Strategic Management and Business Policy

Unit 2

Unit 2

Strategic Management Process

Structure
2.1 Introduction
2.2 Caselet
Objectives
2.3 Strategic Management Model
2.4 Approaches to the Strategic Management Process
2.5 Levels in SMP
2.6 Participants in SMP
2.7 Strategic Drift
2.8 Case Study
2.9 Summary
2.10 Glossary
2.11 Terminal Questions
2.12 Answers
2.13 References

2.1 Introduction
In the previous unit, we had defined corporate strategy and strategic
management. In defining strategic management, we had mentioned the
external environment, formulation of strategy and also implementation and
control. Strategic planning and management should actually start with
organizational mission and objectives, consider internal competences and
resources, various strategy alternatives and the competitive situation and,
then proceed with formulation and implementation of the strategy. All these
constitute the strategic management process (SMP). And, this would be the
subject matter of our analysis in the various units starting with Unit 5. In this
unit, we shall give an overview of the strategic management process in terms
of different approaches, levels in SMP, planned or intended and realized
strategies, the people involved, roles of the chief executive, board of directors
and consultants, among others. We shall also discuss concepts like strategic
drift and the learning organization and their relevance and roles in the strategic
management process.

Sikkim Manipal University

Page No. 19

Strategic Management and Business Policy

Unit 2

2.2 Caselet
Every organization follows a strategic management model, which depends
on its size, products and other factors. The organizational structure of the
company is built on the basis of this model. Hindustan Unilever (HUL) is a
fast moving consumer goods (FMCG) company that markets about 100
products/brands grouped into different categories. The different categories
of products require different organizational structure. Therefore, the
company has adopted a hybrid organizational structure based on functions
and product divisionalization. Like most organizations, strategies at HUL
also operate at three levels: corporate, SBU and functional. These will be
discussed in more detail in the unit.

Objectives
After studying this unit, you should be able to:
Explain the different approaches to the strategic management process
Illustrate the strategy-making hierarchy in an organization
Describe the various participants in the strategic management process
Explain the meaning and nature of strategic drift

2.3 Strategic Management Model

The strategic management process consists of four distinct steps or stages:
(a) Defining organizational mission, objectives or goals
(b) Formulation of strategy/strategic plan
(c) Implementation of strategies
(d) Strategy evaluation and control
For understanding these four stages, a company has to consider a number
of other factors like organizational competence and resources, the environment,
various strategy alternatives available, strategy selection criteria, etc. All these
are internal parts of SMP. The strategic management process may best be
illustrated in the form of a model. We can call this the strategic management
model. Relationships among the major components of the strategic management
process are shown in the model (Figure 2.1).

Sikkim Manipal University

Page No. 20

Strategic Management and Business Policy

Unit 2

Companies may or may not follow the strategic management process as

rigidly as shown in the model. Generally, application of SMP is more formal and
model driven in large, well-structured organizations with many divisions, products,
markets, different priorities for investmhent, etc. Smaller businesses or
companies tend to be less formal. In other words, formality in SMP refers to the
extent to which participants in SMP, their responsibilities, authority and roles/
duties are clearly specified. Also, in practice, strategists may not always follow
the strategic management model as rigid steps or chains in the management
process. Situations may not always warrant this. It would also depend on a
companys approach to SMP.
Figure 2.1 Illustrates the Strategic Management Model.
CORPORATE STRATEGY

Understanding
strategy

Understanding
corporate
strategy
(Ch. 1)

Strategic
management
process
(Ch.2)

Stability
Strategies
(Ch. 7)

Strategy
analysis

Strategy
formulation

Corporate
strategy
and corporate
governance
(Ch. 3)

Mission. goal,
objectives
(Ch. 4)

Strategy
for change
(Ch. 8)

Internal
competences
resources
(Ch. 5)

Expansion
strategies
(Ch.9)

Strategy
selection

External
environment
(Ch. 6)

Strategy
implementation

Structural
implementation
(Ch. 2)

Functional
implementation
(Ch. 13)

Industry &
competition
analysis
(Ch.10)

Strategy
evaluation control

Behavioural
implementation
(Ch. 14)

Strategy
evaluation
and control
(Ch. 15)

Selection &
activation
of strategy
(Ch.11)

Figure 2.1 Strategic Management Model

Self-Assessment Questions
1. The _____process consists of four distinct steps or stages Defining
organizational mission, objectives or goals; formulation of strategy/
strategic plan; implementation of strategies; and strategy evaluation and
control.
2. Organizational competence and resources, the environment, various
strategy alternatives available, strategy selection criteria, etc., are _____
parts of SMP.

Sikkim Manipal University

Page No. 21

Strategic Management and Business Policy

Unit 2

3. Application of SMP is more formal and model driven in small businesses.

(True/False)
4. In practice, strategists may not always follow the strategic management
model as rigid steps or chains in the management process as, situations
may not always warrant this. (True/False)

2.4 Approaches to the Strategic Management Process

There are different approaches to the strategic management process (some
call these modes of strategy making). These approaches lay varying emphasis
on different elements of the strategic management process, primarily because
of differences in the nature and forms of organizations.
Approaches to strategy making or the strategic management process
have been differently enunciated by different authors and strategy analysts.
Mintzberg (1973) has classified various approaches into three modes. He calls
these the three modes of the strategy-making process.
These are:
Entrepreneurial mode
Adaptive mode
Planning mode
Steiner and others (1982) have classified various approaches into five
forms or categories. These are:
Formal-structured approach
Entrepreneurial-opportunistic approach
Intuitive-anticipatory approach
Incremental approach
Adaptive approach
Three modes of Mintzberg and five approaches of Steiner and others
have some commonness or similarities in terms of the content. Therefore, the
two sets of approaches can be regrouped into more coherent forms for the
purpose of analysis. For example, Mintzbergs planning mode resembles the
formal-structured approach of Steiner and others, incremental and adaptive
approaches have common features (adaptive is common in both).
Entrepreneurial-opportunistic approach is essentially based on opportunities,

Sikkim Manipal University

Page No. 22

Strategic Management and Business Policy

Unit 2

intuition and anticipation. Therefore, entrepreneurial-opportunistic and intuitiveanticipatory approaches of Steiner and others can be analysed together. So,
the two sets of approaches may be restated in the forms of three basic
approaches:
1. Entrepreneurial-opportunistic
2. Formal-structured and
3. Adaptive

2.4.1 Entrepreneurial-opportunistic Approach

An entrepreneur is a creative thinkeran individual who combines the roles of
an innovator and risk taker. He is tough and pragmatic in decision making and
is constantly driven by an insatiable urge for creation and achievement. He is
characterized by an active search for opportunities in a generally unfriendly or
unfavourable environment. In the entrepreneurial-opportunistic approach, the
focus is on exploiting opportunities against environmental odds rather than
problem solving. In this approach, power rests with one person, the owner and
chief executive, who is capable of taking bold decisions on the basis of personal
power and charisma. Bold decisions are taken many times in situations of
uncertainty. The most dominant goal in this approach is creation and expansion
of assets, markets and market share.
The strategy is to move forward with unusual leaps or discontinuous
growth for achieving entrepreneurial success or profits. Many companies have
successfully used this approach.
The entrepreneurial-opportunistic approach is suitable for organizations
in which the key strategistssometimes a single individualare visionaries.
Also, they have complete control over formulation and implementation of a
strategy and have very high stake in the outcome of the strategy. They lead the
organization from front and by example. These are the reasons why many such
organizations outperform their more professional counterparts adopting formalstructured approach.
The advantages of this approach may, however, turn into disadvantages
if the strategists are found lacking in what they do or in righteousness. Since
there are hardly any checks and controls, the entrepreneurs/strategists should
have the right vision backed by the right strategy and resources. Otherwise, the
strategy may easily lead to failure. There are many such cases of failures.

Sikkim Manipal University

Page No. 23

Strategic Management and Business Policy

Unit 2

2.4.2 Formal-structured Approach

In the formal-structured approach (also called the planning mode), the strategic
management process depends largely on the planning system. Planning is based
on organizational objectives and priorities, values of the top management, the
companys strengths and weaknesses, external opportunities and threats
(including risks) and alternative options or strategies available. This implies the
application of scientific techniques and tools of analysis in the planning process.
The roles of planners are, therefore, very important in this approach. Suitability
of the formal-structured approach depends on the size of the organization,
management styles, complexity of environment, etc. Steiner (1969) has identified
six factors which determine the degree of formalization of the strategic
management process. These are organization, management style, environment,
production process, nature of problems and purpose of planning system.
Most of the large companies, including multinationals, follow the formalstructured approach because it suits their organizational structure and the
decision-making process. Many companiesUnilever, for example, started with
the entrepreneurial-opportunistic approach during the initial years of incorporation
when the company was guided by the vision of the promoter. But, after years of
growth when the company became large and, also global in nature, it switched
over to the formal-structured approach because, at this stage, more planning
and checks and balances are required to sustain growth.
A basic advantage of this approach is that it generates enough information
and, employs scientific tools of analysis which enable planners and decision
makers to find solutions even in complex situations. However, when the planning
and management system becomes too formalized and highly structured, the
decision-making process becomes slow. Such a system also generally
discourages new initiative and unconventional decision making which may be
warranted by emerging competitive situations.

2.4.3 Adaptive Approach

The adaptive approach is essentially a balancing strategy. It is more remedial
and reconciliatory, and, therefore, more reactive than proactive as a decisionmaking process. Decisions are made in sequential and incremental steps
necessitated by internal or environmental changes. Different interest groups
and stakeholders put pressure on the decision-making process to protect their
own interests. The basic orientation in this approach, therefore, is to maintain
flexibility to adapt to pressing needs and circumstances. This also means that

Sikkim Manipal University

Page No. 24

Strategic Management and Business Policy

Unit 2

the final decision, many times, is a compromised one, which may be at the cost
of organizational effectiveness or success.
The adaptive approach typically suits large public sector companies, where
there is greater focus on accountability than on growth. There are also important
pressure groups in the form of the controlling ministry and other related
government departments and ministries. In such companies, current problem
solving (with necessary adaptation and compromise) always has higher priority
than future planning. All large public sector companies in India like ONGC,
SAIL, BHEL, IOC, MMTC, STC and, also in other parts of the world, follow the
adaptive approach. The degree of adaptability and compromise on strategic
planning and decision making would depend on the progressiveness of the
companies and the concerned controlling ministries.
The adaptive approach also suits follower companies (in the private sector)
rather than leaders in the industry. Followers or imitators are companies that
avoid the risk of innovation and are content with producing and selling products
that have already been established in the market. They only concentrate on
market share.

2.4.4 Combination Approach

Many companies realize that adopting a single approach exclusively may not
be the most judicious course. Stakeholders stakes/interests are increasing
(including stock options), the marketplace is ever changing and the business
environment is never fully predictable. Due to these factors, the strategic
management process of a company has to cope with a large number of complex
variables or factors, and a single approach may not be sufficient to secure
competitive advantage. A combination of approaches may be the appropriate
strategy.
A dominant entrepreneurial-opportunistic approach may be combined with
the formal-structured approach for better results. Similarly, a formal-structured
approach may be combined with some elements of entrepreneurial-opportunistic
approach. And, environmental (both internal and external) adaptability should
be a common element in these approaches. As Sumantra Ghoshal puts it: It
may be useful for Reliance (following entrepreneurial approach) to think whether
it should follow a bit of Hindustan Levers structured processes, just as much as
it may be productive for Hindustan Lever to consider ways of broadening its
systems and culture to the entrepreneurial approach.1

Sikkim Manipal University

Page No. 25

Strategic Management and Business Policy

Unit 2

Hindustan Unilever, like many other companies, has also realized the
need for infusing entrepreneurial approach into their dominant formal-structured
approach for developing more effective business strategies. According to its
former Chairman, Keki Dadiseth, Hindustan Lever has grown in size. While it
has its own obvious benefits, it also has some drawbacks. What we need to
master is the art of creating and preserving the entrepreneurial ability and
connectedness of a small company within a large company.2
There are different ways in which the three approaches can be combined.
Individual companies have to work out the right combination based on growth
alternatives, investment opportunities or priorities, stakeholders pressures and
top managements style of functioning.
Activity 1
We have mentioned four different entrepreneurial-opportunistic approaches
(Reliance, Dell, Sony, Hero Honda) to the strategic management process.
Make a comparative analysis of these four approaches.

Self-Assessment Questions
5. ________ has classified various approaches to SMP into three forms,
calling it the three modes of the strategy-making process entrepreneurial
mode, adaptive mode and planning mode.
6. In the ______ approach, the focus is on exploiting opportunities against
environmental odds rather than problem solving.
7. In the __________ approach, the strategic management process depends
largely on the planning system.
8. Which of these approaches is essentially a balancing strategy more
remedial and reconciliatory, and, therefore, more reactive than proactive
as a decision-making process?
(a) Entrepreneurial-opportunistic
(b) Formal-structured
(c) Adaptive approach
(d) Combination approach

Sikkim Manipal University

Page No. 26

Strategic Management and Business Policy

Unit 2

2.5 Levels in SMP

We had mentioned the three levels of strategy in Unit 1. We shall now elaborate
on these strategies with respect to the strategic management process. To do
this, let us first define a strategic business unit (SBU). A strategic business unit
is a division or a product/product group unit which operates as a separate profit
centre having its own set of market and competitors and its own marketing
strategies. The company or the corporate organization consists of related
businesses and/or products grouped into different SBUs. The SBUs are
homogeneous enough to manage and control most factors which affect their
performance. Resources are allocated to SBUs in relation to their contributions
to the corporate objectives, growth and profitability.
Three levels in the strategic management process, as mentioned in Unit
1, are: the corporate level, the business unit or SBU level and the functional
level. These three levels of strategy distinctly exist only in multiple SBU firms.
For single-business companies, corporate-level strategy and SBU-level strategy
are not really distinguishable because all the organizational level strategies for
resource allocation or growth or market diversification are formulated with respect
to the particular product or business of the company (only in the case of product
diversification, corporate-level strategy and single business unit-level strategy
may/would be different). Relationships among corporate level, business unitlevel and functional-level strategies in single SBU and multiple SBU firms are
shown in Figures 2.2 and 2.3. We can also call these alternative strategic
management structures.

Operations
strategies

Corporate/business
strategy

Top/Senior
management

Functional strategy

Middle
management

Marketing
strategies

Financial
strategies

HR
strategies

Figure 2.2 Corporate/Business Level and Functional Strategies

in Single SBU Company
Sikkim Manipal University

Page No. 27

Strategic Management and Business Policy

Unit 2

Corporate
strategy

SBU 1
strategy

Corporate
management

SBU 2
strategy

Operations
strategies

Marketing
strategies

SBU top
management

SBU 3
strategy

Financial
strategies

Personnel
strategies

Middle
management

Figure 2.3 Corporate/Business Level and Functional Strategies

in Multiple SBU Company

2.5.1 Corporate, SBU and functional level

Corporate-level strategy sets the long-term objectives of an organization and
broad policies and controls within which an SBU operates. The corporate-level
strategies also help an SBU to define its scope of operations and also limit or
enhance SBUs operations through resources the corporate management allocates
for securing competitive advantage. Functional-level strategies follow from, and
also support, SBU-level strategies. Strategies at the functional level are often
described as tactical. Such strategies are guided and controlled by overall SBU
strategies. Functional strategies are more concerned with implementation of
corporate-and SBU-level strategies rather than formulation of strategies. Strategic
management process at three levels also involves decision making. But, the types
of decision making, their scope and impact are different at different levels. The
characteristics of decision making at three levels may be more clearly understood
in terms of major dimensions of decision making. These are shown in Table 2.1.
Table 2.1 Characteristics of Strategic Decisions at Corporate, SBU and Functional Levels
Level of Strategy
Dimension

Corporate

SBU
Policy/operational

Functional

Type of decision

Conceptual/policy

Operational

Investment
implication
Risk involved

High

Medium

Low/Nil

High

Medium

Low

Time horizon

Long term

Medium term

Short term

Impact

Critical

Major

Minor

Flexibility

High

Medium

Low

Adaptability

Low

Medium

High

A distinction can be made between functional-level or functional-area

strategies and operating strategies. Functional-area strategies involve
Sikkim Manipal University

Page No. 28

Strategic Management and Business Policy

Unit 2

approaches, actions and practices to be undertaken for managing particular

functions or business processes or key activities within a business marketing
strategy. Operating strategies in comparison, are relatively narrow strategies
for managing different operating units (plants, distribution centres in different
geographic locations, etc.,) and specific operating activities of strategic
significance (advertising campaigns, management of particular brands, website
sales and operations, etc).3 Operating strategies provide more specific details
about functional-area strategies and render completeness to functional-level
strategies and also to overall corporate strategy.
Hindustan Unilever (HUL) is a multi-SBU fast moving consumer goods
(FMCG) company. It markets about 100 products/brands. It has grouped its big
range of products into three categories: home and personal care, foods and
beverages and, industrial and agricultural. In addition to domestic marketing, it
is also engaged in export which is a separate SBU. The company has adopted
a hybrid organizational structure based on functions and product divisionalization.
Like most organizations, strategies at HUL also operate at three levels: corporate,
SBU and functional. The strategic management process in HUL is shown below
as a model structure (Figure 2.4).
HUL

Corporate level
Resource mibilization
Resource deployment
Merger and acquisition
divestment
Appropriation of earnings

Business level (SBU)

Beverages
Personal products
detergents
Ice cream and frozen dessels
Export
Functional level
Technical
Marketing
Finance
Human resources
Research
Corporate affairs
Legal & secretarial

Flow of decision
Flow of support

Figure 2.4 Strategic Management Process at HUL

Sikkim Manipal University

Page No. 29

Strategic Management and Business Policy

Unit 2

Self-Assessment Questions
9. A ________ is a division or a product/product group unit which operates
as a separate profit centre having its own set of market and competitors
and its own marketing strategies.
10. Strategies at the functional level are often described as_____, and such
strategies are guided and controlled by overall SBU strategies.
11. Corporate-level strategy sets the short-term objectives of an organization
and broad policies and controls within which an SBU operates.
(True/False)
12. Operating strategies in comparison are relatively narrow strategies for
managing different operating units. (True/False)

2.6 Participants in SMP

The fact that the strategic management process involves strategy making at
the corporate level, SBU level and functional level also implies that managers
at different levelstop, senior and middleparticipate in the strategic planning
and management process. In addition to the managers, the board of directors
also play a definite role. Many times, management consultants also play important
roles in the strategic planning and management of a company. So, there may
be five major participants in the strategic management process of a company
although they may play quite different roles. The five participants are:
1. Board of directors
2. Chief Executive Officer (CEO)
3. Corporate planning staff
4. Other managers
5. Consultants

2.6.1 Role of Board of Directors

In any organizational hierarchy, the board of directors is the apex/highest level
body. The board is the final authority in managing the affairs of a company,
strategic or non-strategic. They perform these functions according to or subject
to the memorandum of association and articles of association of the company.
The role of a board member depends on his (her) degree of involvement in the
strategic process; and the degree of involvement of a member depends partly
Sikkim Manipal University

Page No. 30

Strategic Management and Business Policy

Unit 2

on the management philosophy of a company and partly on the interest a

particular board member takes in the affairs of the company. The levels of
involvement and, therefore, the roles of the board members can vary widely.
Wheelan and Hunger4 have analysed the role of board members in terms of a
continuum as shown in Table 2.2.
Table 2.2 Degree of Involvement of Board Members in Strategic Management
Low
(Passive/
phantom)
Never knows
what to do

High
Rubber
Stamp
Permits
executives to
make all
decisions and
approves
what they
decide

Minimal
review
Reviews
selected
issues
brought to
him/her

Normal
participation
Involved to a
limited degree
to review
managements
performance,
decisions or
programmes

Active
participation
Questions,
reviews and
makes final
decisions on
mission,
objectives,
strategy,
policies;
performs
fiscal and
management
audit

(Active/
catalyst)
Takes the
leading role
in establishing
and
modifying
mission,
objectives,
strategy and
policies; has
very active
strategy
committee

Source: T L Wheelen, and J D Hunger (1983), 49

Given the progressive management philosophy of a company, professional boards

can play very effective roles in the strategic management process. Boards of
Hindustan Unilever, L&T, ITC, Tata Motors, Tata Steel, for example, are quite
effective and take active part in the strategy-making processes of these companies.
They participate in setting and reviewing corporate objectives, formulation of longterm strategies, examination and review of proposals for new investment,
appointment of chief executives and other key personnel, etc. According to a
survey conducted by AIMS Research5 on the practice of boards of directors and
their roles in company management, the boards of Hindustan Unilever, Tata Motors,
Bajaj Auto, HDFC and L&T are considered the best in India.
On the other extreme, as shown in Table 2.3, there are boards or board
members who play only passive roles. In such cases, strategic decisions are
taken mostly outside the board. Strategy and decision makers may be a powerful
family group or a powerful CEO or the top management committee, overseas
parent company in the case of subsidiaries of multinationals or bureaucrats or
ministers in the case of public sector companies.
Between the passive boards and the extraordinarily participative ones,
there are boards which are more common in companies. These boards play a
balancing role between the strategy-making process in the companies and the
shareholders. Major strategic functions performed by these boards are:
Sikkim Manipal University

Page No. 31

Strategic Management and Business Policy

Unit 2

Approval of the corporate budget and resource allocation for strategic

investments
Periodic review of the strategic planning process
Monitoring the chief executives role in the strategic management process
Triggering discussion on growth possibilities and alternatives
Guiding the chief executive in formulating organization-level strategies
Review of strategy implementation with respect to results or profitability

2.6.2 Role of Chief Executive

The chief executive plays the most important role in the strategic management
process of a company. Major management functions of a chief executive,
however, can be broadly divided into two categories; strategic and non-strategic.
Every chief executive should clearly distinguish between his/her strategic
functions and non-strategic or operational functions so that he can appropriately
allocate his time and concentrate more on strategic functions. Strategic and
non-strategic functions of a chief executive in selected basic organizational
areas are given in Table 2.3.
Table 2.3 Strategic and Non-strategic Functional Activities of Chief Executives
Function
Basic organizational area

Strategic

Non-strategic

Setting goals and priorities

Deciding organizational
mission and objectives,
setting major policies,
priorities, etc.

Minimal or nil

Long-term planning

Providing direction and

leading the process

Constitute the planning team

Short-term planning

Providing directions

Reviewing results

Developing resources

Leading organizational
resource development
team

Developing human and

physical resources

Allocation of work and major

resources

Allocating major resources Designing organizational

to strategic functions and
structure and
projects
preparing/approving corporate
budget

Committing resources

Committing new projects or Developing control criteria

resources; discommiting
projects, resources

Evaluating results /
performance appraisal

Negligible or nil

Measurement of performance
against plans; measuring
organizational and managerial
effectiveness

Mobilizing support

Maintaining good PR for better

governance

Relationship with internal and

external stakeholders

Sikkim Manipal University

Page No. 32

Strategic Management and Business Policy

Unit 2

It may be interesting to see how chief executives prioritize their major

functions or roles. T Thomas, the former CEO of Hindustan Unilever visualizes
three major roles6 of the chief executive:
Managing relationship with the environment
Managing the board
Long-term planning
It is to be noted that Thomas was holding the positions of the chief executive
and also of the chairman of the company. If the two positions are delinked as
happens in many companies, the chief executives primary role is to assist the
board rather than manage it. Managing the board would be the chairmans job.
Some empirical studies have highlighted the relative importance of major
functions (both strategic and non-strategic) performed by a chief executive.
Results of a study7 of 125 Indian CEOs are summarized in Table 2.4.
Table 2.4 Major Functions of a Chief Executive

1.
2.
3.
4.
5.
6.
7.
8.

Function

Degree of
importance*

Time spent
(per cent)

Long-term planning
External relationship
Review and control of organizational performance
Personnel development
Short-term planning
Performance appraisal
Meetings in the organization
Review of organizational relations

4.8
4.5
4.0
3.4
3.2
3.0
2.8
2.6

18.0
30.0
20.0
7.0
8.0
5.0
6.0
6.0
100.0

* Degree of importance of a function has been measured on a 5-point scale

Source: R K Shah, Top Managerial Effectiveness (1990).

Effectiveness of the strategic role of the chief executive determines the direction
and pattern of growth of most of the companies. An effective chief executive is
a practical/realistic visionary a dreamer who also does. He becomes a catalyst
in the strategic management process and, mobilizes resources, managers and
supports the board to accelerate the growth process. Effective chief executives
are successful leaders; they lead by example and charter a new growth trajectory
for the company. Jack Welch of GE, Lee Iacocca of Chrysler Corporation, Michael
Dell of Dell Computers, Bill Gates of Microsoft, Keki Dadiseth of Hindustan
Unilever, P N Haksar of ITC, Dhirubhai Ambani of Reliance, Aditya Birla of
Hindalco Industries, Azim Premji of Wipro and N R Narayanamurthy of Infosys
have led their companies to unprecedented heights.
Sikkim Manipal University

Page No. 33

Strategic Management and Business Policy

Unit 2

2.6.3 Role of Corporate Planning Staff

Every chief executive needs the support of his corporate planning staff. With
increasing volatility of the competitive environment, the strategic planning and
management process is becoming more complex. Also, with the introduction of
new tools, techniques and planning models, the planning system is also
becoming more technical and specialized. Therefore, almost all large companies
and multinationals have created a separate corporate planning division or unit.
This division or unit is equipped with specialized planning staff who forms the
nucleus of strategic planning activities of a company. In many companies, this
division or unit functions directly under the charge of the chief executive.
The corporate planning division performs various functions mostly of a
strategic nature. Major functions of the corporate planning staff may be
summarized as follows:
Assisting the chief executive in developing and formalizing fundamental
concepts or divisions about organizational growth and diversification.
Scanning the environment and identifying new business opportunities.
Analysing cost benefits of alternative investment opportunities and
allocating resources to various activities/projects.
Integrating SBU plans (and, sometimes, also functional plans) into
corporate plans.
Monitoring progress of strategic plans at corporate level, SBU level and
functional levels.
Undertaking mid-term review of plans and strategies and, suggesting
changes, if and when necessary.
Evaluating plan performancemeasuring the degree of success (or
failure) of strategic plans and reporting to the chief executive for any
necessary action.
Vaswani (1990) of Gujarat University conducted a study8 on the strategic
management process in India based on a cross-section of Indian companies.
The study included 12 public sector, 26 FERA9 and 24 private sector companies.
One of the study findings focussed on the role or functions of the corporate
planning staff. These are shown in Table 2.5.

Sikkim Manipal University

Page No. 34

Strategic Management and Business Policy

Unit 2

Table 2.5 Functions of Corporate Planning Staff: Relative Importance

Functions

Weightage*

Getting top management participation in development of plan assumptions

Integrating the plans
Monitoring plan progress
Communicating the plans
Issuing planning guidelines
Converting physical plans into financial plans
Interpreting the plans
Monitoring and reviewing strategic plans
Negotiating plan targets
Verification of plan activities
Monitoring performance of operating units
Providing continuous staff assistance to chief executive for planning activities
Recommending and monitoring allocation of resources to various
organizational units
14. Identification of new business opportunities

2.7
2.3
2.3
2.2
2.2
2.1
2.1
2.0
2.0
2.0
1.6
1.6
1.5

1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.

1.4

* Weightage is on a four-point scale

Source: P Vaswani, Strategic Management Process in India (1990).

2.6.4 Role of Senior Managers

Not only the corporate planning staff but other managers, particularly the senior
managers, also play an important role in the strategic management process of
a company. The senior managers include SBU heads and also functional heads.
Some of these heads are at the level of directors who are represented on the
board. The senior managers are members of different management committees,
including top management committees which are involved in strategic planning
and management. Some of these committees consider and evaluate proposals
for new investment, restructuring, diversification, etc. In all these committees
some corporate planning staff members are also represented.
ITC has constituted a Corporate Management Committee (CMC) which
consists of five full-time directors and five senior managers, besides company
secretary. MRF has divided its senior managers into five strategic groups dealing
with products and markets, environment, technology, resources and manpower.
Each group, headed by a leader, prepares position papers (which includes
initiation of strategy proposals, feedback and implementation reports) for the
board. Voltas undertakes strategy implementation through a Corporate Executive
Committee (CEC) headed by the President (Chief Executive) and consisting of
Senior VPs and VPs of different functional areas.
Sikkim Manipal University

Page No. 35

Strategic Management and Business Policy

Unit 2

2.6.5 Role of Consultants

Management consultants can play very useful roles in the strategic planning
process of a company. Consultants render services in different functional areas
of management including the strategic planning and management process. In
companies with no separate planning division or unit, consultants can fill that
gap. They can undertake planning and strategy exercises as and when the
company management feels the need for such exercises or consultancies. Even
in companies with a corporate planning division/unit, consultants may provide
specialized inputs or insights into identified management or strategy areas. Top
strategic consultants like McKinsey & Company use or develop latest tools,
techniques or models to work out solutions to specific strategic management
problems or issuesbe it productivity, cost efficiency, restructuring, long-term
growth or diversification. Consultants bring with them diversified skills (most of
the consulting companies are multidisciplinary) and experience from various
companies which may not be available internally in a single company. This is
the reason why even large multinational companies hire consultants for achieving
their goals or objectives.
There are many international consultants who are in demand in different
countries. There are also national consultants. Leading international consultants,
in addition to McKinsey & Company, are Boston Consulting Group (BCG), Arthur
D Little and Accenture (formerly Anderson Consulting). Prominent Indian
consulting companies are A F Ferguson, Tata Consultancy Services (TCS) and
ABC Consultants.
Consultants, sometimes have a difficult or delicate role to play. In many
companies, a situation develops when the chief executive or the top management
needs to bank upon the support of an external agency like a consultant to push
through a strategic change in the organizational structure or management system
of the company. It may be for growth and development or downsizing. In both
cases, many companies face internal resistance to change. The resistance is
more if it is downsizing even when it is required for turning around a company.
This happens particularly in public sector companies where implementing change
is always difficult. Consultants are engaged to support or substantiate the
companys point of view (in the form of their recommendations) so that change
is more easily acceptable to the internal stakeholders of the company.
Consultants role may become delicate and, sometimes, tricky in such cases,
and they should carefully weigh the ethical implication of their participation.

Sikkim Manipal University

Page No. 36

Strategic Management and Business Policy

Unit 2

Self-Assessment Questions
13. Managers at different levelstop, senior and middleparticipate in the
strategic planning and management process. (True/False)
14. The _______ plays the most important role in the strategic management
process of a company.
15. Most large companies and multinationals have created a separate
_____unit, which is equipped with specialized planning staff who form
the nucleus of strategic planning activities of a company.
16. In companies with no separate planning division or unit, ______can fill
that gap.

2.7 Strategic Drift

In the strategic management process of every company, there is a risk of
strategic drift. In simple terms, strategic drift is the widening gap between
demand for change by the environmental forces and actual strategic change in
a company.
If there is a pressure for change, managers usually look for what is familiar.
But, this creates problems when managing strategic change, because the action
required may be outside the present system or paradigm, and organizations
may be required to change significantly their core assumptions and strategies.
The situation may be one of declining performance. To arrest the decline,
company management may first seek to improve implementation of the existing
strategy. This can be through tightening controls and improving the monitoring
system. If this is not effective, a change of strategy may take place, but, a
change which may still be within the existing paradigm. For example, the
management may seek to expand the market but, may assume that it will be
similar to its existing market and, therefore, plan for managing the new project
in much the same way as it has been used to. This is the strategy of incremental
change.
But, this may not be enough. Such processes or strategies may not be
adaptive enough to the environmental changes over time. This may give rise to
strategic drifta mismatch between the environmental needs and strategic
actionas shown in Figure 2.5.

Sikkim Manipal University

Page No. 37

Strategic Management and Business Policy

Unit 2

Environmental
change

Amount of change

Strategic
change
3

2
4

Phase 1
incremental change

Phase 2
Flux

Phase 3/4
Transformational
change or demise

Time

Figure 2.5 Strategic Drift in the Management Process

As shown in the Figure 2.6, an organizations strategy gradually moves

away from or neglects the forces at work in its environment. Sometimes, the
strategic drift is difficult to detect and reverse. This happens because not only
changes are being made in strategy, but also such changes may achieve some
short-term improvement in performance tending to legitimize the action taken.
But, with time, either the drift becomes evident or the environmental change
increases, and the performance is affected. Strategy development is then likely
to go into a state of flux (Phase 2), with no clear direction, further damaging the
performance. Eventually, more transformational change may be required (Phase
3) if the demise of the organization (Phase 4) is to be avoided.10
The above description of strategic drift conforms to a situation of lack of
fit or match with the environment. The lack of fit can happen in another way
also. Those organizations, which tend to stretch their competences to create
new opportunities, may also get into problems. In this case, a transformational
change may be attempted through development of entirely new products or
services not previously in existence. This can succeed and create a shift in the
market in accordance with the intended strategy. However, there is a risk that
such an organization can find itself ahead of its environment (Phase 5 in Figure
2.5). The strategy and the environment may eventually realign (as shown in the

Sikkim Manipal University

Page No. 38

Strategic Management and Business Policy

Unit 2

figure), but, this may not often happen in reality; and, even if it happens, the
time lag in the realignment process can cause significant problems of
performance in the organizations. Strategic drifts of this nature are, however,
not very common. More common drifts in organizations are the ones where the
strategic process lags behind the environmental forces.
But, all this emphasizes the delicate balance that an organization needs
to maintain in developing its strategy. It has internal pressurescultural or
managerialwhich tend to constrain strategy development, and environmental
forces, including markets and competitors, which it must cope with for a particular
strategic process to succeed. Every organization has to constantly endeavour
to align or realign these two forces to avoid the occurrence of a strategic drift.

2.7.1 The Learning Organization

The risk of strategic drift implies that there is not much justification in pursuing
formalized planning approaches with predetermined objectives, analyses and
strategies. The environment is too complex and changes too rapidly for such
approaches to produce desired results. Such uncertainty in the environment
requires that strategy should be managed in a more unconventional,
discontinuous way and not through incremental changes. Managers should
not regard their experience as fixed and unalterable; on the other hand, they
should try to develop an organization in which they continually challenge past
experience and practices and strive for new, innovative ways. In other words,
they should develop a learning organization. Senge (1990) gives a good
exposition of the art and practice of the learning organizations.
Managers in a learning organization have a questioning mind. They start
by questioning the past and the present. For this to happen, companies need to
develop organizations which are pluralistic, i.e., organizations in which different
and even conflicting ideas and views are encouraged, and discussions, debates
and experimentations are the norms. In this way, all strategic solutions and
decisions emerge through a critical, but progressive process. The job of the top
management is to create such an organization and build teams which can work
in a pluralistic environment. This can be done in a number of ways; for example,
through development of different types of organizational structure or through
development of organizational culture. Suitability of the organizational type is
important. The learning organization is also an evolving organization.

Sikkim Manipal University

Page No. 39

Strategic Management and Business Policy

Unit 2

Activity 2
In every organization, there is a chance of strategic drift. Progressive
organizations try to prevent strategic drift through advance planning and
preventive strategies. Assume that you are the strategic planning manager
of one such company. Give your analysis of preventive planning and
strategies.

Self-Assessment Questions
17. The widening gap between demand for change by the environmental
forces and actual strategic change in a company is referred to as ______.
18. The risk of strategic drift implies that there is not much justification in
pursuing formalized planning approaches with predetermined objectives,
analyses and strategies. (True/False)
19. Managers in a learning organization have a __________mind.
20. The learning organization is also an evolving organization. (True/False)

2.8 Case Study

Strategic Management Process At Hindustan Unilever (HUL)
Hindustan Unilever (HUL) is a partly owned (majority holding) subsidiary of
Unilever Ltd. For quite some years, Unilever
was on the lookout for expansion
opportunities for its group companies/
businesses in India. When the opportunity
came its way with Indias e conomic
liberalization in the 1990s, Unilever acted fast,
achieved a big expansion in each of its major
businesses in the country, regrouped and
integrated its companies.
Unilever worked out its corporate strategy for
India in line with its objectives. To achieve its
objectives, HUL formulated a strategy which
had three distinct components:

Sikkim Manipal University

Page No. 40

Strategic Management and Business Policy

Unit 2

1. A strategy for expansion of businesses

2. A strategy for regrouping and integrating the group companies
3. A strategy for consolidation of ownership and control by the parent
company in the Indian operations by acquiring majority equity in them.
For expansion of its business, HUL exploited a whole range of strategic
possibilities. It used takeovers/ acquisitions, mergers, strategic alliances
and joint ventures. In some cases, it employed the start-up route as well. It,
however, relied heavily on the takeover route for its expansions. There
were valid reasons for this. By relying on the takeover route for its expansion,
Unilever was in a position to avoid the time lags.
Along with the expansion of its various businesses, Unilever carried out the
regrouping/integration of its existing businesses/companies in the country.
Its idea was to integrate all its companies in India into a single mega firm. It
used mergers for accomplishing the objective and carried it out in stages.
It took two companies at a timetwo companies of the group which enjoyed
the closest synergy were merged at a time into a single entity, and the
merged entity in turn was subsequently merged with another company of
the group to form a much larger entity. The process continued till it reached
the stage where Unilever had just a single company in India.
Unilever merged four companiestwo of its existing companies, Doom
Dooma India and Tea Estates India, two taken-over companies, Kissan
and Kothari General Food (KGF), into Brooke Bond. The merging of Doom
Dooma and Tea Estates served two purposes. It furthered the objective of
integrating the group companies. It also helped Unilever to acquire majority
equity in Brooke Bond with an incremental new investment. Unilever then
merged Brooke Bond and Lipton into a single entityBrooke Bond Lipton
India Ltd (BBLIL). Then TOMCO, which had been taken over earlier, was
merged with HLL. Subsequently, the combined entity, Brooke Bond Lipton
India Ltd (BBLIL) was merged with Hindustan Lever. Consolidation of
ownership and control by the parent company was the third part of Unilevers
strategic process with respect to its Indian operations. Unilever acquired
majority stake and consolidated its position in all its companies in India.
The company acquired 51 per cent or more equity in each of its companies
in India, and it managed this at attractive prices and with minimal new
investment. This was accomplished through a chain of moves involving
mergers of companies and incremental new investments.

Sikkim Manipal University

Page No. 41

Strategic Management and Business Policy

Unit 2

2.9 Summary
Let us recapitulate the important concepts discussed in this unit:
There are different approaches to the strategic management process.
These approaches can be regrouped into three basic approaches:
entrepreneurial-opportunistic, formal-structured and adaptive.
Many companies use a predominantly entrepreneurial-opportunistic
approach and combine this with the formal-structured approach. Similarly,
a formal-structured approach may be combined with some elements of
adopting predominantly a formal-structured approach with elements of
entrepreneurial-opportunistic approach.
Corporate-level strategies, SBU-level strategies and functional-level
strategies all involve decision making. But, the types of decision making,
their scopes and impacts are different at different levels. For example,
corporate-level strategies are generally long term, SBU-level strategies
are generally medium term and functional level strategies are short term.
Managers at different levelstop, senior and middleparticipate in the
strategic management process. In addition, the board of directors plays
an important role. Consultants also have a role to play. In all, there are
five major participants in SMP: board of directors, chief executives (CEO),
corporate planning staff, other managers and consultants.
In the strategic management process of every company, there is a risk of
strategic drift. Strategic drift is the gap between demand for change by
the environmental forces and actual strategic change taking place in a
company.
In learning organizations, managers constantly challenge past experience
and practices and, strive for new innovative ways. In such organizations,
strategy is managed in a more unconventional, discontinuous way and,
not through incremental changes.

2.10 Glossary
Merger: The combining of two or more companies into one, through a
purchase acquisition or a pooling of interests
Strategic business unit: A division or a product/product group unit which
operates as a separate profit centre having its own set of market and
competitors and its own marketing strategies
Sikkim Manipal University

Page No. 42

Strategic Management and Business Policy

Unit 2

Strategic drift: The widening gap between demand for change by the
environmental forces and actual strategic change in a company
Strategic management process: An ongoing process that entails
specifying the organization's mission, vision and objectives, developing
policies and plans, often in terms of projects and programs, which are
designed to achieve these objectives, and then allocating resources to
implement the policies and plans, projects and programmes.

2.11 Terminal Questions

1. Explain the strategic management process (SMP). Discuss it in terms of
the strategic management model.
2. Distinguish between the entrepreneurial-opportunistic approach, formalstructured approach and the adaptive approach in strategic management.
Would you generally recommend each of these approaches in isolation
or in some combination for a company?
3. What are the different levels in SMP? Are there any interrelations among
them? Explain.
4. Who are the major participants in SMP? Do you feel all these participants
play equal roles?
5. Compare the roles of the board of directors and the chief executives in
the strategic management process.
6. What is the role consultants play in the strategic planning and management
process of a company? Is it an essential role?
7. What is strategic drift? Explain graphically.
8. Which is a learning organization? What is the mindset of managers in a
learning organization?

2.12 Answers
Answers to Self-Assessment Questions
1. Strategic management
2. Internal
3. False

Sikkim Manipal University

Page No. 43

Strategic Management and Business Policy

Unit 2

4. True
5. Mintzberg (1973)
6. entrepreneurial-opportunistic
7. formal-structured
8. (c)
9. Strategic business unit
10. tactical
11. False
12. True
13. True
14. Chief executive
15. Corporate planning unit
16. Consultants
17. Strategic drift
18. True
19. Questioning
20. True

Answers to Terminal Questions

1. The strategic management process may best be illustrated in the form of
a model. Refer to Section 2.3 for further details.
2. Three modes of Mintzberg and five approaches of Steiner and others
have some commonness or similarities in terms of the content. Refer to
Section 2.4 for further details.
3. Three levels in the strategic management process are the corporate level,
the business unit or SBU level and the functional level. Refer to Section
2.5 for further details.
4. There may be five major participants in the strategic management process
of a companyboard of directors, chief executive officer (CEO), corporate
planning staff, other managers and consultants. Refer to Section 2.6 for
further details.

Sikkim Manipal University

Page No. 44

Strategic Management and Business Policy

Unit 2

5. The board of directors is the final authority in deciding the affairs and
direction of a company; the chief executive plays the most important role
in the strategic management process of a company. Refer to Section 2.6
for further details.
6. Management consultants can play very useful roles in the strategic
planning process of a company. Refer to Section 2.6.5 for further details.
7. Strategic drift is the widening gap between demand for change by the
environmental forces and actual strategic change in a company. Refer to
Section 2.7 for further details.
8. Due to the fear of strategic drift, every company should be a learning
organization. In learning organizations, managers constantly challenge
past experience and practices and, strive for new innovative ways. Refer
to Section 2.7.1 for further details.

2.13 References
1. Hill, C W L, and G R Jones. 1997. Strategic Management: An Integrated
Approach. 2nd edn. Boston: Houghton Mifflinco.
2. Johnson, G, and K Scholes. 2005. Exploring Corporate Strategy. 6th edn.
London: Pearson Education.
3. Mintzberg, H. 1973. Strategy Making in Three Modes. California
Management Review, Winter.
4. Senge, P. 1990. The Fifth Discipline: The Art and Practice of the Learning
Organization. New York: Doubleday Century.
5. Thomas, J. 1981. Managing a Business in India. New Delhi: Allied
Publishers.
6. Wheelen, T L, and J D Hunger. 1983. Strategic Management and Business
Policy. Massachusetts: Addison-Wisley.
7. Wright, P, C Pringle, and M Kroll. 1998. Strategic Management: Text and
Cases. Boston: Allyn and Bacon.
Endnotes
1

Sumantra Ghoshal, Collectors of Great People, Economic Times, Supplement (August

20, 1999).

Keki Dadiseth, Business Growth Through People Growth: Our Blueprint for the New
Millennium , Chairman s Speech (Mumbai: Annual General Meeting of the Company,
April 20, 2000).

Sikkim Manipal University

Page No. 45

Strategic Management and Business Policy

Unit 2

A A Thompson Jr, A J Strickland III, and J E Gamble, Crafting and Executing Strategy:
The Quest for Competitive Advantage, 14th ed. (New Delhi: Tata McGraw-Hill, 2005) 34.

T L W heelen, and J D, Hung er, Strategic Management and Business Policy

(Massachusetts: Edition Wesley, 1983), 49.

AIMS Research Survey, Best Boards, Business Today (March 7 21, 1999).

T Thomas, Managing a Business in India (New Delhi: Allied Publications, 1981), l.

R K Shah, Top Management Effectiveness, unpublished PhD Dissertation (South Gujarat

University, 1990).

P Vaswani, Strategic Management Process in India , PhD Thesis Surat: South Gujarat
University, 1990.

Companies covered under the Foreign Exchange Regulation Act (FERA). FERA has now
been replaced with Foreign Exchange Management Act (FEMA).

10

G Johnson, and K Scholes, Exploring Corporate Strategy (1999), 77.

Sikkim Manipal University

Page No. 46