of a policy.

Definition of Business Policy

Business Policy defines the scope or spheres within which decisions can be taken by the
subordinates in an organization. It permits the lower level management to deal with the problems
and issues without consulting top level management every time for decisions.

Business policies are the guidelines developed by an organization to govern its actions. They
define the limits within which decisions must be made. Business policy also deals with
acquisition of resources with which organizational goals can be achieved. Business policy is the
study of the roles and responsibilities of top level management, the significant issues affecting
organizational success and the decisions affecting organization in long-run.

Evolution of business policy

Due to the increasing environmental changes in the 1930s and 40s in the US, planned policy
formulation replaced ad hoc policy-making. Based on this second paradigm, the emphasis shifted
to the integration of functional areas in a rapidly changing environment.

Increasing complexity and accelerating changes in the environment made the planned policy
paradigm irrelevant since the needs of a business could no longer be served by policy-making
and functional-area integration only. By the 1960s, there was a demand for a critical look at the
basic concept of business and its relationship to the environment. The concept of strategy
satisfied this requirement and the third phase, based on & strategy paradigm, emerged in the
early sixties. The current thinking- which emerged in the eighties- is based on the fourth
paradigm of strategic management. The initial focus of strategic management was on the
intersection of two broad fields of enquiry: the processes of business firms and the
responsibilities of general management.
Features of Business Policy

An effective business policy must have following features-

1. Specific- Policy should be specific/definite. If it is uncertain, then the implementation

will become difficult.
2. Clear- Policy must be unambiguous. It should avoid use of jargons and connotations.
There should be no misunderstandings in following the policy.
3. Reliable/Uniform- Policy must be uniform enough so that it can be efficiently followed
by the subordinates.
4. Appropriate- Policy should be appropriate to the present organizational goal.
5. Simple- A policy should be simple and easily understood by all in the organization.
6. Inclusive/Comprehensive- In order to have a wide scope, a policy must be
comprehensive.
7. Flexible- Policy should be flexible in operation/application. This does not imply that a
policy should be altered always, but it should be wide in scope so as to ensure that the
line managers use them in repetitive/routine scenarios.
8. Stable- Policy should be stable else it will lead to indecisiveness and uncertainty in
minds of those who look into it for guidance.

Difference between business policy and strategic management

The term “policy” should not be considered as synonymous to the term “strategy”. The
difference between policy and strategy can be summarized as follows-

1. Policy is a blueprint of the organizational activities which are repetitive/routine in nature.

While strategy is concerned with those organizational decisions which have not been
dealt/faced before in same form.
2. Policy formulation is responsibility of top level management. While strategy formulation
is basically done by middle level management.
 3. Policy deals with routine/daily activities essential for effective and efficient running of an
organization. While strategy deals with strategic decisions.
4. Policy is concerned with both thought and actions. While strategy is concerned mostly
with action.
5. A policy is what is, or what is not done. While a strategy is the methodology used to
achieve a target as prescribed by a policy.

Strategic Management Business Policy

1) Deals with strategic decisions It offers guidelines for managers to take
that decide the long-term health appropriate decisions.
of an enterprise. It is a
comprehensive plan of action
designed to meet certain specific
goals.
2) It is a means of putting a policy It is a general course of action with no
into effect within certain time defined time limits.
limits.
3) Deals with those decisions which It is a guide to action in areas of
have not been encountered repetitive activity.
before in quite the same form,
for which no predetermined and
explicit set or ordered responses
exist in the organization and
which are important in terms of
the resources committed or the
precedents set.
4) It deals with crucial decisions, Once policy decisions are formulated,
whose implementation requires these can be delegated and implemented
constant attention of top by others independently.
management.
5) Strategies are specific actions Policies are statements or a commonly
suggested to achieve the accepted understanding of decision
objectives. making.
6) Strategies are action oriented. Policies are thought oriented.
7) Everyone is empowered to Power is delegated to the subordinates
implement the strategy. for implementation.
8) Strategies are means to an end. Policies are guidelines.
9) Strategy is concerned with Policy is in general concerned with the
uncertainties, competitive course of action to fulfill the set
situations, and risks etc that are objectivies.
likely to take place at a future
date.
10) Strategy is deployed to mobilize Policy is an overall guide that governs
the available resources the best and controls the managerial action.
interest of the company.
Corporate governance- concept, issues, models, evolution and significance
What is corporate governance?

Corporate governance is a system of structuring, operating and controlling a company with a

view to achieve long-term strategic goals to satisfy shareholders, creditors, employees, customers
and suppliers, and complying with the legal and regulatory, apart from meeting environmental
and local community needs."
Corporate governance can be defined as a set of systems and processes which ensure that a
company is managed to the best interests of all the stakeholders. The set systems that help the
task of corporate governance should include certain structural and organizational aspects; the
process that helps corporate governance will embrace how things are done within such structure
and organizational systems.

Corporate governance is of interest to us as it determines the strategy of the organization and

how it is to be implemented. It is also important to us because the Corporate Governance
framework determines who the organization is there to serve and how the priorities and purpose
of the organization are determines.
Corporate governance is the set of mechanisms used to manage the relationship among
stakeholders that is used to determine and control the strategic directions and performance of
organization.

Significance of Corporate Governance

Good corporate governance has assumed great importance and urgency in India due to the
following reasons:
1) Changing Ownership Structure: The profile of corporate ownership has changed
significantly. Public financial institutions are the single largest shareholder in most of the
large corporation in the private sector. Institutional shareholders have reversed the trend
of scattered shareholders. Institutional investors (foreign as well as Indian) and mutual
funds have now become singly or jointly direct challenges to managements of companies.
Due to threat of hostile takeover bids and the growth of institutional investors the big
business houses started talking about corporate governance.
2) Social Responsibility: A company is a legal entity without physical existence. Therefore,
it is managed by board of directors which is accountable and responsible to shareholders
who provide the funds. Directors are also required to act in the interests of customers,
lenders, suppliers and the local community of enhancing shareholders' value. An effective
system of corporate governance provides a mechanism for regulating the duties of
directors so that they act in the best interests of the companies. Control systems are
established either through law or self-regulations.
3) Scams: In recent years several corporate frauds have shaken the public confidence.
Harshad Mehta scandal, CRB Capital case and other frauds have caused tremendous loss
to the small meetings. Shareholders, associations, investors, education and awareness
have not emerged as a countervailing force.
4) Globalization: As Indian companies went to overseas markets for capital, corporate
governance became a buzzword. Sinking capital markets in India from 1994 through
 1998 and the desire of more and more companies in India to get listed on international
stock exchanges also prompted them to pay attention to corporate governance. We must,
however, remember that corporate governance is not a trick to prop up the sensex of to
bring in foreign capital. It implies management of the corporate sector within the
constraints of fair play, responsibility and conscience with regard to all the stakeholders.

Issues of corporate governance

Basic issues
1) Ethical Issues: Ethical issues are concerned with the problem of fraud, which is
becoming wide spread in capitalist economies. Corporations often employ fraudulent
means to achieve their goals. They form cartels to exert tremendous pressure on the
government to formulate public policy, which may sometimes go against the interests of
individuals and society at large. At times corporations may resort to unethical means like
bribes, giving gifts to potential customers and lobbying under the cover of public
relations in order to achieve their goal of maximizing long-term owner value.
2) Efficiency issues: Efficiency issues are concerned with the performance of management.
Management is responsible for ensuring reasonable returns on investment made by
shareholders. In developed countries, individuals usually invest money through mutual,
retirement and tax funds. In India, however small shareholders are still an important
source of capital for corporations as the mutual funds industry is still emerging. The
issues relating to efficiency of management is of concern to shareholders as, there is no
control mechanism through which they can control the activities of the management,
whose efficiency is unfavorable for returns on their (shareholders) investments.
3) Accountability Issues: Accountability issues emerge out of the stakeholders' need for
transparency of management in the conduct of business. Since the activities of a
corporation influence the workers, customers and society at large, some of the
accountability issues are concerned with the social responsibility that a corporation must
shoulder.

Structural Issues

Corporate governance is viewed as interactions among participants in managerial functions (e.g.,

management), oversight functions (e.g., the board of directors and audit committee), audit
functions (e.g., internal auditors and external auditors), monitoring functions (e.g., the SEC,
standard setters, regulations), and user functions (e.g., investors, creditors, and other
stakeholders) in the governance system of corporations.

Corporate governance consists of internal and external mechanisms, directing, and monitoring
corporate activities to create and increase shareholder value. Organizations that strive to develop
effective corporate governance systems consider a number of internal and external issues.
These issues affect most organizations, although individual businesses may face unique factors
that create additional governance questions. For example, a company operating in several
countries will need to resolve issues related to international governance policy

1) Boards of Directors: Members of a company's board of directors assume legal and

ethical responsibility for the firm's resources and decisions, and they appoint its top
 executive officers. Board members have fiduciary duty, meaning they have assumed a
position of trust and confidence that entails certain requisite responsibilities, including
acting in the best interests of those they serve. Thus, board membership is not designed as
a vehicle for personal financial gain; rather, it provides the intangible benefit of ensuring
the success of the organization and the stakeholders affected and involved in the fiduciary
arrangement.
2) Shareholders and Investors: Because they have allocated scarce resources to the
organization, shareholders and investors expect to reap rewards from their investments.
This type of financial exchange represents a formal contractual arrangement that provides
the capital necessary to fund all types of organizational initiatives, such as developing
new products and constructing new facilities. Shareholders are concerned with their
ownership investment in publicly traded firms, whereas "investor" is a more general term
for any individual or organization that provides capital to a firm. Investments include
financial, human, and intellectual capital.
3) Internal Control and Risk Management: Controls and a strong risk management
system are fundamental to effective operations because they allow for comparisons
between the actual performance and the planned performance and goals of the
organization. Controls are used to safeguard corporate assets and resources, protect the
reliability of organizational information, and ensure compliance with regulations, laws,
and contracts. Risk management is the process used to anticipate and shield the
organization from unnecessary or overwhelming circumstances, while ensuring that
executive leadership is taking the appropriate steps to move the organization and its
strategy forward.
4) CEO Compensation: How executives are compensated for their leadership,
organizational service, and performance has become an extremely troublesome topic.

Many people believe that no executive is worth millions of dollars in annual salary and stock
options, even one who has brought great financial returns to investors. The reality, however, is
that some executives continue to receive extremely high pay packages while their companies fall
into ruin.

Evolution of corporate governance

Many factors have contributed to the evolution of corporate governance. Some of these are:

1) The Responsibility for Ensuring Good Corporate Shifted from Government to a

Free market Economy: With the relaxation of direct indirect administrative controls by
the government, alternative mechanisms became necessary to monitor the performance of
corporations in free-markets. Shareholders believed that market forces could ensure good
corporate conduct (self-imposed) by way of rewarding success and punishing failures of
corporations. Many free-market economies laid down effective regulations to monitor the
corporations. However, regulations alone not ensure good governance. To become
effective, they must be enforceable by law.
2) Active Participation of individual and Institutional Investors: The second factor that
boosted corporate governance is the growth of global fund management business.
 Institutional investors such as insurance companies, pension and tax funds account for
more than half the capital in the corporations of USA. This trend is also growing in India.
Earlier Institutional investors did not monitor the activities of the corporations in which
they invested. But the competition in the fund management business has forced them to
take an active role in governance in order to safeguard their investments in the
corporations. Now, many institutional investors express their views strongly with regard
to various matters such as financial and operational performance, business strategy,
remuneration of top-level managers etc. Along with the non-executive directors, these
institutional investors monitor the performance of corporations.

The active investor demands good performance in the form of return on investment and
they also expect timely and accurate information regarding the performance of the
company. Institutional investors can exert pressure on the management as they own a
considerable share in the capital and any criticism from these investors can have a major
impact on the share prices. Investors believe that only strong corporate governance
mechanisms and practices can save them from the ever-growing power of corporations,
which can influence public policy to the detriment of investors.

3) Increasing Competition in Global Economy: The enhanced competition in the global

economy has compelled corporations to perform better by going in for cost-cutting,
corporate restructuring, mergers and acquisitions, downsizing, etc. All these activities can
be carried out successfully only if there is proper corporate governance. Thus, market
forces, active individual and institutional investor participation, and enhanced
governance. Thus market forces, active individual and institutional investor participation,
and enhanced competition have helped corporate governance to evolve beyond a set of
static rules. In India, the concept of corporate governance is still in its nascent stage.

Introduction to Strategic Management-Concept, importance of strategic

Management
Definition: - “Strategic management is the process by which top management determines the
long-term direction of the organization by ensuring that careful formulation, implementation and
continuous evaluation of strategy take place”.

The concept of strategy

The word strategy has entered the field of management more recently. At first, the word was
used in terms of Military Science to mean what a manager does to offset actual or potential
actions of competitors. The word is still being used in the same sense, though by few only.
Originally, the word strategy has been derived from Greek ‘Strategos’, which means generalship.
The word strategy, therefore, means the art of the general. When the term strategy is used in
military sense, it refers to action that can be taken in the light of action taken by opposite party.

According to Oxford Dictionary, ‘military strategy is the art of so moving or disposing the
instruments of warfare (troops, ships, aircrafts, missiles, etc.) as to impose upon the enemy, the
place, time and conditions for fighting by oneself. Strategy ends, or yields to tactics when actual
contact with enemy is made’.

In management, the concept of strategy is taken in slightly different form as compared to its
usage in military form; it is taken more broadly. However, in this form, various experts do not
agree about the precise scope of strategy. Lack of unanimity has resulted into two broad
categories of definitions: strategy as action inclusive of objective setting and strategy as action
exclusive of objective setting. Let us see some definitions in these two categories in order to
conceptualize strategy properly.

Nature of strategy

 Strategy is a contingent plan as it is designed to meet the demands of a difficult situation.

 Strategy provides direction in which human and physical resources will be deployed for
achieving organizational goals in the face of environmental pressure and constraints.
 Strategy relates an organization to its external environment. Strategic decisions are
primarily concerned with expected trends in the market, changes in government policy,
technological developments etc.
 Strategy is an interpretative plan formulated to give meaning to other plans in the light of
specific situations.
 Strategy determines the direction in which the organization is going in relation to its
environment. It is the process of defining intentions and allocating or matching resources
to opportunities and needs, thus achieving a strategic fit between them. Business strategy
is concerned with achieving competitive advantage.
 The effective development and implementation of strategy depends on the strategic
capability of the organization, which will include the ability not only to formulate
strategic goals but also to develop and implement strategic plans through the process of
strategic management.
 A strategy gives direction to diverse activities, even though the conditions under which
the activities are carried out are rapidly changing.
 The strategy describes the way that the organization will pursue its goals, given the
changing environment and the resource capabilities of the organization.
 It provides an understanding of how the organization plans to compete.
 It is the determination and evaluation of alternatives available to an organization in
achieving its objectives and mission and the selection of appropriate alternatives to be
pursued.
 It is the fundamental pattern of present and planned objectives, resource deployments,
and interactions of a firm with markets, competitors and other environmental factors.

A good strategy should specify;

 What is to be accomplished
 Where, i.e., which product/markets it will focus on
 How i.e., which resources and activities will be allocated to each product/market to meet
environmental opportunities and threats and to gain a competitive advantage
Components of a Strategy Statement

The strategy statement of a firm sets the firm’s long-term strategic direction and broad policy
directions. It gives the firm a clear sense of direction and a blueprint for the firm’s activities for
the upcoming years. The main constituents of a strategic statement are as follows:

1. Strategic Intent

An organization’s strategic intent is the purpose that it exists and why it will continue to
exist, providing it maintains a competitive advantage. Strategic intent gives a picture
about what an organization must get into immediately in order to achieve the company’s
vision. It motivates the people. It clarifies the vision of the vision of the company.

Strategic intent helps management to emphasize and concentrate on the priorities.

Strategic intent is, nothing but, the influencing of an organization’s resource potential and
core competencies to achieve what at first may seem to be unachievable goals in the
competitive environment. A well expressed strategic intent should guide/steer the
development of strategic intent or the setting of goals and objectives that require that all
of organization’s competencies be controlled to maximum value.

Strategic intent includes directing organization’s attention on the need of winning;

inspiring people by telling them that the targets are valuable; encouraging individual and
team participation as well as contribution; and utilizing intent to direct allocation of
resources.

Strategic intent differs from strategic fit in a way that while strategic fit deals with
harmonizing available resources and potentials to the external environment, strategic
intent emphasizes on building new resources and potentials so as to create and exploit
future opportunities.

2. Mission Statement

Mission statement is the statement of the role by which an organization intends to serve
it’s stakeholders. It describes why an organization is operating and thus provides a
framework within which strategies are formulated. It describes what the organization
does (i.e., present capabilities), who all it serves (i.e., stakeholders) and what makes an
organization unique (i.e., reason for existence).

A mission statement differentiates an organization from others by explaining its broad

scope of activities, its products, and technologies it uses to achieve its goals and
objectives. It talks about an organization’s present (i.e., “about where we are”). For
instance, Microsoft’s mission is to help people and businesses throughout the world to
realize their full potential. Wal-Mart’s mission is “To give ordinary folk the chance to
buy the same thing as rich people.” Mission statements always exist at top level of an
organization, but may also be made for various organizational levels. Chief executive
plays a significant role in formulation of mission statement. Once the mission statement
is formulated, it serves the organization in long run, but it may become ambiguous with
organizational growth and innovations.
 In today’s dynamic and competitive environment, mission may need to be redefined.
However, care must be taken that the redefined mission statement should have original
fundamentals/components. Mission statement has three main components-a statement of
mission or vision of the company, a statement of the core values that shape the acts and
behaviour of the employees, and a statement of the goals and objectives.

Features of a Mission

a. Mission must be feasible and attainable. It should be possible to achieve it.

b. Mission should be clear enough so that any action can be taken.
c. It should be inspiring for the management, staff and society at large.
d. It should be precise enough, i.e., it should be neither too broad nor too narrow.
e. It should be unique and distinctive to leave an impact in everyone’s mind.
f. It should be analytical,i.e., it should analyze the key components of the strategy.
g. It should be credible, i.e., all stakeholders should be able to believe it.

3. Vision

A vision statement identifies where the organization wants or intends to be in future or

where it should be to best meet the needs of the stakeholders. It describes dreams and
aspirations for future. For instance, Microsoft’s vision is “to empower people through
great software, any time, any place, or any device.” Wal-Mart’s vision is to become
worldwide leader in retailing.

A vision is the potential to view things ahead of themselves. It answers the question
“where we want to be”. It gives us a reminder about what we attempt to develop. A
vision statement is for the organization and it’s members, unlike the mission statement
which is for the customers/clients. It contributes in effective decision making as well as
effective business planning. It incorporates a shared understanding about the nature and
aim of the organization and utilizes this understanding to direct and guide the
organization towards a better purpose. It describes that on achieving the mission, how the
organizational future would appear to be.

An effective vision statement must have following features-

a. It must be unambiguous.
b. It must be clear.
c. It must harmonize with organization’s culture and values.
d. The dreams and aspirations must be rational/realistic.
e. Vision statements should be shorter so that they are easier to memorize.
 In order to realize the vision, it must be deeply instilled in the organization, being owned
and shared by everyone involved in the organization.

4. Goals and Objectives

A goal is a desired future state or objective that an organization tries to achieve. Goals
specify in particular what must be done if an organization is to attain mission or vision.
Goals make mission more prominent and concrete. They co-ordinate and integrate
various functional and departmental areas in an organization. Well made goals have
following features-

a. These are precise and measurable.

b. These look after critical and significant issues.
c. These are realistic and challenging.
d. These must be achieved within a specific time frame.
e. These include both financial as well as non-financial components.

Objectives are defined as goals that organization wants to achieve over a period of time.
These are the foundation of planning. Policies are developed in an organization so as to
achieve these objectives. Formulation of objectives is the task of top level management.
Effective objectives have following features-

f. These are not single for an organization, but multiple.

g. Objectives should be both short-term as well as long-term.
h. Objectives must respond and react to changes in environment, i.e., they must
be flexible.
i. These must be feasible, realistic and operational.

Importance of Strategic Management

 It guides the company to move in a specific direction. It defines organization’s goals and
fixes realistic objectives, which are in alignment with the company’s vision.
 It assists the firm in becoming proactive, rather than reactive, to make it analyse the
actions of the competitors and take necessary steps to compete in the market, instead of
becoming spectators.
 It acts as a foundation for all key decisions of the firm.
 It attempts to prepare the organization for future challenges and play the role of pioneer
in exploring opportunities and also helps in identifying ways to reach those opportunities.
 It ensures the long-term survival of the firm while coping with competition and surviving
the dynamic environment.
 It assists in the development of core competencies and competitive advantage, that helps
in the business survival and growth.
The basic purpose of strategic management is to gain sustained-strategic competitiveness of the
firm. It is possible by developing and implementing such strategies that create value for the
company. It focuses on assessing the opportunities and threats, keeping in mind firm’s strengths
and weaknesses and developing strategies for its survival, growth and expansion.

Strategy Planning & Decisions

Strategic planning is a defined, recognizable set of activities designed to achieve organizational
objectives and goals. The techniques for strategic planning may vary but the substantive issues
are essentially the same.

These include:
 Establishing and periodically confirming the organization’s mission and its corporate
strategy.
 Setting strategic or enterprise-level financial and non-financial goals and objectives.
 Developing broad plan of action necessary to attain these goals and objectives, allocating
resources on a basis consistent with strategic directions, and managing the various lines
of business as an investment “portfolio”.
 Communicating the strategy at all levels , as well as developing action plans at lower
levels that are supportive of those at the enterprise level.
 Monitoring results, measuring progress, and making such adjustments as are required to
achieve the strategic intent specified in the strategic goals and objectives.
 Reassessing mission, strategy, strategic goals and objectives, and plans at all levels and,
if required, revising any or all of them.

A great deal of strategic thinking must go into developing a strategic plan and, once developed, a
great deal of strategic management is required to put the plan into action. Strategic planning is a
useful tool, of help in managing the enterprise, especially if the strategy and strategic plans can
be successfully deployed throughout the organization. Thinking and managing strategically are
important aspects of senior managers’ responsibilities, too. To paraphrase an old saw, “The
strategy wheel gets the executive grease.” This is as it should be. Senior management should
focus on the strategic issues, on the important issues facing the business as a whole, including
where it is headed and what it will or should become. Others can “mind the store.” became
unstable, long range planning was used and then replaced by strategic planning and later by
strategic management.

Strategic Decisions - Definition and Characteristics

Strategic decisions are the decisions that are concerned with whole environment in which the
firm operates, the entire resources and the people who form the company and the interface
between the two.

Characteristics/Features of Strategic Decisions

a. Strategic decisions have major resource propositions for an organization. These decisions
may be concerned with possessing new resources, organizing others or reallocating
others.
 b. Strategic decisions deal with harmonizing organizational resource capabilities with the
threats and opportunities.
c. Strategic decisions deal with the range of organizational activities. It is all about what
they want the organization to be like and to be about.
d. Strategic decisions involve a change of major kind since an organization operates in ever-
changing environment.
e. Strategic decisions are complex in nature.
f. Strategic decisions are at the top most level, are uncertain as they deal with the future,
and involve a lot of risk.
g. Strategic decisions are different from administrative and operational decisions.
Administrative decisions are routine decisions which help or rather facilitate strategic
decisions or operational decisions. Operational decisions are technical decisions which
help execution of strategic decisions. To reduce cost is a strategic decision which is
achieved through operational decision of reducing the number of employees and how we
carry out these reductions will be administrative decision.

The differences between Strategic, Administrative and Operational decisions can be summarized
as follows-

Strategic Decisions Administrative Decisions Operational Decisions

Strategic decisions are long-term Administrative decisions are Operational decisions are not
decisions. taken daily. frequently taken.

These are considered where The These are short-term based These are medium-period
future planning is concerned. Decisions. based decisions.

Strategic decisions are taken in These are taken according to These are taken in accordance
Accordance with organizational strategic and operational with strategic and
mission and vision. Decisions. administrative decision.

These are related to overall These are related to working These are related to
Counter planning of all of employees in an production.
Organization. Organization.

These deal with organizational These are in welfare of These are related to
Growth. employees working in an production and factory
organization. growth.
Strategic Management Process
The strategic management process means defining the organization’s strategy. It is also defined
as the process by which managers make a choice of a set of strategies for the organization that
will enable it to achieve better performance. Strategic management is a continuous process that
appraises the business and industries in which the organization is involved; appraises its
competitors; and fixes goals to meet all the present and future competitors and then reassesses
each strategy.

A good strategic management process will help any organization to improve and to gain more
profits. Every organization should know that performance of the management process is very
important. There is a big difference between planning and performing. The organization will be
successful only if it follows all the stages of the strategic management process. Strategic
management process has following four steps:-
a) Environmental scanning refers to a process of collecting, scrutinizing and providing
information for strategic purposes. It helps in analyzing the internal and external factors
influencing an organization. After executing the environmental analysis process,
management should evaluate it on a continuous basis and strive to improve it.
b) Strategy formulation is the process of deciding best course of action for accomplishing
organizational objectives and hence achieving organizational purpose. After conducting
environment scanning, managers formulate corporate, business and functional strategies.
c) Strategy implementation implies making the strategy work as intended or putting the
organization’s chosen strategy into action. Strategy implementation includes designing
the organization’s structure, distributing resources, developing decision making process,
and managing human resources.
d) Strategy evaluation is the final step of strategy management process. The key strategy
evaluation activities are: appraising internal and external factors that are the root of
present strategies, measuring performance, and taking remedial / corrective actions.
Evaluation makes sure that the organizational strategy as well as its implementation
meets the organizational objectives.
Environmental Scanning involves:

 SWOT analysis
 PESTEL analysis

Strategy formulation involves;

 Defining the organization’s guiding philosophy & purpose or mission.
 Establishing long-term objectives in order to achieve the mission.
 Selecting the strategy to achieve the objectives.

Strategy implementation involves;

 Establishing short-range objectives, budgets and functional strategies to achieve the
strategy.

Strategy control involves the following;

 Establishing standards of performance.
 Monitoring progress in executing the strategy.
 Initiating corrective actions to ensure commitment to the implementation of the strategy.
Phase I: Environment Scanning

Environmental scanning is the monitoring, evaluating, and disseminating of information from the
external and internal environments to key people within the corporation. Its purpose is to identify
strategic factors - those external and internal elements that will determine the future of the
corporation. The simplest way to conduct environmental scanning is through SWOT analysis.
SWOT is an acronym used to describe those particular Strengths, Weaknesses, Opportunities,
and Threats that are strategic factors for a specific company.

 External Environment: External environment consists of variables (Opportunities and

Threats) that are outside the organization and not typically within the short-run control of
top management. These variables form the context within which the corporation exists.
 Internal Environment: Internet environment of a corporation consists of variables
(Strengths and Weaknesses) that are within the organization itself and are not usually
within the short-run control of top management. These variables form the context in
which work is done. They include the corporation's structure, culture, and resources. Key
strengths form a set of core competencies that the corporation can use to gain competitive
advantage.

Phase II: Strategy Formulation

Strategy formulation is the development of long-range plans for the effective management of
environmental opportunities and threats, in light of corporate strengths and weaknesses. It
includes defining the corporate mission, specifying achievable objectives, developing strategies,
and setting policy guidelines.

 Vision of the Company: Vision of a company is rather a permanent statement articulated

by the CEO of the company who may be Managing Director, President, Chairman, etc.
The purpose of a vision statement is to:
i. Communicate with the people of the organization and to those who are in some
way connected or concerned with the organization about its very existence in
terms of corporate purpose, business scope, and the competitive leadership.
ii. Cast a framework that would lead to development of interrelationships between
firm and stakeholders viz. employees, shareholders, suppliers, customers, and
various communities that may be directly or indirectly involved with the firm.
iii. Define broad objective regarding performance of the firm and its growth in
various fields vital to the firm.

Vision is a theme, which gives a focused view of a company. It is a unifying statement and a
vital challenge to all different units of an organization that may be busy pursuing their
independent objectives. It consists of a sense of achievable ideals and is a fountain of inspiration
for performing the daily activities. It motivates people of an organization to behave in a way,
which would be congruent with the corporate ethics and values.

The major components of a vision statement must consist the following:

a) Mission of the firm in terms of product, markets, and geographical scope and a way to attain a
desired competitive position.
b) Clear identification of business units and their interrelationship in terms of shared resources
and concerns.
c) Statement of corporate philosophy, corporate policy and values.

Business Mission: The basic concept of mission of business is expressed in terms of products,
markets, geographical scope along with a statement of uniqueness. At business levels the mission
statement becomes sharper and gets focused on specifics. It is detailing out of the vision
statement that reflects the strategic posture of a company. The mission statement is an expression
of business purpose as well as needed excellence to achieve a position of comp0etitive
leadership.
The primary information contained in a mission statement should be the required degree of
excellence for assuming a position of competitive leadership, a clear definition of the present
position, and future expected scope in business. The description is usually broad and goals are
achievable in reasonably short span of a time frame of 3 to 5 years. Business scope is explicit in
starting what is to be included and excluded. Purpose of defining business scope is to clearly
enumerate specification of current and future product, market and geographic coverage of
business.
Many firms suffer from marketing myopia and the contrast between the current and future scope
is an effective diagnostic tool to caution against the myopic position of company. Information
contained in mission statement should provide a way of selecting a method of pursue a position
of either leadership or definite competitive advantageous positions.

Objectives: Organizations plan for long-terms and develop long-term objective. These
objectives cover various areas viz. return on investment, competitive position, leadership in a
definite field, productivity, public image, employee development, profitability, etc. It is
important that objective should not be ambiguous and on the contrary these should be clear and
measurable. It should also be possible to achieve these objectives although it may be slightly
difficult to do so. The objectives are the results one expects to get out of business one does, and
the way one does the business is called the business process, which must be long term.
Objectives can be; increasing value added reduction of inventory to a certain level, training a
specific number of employees in some skill, achieving business excellence, multifold earning per
share, capturing certain markets etc.

Strategies: A strategy of a corporation forms a comprehensive master plan stating how the
corporation will achieve its mission and objectives. It maximizes competitive advantage and
minimizes competitive disadvantages. For example, after the Tata Group of companies realized
that it could no longer achieve its objectives by continuing with its strategy of diversification into
multiple lines of businesses, it sold its companies like Tumco, Lakme, etc. to Hindustan Lever
Limited. Tata's instead chose to concentrate on basic industries like steel, automobiles etc. an
area that management felt had greater opportunities for growth.
The typical business firm usually considers three types of strategy: corporate, business and
functional.
Policies: A policy is a broad guideline for decision - making that links the formulation of
strategy with its implementation. Companies use policies to make sure that employees
throughout the firm make decisions and take actions that support the corporation's mission,
objectives, and strategies

Phase III: Strategy Implementation

Strategy implementation is the process by which strategies and policies are put into action
through the development of programs, budgets and procedures. The process might involve
changes within the overall culture, structure, and / or management system of the entire
organization. Except when such drastic corporate-wide changes are needed, however, the
implementation of strategy is typically conducted by middle and lower level managers with
review by top management.

i) Programs: A program is a statement of the activities or steps needed to accomplish a

single - use plan. It makes the strategy action-oriented. It may involve restructuring
the corporation, changing the company's internal culture, or beginning a new research
effort.
ii) Budgets: A budget is a statement of a corporation's programs in terms of dollars.
Used in planning and control, a budget lists the detailed cost of each program. Many
corporations demand a certain percentage return on investment, often called a "hurdle
rate," before management will approve a new program. This ensures that the new
program will significantly add to the corporation's profit performance and thus, build
shareholder value. The budget, thus, not only serves as a detailed plan of the new
strategy in action, but also specified through preformed financial statement the
expected impact on the firm's financial future.
iii) Procedures: Procedures, sometimes termed Standard Operating Procedures (SOP),
are a system of sequential steps or techniques that describe in detail how a particular
task or job is to be done. They typically detail the various activities that must be
carried out in order to complete the corporation's programs.

Phase IV: Evaluation and control

A continual process of evaluation of strategies is necessary. Evaluation process must be an

integral part of strategy implementation because it keeps the entire program on the tracks.
Evaluation is done on the basis of objectives defined and measures decided for evaluation of
effective implementation. The purpose of evaluation is to introduce objectivity in meeting the
target clearly defined by the strategy. Managers must keep an eye on the likely responses from
various functional groups and the parts of business processes where strategies are implemented.
The market response measurement is also important for evaluation of strategy.
The amount of control required is dependent on many factors viz. the size of organization, the
business process, number of business segments, structure of organization etc. Control should be
such that it should yield the desired corrective action. The required control, which is to be
exercised, depends on variation in results. It may be important for some companies to even
decide on the control strategies that they would adopt.
Performance: Performance is the end result of activities. It includes the actual outcomes of the
strategic management process. The practice of strategic management is justified in terms of its
ability to improve an organization's performance, typically measured in terms of profits and
return on investment. For evaluation and control to be effective, managers must obtain clear,
prompt and unblessed in information from the people below them in the corporation's hierarchy.
Using this information, managers compare what is actually happening with what was originally
planned in the formulation stage.

Feedback

Arrows are drawn coming out of each part of the model and taking information to each of the
previous parts of the model. As a firm or business unit develops strategies, programs and the like
it often must go back to revise or correct decisions. For example, poor performance (as measured
in evaluation and control) usually indicates that something has gone wrong with either strategy
formulation or implementation.