STRATEGIC MANAGEMENT

UNIT-I

UNIT-I
Introduction to Business Policy & Strategic
Management: Definition, Concept, Objective
and Significance, The levels at which strategy
operates, Characteristic of Strategic
Management,
An Overview: Strategic Management Process,
Concept of Strategic Decision Making.
Defining strategic intent: Vision, Mission,
Business definition, Goals and Objectives.

Business policy defined

Business policy, as defined by Christensen and others, is "the study of the
function and responsibilities of senior management, the crucial problems
that affect success in the total enterprise, and the decisions that determine
the direction of the organisation and shape its future. The problems of policy
in business, like those of policy in public affairs, have to do with the choice of
purposes, the moulding of organisational identity and character, the
continuous definition of what needs to be done, and the mobilisation of
resources for the attainment of goals in the face of competition or adverse
circumstance.
Business policy provides a basic framework defining fundamental issues of a
company, its purpose, mission and broad business objectives and a set of
guideline governing the company's conduct of business within its total
perspective.
Overall Guide
Focus on strategic allocation of scarce resources

Types of Policies
MAJOR POLICIES:

Lines of business

Code of ethics

SECONDARY POLICIES:

Selection of geographic area

Identification of major customers

Major products

Types of Policies
FUNCTIONAL POLICIES:

Production
Marketing
Finance
Personnel
Research
RULES:
Salary & wage Adm.
Discipline& discharge
Welfare Adm
Safety & health

Types of Policies
PROCEDURES & STANDARD OP. PLANS:
Handling & processing of orders
Shipments of foreign locations
Servicing customer complaints

Strategy

The concept of strategy

A strategy could be:

plan or course of action or a set of decision rules making a pattern or creating a

common thread;
the pattern or common thread related to the organisation's activities which are
derived from the policies, objectives and goals;
related to pursuing those activities which move an organisation from its current
position to a desired future state;
concerned with the resources necessary for implementing a plan or following a
course of action; and
connected to the strategic positioning of a firm, making trade-offs between its
different activities, and creating a fit among these activities.
the planned or actual coordination of the firm's major goals and actions, in time
and space that continuously co-align the firm with its environment.

Strategy Vs Policy
STRATEGY

POLICY

Strategic decisions

Guidelines

Putting a policy into

effect
Deals with crucial
decisions, requires top
mgt involvement.

General course of action

Once formulated can be
delegated to lower levels

Strategic management defined

Strategic management is defined as the
dynamic process of formulation,
implementation, evaluation and control of
strategies to realise the organizations
strategic intent.

Need of Strategic Management:1. Due to change

2. To provide guide lines
3. Research and development
4. Probability for business performance
5. Systemized decision
6. Improves Communication
7. Allocation of resource
8. Improves Coordination
9. Helps the managers to have holistic approach

Importance of Strategic
Management:1. To the shape the Future of business
2. Effective strategic idea
3. Mangers and employer are innovative and
creative
4. Its decentralized the Management
5. Its helps to increase the productivity
6. To Makes discipline
7. To Make control
8. To makes forward s thinking

Conceptual framework for the

development of strategic
management:

Strategic Advantage
Organizational capability
Competencies
Synergistic Effects
Strengths and weaknesses
Organizational Resources
organizational behavior

Types of strategy
Strategy can be formulated on three different
levels:
corporate level
business unit level
Functional or departmental level.

Strategy vs. Strategic Management:

Strategy: A series of goal-directed decisions
and actions matching an organizations skills
and resources with the opportunities and
threats in its environment
Strategic management: Analyze current
situation, Develop appropriate strategies,
Put strategies into action Evaluate, modify,
or change strategy

Strategy vs. Strategic Management:

Strategy involves Organizations goals Goaloriented action, Related decisions and actions,
Internal strengths, External opportunities and
threats.
Strategic management Planning, Organizing,
Implementing ,Controlling

Levels at which strategy operates

LEVELS OF MANAGEMENT

LEVELS OF STRATEGY

Corporate
Office

CORPORATE

SBU
A

SBU

CORPORATE-LEVEL

SBU
B

SBU
C

BUSINESS-LEVEL

FUNCTIONAL

Finance

Marketing

Operations

HRM

Information

Levels of strategy

A typical business firm should consider three types of strategies, which form a
hierarchy
Corporate strategy Which describes a companys overall direction towards
growth by managing business and product lines? These include stability, growth
and retrenchment. For example, Coco cola, Inc., has followed the growth strategy
by acquisition. It has acquired local bottling units to emerge as the market leader.
Business strategy - Usually occurs at business unit or product level emphasizing
the improvement of competitive position of a firms products or services in an
industry or market segment served by that business unit. Business strategy falls in
the in the realm of corporate strategy. For example, Apple Computers uses a
differentiation competitive strategy that emphasizes innovative product with
creative design.
Functional strategy It is the approach taken by a functional area to achieve
corporate and business unit objectives and strategies by maximizing resource
productivity. It is concerned with developing and nurturing a distinctive
competence to provide the firm with a competitive advantage. For example,
Procter and Gamble spends huge amounts on advertising to create customer
demand.

Strategic decision-making
Objectives to be achieved are determined;
Alternative ways of achieving the objectives
are identified;
Each alternative is evaluated in terms of its
objective-achieving ability; and
The best alternative is chosen.

Issues in strategic decision-making

Criteria for decision-making

Rationality in decision-making
Creativity in decision-making
Variability in decision-making
Person-related factors in decision-making
Individual versus group decision-making.

Schools of thought on strategy formation

The prescriptive schools
The descriptive schools
The integrative school

Four phases in strategic management

Establishment of
strategic
intent

Formulation of
strategies

Implementation of
strategies

Strategic control

Strategic
evaluation

a) STRATEGIC INTENT
Strategic intent takes the form of a number of corporate challenges and
opportunities, specified as short term projects. The strategic intent must
convey a significant stretch for the company, a sense of direction, which
can be communicated to all employees.
It should not focus so much on today's problems, but rather on
tomorrow's opportunities. Strategic intent should specify the competitive
factors, the factors critical to success in the future.
Strategic intent gives a picture about what an organization must get into
immediately in order to use the opportunity. Strategic intent helps
management to emphasize and concentrate on the priorities. Strategic
intent is, nothing but, the influencing of an organizations resource
potential and core competencies to achieve what at first may seem to be
unachievable goals in the competitive environment.

b) Environmental Scan
The environmental scan includes the following components:
Analysis of the firm (Internal environment) Analysis of the firm's industry
(micro or task environment)
Analysis of the External macro environment (PEST analysis)
The internal analysis can identify the firm's strengths and weaknesses and the
external analysis reveals opportunities and threats. A profile of the
strengths, weaknesses, opportunities, and threats is generated by means
of a SWOT analysis. An industry analysis can be performed using a
framework developed by Michael Porter known as Porter's five forces.
This framework evaluates entry barriers, suppliers, customers, substitute
products, and industry rivalry.

c) 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 & weakness.
It includes defining the corporate mission, specifying achievable objectives, developing
strategy & setting policy guidelines.
i) Mission
Mission is the purpose or reason for the organizations existence. It tells what the company
is providing to society, either a service like housekeeping or a product like automobiles.
ii) Objectives
Objectives are the end results of planned activity. They state what is to be accomplished by
when and should be quantified, if possible. The achievement of corporate objectives
should result in the fulfillment of a corporations mission.
iii) Strategies
Strategy is the complex plan for bringing the organization from a given posture to a desired
position in a future period of time.
iv) Policies
A policy is a broad guide line 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 & take actions that support the corporations mission,
objectives & strategy.

d) Strategy Implementation

It is the process by which strategy & policies are put into actions through the
development of programs, budgets & procedures. This process might involve
changes within the overall culture, structure and/or management system of the
entire organization.
i) Programs: It is a statement of the activities or steps needed to accomplish a singleuse plan. It makes the strategy action oriented. It may involve restructuring the
corporation, changing the companys internal culture or beginning a new research
effort.
ii) Budgets: A budget is a statement of a corporations program in terms of dollars. Used
in planning & control, a budget lists the detailed cost of each program. The budget
thus not only serves as a detailed plan of the new strategy in action, but also
specifies through Performa financial statements the expected impact on the firms
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

e) Evaluation & Control

After the strategy is implemented it is vital to continually measure and
evaluate progress so that changes can be made if needed to keep the
overall plan on track. This is known as the control phase of the strategic
planning process. While it may be necessary to develop systems to allow
for monitoring progress, it is well worth the effort. This is also where
performance standards should be set so that performance may be
measured and leadership can make adjustments as needed to ensure
success.
Evaluation and control consists of the following steps:
i) Define parameters to be measured
ii) Define target values for those parameters
iii) Perform measurements
iv) Compare measured results to the pre-defined standard
v) Make necessary changes

Comprehensive model of strategic

management

Strategic Intent
Vision
Mission
Business definition
Business model
Objectives

Strategy Formulation
Environmental
Organisational
Appraisal
Appraisal
SWOT Analysis
Corporate-level Strategies
Business-level Strategies
Strategic analysis and choice
Strategic plan

Strategic control

Strategy
Implementation
Project
Procedural
Resource allocation
Structural
Behavioural
Functional &
Operational

Strategic
Evaluation

Strategic Intent,Mission ,Vision &

Business Definition

Strategic intent
Strategic intent is an obsession with an
organisation: an obsession by having
ambitions that may even be out of proportion
to their resources and capabilities. This
obsession is to win at all levels of the
organisation while sustaining that obsession in
the quest for global leadership.

 Strategic intent is
about clarity, focus and
inspiration.

VISION

MISSION

OBJECTIVES

GOALS

PLANS

Concept of stretch, leverage and fit

Stretch is "a misfit between resources and aspirations"
Leverage refers to concentrating, accumulating, complementing,
conserving, and recovering resources in such a manner that meagre
resource base is stretched to meet the aspirations that an organisation
dares to have.
Fit means positioning the firm by matching its organisational resources
to its environment.

Vision Statement
A vision is a statement about what your organization
wants to become.
It should resonate with all members of the
organization and help them feel proud, excited, and
part of something much bigger than themselves.
A vision should stretch the organizations capabilities
and image of itself.
It gives shape and direction to the organizations
future.
Visions range in length from a couple of words to
several pages.
It is recommended to develop shorter vision
statements because people will tend to remember
their shorter organizational vision.

VISION
Corporate vision is a short and inspiring statement of
what the organization intends to become and to
achieve at some point in the future, often stated in
competitive terms. Vision refers to the category of
intentions that are broad, all-inclusive and forwardthinking. It is the image that a business must have of
its goals before it sets out to reach them. It describes
aspirations for the future, without specifying the
means that will be used to achieve those desired
ends .

Sample Vision statement

For a restaurant: "Our restaurant is a place where people come
to relax, have a good time, and enjoy a great meal. From the
moment our customers walk in the door, they are greeted by a
warm atmosphere, subtle music, and friendly and courteous
staff.
We cater to large groups that are out to have fun, as well as
romantic dinners for people celebrating a special occasion. The
restaurant is packed full of customers, and yet we efficiently
avoid long delays while they are being seated and while their
food is prepared.
The lighting, table arrangements, atmosphere, and decorations
all encourage our customers to relax, let go of their concerns,
and open up to new taste sensations. We provide exceptional
service all night long.
When they are done, we take care of their check quickly and
efficiently. They leave happy, satisfied, but not overly bloated
or full. They leave with the desire of just one more bite of our
wonderful food."

Mission Statement
Mission or Purpose is a precise description of what
an organization does. It should describe the business
the organization is in. It is a definition of why the
organization exists currently. Each member of an
organization should be able to verbally express this
mission.
Additionally, each person needs a mission for his or
her life. The alignment of your life mission with your
organizations mission is one of the key factors in
whether you are happy with your work and
workplace. If they are incongruent, you are likely
dissatisfied with your work choice.

Mission
Mission Statement describes what business youre in and who
your customer is. As such, it captures the very essence of your
enterprise - its relationship with its customer.
Developing mission statement is the step which moves your
strategic planning process from the present to the future. It
depicts the mission statement connects today with the
future. Your mission statement must work not only today
but for the intended life of your strategic plan of which your
mission statement is a part. If youre developing a five year
strategic plan, for example, you develop a mission statement
which you believe will work for the next five years.

Mission Statement Samples

"Our goal is simply stated. We want to be the best
service organization in the world." (IBM)
"FedEx is committed to our People-Service-Profit
Philosophy. We will produce outstanding financial
returns by providing totally reliable, competitively
superior, global, air-ground transportation of highpriority goods and documents that require rapid,
time-certain delivery." (Federal Express)

Characteristics of mission statements

It should be feasible
It should be precise
It should be clear
It should be motivating
It should be distinctive
It should include major components of strategy
It should indicate how objectives are to be accomplished

COCA COLA VISION

To achieve sustainable growth, we have established a vision
with clear goals.
Profit: Maximizing return to shareowners while being mindful
of our overall responsibilities.
People: Being a great place to work where people are inspired
to be the best they can be.
Portfolio: Bringing to the world a portfolio of beverage brands
that anticipate and satisfy peoples; desires and needs.
Partners: Nurturing a winning network of partners and
building mutual loyalty.
Planet: Being a responsible global citizen that makes a
difference.

Coca-Cola-Mission Statement
Everything we do is inspired by our enduring
mission:
To Refresh the World... in body, mind, and
spirit.
To Inspire Moments of Optimism... through
our brands and our actions.
To Create Value and Make a Difference...
everywhere we engage."

General Motors-Vision statement

"GMs vision is to be the world leader in
transportation products and related services.
We will earn our customers enthusiasm
through continuous improvement driven by
the integrity, teamwork, and innovation
of GM people."

GM-Mission Statement
"G.M. is a multinational corporation engaged
in socially responsible operations,
worldwide. It is dedicated to provide
products and services of such quality that our
customers will receive superior value while
our employees and business partners will
share in our success and our stock-holders
will receive a sustained superior return on
their investment."

McDonald's vision
"McDonald's vision is to be the world's best
quick service restaurant experience. Being
the best means providing outstanding
quality, service, cleanliness, and value, so
that we make every customer in every
restaurant smile."

Toyota vision & Mission statement

Vision
"To become the most successful and
respected lift truck company in the U.S.
Mission
To sustain profitable growth by providing the
best customer experience and dealer support

Older sample mission statements that

are quite grandiose in scale
Wal-Mart (1990)"Become a $125 billion
company by the year 2000"
Sony (1950's)"Become the company most
known for changing the worldwide poorquality image of Japanese products"
Boeing (1950)"Become the dominant player in
commercial aircraft and bring the world into
the jet age"
Ford Motor Company (early 1900's)"Ford will
democratize the automobile"

One-line sample mission statements

Wal-Mart:"To give ordinary folk the chance to buy the same thing as rich
people."
Mary Kay Cosmetics:"To give unlimited opportunity to women."
3M:"To solve unsolved problems innovatively"
Merck"To preserve and improve human life."

Corporate social responsibility

Unequivocal excellence in all aspects of the company
Science-based innovation
Honesty & integrity
Profit, but profit from work that benefits humanity

Walt Disney"To make people happy."

No cynicism
Nurturing and promulgation of "wholesome American values"
Creativity, dreams and imagination
Fanatical attention to consistency and detail
Preservation and control of the Disney "magic"

Mission statements: Attacking Key

rivals
PEPSI - "Beat Coke"
HONDA - "We will crush, squash, and
slaughter Yamaha"
NIKE - "Crush Reebok"

Develop a Strategic Culture: Key to

Strategic Planning Success

These are the keys to effective strategic

planning for your business.
Full and active executive support,
Effective communication,
Employee involvement,
Thorough organizational planning and
competitive analysis, and
Widespread perceived need for the strategic
planning.

Senior leaders can do the following to

create a successful strategic planning
process.
Establish a clear vision for the strategic planning
process. Paint a picture of where the organization
will end up and the anticipated outcomes. Make
certain the picture is one of reality and not what
people wish would occur. Make sure key
employees know why the organization is changing.
Appoint an executive champion or leader who
owns the strategic planning process and makes
certain other senior managers, as well as other
appropriate people in the organization, are involved.

Goals and objectives

Goals denote what an organisation hopes to accomplish
in a future period of time. They represent the future
state or outcome of effort put in now.
Objectives are the ends that state specifically how the
goals shall be achieved. They are concrete and specific in
contrast to goals that are generalised.

Role of objectives
Objectives define the organisation's
relationship with its environment
Objectives help an organisation pursue its
vision and mission
Objectives provide the basis for strategic
decision-making
Objectives provide the standards for
performance appraisal

Characteristics of objectives

Objectives should be understandable

Objectives should be concrete and specific
Objectives should be related to a time frame
Objectives should be measurable and controllable
Objectives should be challenging
Different objectives should correlate with each other
Objectives should be set within constraints

Issues in objective setting

Specificity
Multiplicity
Periodicity
Verifiability
Reality
Quality

Factors for objective setting

The forces in the environment
Realities of enterprise' resources and internal
power relationships
The value system of the top executive
Awareness by the management

Business Definition

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 A Business Definition is a clear statement of the

business the firm is engaged in or is planning to
enter.
What is our Business in precise way:
We are in the beauty enriching Business
(Helen and Curtis)
We are in the Business of Computing Technology
(Intel)
We are Watch makers of the nation (HMT)
We are in the transportation business (TELCO)

 Business Definition Statements

Define the space that the business wants to create
for itself in competitive terrain
Broadly specifies the opportunities that the business
may exploit within the space and the threats it may
encounter from rival firms in course of time
Must be defined in broad ways, keeping changing
customer tastes and aspirations in mind

Abell Model of Business definition

Product Oriented V/S market Oriented

Company

Product Definition

Market Definition

Railways

We run railways

We are a people and

Goods mover

Oil Company

We Sell Gasoline

We supply energy

Film Producing
Company

We make movies

We make
entertainment

Air conditioning
company

We make air
conditioners

We provide climate
control in the home

Publishing Company

We produce and sell

books

We distribute
information

Copying Company

We make copying
equipments

We help improve office

productivity

Questions to be examined before defining

nature and scope of operations
1) Who is the customer? Where is the
customer located, how to reach the
customer, how does the customer buy etc.
2) What does the customer buy?
3) What does the customer consider value?

Abells three dimensions for defining a business of a

watch company

Customer functions:
Utility / ornamental

Alternative technologies:
Mechanical / quartz
technology

Customer groups:
children, men or
women

Based on: D.F. Abell: Defining the Business: The Starting Point of Strategic Planning Englewood Cliffs, N.J. Prentice-Hall, 1980

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