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Unit 1 Understanding Corporate Strategy: Structure
Unit 1 Understanding Corporate Strategy: Structure
Unit 1
Unit 1
Structure
1.1 Introduction
1.2 Caselet
Objectives
1.3 What is Strategy?
1.4 Strategic Window
1.5 Corporate Strategy in Different Types of Organizations
1.6 Lack of Strategic Management in Some Companies
1.7 Ten Principles of Strategy
1.8 Case Study
1.9 Summary
1.10 Glossary
1.11 Terminal Questions
1.12 Answers
1.13 References
1.1 Introduction
Any discussion on business and management today is incomplete without
discussing two major forces: one is competition, and the other is strategy.
Both these forces coexist or are correlated; in simple words, we can say that it
is competition that drives strategy. For an organization to survive and grow, it is
important to have a strategy. You must have seen or read about the well-known
Fortune 500 list, an annual list compiled and published by Fortune magazine
that ranks the top 500 US companies. Every year, some new names are added
and some others are deleted from this prestigious list. One common reason,
which explains both the inclusions and the deletions, is the strategy of the
respective companies. So, strategy plays a vital role in organizations. Let us try
to understand what strategy is.
Strategy is a concept that is used universally but understood differently,
and, therefore, defined differently. In fact, strategy as a concept is better
described and more easily put into practice than defined. Most companies
recognize that strategy is central to business and management. It is also
recognized that it is strategy that makes the difference between success and
failure of many companies and businesses. Yet, there is always a lack of
conceptual clarity about what strategy is. In this unit define and explain strategy
Sikkim Manipal University
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to make the understanding of the concept and its application clear and
meaningful.
In this unit, we will discuss corporate strategy, its definition and nature, as
well as its levels in an organization. You will be able to understand corporate
strategy in different types of organizations, why some organizations do not
practice strategic management and the principles of strategic management.
1.2 Caselet
Every organization, big or small, follows a certain strategy to achieve its
goals, which are specific to its market. For example, for a long time, the oil
company Shell had focused on selling oil only. Thus, selling oil was its
corporate strategy. For the past few years, the company, like other major
oil producers, has found itself at the heart of the debate over climate change.
The companys operations alone led to carbon emissions that account for
some 3.6 per cent of global fossil-fuel CO2 emissions in any yeara total
greater than that of the entire United Kingdom. In response to this situation,
Shell took an early position on the issue and started adopting strategies to
address climate change. The company engaged in actions that began to
manage its carbon footprint. These actions have earned the company
credibility and a powerful voice within policy, advocacy and market circles.
Objectives
After studying this unit, you should be able to:
Explain strategy, its nature and levels of strategy
Discuss the concept of strategic window
Describe corporate strategy in different types of organizations
Explain why some organizations do not undertake strategic management
List ten principles of strategy
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strategy and military strategy is the same, i.e., to secure competitive advantage
over the rivals or opponents. We will discuss the similarity between business
and military strategies in detail later.
Andrews (1962): The pattern of objectives, purpose, goals and the major policies
and plans for achieving these goals stated in such a way so as to define what
business the company is or is to be and the kind of company it is or is to be.
Source: K R Andrews, The Concept of Corporate Strategy (Homewood: Jones Irwin,
1995)
Ansoff (1965): The common thread among the organizations activities and
product-markets ... that defines the essential nature of business that the
organization was or planned to be in future.
Source: H I Ansoff, Corporate Strategy (New York: McGraw-Hill, 1965).
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Self-Assessment Questions
1. The key or common objective of both business strategy and military
strategy is to secure competitive advantage over the rivals or the
opponents. (True/False)
2. A unified, comprehensive and integrated plan designed to assure that the
basic objectives of the enterprise are achieved. This definition of strategy
was given by________.
3. Business strategy is formulated, implemented and evaluated with an
assumption of__________, but military strategy is based on the
assumption of_________.
4. For single-business companies, corporate-level strategies and business
unit-level strategies would be quite distinct. (True/False)
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the market. (There was also Ambassador, but that was used more as an official
car). Even after Marutis entry, the strategic windows for cars remained open,
and other car companiesGeneral Motors, Tata Motors, Ford, Honda, Hyundai
all entered the Indian car market. Maruti, however, was the first mover and
continues to be the market leader.
Strategic windows are also important for timing the exit from a product or
a market. There are times when it is advisable, and also possible, to divert a
business which a company cannot operate profitably any longer. This means
that the strategic window for exit is open, that is, there are buyers or companies,
who are willing to acquire the business, and, the company should act on it. This
is what Hindustan Unilever did. They hived off their vanaspati (Dalda) business
to the US-based Bunge Ltd, who had plans to relaunch the product. If a company
does not exit in time, the strategic window may get closed; there may not be
any buyer, and the business may have to be closed down at considerable losses.
Self-Assessment Questions
5. The opportunities that companies should always look for and seize or
exploit at the right time are called _________.
6. Strategic windows arise as a result of _________.
7. Businesses and markets may evolve because of
(a) Development of new product (new demand)
(b) Emergence of new competing technologies
(c) Market redefinition or changes
(d) All of these
8. Strategic windows are not so important for timing the exit from a product
or a market. (True/False)
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Self-Assessment Questions
9. The nature and focus of corporate strategy in different types of
organizations are different primarily because of the nature of their
operations and organizational objectives and priorities. (True/False)
10. As they are operating multi location (country) strategies, roles of strategic
planning and management become more critical in _______ companies
for optimizing manufacturing facilities, resource allocation and control.
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10. Fear of the unknown: Managers may not be sure of their abilities to learn
new skills or take on new roles or adapt to new system. This is basically
inertia against change or fear for change.
11. Fear of failure: Whenever something new or different is attempted, there
is a chance of success, but, there is also some risk of failure. Many
companies and managers may like to avoid strategic planning and
management for fear of failure.
12. Suspicion: Employees may not trust management, or, the management
may not have enough confidence in the managers. This gives rise to
mutual suspicion.2
Self-Assessment Questions
11. All companies undertake strategic planning and management. (True/False)
12. Both overconfidence and fear of failure are among the reasons for not
adopting strategic planning and management. (True/False)
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Self-Assessment Questions
13. For strategy building, one should set a goal and stick to it. (True/ False)
14. Good leadership is a precondition for maintaining good morale of a
strategy. (True/ False)
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1. Return on assets
2. Customer satisfaction
3. Employees motivation and satisfaction
4. Market share
Costumers are divided into segments and respective accounts are handled
by specialized account managers, global accountant, local accountant and
general and mass market managers. The rest of the customers are handled
by sales promotion agents (dealers and partners).
The company also has telemarketing and telesales programmes.
Telemarketing plays a support role, marketing mostly to small organizations
with around 20 employees. The telesales team is able to access the target
customer in different locations through its computer network.
Modi Xerox is a quality company. Quality is its basic business principle or
philosophy. Quality means providing customers innovative products and
services which fully satisfy their requirements. Quality improvement is the
job of every Modi Xerox employee, whether a staff or a manager.
Leadership through quality is both a strategy (continuous pursuit of quality
improvement) and a process (a fundamental business principle on which
all work processes are based). Leadership through quality is fostered by
the management at all levels and is pursued as a proactive approach rather
than are active approach. This reflects positiveness in the companys
strategy.
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1.9 Summary
Let us recapitulate the important concepts discussed in this unit:
Strategy or corporate strategy is better described, and more easily put
into practice than defined. However, strategy, as mostly used or
understood, is an action plan or, a scheme of action or design of
execution of a plan.
Business strategy is similar to military strategy. Both business and military
organizations try to use their strengths to exploit the weaknesses of their
competitors or opponents to win or succeed. There is, however, a
significant difference between the two. Business strategy is formulated
based on the assumption of competition, military strategy is based on the
assumption of conflict.
Like strategy, strategic management has also been defined differently by
different authors and strategy analysts. However, the common elements
in most of the definitions are organizational objectives, the environment,
formulation of strategy, implementation and control.
In any organization, strategy can exist or operate at three levelscorporate
level, business unit level and functional level. In single business companies,
corporate-level strategies and business unit-level strategies may not be
much different. But, for multi-business companies (like Unilever or ITC),
strategies at two levels would be quite distinct. Functional-level strategies,
however, would be common to both types of companies.
Companies should always look for opportunities, and seize or exploit
opportunities at the right time. In other words, they should be constantly
aware of strategic windows. This is what Maruti (Suzuki) did. They entered
the Indian car market at the right time, i.e., when the strategic window
was open because of the obsolescence of Premier Padmini (earlier Fiat).
Some companies do not undertake strategic planning and management.
Some of the common reasons for this are poor reward structure, previous
bad experience, contentment with success, too expensive, overconfidence,
honest difference of opinion, fire fighting, self-interest or self-esteem, waste
of time, fear of the unknown, fear of failure, and suspicion.
Duro and Standstrom have mentioned 10 principles of strategy, which
are drawn from the military rule or warfare, but are equally applicable to
business. These are: 1. Set a goal and stick to it; 2. Maintain good morale
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1.10 Glossary
Competitive advantage: Advantage over competitors gained by offering
consumers greater value, either by means of lower prices or by providing
greater benefits and service that justifies higher prices.
Fortune 500: A list of top companies around the world compiled annually
by Fortune magazine, which ranks publicly listed corporations according
to their revenues.
Multilocation: The state of being in more than two places at the same
time
Strategic window: Short time period between specific events during
which there is an opportunity to capitalize on a market
Strategy: A plan, method, or series of maneuvers or stratagems for
obtaining a specific goal or result.
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1.12 Answers
Answers to Self-Assessment Questions
1. True
2. Glueck (1972)
3. Competition, conflict
4. False
5. Strategic windows
6. Market evolution
7. (d)
8. False
9. True
10. Multinational
11. False
12. True
13. True
14. True
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1.13 References
1. Abell, D F. 1978. Strategic Windows. Journal of Marketing 42(2).
2. Alkhafaji, A F. 2003. Strategic Management. New York: Harworth Press.
3. David, F R. 2003. Strategic Management: Concepts and Cases. 9th ed.,
Indian Reprint. New Delhi: Pearson Education.
4. Glueck, W F. 1980. Business Policy and Strategic Management. New
York: McGraw-Hill.
5. Porter, M E. What is Strategy. Harvard Business Review 72(6), 1996.
6. Thompson, AA, Jr, and A J Strickland. 2001. Strategic Management:
Concepts and Cases. New Delhi: Tata McGraw-Hill.
E-references
http://www.shell.com/home/content/aboutshell/our_strategy/
http://www.source2update.com/Company-History/Modi-XeroxMODXER.html
Endnotes
1
F Glueck, Taking the mystique out of planning, Across the Board (July August, 1985).
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