Strategic

Management
INTRODUCTION TO STRATEGIC MANAGEMENT
WEEK 2 (JAN 29 TO FEB 4)
 The word Strategy comes from the Greek word ‘Strategos’
which means a general. In military science, Strategy literally
means the art & science of directing military forces in a war or
battle.
 Today, the term strategy is used in business to describe how an
organization is going to achieve its overall objectives. Most
organizations have several alternatives for achieving its
objectives.
 Strategy is concerned with deciding which alternative is to be
adopted to accomplish the overall objectives of the organization.
 “Strategy is a plan of action or policy designed to achieve a
major overall aim”- Oxford Dictionary
 “Strategy is the determination of the basic long-term goals &
objectives of an enterprise & the adoption of the course of action
and the allocation of the resources necessary for carrying out
these goals”- Alfred D Chandeler
 “Strategy includes the determination & evaluation of alternative
paths to achieve an organization’s objectives & mission &
eventually, a choice of the alternative that is to be adopted”-
Lloyd L. Byars
 The term Strategy can be defined in a Simple words as follows:
 “Strategy is a broad long-term plan designed to achieve the
overall objectives of the firm”
Nature & Characteristics of Strategies

1. Objective Oriented
 Strategies are developed to achieve the objectives of the
organization. To formulate strategies, one must know the
objectives that are to be pursued & also the policies that must be
followed.
2. Future Oriented
 Strategy is a future oriented plan. It is designed to attain future position of
the organization. Through Strategy, management studies the present position
of the organization & their aims at attaining the future position of the
organization. The strategy provides answer to certain questions relating to:
 Profitability of the present business
 Continuity of the present business
 Entry into difference businesses in future
 Effectiveness of the present policies of the organization.
 Growth & expansion of the business in the long run.
3. Unified, Comprehensive and Integrated
 A Strategy is not Just plan. It is a unified, Comprehensive &
integrated plan. It is unified as it unifies all the parts of sections
of the organization together.
 It is comprehensive as it covers all the major aspects or areas of
the organization. It is integrated as all the parts of the plan are
compatible with each other and fit together well.
4. Strategy Alternatives
 Organizations need to frame alternative strategies. It is not sufficient to
frame one or two strategies. Small organizations survive with one or two
strategies due to fewer complexities in their business.
 However, large organizations need to frame alternative strategies in respect
of growth & survival of the organization. It can be into fours broad groups:
 Stable Growth Strategy
 Growth Strategy
 Retrenchment Strategy
 Combination Strategy
5. Relates to the Environment
 The internal and external environment affects the strategy formulation &
implementation. The internal environment relates to mission & objectives of
the firm, the labor management relations, and the technology used, the
physical, financial & human resources.
 The external environment relates Competition, Customer, Channel,
intermediaries, Government policies & other social, economic & political
factors.
6. Allocation of Resources
 For effective implementation of Strategy, there is a need for
proper allocation of the resources. Proper allocation of resources
is required to undertake the various activities so as to attain
objectives. The resources can be broadly divided into 3 groups:
 Physical resources such as plant & machine
 Financial resources i.e. Capital
 Human resources i.e. ManPower
7. Universal Applicability
 Strategy is universally applicable. It is applicable to business
organization as well as to non-business organization.
 This is because every organization need to frame strategies for
their growth & survival. The presence of Strategies keeps the
organizations moving in the right direction.
8. Periodic Review
 Strategies need to be reviewed periodically. Such review is
required to revise the strategies depending upon the changing
needs of the business. Periodic review of strategies is required to
gain competitive advantage in the market.
9. Applicable to all functional areas
 Strategies are applicable to all functional areas. The functional
areas include production, marketing, finance, human resources
management, etc. Strategies aid in planning, organizing,
directing & controlling activities in all functional areas.
Strategic Management

 In the words of Jauch & Glueck “Strategic Management is a stream of

decisions & actions which leads 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 & make strategic
decisions”
 H.L. Ansoff defines, “strategic Management is a systematic approach to a
major & increasingly important responsibility of general management to
position & relate the firm to its environment in a way which will assure its
continued success & make it secure from surprises.”
Process/ Elements of Strategic
Management
 The strategic management process can be broadly divided into three phases.
Each phase consists of a number of steps The three phases are as follows:
 I. Strategy formulation
 II. Strategy Implementation
 III. Strategy Evaluation
 I. Strategy formulation
Strategy formulation can also be referred as strategic planning. The strategy
formulation involves the following steps:
 1) Framing Mission & Objectives
The first step in the formulation of a strategy is to frame mission & objectives of
the firm. The mission states the philosophy & the purpose of the organization.
The objectives are the aims or ends, which the organization seeks to achieve. The
mission & objective must be clearly defined.
 2) Analysis of the Internal Environment
After setting the objectives or goals, the management needs to make an analysis
of the internal environment. The analysis of the internal environment may be
done prior to setting of objectives. The internal environment refers to
manpower, machines, methods, procedures & other resources of the
organization. A proper analysis of the internal environment reveals strength &
weakness of the organization.
 3) Analysis of the External Environment.
The management must conduct an analysis of the external environment. The
external environment refers to government, competition, consumers,
technological development & other environment factors that affect the
organization. A proper analysis of the external environment reveals
opportunities & threats.
 4) Gap analysis
The management also conducts “gap analysis”. For this purpose, the
management must compare & analyze its present performance level & the
desired future performance level. Such a comparison would reveal the extent of
gap that exists between the present performance & future expectations of the
organization. If there is a sufficient gap, the management must think of suitable
measures.
 5) Framing Alternative Strategies
After making a SWOT analysis & the Gap Analysis, the management needs to
frame alternative strategies to accomplish the objectives of the firm. There is a
need to frame alternative strategies as some strategies may be put on hold &
other strategies may be implemental.
 6) Choice of strategies
The organization cannot implement all the alternative strategies. Therefore the
firm has to be selective. The organization must select the best strategy
depending upon the situation. Before selecting the best strategy, the organization
needs to conduct a cost-benefit analysis of the alternative strategies. The
strategy, which gives the maximum benefits at minimum cost, would be selected.
 II. Strategy Implementation
 The strategies are formulated for each and every functional department such
as production, marketing, finance & personnel. Once the strategies are
formulated, then the next stage is implementation of such strategies. The
strategy implementation involves the following elements:
 1) Formulation of plans, programmes and projects
There is a need to frame plans, programmes and projects. Strategy by itself does
not lead to action. For instance, if expansion strategy is formulated, then various
types of expansion plan need to be formulated.
An expansion plan would involve expansion in production capacities of existing
product &/or development and production of new products Plans result in
different kinds of programmes. A programme is a broad plan which includes
goals, policies, procedures and other aspects required to implement a plan.
For instance, there can be R & D programme for the development of new
product. Programmes lead to the formulation of project which is a specific
programme for which the time schedule and cost are predetermined.
 2) Project Implementation
A project passes through various stages before the actual implementation. The
various phases include:
 Conception phase, where idea are generally generates for future projects.
 Definition phase, where preliminary analysis of the project is undertaken.
 Planning & Organizing phase, where the planning and organizing of
resources required to undertake the project is decided.
 Implementation Phase, where details of the implementation of the product
such as awarding contracts, order placement etc. are decided.
 Clean-up Phase, which deals with disbanding the project infrastructure &
banding over the plant to the operating personnel.
 3) Procedural Implementation
The organization needs to be aware of regulatory framework of the regulatory
(government) authorities before implementing strategies. The regulatory
elements to be reviewed are as follows:
 Regulation in respect of foreign technology
 Foreign collaboration procedures
 FEMA regulation
 Capital issue guidelines
 Foreign trade regulations, etc.
 4) Resource Allocation
It deals with the arrangement & commitment of physical, financial and human
resources to various activities so as to achieve the organization goals. The
strategies need to allocate resources to the various division, department etc. The
resources need to be allocated depending upon the importance of activities in
each of the departments or divisions. It includes allocation of manpower,
machines, tools, money and other resources for each and every activity.
 5) Structural Implementation
Organization structure is the framework through which the organization
operates. There can be various organizational structure for the implementation
of Strategy, it can be:
 Entrepreneurial (line) structure, which is suitable for small owner manager
organization.
 Functional structure, which is suitable for multi-department organization.
 Matrix Structure, which is suitable for multi-project/product organization.
 6) Functional Implementation
It deals with the implementation of the functional plans and policies. For
effective implementation of strategy, strategies have to provide direction to
functional managers regarding the plans and policies to be adopted. Plans and
policies need to be formulated and implemented in all the functional areas such
as production, marketing, finance and personnel.
 7) Behavioral Implementation
It deals with those aspects of strategy implementation that have an impact on
the behavior of strategists in implementing the strategies. It deals with issues of
leadership, corporate culture, corporate politics and use of power, personal
value, business ethics and social responsibility.
 III. Strategy Evaluation
Evaluation of strategy is that phase of strategic management process in which
managers try to assure that the strategic choice is properly implemented and is
meeting the objectives of the enterprise. It involves the following elements.

 1) Settling of Standard
The strategists need to establish performance targets standards and tolerance
limit for the objectives, strategies and implementation plans. The standard can
be established in terms of quantity, quality, cost and time. Standards need to be
definite and they must be acceptable to employees.
 2) Measurement of Performance
The next step is to measure the actual performance. For this, the manager may
ask for performance reports from the employees. The actual performance can be
measured both in quantitative as well as qualitative ways. The actual
performance also needs to be measured in terms of time and the cost factor.
 3) Comparison of actual performance with standards
The actual performance needs to be compared with the standards. There must
be objective comparison of the actual performance against the predetermined
targets or standards. Such comparison is required to find out deviation, if any.
 4) Finding out deviations
After comparison, the managers may notice the deviations. For instance, if a
particular brand’s sales targets was 10000 units for a certain period and the
actual sales are only 9000 units for that period then the deviations are to the
extent of 1000 units.
 5) Analyzing deviations
The deviation must be reported to the higher authorities. The higher authorities
analyze the causes of deviations. For this purpose, the higher authorities may
hold necessary discussions with functional staff. For instance, the deviation of
1000 units may be due to poor promotion, faulty pricing, poor distribution and
so on. The exact cause or causes of deviation must be identified.
 6) Taking corrective measures
After identifying the causes of deviations, the managers need to take corrective
steps to correct the deviations. At times, there may be a need for resetting of
goals and objectives or re-framing plans, policies and standards. The corrective
steps must be taken at the right time so as to accomplish the objectives.
Levels of Strategy

 The strategy can be broadly classified into three levels:

 Corporate Strategy
 Business Strategy
 Functional (Operational) Strategy
 Corporate Strategy
It describes a company’s overall direction in terms of its general attitude
towards growth and the management of its various business and product lines.
The corporate strategy typically fits within the three main categories:
 Stability Strategy
 Growth Strategy
 Retrenchment Strategy
 Stability Strategy
Firm using stability strategy try to hold on to their current position in the
product market. The firms concentrate on the same products and in the same
markets. The stability strategy is followed by those firms which are satisfied
with their present position. This strategy is suitable in a simple and stable
environment. A stability strategy is less risky as it offers safe business to the
organization unless there are major changes in the environment.
 Growth Strategy
It is also called as expansion strategy, when a firm aims at substantial growth
strategy. A growth strategy is one that an enterprise pursues when it increases its
level of objectives upward in significant increment, much higher than an
exploration of its past achievement level. The most frequent increase indicating
a growth strategy is to raise the market share and/ or sales.
In order to achieve higher targets than before, a firm may enter into new
markets, introduce new product lines, serve additional market segments and so
on. This strategy involves greater effort and risk as compared to stability
strategy.
 Growth Strategy
It is also called as expansion strategy, when a firm aims at substantial growth
strategy. A growth strategy is one that an enterprise pursues when it increases its
level of objectives upward in significant increment, much higher than an
exploration of its past achievement level. The most frequest increase indicating a
growth strategy is to raise the market share and/ or sales. In order to achieve
higher targets than before, a firm may enter into new markets, introduce new
product lines, serve additional market segments and so on. This strategy
involves greater effort and risk as compared to stability strategy.
 Functional Strategy
It relates to the functional areas such as production, marketing, finance,
personnel, etc. The functional strategy aims at achieving functional objectives
which in turn would help to achieve business unit and overall organizational
objectives.
7-S Framework

 It is essential for an organization to know whether the time is right for

change. In this context, the 7-S framework, developed by Mc.Kinsey
Company, a well known consulting firm in the United States, in the late 70’s,
can be helpful. It can provide insight into an organization’s working and help
in formulating plans for improvement.
 The main thrust of change is not connected only with the organizational
structure. It has to be understood by the complex relationship that exists
between strategy, structure, system, style, staff, skill and super-ordinated
goal. This is called the 7-S of the organization.
 The 7-S framework suggests that there are several factors that influence an
organization’s ability to change. The variables involved are interconnected.
Hence significant changes cannot be achieved without making changes in all
the variables. The framework has no starting point or implied hierarchy. It is
also difficult to pinpoint which of the seven S’s could be the driving force of
change in an organization at a particular point of time.
 Strategy
(As discussed earlier in this chapter)
 Super
Ordinate Goals The Super- ordinate goal is alike to the organization’s purpose.
It is a set of values and aspirations going beyond the formal statement of
corporate objectives. They can be considered as fundamental ideas around
which a business is built. Hence, they represent the main values of the
organizations. They can also provide the broad notions of future direction.
 Structure
Design of organization structure is a critical task for the top management. It
refers to the more durable organizational arrangements and relationships and
forms the skeleton of the edifice of organizations. It prescribes formal
relationships, communication channels roles to perform and rules & procedures.
 Reduction of external uncertainty. Forecasting research and planning help in
achieving this.
 Reduction in internal uncertainty due to variable, unpredictable, random
human behavior. Control mechanisms help in achieving this.
 Coordination of the activities of the organizations to enable it to have a focus.
Departmentalization, specialization, division of labor and delegation of
authority help in achieving this.
 System
System refers to the rules and procedures both formal and informal system
complement the organizational structure. They are similar to the term
infrastructure. System include production, planning and control systems,
costing, capital budgeting, recruitment, training & development, planning &
budgeting and performance evaluation.
 Style
Top managers in organization use style to bring about change. The style of an
organization becomes evident through the patterns of actions taken by the top
management over a period of time. These decisions are also likely to influence
the people in the lower levels of the organizations.
Organizational reporting relationships convey the style. In some organizations,
quality control may be embedded in the manufacturing process, in some others,
it may be a separate function under the Chief Executive Officer. Some
organizations may prefer R & D to be a part of the engineering. Study of the
style conveys the process of management, which is prevalent in the organization
whether it is evolving or still having traditional outlook.
 Staff
Proper staffing ensures human resource’s potential of a higher order, which can
contribute to the achievement of organizational goals. Staffing includes
selections, placement, training and development of appropriately qualified
personnel. Staffing refers to the entire organization. The recruitment process
may vary for different levels of organization for different kind of jobs. It can
start from appointing young recruits to the mainstream of the organization’s
activities & their career progression.
 Skills
Skill refers to crucial attributes or capabilities of an organization. They are used
to describe that which is found most in the organization. Eg. Hindustan lever is
known for its marketing, TELCO for its engineering skills, SONY for its new
product development etc.
Skills are developed over a period of time & are a result of the interactions of a
number of factors, could be personnel, top management, structure, system etc.
Hence when a strategic decision is to be made, it is necessary to build new skills.
Skills in the 7-S framework can be considered as the distinctive competence.
Strategic Intent

 Mission
 All management experts unanimously agree that clarifying the mission and
defining the business is the starting point of business planning. Many
organizations define the basic reason for their existence in terms of a mission
statement. An organization’s mission includes both a statement of
organizational philosophy and purpose. The mission can be seen as a link
between performing some social function and attaining objectives of the
organization.
 A well-conceived mission statement defines the fundamental, unique purpose
which sets a company apart from the other firms of its type and identifies the
scope of the firm’s operation in terms of the product/ services offered and the
markets served. It may also include the firm’s philosophy about how it does
the business and treats the employees. It puts into words not only what the
company is now, but also what it wants to become- management’s strategic
vision of the firm’s future.
 Vision
 Vision is a descriptive image of what the company wants to be or want to be
known for. Vision reminds us of what the goals are, without vision
performance of the business are likely to be affected. A vision is a statement
for where the organization is heading over the next five to ten years. It is the
statement that indicates mission to be accomplished by the management in
distant future. Warren Bennis and Burt Nanus described the role of vision as
follows:
 “To choose a direction, a leader must first have developed a mental image of a
possible and desirable future state of organization, which we call a vision.
Vision articulates a view of a realistic/ credible, attractive future for the
organization. With a vision, the leader provides an important bridge from the
present to the future of the organization.”
Business objectives and Goals

 Business planning starts with setting of the objectives. Objectives are the
ends which the organization intends to achieve through its existence and
operations. Organizational objectives vary from organization to
organization.
 The two terms ‘Organization & Goals’ are normally used interchangeably.
However, some authors try to make a difference between the two terms. They
consider objectives as broad aims whereas goals are more specific in nature.
The objectives can be divided into sub-objectives call goals.
 Objectives play an important role in the functioning of any organization.
Objectives provide the basis for strategic decision making. It provides the
basis for planning, organizing, co-ordinating, direction and control.
Therefore, there is a need to setup clear and well defined objectives.