UNIT 1 – INTRODUCTION TO STRATEGIC MANAGEMENT

Strategy is a tactical course of action which is designed to achieve long term objectives. It is an
art and science of planning and marshalling resources for their most efficient and effective use
in a changing environment.

Strategy and Tactics

Tactics is a means through which pre-decided plans are executed. It is related to efficient
utilization of various organizational resources committed through strategy. Tactics is developed
at lower levels of management and it follows strategy. Tactics is formulated from a functional
point of view. Some people are of the opinion that strategy and tactics have same meaning and
can be used in place of each other. But both these terms are quite different. Strategy is a
comprehensive of wide term which is directly related with organizational decisions while tactics
is only a part of strategy by which pre-determined plans are executed.

Tactics is usually short-term decision that involves a lower commitment of resources than
strategic decisions.

Strategic Management – Meaning and Definitions.

Strategic Management is a stream of decisions and actions which lead to the development of an
effective strategy or strategies to help achieve corporate objectives. The Strategic Management
process is the way in which strategists determine objectives and make strategic decisions.
Strategic Management can be found in various types of organizations, business, service,
cooperative, government, and the like.

Schendel and Hofer (1979) – Strategic management is a process that deals with the
entrepreneurial work of the organisation, with organisational renewal and growth, and, more
particularly, with developing and utilizing the strategy which is to guide the organisation’s
operations.

Bracker (1980) – Strategic management entails the analysis of internal and external
environments of firms to maximize the utilization of resources in relation to objectives.

Jemison (1981) – Strategic management is the process by which general managers of complex
organisations develop and use a strategy to co-align their organisation’s competence and the
opportunities and constraints in the environment.

Need of Strategic Management for an Organisation (5 Reasons)

Main reasons for need of strategic management for an organization are: 1. increasing rate of
changes 2. higher motivation of employees 3. strategic decision-making 4. optimisation of
profits and 5. miscellaneous!
1. Increasing Rate of Changes: The environment in which the business operates’ is fast,
changing. A business concern which does not keep its policies up-to-date, cannot survive for a
long time in the market. In turn, the effective strategy optimises profits over a long run.

2. Higher Motivation of Employees: The employees (human resources) are assigned clear cut
duties by the top management viz. what is to be done, who is to do it, how to do it and when to
do it. ? When strategic management is followed in any organisation, employees become loyal,
sincere and goal oriented and their efficiency is also increased. They also get rewards and
promotions resulting in higher motivation for the employees. A strategy must respect human
values and duly consider the aspirations of individual members.

3. Strategic Decision-Making: Under strategic planning, the first step is to set the goals or
objectives of a business concern. Strategic decisions taken under strategic management help
the smooth sailing of an enterprise. Strategic planning is the overall planning of operations for
effective implementation of policies.

4. Optimization of Profits: An effective strategy should develop from policies of a concern. It

takes into account actions of competitors. It considers future operations in respect of market
area and opportunity, executive competence, available resources and limitations imposed by
the Government. An effective strategy should optimise profits over the long run.

5. Miscellaneous: Mr. H.N Broom in his book on ‘Business Policy and Strategic Action’ has
mentioned that a strategy has a primary concern with the following:

(a) Marketing opportunity: Products, prices, sales potential and sales promotion.

(b) Available distribution channel and costs.

(c) The scale of company operations.

(d) The manufacturing process required to implement their scale of operations (with an optimal
production cost)

(e) The research and innovation programme.

(f) The type of organisation.

(g) The amounts and proportions of equity and credit capital available to the firm and their
combined adequacy.

(h) The planned rate of growth.

Thus, strategy is important because it makes possible the implementation of policies and long
range plans for attaining company goals, creation of effective business strategy requires a basic
knowledge of economic theory, management principles, accounting, statistics, finance and
administrative practice.

CHARACTERISTICS OF STRATEGIC DECISIONS

The characters of strategy and strategic decisions are as follows:

1. Concerned with Scope of an Organization’s activity

Strategic decisions are likely to be concerned with the scope of an organization’s activities. The
activities vary from company to company. Some companies’ activities are limited to one product
whereas some other organization’s activities include a wide range of products/services. The
range of organizational activities are fundamental to strategic decisions.

2. Matching of activities with environment

Strategy is to do with the matching of the activities of an organization to the internal and
external environment in which it operates. In fact, strategies are formulated, evaluated and the
best among the alternatives based on the environmental threats and opportunity analysis
(ETOP) and strength weakness, opportunities and threats (SWOT) analysis.

3.Matching of activities with resource capability

Strategy is also to do with the matching of organization’s activities to its resource capability.
Strategy analysis and choice is based not only on the opportunities and threats of the
environment but also on the resource base of the organization. The resource base includes
financial, human, material and informational resources.

4. Matching of activities with resource base

Strategic decisions have major resource implications for an organization. Basically, the
organization, while formulating a strategy, should be based on the available resources. The
organizations, then, search for the opportunities provided by the environment which would
match with the resource base to a greater extent.

5. Affects operational decisions

Strategic decisions affect operational decisions, strategic decisions are the basis for formulating
and making operational decisions. The changes in strategic decisions bring corresponding
changes in operational decisions.

6. Affects nature and magnitude of strategies

The strategies of organization will also be affected by the values and expectations of the
strategic decision-makers in addition to the environmental forces and resources base, for
example, the managing director, general managers and other strategists have the power to
formulate strategies. The values and expectations of these strategists affect the nature and
magnitude of the strategies.

7. Affects long-term direction of company

Strategic decisions are likely to affect the long-term direction of the company. Strategies are
formulated to achieve the company’s mission and objectives which determine the long run
direction of the company.
Some important objectives of strategic management are as follows:

1. To exploit and create new and different opportunities for tomorrow.

2. To provide the conceptual frameworks that will help a manager understand the key
relationships among actions, context, and performance.

3. To put an organisation into a competitive position.

4. To sustain and improve that position by the deployment and acquisition of appropriate
resources and by monitoring and responding to environmental changes.

5. To monitor and respond to the demands of key stakeholders.

6. To find, attract, and keep customers.

7. To ensure that the company is meeting the needs and wants of its customers, which is a
cornerstone in providing the quality product or service that customers really want.

8. To sustain a competitive position.

9. To utilize the company’s strengths and take full advantage of its competitor’s weaknesses.

10. To understand the various concepts involved like strategy, policies, plans and programmes.

11. To have knowledge about environment—how it affects the functioning of an organisation.

12. To determine the mission, objectives and strategies of a firm and to visualize how the
implementation of strategies can take place.

13. To find the solutions of problems in real-life business.

14. To develop analytical ability to identify threats and opportunities present in the
environment.

15. To develop the skills of strategic decision making.

16. To develop a creative and innovative attitude and to think strategically.

The Scope of Strategic Management

J. Constable has defined the area addressed by strategic management as "the management
processes and decisions which determine the long-term structure and activities of the
organization". This definition incorporates five key themes:

* Management process. Management process as relate to how strategies are created and
changed.

* Management decisions. The decisions must relate clearly to a solution of perceived problems
(how to avoid a threat; how to capitalize on an opportunity).

* Time scales. The strategic time horizon is long. However, it for company in real trouble can be
very short.
* Structure of the organization. An organization is managed by people within a structure. The
decisions which result from the way that managers work together within the structure can
result in strategic change.

* Activities of the organization. This is a potentially limitless area of study and we normally
shall centre upon all activities which affect the organization.

These all five themes are fundamental to a study of the strategic management field and are
discussed further in this chapter and other part of this thesis.

Difference between Strategic, Administrative and Operational.

Strategic Decisions Administrative Decisions Operational Decisions

Strategic decisions are long- Administrative decisions are Operational decisions are not
term decisions. taken daily. frequently taken.
These are considered where These are short-term based These are medium-period
the future planning is Decisions. based decisions.
concerned.
Strategic decisions are taken These are taken according to These are taken in
in Accordance with strategic and operational accordance with strategic and
organizational mission and Decisions. administrative decision.
vision.
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 These are in welfare of These are related to
organizational Growth. employees working in an production and factory
organization. growth.

Why is Strategy Management Important?

 Strategy management can help organizations that struggle to achieve their projected
strategic outcomes by focusing on the details of planning
 Provides solid guidance for creating clear, simple and understandable plans that are well
structured and achievable
 Capture critical information and establishing consistent ways to represent, analyze and
review the quality of a given plan
 Provides standardized approaches to evaluating potential strategic initiatives, providing
consistent information to leadership for prioritization and selection of strategic initiatives
 Manages the transition between design and implementation using the information
captured during the design phase.
 Provides implementation management oversight, tracking progress, monitoring health,
and addressing emerging risks
  Provides dynamic off-cycle review of ad-hoc events and requests, leveraging the same
standardized prioritization assessment and applying change management rigors to the
process
 Monitors key performance indicators, leading indicators predicting risk, lagging
indicators tracking performance outcome, and external triggers that indicate potential
market changes
 Provides consistent stakeholder engagement and review processes, fully supported by
detailed informatics and analytics that provide status, alerting, and recommendations

Levels of Strategy

Management of every organization follows some kind of process and can be viewed in the
context of strategic management concept. Different business organizations, having some similar
features, may have some differences according to size that relate to their strategic behavior.
There are also different levels or units within a business entity, and some of those units can
have strategic different from other.

In brief, strategies are operated at different levels in a organization. Corporate level strategy,
business level strategy, functional level strategy and operating strategy. A brief discussion of
these strategies is as follows –

1. Corporate level Strategy – Corporate level strategy is formulated by top management to

oversee the interest and operations of organization made up of more than one line of business.
It occupies the highest level of strategic decision-making and cover actions dealing with the
objectives of firm, acquisition and allocation of resources, and coordination of strategies of
various units. the major questions at this level are as follows –

i. What kinds of businesses should the company be engaged in?

ii. What are the goals and expectations for each business?

iii. How should resources be allocated to reach these goals?

2. Business level strategy – Business level strategy is concerned with managing the
interests and operations of a particular line of business. It refers to the managerial game plan
for a single business. It is mirrored in the pattern of approaches and moves crafted by
management to produce successful performance in one specific line of business. It deals with
such questions as –

i. How will the business compete does its markets?

ii. What products or services should it offer?

iii. Which customer does it seek to serve?

iv. How will resources be distributing within the business?

Basically, business level strategy attempts to determine what approach to its market and
business should take and how it should conduct itself, given its resources and the conditions of
the market.

3. Functional level strategy – It involves decision-making at the operational level with

respect to specific functional areas – production, marketing, personnel, finance etc. In fact,
strategy creates a framework for managers in each function to carry out business unit
strategies and corporate strategies. Decisions at this level are often describes as ‘tactical
divisions.’

4. Operating level strategy – It is concerned with the regulation of day-to-day activities of

departmental and supervisory managers.

Step 1: Strategic Intent

Vision- Vision is the statement that expresses organization’s ultimate long-run objectives. It is
what the firm ultimately like to become. Vision once formulated is for forever and long lasting
for years to come. Vision is closely related with strategic intent and is a forward-thinking
process.

Eg- Microsoft- ’A computer software on every desk and in every home’.

Mission- It tells who we are and what we do as well as what we’d like to become. Mission of a
business is the fundamental, unique purpose that sets it apart from other firms of its kind and
identifies the scope of its operations in product and market terms.

Eg- Microsoft- ‘Empower every person and every organization on the planet to achieve more’.

Objectives: These are the end results of planned activity that state what is to be accomplished
by when and should be quantified if possible and their achievement should result in the
fulfilment of a corporation’s mission. Objectives state specifically how the goals shall be
achieved. Following are the areas for setting objectives- profit objective, marketing objective,
production objective, etc.

Step 2: Strategy Formulation:

Strategy formulation refers to the process of choosing the most appropriate course of action for
the realization of organizational goals and objectives and thereby achieving the organizational
vision. For choosing most appropriate course of action, appraisal of organization and
environmental is done with the help of SWOT analysis.

 Environmental Appraisal
 Organizational Appraisal

Environmental Appraisal- The environment of any organization is "the aggregate of all

conditions, events and influences that surround and affect it". It is dynamic and consists of
External & Internal Environment. The external environment includes all the factors outside the
organization which provide opportunities or pose threats to the organization. The internal
environment refers to all the factors within an organization which impart strengths or cause
weaknesses of a strategic nature.

Organizational Appraisal- It is the process of observing an organizational internal environment

to identify the strengths and weaknesses that may influence the organization's ability to achieve
goals. The analysis of corporate capabilities and weaknesses becomes a pre-requisite for
successful formulation and reformulation of corporate strategies. This analysis can be done at
various levels: functional, divisional and corporate

Step 3: Strategy Implementation:

Strategy implementation is the action stage of strategic management. It refers to decisions that
are made to install new strategy or reinforce existing strategy.

Designing structure, process & system- Strategy implementation includes the making of
decisions with regard to organizational structure, developing budgets, programs and procedures
in order to accomplish certain activities.

Functional Implementation- Functional implementation is carried out through functional plan

and policies in five different areas- marketing, finance, operation, personnel and Information
management.

Behavioural Implementation- It denotes mobilizing employees and managers to put and

formulate strategies into action and require personal discipline, commitment and sacrifice. It
depends upon manager’s ability to motivate employees.

Operationalizing strategy- It includes establishing annual objectives, devising policies, and

allocating resources.
Step 4: Strategy Evaluation & Control:

Strategy evaluation- It is the primary means to know when and why particular strategies are
not working well. It is the process in which corporate activities and performance results are
monitored so that actual performance can be compared with desired performance. Thus,
strategic evaluation activities include reviewing external and internal factors that are the basis
for current strategies.

Strategic control- In this step, organizations Determine what to control i.e., which objectives the
organization hopes to accomplish, set control standards, measure performance, Compare the
actual with the standard, determine the reasons for the deviations and finally taking corrective
actions and review the policies and activities if needed.

Strategic decisions making:

Strategic decisions are made by the top-level management and by the strategists whereas the
operational decisions are made by the managers at lower levels. Strategic decisions are related
to the contribution to the organizational objectives and goals significantly. They determine the
direction and destination of the organization.

In business, there is an eight-step model for strategic decision-making. The steps include,

1. Defining the problem,

2. Identifying the criteria,
3. Allocating weight to the criteria,
4. Developing alternatives,
5. Analysing the alternatives,
6. Select alternative,
7. Implementing the alternative, and
8. Evaluating decision effectiveness.

These steps can also be used to make big decisions in your life: buying a car, joining an
organization, getting a part time job, or choosing a college. To offer insight, here is the
decision-making process used to choose graduate program and university, Public Relations
at Ball State University.

1. Define the problem: This step is simply defining the problem. What is the problem? How
should it be solved? Is the problem time sensitive? Based on my education received in
my undergraduate university, Illinois State University, I felt that there were gaps in my
education: campaign analytics, technical writing, and business acumen. I felt that
looking for jobs was more challenging than what I anticipated. I definitely had the desire
to be in a position most similar to a creative director or account executive.
2. Identify decision criteria: This step is to think about variables or factors that will
influence your decision. Variables can be important concepts to you regarding the
problem defined in step one. While considering different programs and schools, I
 developed a list of criterions that had differently ranked priorities: reputable program,
accredited programs, graduate assistantships, location, curriculum, and program length.
These criterions helped me think about costs incurred, risks encountered, and desired
outcomes.
3. Allocating weight to the criteria: To assign weight to each criterion–defined in step two–
you simply rank the items on the list from most important to least important, with your
most important item corresponding to the number of variables you have and the least
important item being one. While I was making the decision, the most important criterion
was definitely the possibility of obtaining a graduate assistantship. Thinking about this
retrospectively, I will assign weight to each of the decision factors using one through six
to indicated importance, six being highest/most important. Graduate assistantship (6),
Accredited program (5), Reputable program (4), Curriculum (3), Location (2), and
Program length (1). I felt that some of the priority weights shifted during different stages
of decision-making. As deadlines to decide became closer and closer, I looked more
closely at location and if I could feasibly imagine myself functioning.
4. Developing alternatives: This step requires that you list all possible outcomes in regards
to the problem, so essentially different options. In regards to this step, I think
alternatives would be considered other schools that I was accepted as a graduate
student: Georgetown University, Loyola University, and Illinois State University.
5. Analysing the alternatives: To analyse the alternatives, you must score each alternative
on a scale of 1-10 based on each variable you have outlined. So applying the weighted
criteria to the alternatives, I basically scored each criteria on a scale of one to ten in
order to create a score for each school, the sum of the alternatives being the score. So for
Ball State University, graduate assistantships scored a 10 and if I multiply this by 6 (the
weight from step three), it would be equivalent to a 60. Applying this to all other
variables, BSU received a total score of 163, Georgetown 150, Loyola 163, and Illinois
State 92.
6. Select alternative: This is simply making the decision. There can possibly be other
variables that influence your process of selecting an alternative. I applied for
scholarships, grants, assistantships for all schools, however I was not successful at
obtaining interviews or employment from all, so when Ball State University offered me an
assistantship, my decision was made.
7. Implementing alternative: This step is enacting the decision. I think the most significant
moment for implementing your decision is accepting your admission offer or signing a
lease at an apartment.
8. Evaluating decision effectiveness: Evaluating the decision process is going to be a little
different for everyone. Evaluation is dependent upon how you define it; therefore,
evaluation can be measured against how much money you are taking out in student
loans or your happiness. For me this is an ongoing process. I still think about location,
academic curriculum, and other factors more as the semester progresses. Me being a city
 person, I think I should have considered other alternatives in more heavily populated
areas. In addition, while I was reviewing academic catalogues from different schools, I
feel like I should have paid closer attention to what the courses actually entailed. At Ball
State, there are some courses required that I do not think are extremely, crucial to my
career path. However, in retrospect, I feel like I should have paid closer attention to how I
assigned weights to each of the criteria.

When making your own decisions about college or any other big life choices, you can use this
eight-step process to help narrow options down. I am currently a second-year graduate student
at Ball State University pursuing a degree in public relations with a business concentration.
Though I am extremely excited about my assistantship, course work, and professors, on the
same coin, I am also excited to be near completion and closer to pursuing a career.

Business Ethics in Strategic Management:

Ethics in business and management (including strategic management) deals with moral issues
(beliefs, norms, values, etc.) arising from activities performed by managers and employees of the
corporation. Business ethics is a term with quite a multifaceted meaning.

Ethics and Strategy

1) Business ethics can be defined as principles of conduct within organizations that guide
decision- making and behaviour. Good business ethics is a pre-requisite for good strategic
management.

2) Harry Downs opines that ‘strategy ought to be ethical. It should involve neither rightful
actions nor wrongful ones; otherwise it won’t pass the test of moral scrutiny.

3) Every business firm has an ethical duty to each of five constituencies: owners/ shareholders,
employees, customers, suppliers, and the community at large. Each of these constituencies
affects the organization and is affected by it.

4) Some of the important issues in the context of ethics are as follows –

 Managers and employees of the firm they should follow a code of conduct and should not
engage in wrong doings.
 A new wave of ethical issues related to product safety, employee health, sexual
harassment, acid rain, affirmative action, waste disposal, foreign business practices,
takeover tactics, conflict of interest, employee privacy, and inappropriate gifts has
accented the need for strategists to develop a clear code of business ethics.
 The explosion of information technology and internet into the workplace has raised many
new ethical questions in organizations today. Now, it is demanding that computers and
other company equipment should be used only to provide service to customers and for
other business purposes. Internet privacy is an ethical issue of immense proportions.
  To create an ethical culture, a business ethics broad game should be developed, which
should be played by all employees in the organization. This game may ask players as
how do they deal with a customer who offer them bribe or other gifts.
 Because of higher salaries of strategists in comparison of the other individuals in the
organization, an ethical question naturally arises that they must take the moral risks of
the firm, and they should responsible for developing, communicating and enforcing the
code of business ethics for their organization.
 No business can compete very long or successfully without following ethical practices.
Being unethical is a recipe for headaches, inefficiency and waste.
 Finally, if a firm committed to responsible ethical action in symbiosis with its needs, it
can preserve and protect the essential claims of insiders-sustained survival, growth and
profitability of the firm.

Ethical Integration

Building ethical considerations into a business strategy via the planning process is an
important element of ethics management. Strategy lays the foundation for how an organization
carries out its operations. Building ethics into strategic planning is important to ensure that
every facet of the organization is aligned with the ethos and values of the broader organization.

There are four elements strategic planners should develop when considering ethical alignment:

 Developing a Code of Ethics: This serves as a central point of reference for everyone in
the organization. This code of ethics should take stakeholders concerns into
consideration, and evolve organically over time as the organization grows.
 Ethical Training: Investing in training employees and managers in how integrate ethics
into their process is a critical aspect of developing a strong ethical culture. Training
equips employees and managers with the tools necessary to address ethically complex
issues in the workplace.
 Situational Advice (Ethics Officers): Having ethics officers available for consultation is a
great way to handle ethical issues as they arise internally. Employees and managers may
encounter ethical dilemmas that the Code of Ethics and ethics training don’t address. In
these situations, going to an ethics officer to determine best practices is a great strategic
resource. The ethics officer can also use these situations to improve the organization’s
ethical strategy.
 Confidential Reporting System: Not all ethical situations are easy to bring up in a
professional setting. As a result, organizations should create an infrastructure for
anonymous reporting to allow the organization to address problems as they arise without
putting anyone on the spot.