Strategic Management

UNIT-1

CONCEPT OF STRATEGY

Concept of Strategy

Learning Objectives After the end of this Unit the readers will be able to understand (1) The concept of strategy and its limitations. (2) Different levels of strategy. (3) Concept of strategy formulation and implementation. (4) Concept of strategic decision making. (5) Various issues related to strategic decision-making. (6) Theories of decision making. Unit Structure 1.1 Introduction 1.2 The concept of strategy 1.3 Levels of strategies 1.3.1 Corporate strategy 1.3.2 Business strategy 1.3.3 Functional strategy 1.4 Strategy Formulation 1.5 Strategy Implementation 1.6 Strategic Decision-Making 1.6.1 What makes a Decision strategic? 1.6.2 Issues in strategic Decision-Making. 1.6.3 Various Theories of Decision-Making. 1.7 Summary 1.8 Keywords 1.9 Questions

1.1 INTRODUCTION
Why are some businesses successful, while so many others fail? Why do some businesses enhance and substain their performance over time, while others experience erosion in their competitive position? These questions are at the heart of Strategic Management. Their answers require a firm to act, activate, and more fast to attain and sustain competitive advantage. Strategy refers to the pursuit of competitive advantage, i.e., of winning in the market place.

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Strategic Management

If we are aware of term strategy, we indeed are in a better position to assess the likelihood of acceptance of any proposals. If we understand how and why strategic decision are made, it can be helpful to us in terms of securing resources beneficial to our subunit, in enhancing job performance and improving the career development.

1.2 THE CONCEPT OF STRATEGY
The term 'Strategy' is derived from a Greek word 'Strategos', which means generalship-the actual direction of military force, as distinct from the policy governing its deployment. Literally, therefore, the word 'Strategy' means the art of the general. In business parlance, there is no defining meaning assigned to strategy. It is often used loosely to mean a number of things. A strategy could be: • • A plan or course of action on a set of decision rules making a pattern or creating a common thread; The pattern or common thread related to the organisation's activities which are derived from the policies, objectives and goals. • • • Related to pursuing those activities which more an organisation from its current position to a desired future state. Concerned with the resources necessary for implementing a plan or following a course of action. Connected to the strategic positioning of a firm, making tradeoffs between its different activities and creating a fit among these activities; and • The planned or actual coordination of the firm's major goals and actions, in time and space that continuously co-align the firm with its environment. In simplified terms, a strategy is the means to achieve objectives. In complex terms, it may posses all the characteristics mentioned above. With so many different interpretations of a term, it is really difficult to fathom what strategy really means. This is understandable. Yet, we need to consider all these interpretations at once. This diversity of interpretations gives us valuable insights into what thinkers and writers have proposed from time to time. Undoubtedly, strategy is one of the most significant concepts to have emerged in the subject of management studies in the recent past. Its applicability, relevance, potential and viability have been
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put to severe test. It has emerged as a critical input to

Strategic Management

organisational success and has come in handy as a tool to deal with the uncertainties that organisations face. It has helped to reduce ambiguity and provided a solid foundation as a theory to conduct business: a convenient way to structure the many variables that operate in the organisational context and to understand their interrelationship. It has aided thinkers and practitioners in formulating their thoughts in an ordered manner and to apply them in practice. There have been several such benefits, yet there are some pitfalls too. It would be prudent on our part to realise that a blind adherence to the postulations of strategy could be counterproductive. The limitations of the concept of strategy also need to be understood. This is likely to elicit a nature response so that the full potential of this powerful concept can be realised. It is also intended to provide a balanced understanding, of the concept of strategy. Here are the two points of consideration to temper our enthusiasm while embracing the concept of strategy: • The application of the concept of strategy to real-life situations may tend to oversimplify things. Actual situations are complex and contain several variables that are not amenable to structuring. The concept of strategy tends to distort reality and, as an abstraction of reality, it is anything but a true reflection of the actual situation. Of course, this limitation is not unique to strategy. It is there in any situation where modelling has to be resorted to, to provide a structured understanding of reality. Several mathematical formulations start with a phrase indicating that a certain number of variables are assumed to be constant. • The application of the concept of strategy commits an organisation to a predetermined course of action. While this is essential to chart out a path ahead, it often blinds the organisation to the emergent situations as it goes along the path. Rigidity leads to an attitude of finality with regard to the situations that are actually not known at the time of starting the journey. It might be better, for instance, to move slowly, one step at a time and keep in mind the maxim: look before you leap. One might say that this is already known to the perceptive managers. Yet, there is no harm in being cautious. Discretion is certainly the better part of valour.

Concept of Strategy

1.3 LEVELS OF STRATEGY
It is not uncommon to find many companies, or a group of companies, that while being under the same top management, are
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simply divisions.1 Levels of Strategy [4] . In order to segregate different units or segments.Level Strategy Business (SBU) Level Strategy Functional Level Strategy Corporate Strategy: Overall Direction of Company and Management of its Businesses Business Strategy: Competitive and Cooperative Strategies Functional Strategy: Maximize Resource Productivity Figure 1." The typical business firm usually considers three levels of strategy: • • • Corporate . For many companies. It operates in technology areas as diverse as airbrake systems. auto motive components. a single strategy is not only inadequate but also inappropriate. Sundaram Bralve linings. is "any part of a business organisation which is treated separately for Strategic Management purpose. wheels India.Strategic Management working in different business or lines with regard Here to either a few products/services. illustrations: • markets technology. • The TVS group has companies like Sundaram Fasteners. An SBU. Brakes India. software design and two-wheelers. as defined by sharplin. many companies organise on the basis of operating divisions or. the venerable multinational subsidiary. Lucas TVS. are Hindustan Levers. foods. The need is for multiple strategies at different levels. organises itself into four businesses of home and personal care. aluminium castings. computer peripherals. each performing a common set of activities. These divisions may also be known as profit centres or strategic business units (SBUs). such as illustrate above. new ventures and exports. TVS motor company and TVS electronics.

and setting policy guidelines.4 STRATEGY FORMULATION Strategy formulation is the development of long-range plans for the effective management of environmental opportunities and threats. allocation of resources and coordination of the SBUs for optimal performance. portfolio analysis.1 Corporate Strategy Corporate level strategy is an overarching plan of action covering the various functions that are performed by different SBUs. in light of corporate strengths and weaknesses.2 Business Strategy Business Level (or SBU) strategy is a comprehensive plan providing objectives for SBUs allocation of resources among functional areas and coordination between them for making optimal contribution to the achievement of the corporate level objectives. providing objectives for a specific function. at it emphasizes improvement of the competitive position of a corporation's products or service in the specific industry or market segment served by that business unit. growth and retrenchment. specifying achievable objectives. and parenting strategy. allocation of resources among different operations within that functional area and coordination between them for optimal contribution to the achievement of the SBU and corporate-level objectives. Functional strategy is the approach taken by a functional area. Corporate directional strategy is conceptualized in terms of stability. with to achieve corporate and and business a unit objectives and strategies by maximizing resource productivity.3. Concept of Strategy 1. It also describes a company's overall direction in term of its general attitude towards growth and the management of its various business and product lines. Business strategy usually occurs at the business unit or product level.3 Functional Strategy Functional strategy deals with a relatively restricted plan.3. 1. [5] . Corporate strategy is composed of directional strategy. 1. It also deals with the objectives of the company. An example of a marketing functional strategy is Dell's selling computer systems directly to the consumer to reduce distribution expenses and increase customer service. It includes defining the corporate mission. It is concerned development nurturing distinctive competence to provide a company or business unit with a competitive advantage. developing strategies.Strategic Management 1. such as marketing or research and development.3.

strategic decision making largely relates to the responsibilities of the senior management. 1. the identification of all possible alternatives is a difficult task. The problems encountered in decision-making. or management system of the entire organization or within all of these areas. Second. choosing the best alternative is a formidable task too. Sometimes referred to as operational planning. On the other hand. as indicated above. Strategy implementation often involves day-to-day decisions in resource allocation. The first set of problems encountered in decision-making. Decision-making while performing [6] . Such a process of decision-making is deceptively simple. How to test the objective-achieving ability of each alternative is easier said than done and.6 STRATEGIC DECISION-MAKING Decision-making is the most important function of any manger. Except when such drastic corporate wide changes are needed. budgets. by their very nature. and The best alternative is chosen. The end result of the above process is a decision or a set of decisions to be implemented. The difference lies in the levels at which they operate. structure. Alternative ways of achieving the objectives are identified. Both these kinds of decision-making are essentially the same. middle-and lower-level mangers typically implement strategy. In practice. strategic tasks are.5 STRATEGY IMPLEMENTATION Strategy implementation is the process by which strategies and policies are put into action through the development of programs. This process might involve changes within the overall culture. however. The process works somewhat like this: • • • • Objectives to be achieved are determined. decision-making is a highly complex phenomenon. Each alternative is evaluated in terms of its objectiveachieving ability. While decision-making pertains to all managerial functions. is related to objective-setting. and procedures. are experienced by all managers in the course of their day-to-day activities.Strategic Management 1. with review by top management. lastly. complex and varied. Strategic decision making is the primary task of the senior management. Most people agree that decision-making is the process of selecting a course of action from among alternatives.

for it is based on complex mental processes which are not exposed to view. strategic decisions deal with the longrun future of the entire organization and have three characteristics: (1) Rare : Strategic decisions are unusual and typically have no precedent to follow. commenting on the nature of strategic decision-making says that 'the key managerial processes are enormously complex and mysterious. The behaviour of the firm is oriented towards achieving these objectives and. There are three major viewpoints regarding setting criteria for decision-making. Like the working of the human mind.1 What makes a Decision strategic Unlike many other decisions.6. It is incomprehensible. It is based on the thinking of economists who consider objectives as those attributes which are set at the highest point. We deal with six such issues below: (1) Criteria for Decision-Making The process of decision-making requires objective-setting. in the process. (2) Consequential : Strategic decisions commit substantial resources (3) Directive and demand a great deal of commitment. complicated and. an extremely difficult. 1. at times. we can still attempt to understand strategic decision-making by considering some important issues related to it. Despite these limitations. drawing on the vaguest of information and using the least articulated of mental processes. In this way.6. These objectives save as yardsticks to measure the efficiency and effectiveness of the decision-making process. intriguing and enigmatic process. objectives serve as criteria for decision-making. (a) The first is the concept of maximisation. Decision makers are unable to describe the exact manner in which strategic decisions are made.2 Issues in Strategic Decision-Making Being a complex process. Concept of Strategy 1. [7] . Henry Mintzberg.Strategic Management strategic tasks. These processes seem to be more relational and holistic than ordered and sequential and more intuitive than intellectual'. it cannot be analysed and explained easily. And rightly so. is therefore. strategic decision-making is difficult to perform. maximizing its returns. : Strategic decisions set precedents for lesser decisions and future actions throughout the organization. strategic decision making is fathomless.

(c) The third viewpoint is that of the concept of incrementalism. the behaviour of the firm of complex and the process and the process of decision-making. a decision must be original and different. which includes objective-setting. This often happens during case discussions also. in such a way that it leads to the achievement of objectives in the best possible manner. Through such an approach. The economists who support the maximising criterion consider a decision to be rational if it leads to profit maximisatsion. a rational decision making process should take all these interests into consideration. who are the proponents of the satisfying concept. believe that rationality takes into account the constraints under which a decision maker operates. Such things happen due to variability in decision-making. is essentially a continually-evolving political consensus-building. (2) Rationality in Decision-Making Rationality in the context of strategic decision making. given an identical set of conditions. A case may be analysed differently by individuals in a group of learners and. as a trait is normally associated with individuals and is sought to be developed through techniques such as brainstorming. the firm moves towards its objectives in small. The envisages setting objectives in such a manner that the firm can achieve them realistically. depending on the differing perceptions of the problem and its solutions. Creativity. logical and incremental steps.Strategic Management (b) The second view is based on the concept of satisfying. (4) Variability in Decision-Making It is a common observation that. Incrementalists are of the opinion that the achievement of objectives depends on the bargaining process between different interested coalition groups existing in an organisation and therefore. through a process of optimisation. they may arrive at different conclusions. (3) Creativity in Decision-Making To be creative. two decision makers may reach totally different conclusions. means exercising a choice from among various alternative courses of action. A creative strategic decision-making process may considerably affect the search for alternatives where novel and untried means may be looked for and adopted to achieve objectives in an exceptional manner. It also suggests [8] that every situation is unique and there is no set formulas that can . According to this. Behaviourists.

intelligence. the decision maker is a unique action whose behavious is intelligent and rational.6. Attributes like age. intelligence. therefore. (6) Individual versus Group Decision-Making Owing to person-related factors. who understand An an organisation. These differences matter in strategic decision-making. Some of these are: age. risk-taking ability and creativity are generally supposed to play a positive role in strategic decision-making.polical 1. Most writers focus on three approaches: (1) Rational . interrelated complex variables and develop an integrated view of the situation is especially helpful in strategic decision-making.emotional (3) Behavioural .analytical (2) Intuitive . Concept of Strategy 1. there are individual differences among decision makers.3 Various Theories of Decision-Making Various theories have been suggested about how decisions are made. knowledge. A cognitive style which enables a person to assimilate a lot of information. considers all the alternatives as well as the [9] consequences of all the possible choices. organisation's such possessing characteristics as chief special and its or characteristics. The decision is the choice that this actor makes in full awareness of all available feasible alternatives in order to maximize advantages. The decision maker. cognitive styles. Decision makers environment are in a vantage position to undertake strategic decision-making. Rational-Analytical Decision-Making In this model. Individual. education. puts these consequences . But as organisations become bigger and more complex and face an increasingly turbulent environment. executives entrepreneurs play the most important role as strategic decisionmakers. (5) Person-related factors in Decision-Making There are a host of person-related factors that play a role in decision-making. personal values. individuals come together in groups for the purpose of strategic decision-making. Values as enduring prescriptive beliefs are culture-specific and important in matters of social responsibility and business ethics-issues that are important to strategic management. operates in a unique environment. risk-taking ability and creativity.Strategic Management be applied in strategic decision-making.

conscious. Yet you can stray far from the optimal in most cases without a very significant impact on total-cost differentials. reflective thinking and instinct using the unconscious mental processes. Some experts who prescribe intuition or judgment as the preferred approach point out that in many cases judgment may lead to "better" decisions than "optimizing" techniques. then. Intuitive-Emotional Decision-Making The opposite of the rational decision-maker is the intuitive decision maker. Here. (3) Decision-makers make decisions with more than a maximization of objectives in mind. 2. It has been criticized on three counts. EOQ models suggest that there is an optimal-order quantity considering trade-offs of ordering and holding costs. This decision-maker prefers habit or experience. that is. In many cases. In fact. judgment such as this may be preferable to relying on the analysis. They tend to 'Satisfice'. Those opposed to this approach argue that: (1) It does not effectively use all the tools available to modern decision makers. It prescribes a rational. This is the oldest decision-making theory. outcome. (1) (2) The decision maker is often not a unique actor but part of a multi-party decision-situation. the timing of when to implement a decision based on the analysis may require an intuitive feel for what the data are telling you. [ 10 ] . For examples. consider sensitivity-analysis on a tool such as the economic-order quantity (EOQ). make a decision expected to yield a satisfactory as opposed to an "optimal". Intuitive decision-makers consider a number of alternatives.Strategic Management in proper order in the light of a fixed scale of preferences and finally chooses the alternative that ensures the maximum gain. gut-feeling. Besides the objectives may change. and information is costly too. Decision-makes are not rational enough or informed enough to consider all alternatives or know all the consequences. systematic and analytical approach. and options simultaneously jumping from one step in analysis or search to another and back again. judgment concerning other factors in the decision-situation can lead to a better overall decision about order quantities rather than holding fast to deciding what the rational model prescribes.

This mode of decision making is a descriptive theory suggesting that the organization in which the decision maker works limits the available choices. Through political compromise. The decision-maker must consider whether the decision outcome can be implemented politically. Supplies exchange inputs for money and continued business. If the firm is labour-intensive. Given these realities. Unions exchange labour for decent wages and job security. they attempt to merge competing demands so that a coalition interests emerges that will support the decision. A majority stake holder can have a greater influence on decisions about re-investment versus divident pay-out than if stock is widely held by many small owners. Concept of Strategy 3. 1. The business firm usually considers three types of strategy: [ 11 ] . of decision before big mistakes are made. Customers exchange money for products and services.Strategic Management (2) The rational approach ensures that adequate attention is given to consequences. More powerful stakeholders have more influence over decisions because the organization is more dependent on these stakeholders. They do this by mutual adjustment and negotiations following the rules of the game-the way decisions have been made in the organization in the past. it has more power. To the extent an organization has a favourable exchange relationship compared with other organizations and stakeholders. Decisions are made when most of the people involved in the process agree that they have found a solution.7 SUMMARY A strategy is a comprehensive plan stating how the corporation will achieve its mission and objectives. Political-Behavioural Decision Making A third point of view suggests that real decision-makers must consider a variety of pressures from other people affected by their decisions. more attention may be paid to union leaders demands for better wages than to the desires of stakeholders for more profit because the union might shut the firm down. decision makers do a juggling act to meet the demands of the various stakeholders. It maximizes competitive advantage and minimizes competitive disadvantage. Each stakeholder gives the organization something and expects something in return. An organization interacts with a variety of stakeholders in a series of interdependent exchange relationship. Owners exchange capitals for expected returns on investments.

Objectives : The results that an organization seeks to achieve over a period of time. support corporate strategies. rationality variability in in decision-making. complicated and. (3) (4) (5) (6) (7) (8) Stakeholders: Influential people who are vitally interested in the actions of the business. making. intuitive-emotional and behavioural-political. Program: A statement of the activities or steps needed to accomplish a single-use plan.8 KEYWORDS (1) (2) Strategy: Large scale future oriented plans for interacting with the competitive environment to achieve company objectives. Functional strategies support business strategies. business. Decision-making in performing strategic tasks is an extremely difficult. Policies : A broad guideline for decision making that links the formulation of strategy with its implementation. in turn.Strategic Management corporate. 1. which. Strategic decision-making leads to the formation of strategies.9 QUESTIONS 1. Mission: The organisation's purpose or the reason for its existence. creativity in person-related factor in decision-making and individual versus group decision- 1. strategic decision-making is the primary task of the senior management. The different dimensions of the process of strategic decisionmaking are encapsulated in the six issues related to it: criteria for decision-making. [ 12 ] Explain the concept of strategy. Strategic Management: The set of decisions in the formulation and implementation of plans designed to achieve a company's objectives. How is . and functional. SBU : Any part of a business organization which is treated separately for strategic management purpose. Various theories have also been suggested about how decisions are made. at times intriguing and enigmatic process. decision-making. Business firms use all three types of strategy simultaneously. Most writers focus on three approaches: rationale-analytical. 2. Describe the different levels at which strategy operates. The level of strategy is a nesting of one strategy within another so that they complement and support one another. decision-making.

Concept of Strategy  [ 13 ] . 5. Explain the various theories related to decision-making.Strategic Management integration of strategies operating at different levels done? 3. 4. Explain the concept of strategy formulation and implementation. Enumerate the major issues in strategic decision making.

1 Introduction 2.7 Risks of Strategic Management 2. Importance of strategic management as a process.9 Users of Strategic Management 2.1 Strategic Management of Hospitals 2. How strategic management is practiced in various organization.4 Formality in Strategic Management 2.1 INTRODUCTION [ 14 ] Strategic Management is a stream of decisions and actions which .8.5 The Strategic Makers 2.9.3 Strategic Management of Arts-Organization 2.2 How has Strategic Management Evolved? 2.9.10 Summary 2. Phases of Development of strategic management.11 Keywords 2.2 Elements in Strategic Management Process 2.8.8.Strategic Management UNIT-2 PROCESS OF STRATEGIC MANAGEMENT Learning Objectives After the end of this Unit the readers will be able to understand(1) (2) (3) (4) (5) (6) (7) (8) (9) Need of strategic Management.1 Phase in Strategic Management Process 2.3 Model of Strategic Management Process 2. Benefits and risks of strategic management.2 Strategic Management of Colleges and Universities 2. Unit Structure 2.12 Questions 2.3 Concept of Strategic Management 2. Definition of strategic management.6 Benefits of Strategic Management 2.9. Roles and responsibilities of the strategy makers. Mintzberg’s modes of strategic management. Concept of strategy formulation and implementation.8 Strategic Management Process 2.

Phase 2 [ 15 ] . The corporation becomes large.2 HOW HAS STRATEGIC MANAGEMENT EVOLVED? Many of the concepts and technique dealing with long range planning and strategic management have been developed and used successfully by business corporations. not all organizations use these tools or even attempt to manage strategically. Institute strategies cannot be continued successfully for a longer period of time. 2. costly mistakes and even economic ruin are causing today’s professional managers to take strategic management seriously in order to keep their companies competitive in an increasingly volatile environments as top managers attempt to better deal with their changing world. The layer of management increases The environment changes substantially The increasing risks of error. implementing and evaluating strategies for an organization. Process of Strategy Management 2. The Board of directors and the corporate planners have vital role to play in Strategic Management. The basic purpose of this unit is to help manages to make them sense of the strategic management process and to implement the same in their organization. Strategic management within a firm generally evolves through four sequential phases of development. Strategic Management focuses on analysis of the business and the preparation of several scenarios for future. Phase 1 Basic financial planning: Seeking better operational control by trying to meet annual budgets.Strategic Management lead to the development of an effective strategy or strategies to help achieve corporate objectives. Many are able to succeed for a while with unstated objectives and intuitive strategies. The strategic management process is the way in which strategist determine objective and make strategic decisions. Strategic Management is considered as the process of formulating. so need for strategic management arises when. 1. Nevertheless. But the star roles are for the general managers of the corporation and for its major operating divisions. 3.

3. 6. led the transition from strategic planning to strategic management during the 1980s. people. It comprises nine critical tasks. Access the Company’s external environment. Develop annual objectives and short term strategies that are compatible with the selected set of long term objectives and grand strategies. including both the competitive and the general contextual factors. including broad statements about its purpose. 4. 8. and goals. 1.Strategic Management Forecast based planning: Seeking more effective planning for growth by trying to predict the future beyond the next year. Select a long term objectives and grand strategies that will achieve the most desirable options. 5. philosophy. Conduct an analysis that reflects the Company’s internal conditions and capabilities. 2. By the 1990s. Phase 3 External oriented planning (Strategic planning): Seeking increased responsiveness to markets and competition by trying to think strategically. [ 16 ] Implement the strategic choices by means of budgeted resources allocations in which the matching of tasks. . Analyze the Company’s options by matching its resources with the external environment. Formulate the Company’s mission. one of the pioneers of strategic planning. Identify the most desirable option by evaluating each option in light of the company’s mission.3 CONCEPT OF STRATEGIC MANAGEMENT Strategic Management is defined as the set of decisions and action that result in the formulation and implementation of plans designed to achieve a company’s objectives. 7. Phase 4 Strategic Management: Seeking a competitive advantage by considering implementation and evolution and control when formulating strategy. most corporations around the world had also begun the conversion to strategic management. 2. General Elective.

ExxonMobil might follow an entrepreneurial mode in developing and evaluating the strategy of its solar subsidiary but follows a planning mode in the rest of the company. A number of forces determine how much formality is required in strategic management. and discretion in decision making are specified. its predominant management style. strategic evaluation is informal.Strategic Management structure. In such firm. For firms that follow the adaptive mode the identification and evaluation of alternative strategies are closely related to existing strategy. comprehensiveness. strategic management involves planning. responsibilities’. They are basically under the control of a single individual. Some firms. The size of the organization. Mintzberg also identified a third mode – the adaptive mode. and the purpose of its planning system all play a part in determining the appropriate degree of formality. especially smaller ones. authority. its production process its problems. For example. which he associated with medium sized firms in relatively stables environments.5 THE STRATEGY MAKERS The ideal strategy management team includes decision makers [ 17 ] . Formality refers to the degree to which participants. directing organizing and controlling of a Company's strategy related decisions and actions. an approach that Henry Mintzberg called the planning mode. In limited number of products on services. Process of Strategy Management 2. and they produce a limited number of products on services. follows an entrepreneurial more. It is not unusual to find different modes within the same organization. formality is associated with the size of the firm and with its stage of development. intuitive and limited. technologies and reward Systems is emphasized. In particular. Evaluate the success of the strategies process as an input for future decision making. As these nine tasks indicate. 2. make strategic evaluation part of a comprehensive. because greater formality is usually positively correlated with the cost. formal planning system. the complexity of its environment. 9. Very large firms.4 FORMALITY IN STRATEGIC MANAGEMENT The formality of strategic management systems varies widely among companies. on the other hand. It is an important consideration in the study of strategic management. accuracy and success of planning.

Because strategic decisions have a tremendous impart on a company are require large commitments of company resources. business. Medium sized firms often employ at least one full time staff member to spearhead strategic data collection efforts.Strategic Management from all three company levels (the corporate.1 aligns levels of strategic decision makers with the kinds of objectives and strategies for which they are typically responsible. Table 2. The latter provide data for strategic decision making and them implement strategies. and the heads of the functional areas. √ indicates a secondary responsibility. the product managers. Table 2. In addition. and they evaluate . strategic planning often is spearheaded by an officer or by a group of officers designated as a planning committee. √ √√ √√ philosophy Long-term objectives Annual objects √ √√ √√ √√ √√ √ Means be achieved?) Board of Corporate Managers Business Managers Functional Managers (What is to (How is it to Directors Planning departments. and functional) for example. often headed by a corporate vice president for planning. the team obtains input from company planning staffs. when they exist. including goals and Grand strategy Short-term strategies and policies Note: √√ indicates a principal responsibility. Precisely what are Manager’s responsibilities in the strategic planning process at the corporate and business levels? Top management shoulders’ broad responsibility for all the major elements of strategic planning and management. Even in small firms or less progressive larger firms. top managers must give final approval for strategic action.1 Hierarchy of Objectives and Strategies Strategies Decision Makers Ends be achieved) Mission. They develop the [ 18 ] major portions of the strategic plan and review. and from lower level managers and superiors. are common in large corporation. the chief executive officer (CEO).

regardless of the profitability of strategic management improve the firm's welfare: • Strategic formulation activities enhance the firm's ability to prevent problems Managers who encourage subordinates attention to planning are aided in their monitoring and forecasting responsibilities by subordinates who are aware of the needs of strategic planning. The CEO's principal duty often is defined as giving long term direction of the firm. • The involvement of employees in strategy formulation [ 19 ] improves their understanding of the productivity rewards . As a result. and the CEO is ultimately responsible for the firm's success and therefore. In addition. For this reason. A firm's president or CEO characteristically plays dominant role in strategic planning process. In fact. promoting positive behavioral consequences also enables the firm to achieve its financial goals. for the success of its strategy. Therefore. CEOs are typically strong willed. In many ways. establishing a strategic management implies that the CEO will allow managers at all levels to participate in the strategic posture of the company. managers at all levels of the firm interact in planning and implementing. However.6 BENEFITS OF STRATEGIC MANAGEMENT Using the strategic management approach. the behaviorual consequences of strategic management are similar to those of participative decision making. an accurate assessment of the impact of strategy formulation on organizational performance criteria but also nonfinancial evaluation criteria measures of behavior based effects. General Managers at the business level typically have principal responsibilities for developing environmental analysis and forecasting. company oriented individuals. The strategic management process results in better decisions because group interaction generates a greater variety of strategies and because forecasts based on the specialized perspectives of group members improve the screening of options. establishing business objectives. However.Strategic Management and counsel on all other portion. and developing business plans prepared by staff groups. • Group based strategic decisions are likely to be drawn from the best available alternatives. this situation is desirable. Process of Strategy Management 2. the effectiveness of the firm's strategic planning and management processes is likely to be diminished. when the dominance of the CEO approaches autocracy.

Second.8 STRATEGIC MANAGEMENT PROCESS Business vary in the processes they used to formulate and direct their strategic management activities.7 RISKS OF STRATEGIC MANAGEMENT Managers must be trained to guard against three types of unintended negative consequences of involvement in strategy formulations. the time that managers spend on the strategic management process may have a negative impact on operational responsibilities. First. 2. or they may expect a solicitation of their input on selected issues to extend to other areas of decision making. Managers must be trained to immunize that impact by scheduling their duties to allow the necessary time for strategic activities. Sophisticated planners. • Gaps and overlaps in activities among individuals and group are reduced as participation in strategy formulation classifies differences in role. 2. their greater awareness of the parameters that limit the available options makes them more likely to accept those decisions. have developed [ 20 ] more detailed processess than less formal planners of similar size. and IBM. if the formulators of strategy are not intimately involved in its implementation. they may shirk their individual responsibility for the decisions reached. • Business that take to strategic management are more effective and they reap good results. Thus.Strategic Management relationship in every strategic plan and thus. • Resistance to change is reduced. strategic managers must be trained to anticipate and respond to the disappointment of participating subordinates over unattained expectations. Sensitizing managers to these possible negative consequences and preparing them with effective means of minimizing such consequences will greatly enhance the potential of strategic planning. heightens their motivation. such as General Electric. . Subordinates may expert their involvement in even minor phases of total strategy formulation to result in both acceptance of their proposals and an increase in their rewards. Though the participants in strategy formulations may no more pleased with their own decision than they would be with authoritarian decisions. strategic managers must be trained to limit their promises to performance that the decision makers and their subordinates can deliver. Procter and Gamble. Third.

strategic intent is the hierarchy of objectives that on organization sets for itself. The aim of strategic management is to help the organization realize its strategic intent. despite differences in detail and the degree of formalization. However. mission. typically exhibit more basic planning concerns than those of larger firms in their industries. implementation of strategies and strategic evaluation and control. The fourth and the last phase of evaluation and control assessing how appropriately the strategies were formulated and how effectively they are being implemented. Essentially. markets or technologies tend to use more complex strategic management systems. the basic elements of the models used to analyze strategic management operations are very similar. Understandably.Strategic Management Small businesses that rely on the strategy formulation skills and limited time of an entrepreneur. Within this. actions could be taken ranging from fine tuning implementation to a drastic reformulation of strategies. Depending on the outcome of assessment.8. analyze and plan strategies. In this text. The four phases are shown in figure 2. this is an analytical phase in which strategists (Managers who are responsible for strategic management in an organization) think.1 Establishme nt of strategic intent Formulation of strategies Implementati on of strategies Strategies evaluation Strategic Control Fig. business definition and objectives. 2.1 Phases in Strategic Management Process Strategic Management of Process consists of four of phase viz. The strategies that are formulated are implemented through a series of administrative and managerial actions. formulation strategies. The second phase of the formulation of strategies is concerned with the devising of a strategy or a few strategies.1 : Four Phases in Strategic Management Process The first phase consists of establishing the strategic intent for the organization. there are the vision. Process of Strategy Management 2. firms with multiple products. This phase is also called strategy planning. These four phases are considered to be sequentially linked to each [ 21 ] . The third phase of implementation is the ‘putting into action’ phase. establishment strategic Intent.

4. 2. In fact. From the literature of the strategic management we note that most on all the following activities are considered as parts of the strategic management process A.8. [ 22 ] Activating strategies Designing the structure. 5. 3. 3. 3. Establishing the hierarchy of strategic intent: 1. reformulate or redefine the previous phases. in practice. Implementation of Strategies 1. which are discrete are identifiable activities performed in logical and sequential steps.2 Elements in Strategic Management Process Each phase of the strategic management process consists of a number of elements. at the interface. may exist simultaneously and the strategic activities gradually emerge in one phase to merge into the following phase. 5. if necessary. Performing environmental appraisal Doing organizational appraisal Formulating corporate level strategies Formulating business level strategies Undertaking strategic analysis Exercising strategic choice Preparing strategic plan C. Formulation of Strategies 1. 2. Creating and communicating a vision Designing a mission statement Defining the business Adopting the business model Setting objectives B.Strategic Management other and each successive phase provides a feedback to the previous phases. the different phases of strategic management may not be clearly differentiable. 4. we prefer to call them phases rather than stages or steps to signify that the different phases. 2. The feedback arising from each of the successive phases is meant to revise. Such a representation yields a dynamic model of strategic management which takes into account the emerging factors as the process moves on. As many as twenty different elements could be identified in the models provided by various authors. 6. 7. . systems and processes Managing behavioural implementation Managing functional implementation 4. 2. from each other. However.

The creates customer revenue. The business definition explains the businesses of the organization in terms of customer need.2 shows the model of strategic management - Strategic Intent Vision Mission Business definition Business model Objective Strategy Formulation Environmental Organizational Appraisal SWOT Analysis Corporate level Strategies Business level Strategies Strategic analysis and choice Strategic plan Strategic Implementatio n Project Procedural Resource allocation Structural Behavioural Functional & Operational Strategic Evaluation Strategic Control Fig. business definition. the vision. 2. mission. Operationalizing strategies Process of Strategy Management D.3 Model of Strategic Management Process The process of strategic management is depicted through a model which consists of different phases. The hierarchy of strategic intent lays the foundation for the strategic management of any organization. Performing strategic evaluation Exercising strategic control Reformulating strategies 2. The element of the vision in the hierarchy strategic intent serves the purpose of stating what the organization wishes to achieve in the long run. 3. business model and objective are established. Performing strategic evaluation and control 1. 2. In this hierarchy. The strategic indent makes clear what the organization stands for.8. Figure 2.Strategic Management 5. These business model classifies objectives as organization state what is to be achieved in a given time objectives yardsticks . The mission relates the organization to the society. then groups The serve and alternative how of the the and [ 23 ] technologies. organization period.2 : Comprehensive model of strategic management The bird's eye view of the different elements of the process are as follows 1.

Procedural implementation deals with the different aspects of the regulatory have to operate. 3. the major ones are the corporate and business level strategies. 5. For implementation of strategy. the strategic plan is put into action through six sub-processes: Project implementation. out of the many possible options and choosing the most appropriate strategy or strategies in the light of environment opportunities and threats and corporate strengths and weaknesses. personal values and business ethic and social responsibility. corporate politics and use of power. Strategic alternatives and choice are required for evolving alternative strategies. Formulation of strategies takes place at four levels: Corporate. Business strategies aim at developing a competitive advantage in the individual business that a company has in its portfolio. people and pace of [ 24 ] . The behaviorual aspects consider the leadership styles for implementing strategies and other issues like corporate culture. 4. business. Among these levels. behavioural implementation and functional and operational implementation. The end result of this set of elements is a strategic plan to be implemented. Strategies are chosen at the corporate level and the business level.Strategic Management benchmarks for measuring organizational performance. functional and operational. The operational implementation deals with the productively process. Project implementation deals with the setting up of the organization. 2. The structural aspects of implementation deal with the design of appropriate organizational structures and systems and reorganizing so as to match the structure to the needs of strategy. The functional aspects relate to the policies to be formulated in different functional areas. The process used for choosing strategies involves strategic analysis and choice. Resource allocation relates to the procurement and commitment of resources for implementation. structural implementation. Environment and organizational appraisal deal with identifying the opportunities and threats operating in the environment and the strengths and weaknesses of the organization in order to create match between them in such a manner that opportunities could be availed of and the impact of threats neutralized and to capitalize on the organizational strengths and minimize the weakness. resources allocation. Corporate level strategies relate to the strategic decisions regarding the management of a portfolio of business. procedural implementation.

The hospitals funds come from patients. The administrator is responsible to a board of trustees usually composed of community leaders and physicians. The president's Governors strategic or management Council. Universities are faced with serious strategic challenges from time to time. The objectives include quality patient care. the food service.Strategic Management implementing 6. These include effective teaching. Strategies may be reformulated. research grants. They may include wealthy ad week known institutions and also those known mostly to their alumni and local communities. professional training.1 Strategic Management of Hospitals These institutions are the most difficult enterprises to manage. The employees vary from highly trained professional to semi skilled workers. Several writers have described effective strategic management for [ 25 ] . Although the member of the medical staff can use the hospital facilities. phase evolution appraises implementation of strategies and measures organizational performance.9.9 USERS OF STRATEGIC MANAGEMENT This section will introduce ideas about how the concepts of strategic management are applied in various organization. 2. Strategic management offers some sources of help for them. and sometimes a militant student body. creation and dissemination of research and service to the society as well as unofficial goals such as developing winning sports teams. 2.2 Strategic Management of Colleges and University Some of these may be controlled and financed by central. A hospital's administrator must deal first with many objectives and many of these are hard to quantify. cost. they are usually not the hospital employees.9. donations legislature and ancillary operations such as dormitories. Directors and Vice-Chancellors or President are faced with a multitude of objective many of which are hard to measure. The feedback from strategic evolution is meant to exercise strategic control over the strategic management process. professional staff. The last the of strategies. the book store bowl games and television stations. strategic The emphasis in the the implementation phase of strategic management is on action. The principals. Funds come from tution fee. donors and third party groups.efficiency. also involves with a Board of the Executive faculty tenure. The administrator size and community prestige. state or local governments while others may be private or independent ones. research. Process of Strategy Management 2. if necessary.

gifts and grants.9. [ 26 ] Strategy : Large-sale. 2. complex decision making and requires considerable resources. such as stores have been used to supplement revenues. there is little direct fund raising or market support activity. The process of strategic management consists of four phases. 2. theater groups and museums are the most typical. future oriented plans for interacting with . schools and hospitals are owned and financed by the government. 2. Strategic Management : The set of decision result in the formulation and implementation of plans designed to achieve a company's objective. The managers of these institutions have a difficult time generating financial support from ticket sales. such as student-staff and patient-staff ratios. opera companies and other dance companies. future oriented. In these cases. 2. Success also comes from a dedicated and competent group of volunteers who substitute for paid employees and help raise money. Ancillary businesses. strategic.Strategic Management colleges and universities not too differently from the approach of this unit.11 KEYWORDS 1. plans are also important for their success. Most of the institutions survive because of the talent and dedication of their leaders.3 Strategic Management of Arts Organization Most of the arts organizations are small business.10 SUMMARY Strategic management is the set of decisions and actions that result in the formulation and implementation of plan designed to achieve a company's objectives. Mot universities. We identified twenty different elements spread over the four phases of strategic management process. implementation of strategies and strategic evaluation and control. Establishing the strategic intent. There are several elements in the process of strategic management. formulation of strategies. Because it involves long term. Symphonies. top management participation is essential. But strategic decisions are based on factors like population and on performance criteria. with relatively few employees. The manager's titles vary from curator to impresario. Many of these enterprises hire people for part time rather than full time work.

and making necessary adjustment. 6. Formality : The degree to which participation.  [ 27 ] . What are the risks involved in the strategic management? Enumerate the elements in the strategic management process. discretion in decision making are specified in strategic management. How does strategic management typically evolve in a corporation? Explain the concept of strategic management.Strategic Management the competitive environment to achieve company objective. 3. intuitive and limited approach to strategic management associated with owner managers of small firms.12 QUESTIONS 1. 7. 8. What are the Mintzberg's modes of strategic management? What are roles and responsibilities of the strategic makers? Explain the benefits of strategic management. 5. 5. 3. Strategic Control : Tracking a strategy as it is being implemented. 6. sized firms that emphasize the incremental modification of existing competitive approaches. 2. Planning Mode : The strategic formality associated with large firms that operate under a comprehensive formal planning system. Process of Strategy Management 2. 4. Process : The flow of information through interrelated stages of analysis toward the achievement of an aim. responsibility authority and 4. Adaptive Mode : The strategic formality associated with medium 7. detecting problems or changes in its underlying premises. Entrepreneurial Mode : The informal.

2 Characteristics of a Mission Statement 3.3.Strategic Management UNIT-3 ROLE OF STRATEGISTSMISSION.4. PURPOSE.1 The nature of vision 3.1 Introduction 3.3 Issues in objective-setting 3.1 Role of objectives 3.1 Defining Mission 3.5.2 Characteristics of objectives 3.4 Balanced scorecard approach to objectives-setting 3.5 Purpose 3.7 Summary 3.3 Vision 3.1 Importance of organization purpose 3.2 Defining vision 3.3.4.5 The process of envisioning 3. the readers will be able to understand – (1) (2) (3) (4) (5) (6) (7) (8) (9) The concept of strategy intent The concept of vision The process of envisioning The concept of mission Characteristics of a mission statement Importance of purpose in an organisation Role and characteristics of objectives Factors to be considered for objective-setting Balanced scorecard approach to objectives-setting Unit Structure 3.3.6 Goals and objectives 3.3.8 Keywords 3.6.3 Benefits of having a vision 3.9 Questions [ 28 ] .6.4 What a vision should and shouldn't be 3. OBJECTIVE Learning Objectives After the end of this Unit.3.4 Mission 3.2 Strategic Intent 3.6.6.

we will study the concept of goal. it would be hazy and [ 29 ] . adopt a predetermined direction and attempt to achieve their goal. There are so many different ways in which organisations express their aspirations for the future. Vision. otherwise they would just be castles in the air. It is what ultimately the firm or a person would like to become.1 The Nature of Vision Vision is dreamt of more than it is articulated.2 STRATEGIC INTENT By strategic intent we refer to the purpose the organisations strives for. these may be the goals and objectives.Strategic Management 3. 3. employing cutting-edge technology to serve a global clientele. These may be expressed in terms of a hierarchy of strategic intent. organizations too have their dreams and aspirations that they desire to attain. results. or some others among you would like to believe that you can be an entrepreneur owing your own company dealing with IT services. mission and vision. it is not even evident to the entrepreneur who usually thinks of the vision. Strategic intent lays down the framework within which firms would operate. Strategic intent is the term we choose here to express those aspirations.3 VISION Aspirations. in 10-15 years. the vision encapsulates the basic strategic intent. diversified Multinational Corporation. Strategist set their long term perception in the form of vision and what the organization wants to achieve in the form of the mission. these could be in the form of a vision and mission statement for the organisation as a corporate whole.1 INTRODUCTION Like individuals. 3. Sometimes. By nature.3. There is an elaborate hierarchy of strategic intent. expressed as strategic intent. Role of Strategists – Mission. say in 10 years or may be even earlier would like to become general managers managing an SBU in a large. This the reason why it is difficult to say that vision an organisation has unless it is stated explicitly. articulates the position that a firm would like to attain in the distant future. For instance. Broadly stated. some of you. In this unit. When stated in precise terms. having many levels at which organisations state what they wish to achieve. Strategist here play a crutial role in setting goals and objectives of the organisation. as an expressions of aims to be achieved operationally. A firm think that too. should lead to tangible. Purpose. therefore. Seen from this perspective. Those results are the realisation of the vision of an organisation or an individual. Objective 3. objectives.

3. a corporate culture. They make sense in the market place. a business. aspires to create within a broad time horizon and the underlying conditions for the actualisation of this perception.  A determination and publication of what makes us unique. or an organisation.  A declaration of independence [ 30 ] .  A puller (not pusher) into the future. all-inclusive and forward thinking'.' • Miller and Dess (1996) view it simply as the 'category of intentions that are broad. Yet it is a powerful motivation to action. 3.Strategic Management vague. as they are practical. • El-Namaki (1992) considers it as a 'Mental perception of the kind of environment an individual. Good vision help in the creation of a common identity and a shared sense of purpose. an activity) in the future".4 What a vision should and shouldn't be: A vision should be:  An organisational charter of core values and principles.3. original and unique. it is from the actions that the vision could be derived. 3.  The ultimate source of our priorities plans and goals. Good visions represent integrity: They are truly genuine and can be used to the benefit of people. Often. Good visions are competitive. Vision represent a discontinuity. just like the dream that one experienced the previous night and is not able to recall perfectly in broad daylight. Here is what they say: • • • • • • • Good visions are inspiring and exhilarating. Good visions foster risk taking and experimentation. Good visions foster long-term thinking.3.2 Defining Vision Vision has been defined in several way. a step function and a jump ahead so that the company knows what it is to be. • Kotter (1990) defines it as a "description of something (an organisation. 3.3 The Benefits of having a vision Parikh and Neubauer (1993) point out the several benefits accruing to an organisation having a vision. a technology.

we now move on to the second level of strategic intent. Objective 3. mission is what an organisation is [ 31 ] . motto or literature or an advertising slogan.Strategic Management A vision should n't be: × × × × × A 'high concept' statement. These are all the part of an effort to state what the organisation's vision is. The core ideology defines the enduring character of an organisation that remains unchangeable as it passes through the vicissitudes of vectors such as technology. A history of our proud past. a well conceived vision consist of two major components: core ideology and envisioned future. The core ideology rests on the core values (the essential and enduring tenets of an organisation) and core purposes (an organisation's reason for being). The process of envisioning is shown in figure 3.5 The process of Envisioning The process of envisioning is a difficult one as we see from what Collins and Porras (1996) have to say about it. corporate values and the like.3. A soft business issue Passionless Role of Strategists – Mission. Purpose. that is the mission. competition or management fads. that are used to convey what they stand for and what principles guide them in strategic and day-to-day decision-making. According to them.4 MISSION While the essence of vision is a forward-looking view of what an organisation wishes to become. Well-conceived vision Core ideology Envisioned future Core values Core purpose Figure 3. A strategy or plan and a view from the top.1 The process of envisioning Long-term audacious goal Vivid description of achievement From vision. 3.1 Many organisations mention terms such as corporate philosophy. The envisioned future too consist of two components: a 10-30 years audacious goals and vivid description of what it will be like to achieve that goal.

Organisations relate their existence to satisfying a particular need of the society.1 Defining Mission A mission was earlier considered as the scope of the business activities a firm pursues. It refers to the particular needs of the society.2 Characteristics of a Mission statement A mission statement characteristicsshould posses the following seven (1) It should be Feasible A mission should always aim high but it should not be an impossible statement. the nature of the business (es) it is in and the customers it seeks to serve and satisfy'. It should be realistic and achievable.its followers must find it to be credible. A book publisher and a magazine editor are both engaged in satisfying the information needs of the society. concerning particularly why it is in existence. Mission is a statement which defines the role that an organisation plays in the society. Both have different objectives but an identical mission. • Thompson (1997) defines mission as the . its information needs. (3) It should be clear A mission should be clear enough to lead to action. mission occupies a definite place as a part of strategic intent. In strategic management literature. They do this in terms of their mission. A book publisher may aim at producing excellent reading material while a Magazine editor may strive to present news analysis in a balanced and unbiased manner.4.'essential purpose of the organisation. 3. • Hunger and wheeler (199) say that the mission is the 'purpose or reason for the organisation's existence'. for instance. nor should it be too broad to make itself meaningless. but they do it through different means. (2) It should be Precise A mission statement should not be so narrow as to restrict the organisation's activities. It should not just be a high sounding set of platitudes meant for publicity [ 32 ] . The definition of mission has gradually expanded to represent a concept that embodies the purpose of existence of an organisation.Strategic Management and why it exists. 3.4.

• It indicates how you will use your time. (7) It should Indicate how objectives are to be Accomplished Besides indicating the broad strategies to be adopted. motivates.1 Importance of Organizational Purpose (1) It gives the grounds for all of your decisions • Organisational purpose gives your business its reason for existence. Purpose. along with the organisational purpose should indicate the major components of the strategy to be adopted. (2) It Energizes you to more forward • A clearly defined organization purpose is contingent upon finding that thing that naturally energizes. and resources to your market better than anyone else. Purpose is the cognitive awareness in cause and effect linking for achieving a goal in organization. [ 33 ] . it creates an important distinction in the public mind. for years. and inspires your business to move forward.5. attention. (5) It should be Distinctive A mission statement which is indiscriminate is likely to have little impact. (6) It should indicate the major components of strategy A mission statement. The purpose is expressed in carefully formulated mission statement.Strategic Management purposes. But if one defines it as providing scooters that would provide value for money. (4) It should be motivating A mission statement should be motivating for members of the organisation and of the society and they should feel it worthwhile working for such an organisation or being its customers. excites. This purpose sets the firm apart from other firms in its industry and sets the direction in which the firm will proceed. Role of Strategists – Mission. It serves as a guiding force upon which every other decision is rooted. The purpose is relatively unchanging and for many firms endures for decades or even centuries. If all scooter manufacturers defined their mission in a similar fashion. Objective 3. a mission should also provide clues regarding the manner in which the objectives are to be accomplished. 3.5 PURPOSE The purpose is the reason for the firm's existance. there would not be much of a difference among them.

Organisations continually asses. In this manner. (4) It Frees Resources • Successful business learn how to grow their business by focussing on what they do best. objectives make the goals . (7) It helps the organisations to evolve continually • • • • • Focus all time. energy and resources to do what they do the best.Strategic Management (3) It empowers your passion • Intense organisational power is achieved when you are able to marry your passion to sound strategy and focus all your attention and energies on navigating your company towards success. (6) It helps to maintain a strategic outlook on competition • Business with a strong sense of organizational use their strategic prowers to maintained a very wide-eyed view of the competition. They are concrete and specific in contrast to goals [ 34 ] that are generalised. "Objectives are the ends that state specifically how the goals shall be achieved". Then the organisations learn what they need to do to serve them best. • Business that have a clear organizational purpose coddle their passion into a customer focused entity. attention. Then the organisation ask themselves how these external forces will impact the business. • They have the wisdom to understand the monumental power yielded by freeing their time. then if possible they outsource the rest. and resources on knowing which customer the organisation can best serve. (5) It separates you from the pack • Business that sustain a successful path whittles a carefully crafted position that distinguishes them from their competitors.6 GOALS AND OBJECTIVES "Goals denote what an organization hopes to accomplish in a future period of time". and reassess what is going on in the world around them. Then the organisations design the business to withstand the impact. present the future state or outcome of effort put in now. They. 3.

The issue of multiplicity deals with different types of objectives with respect to organisational levels. they might be specifically stated as targets. 3.6. while at the others. Objectives help an organisation purpose its vision and mission. Objectives provide the basis for strategic decision making. This issue of specificity is ressolved through stating objectives at different levels and prefixing terms such as corporate. as measures of organisational behaviour and performance.6. Objective 3. [ 35 ] . importance. Role of Strategists – Mission. Given below are seven such characteristics: • • • • • • • Objectives should be understandable Objectives should be concrete and specific Objectives should be related to a time frame Objectives should be measurable and controllable Objectives should be challenging Different objectives should correlate with each other Objectives should be set within constraints 3. Purpose. Objectives provides the standards for performance appraisal. functions.Strategic Management operational. (2) Multiplicity: No organisation operates on the basis of a single or a few objectives. should posses certain desirable characteristics in order to be effective. We could identity the various facets of such a role as described below: • • • • Objectives defines the organisation's relationship with its environment.1 Roles of objectives Objectives play an important role in strategic management. and nature.6.3 Issues in Objective-setting There are many issues which have a bearing on different aspects of objective setting we deal with six such issues: (1) Specificity: Objectives may stated at different levels of specificity. Specificity is related to the organisational level for which a set of objectives has been stated.2 Characteristics of objectives Objectives. general and particular so that they save the needs of performance and its evaluation. they might be very broadly stated as goals. ends. At one stream.

organisation determines objectives for the long-and.6. It is possible to set long-term. profess to attain. necessitating a corresponding shift in the importance attached to different objectives. short-term. (6) Quality: Objectives may be good as well as bad. These factors are: (1) The forces in the Environment These take into account all the interests-sometimes coinciding but often conflicting-of the different stakeholders in an organisation. Only verifiable objectives can be meaningfully used in strategic management.4 How are objectives formulated? Glueck identifies four factors that should be considered for objective setting. It is important to note that the interest of the various stakeholders may change from time to time. while operative objectives are those which they seek to attain in reality. The quality of an objectives can be judged on the basis of its capability to provide a specific direction and a tangible basis for evaluating performance. (5) Reality: It is a common observation that organisations tend to have two sets of objectives: official and operative. In other words. (2) Realities of Enterprise Resources and Internal power Relationships These mean that objectives are dependent on the resources capability of a company as well as the relative decisional power that different group of strategists yield with respect to each other in sharing those resources. Generally. Resources-both material and human-place restrictions organisation. Each group of stakeholders has claims or expectations which have to be considered while setting objectives. it should be possible for a manager to state the basis on which to decide whether an objective has been met or not. (4) Verifiability: Each objective has to be tested on the basis of its verifiability. medium-term and short-term objectives.Strategic Management (3) Periodicity: Objectives are formulated for different time periods. Official objectives are those which the organisations. 3. (3) The value system of the Top Executive [ 36 ] on the objective-achieving capability of the This has an impact on the corporate philosophy that organisations .

(2) Customer's Perspective This perspective measures the ability of organisation to provide [ 37 ] . Objective 3. (4) Awareness by the Management Awareness of the past objectives may lead the organisation to a choice of objectives that has been emphasised in the past due to different reasons. operational objectives. Kaplan and David Norton of Harvard Business School.2 shows the balanced scorecard model. earnings. Keeping in view the four factors described above. shape perceptions about what is good or bad. the system application was enlarged to include its usage as a comprehensive strategic planning technique. Later.4 Balanced setting Scorecard Approach to objectives- The performance management system called balanced scorecard. seeks to do away with the undue emphasis on short-term financial objectives and seeks to improve organisational performance by focusing attention on measuring and managing a wide range of non-financial.6.Strategic Management adopt with regard to strategic management in general and objectives in particular. The binding together of the different levels of the hierarchy of strategic intent is facilitated by techniques such as the balanced scorecard that we discuss next. Values. the balanced score card approach advocates a top down approach to performance management. Vision and mission provide a 'Common thread' to bid together the different aspects of the objective-setting process. return on capital and cash flow. down to operationally relevant targets. Role of Strategists – Mission. starting with strategic intent being expressed through the organisation. as an enduring sets of beliefs. we observe that objective-setting is a complex task which is based on consensusbuilding and has no precise begining or end. developed by Robert S. The balance scorecard model requires an evaluation of organisational performance from four different perspectives(1) Financial Perspective This perspective considers the financial measures aring from the strategic intent of the organisation. desirable or undesirable. Figure 4. Examples of such measures are revenues. Purpose. by providing a specific direction along which the organisations can move. In doing so.

Examples of such measures are productivity indicies. the four perspectives were connected to each other in a 'cause and effect' fashion. A typical strategic map is shown in figure 3. usage of best practices. [ 38 ] . turnover. customer satisfaction measures and customer loyalty. quality measures and efficiency.2 The Balanced Scorecard Model How can we sustain our ability to change and improve? Kaplan and Norton used the technique of strategy maps that provide a visual representation of the organisation's strategy. (4) Learning and Growth Perspective This perspective focus on the ability of the organisation to manage its business and adapt to change. How do we look to shareholders? F in a n c ia l P e r s p e c t iv e H o w d o c u s to m e r s s e e u s ? O b je c t iv e s T a rg e ts W h a t m u s t w e e x c e l a t? C u s to m e r P e r s p e c t iv e V is io n & S tra te g y O b je c t iv e s T a r g e ts In t e r n a l P r o c e s s P e r s p e c t iv e O b je c tiv e s T a rg e ts L e a r n in g / I n n o v a tio n P e r s p e c tiv e O b je c t iv e s T a rg e ts Figure 3. Examples of such measures are morale. employee. effective delivery and overall customer satisfaction. knowledge. In such maps. (3) Internal business Perspective Internal business processes are the mechanism through which performance expectations are achieved.Strategic Management quality goods and services. This perspective provides data regarding the internal business results against measures that lead to financial success and satisfied customers. thus making clear the relationship of all the strategic objectives to the strategic intent of the organisation. share of revenue from new products and employee suggestions. Examples of such measures are market share.3.

(4) In the final stage. (2) Next. metrics for revenue growth may be expressed in terms of sales to new customers.7 SUMMARY Strategic intent refers to the purposes the organisations strive for. adopt a predermined mired direction and attempt to achieve their goal is [ 39 ] .Strategic Management L o n g te r m s h a r e h o ld e r s v a lu e Role of Strategists – Mission. including the vision and mission. Purpose. Objective F in a n c i a l p e r s p e c tiv e Im p ro v e c o s t s tr u c tu re Im p ro v e c o s t s tru c tu re Im p ro v e c o s t s tru c tu re Im p ro v e c o s t s tru c tu re C u s to m e r p e r s p e c tiv e C u s t o m e r V a lu e P r o p o s it io n P r ic e Q u a lit y A v a ila b ilit y S e le c t io n F u n c t io n a lit y S e r v ic e P a r t n e r s h ip B r a n d In te rn a l p e r s p e c tiv e O p e r a t io n s M anagem ent P roc e ss C u s to m e r M anagem ent P ro c e s s In n o v a tio n P ro c e s s R e g u la t o r y & S o c ia l P ro c e s s L e a r n in g / i n n o v a t io n p e r s p e c t iv e C u lt u r e L e a d e r s h ip H u m a n c a p it a l I n f o r m a t io n c a p i t a l O r g a n iz a t io n c a p it a l A lig n m e n t T e a m w o rk Figure 3. The four perspectives above can help an organisation to set objectives. The specific strategies that should be formulated and implemented to realize that vision are also determined. In the above example. achieving financial growth may be expressed in terms of sales growth and revenue growth. 3. For example. In practice. the design of the scorecard is determined by identifying the specific measures related to the four perspective. the balanced scorecard approach works something like this: (1) The development of the scorecard begins. metrics that can be used to accurately measure the performance of the organisation in the specific areas are established.3 A typical strategy map Our purpose here is to note that objective-setting can use the balanced scorecard approach. (3) The following step involves mapping the strategy through the identification of organisational activities that are derived from the strategies. These may be expressed in terms of an hierarchy of strategic intent. with the establishment of the organisations strategic intent. sales of new services or products or entry into new markets. The frame work within which firms operate.

The hierarchy of strategic intent covers the vision. goals and objectives. or an organisation. aspires to create within a broad time horizon and the underlying conditions for the actualisation of this perception. (4) Objectives : Ends that state specifically how the goals shall be achieved. Objectives are the ends that state specifically how the goals shall be achieved. How can the technique of balanced scorecard help in objective setting? [ 40 ] . (3) Goals : Goals denote what an organisation hopes to accomplish in a future period of time. This helps in the prioritisation of key strategic objectives that can be allocated to each of these four perspectives and the identification of associated measures that can be used to evaluate organisational progress in meeting the objectives. Mission is a statement which defines the role that an organisation plays in the society. The process of envisioning involves dealing with the two components of core ideology and envisioned future. 3. Goals denote what an organization hopes to accomplish in a future period of time. Mention the characteristics of a good mission statement.Strategic Management provided by an overarching strategic intent. purpose. (2) Mission : Purpose or reason for the organisation's existence. Organisations derive their mission statements from a particular set of tasks they are called upon to perform. Propose the factors to be taken into account while setting objectives.8 KEYWORDS (1) Vision : Mental perception of the kind of environment an individual. Objectives-setting can use four perspectives of the balanced scorecard approach. mission. Vision constitutes future aspirations that lead to an inspiration to be the best in one's field of activity.9 QUESTIONS (1) (2) (3) (4) (5) (6) What is meant by 'Stratic intent'? What are the possible pitfalls in not having a vision for an organisation? Define mission in your own words. 3.

Purpose. Objective [ 41 ] .Strategic Management  Role of Strategists – Mission.

2 Value chain analysis 4.1 Factors to be considered for environment scanning 4.7 Capability factors affecting the internal environment . Porter's value chain method for internal analysis. Factors related to remote. The concept of internal environment. Factors affecting external environment appraisal. along with its benefits and limitations.6 Factors affecting external environmental appraisal [ 42 ] 4.3.5 Environmental scanning 4.5. the readers will be able to understand(1) (2) (3) (4) (5) (6) (7) (8) (9) Concept of environment in the context of strategic management.5.2 Industry environment 4.1 Introduction 4.4 Internal environment 4. The process of SWOT analysis. industry and operating environment.1 SWOT analysis 4. Analysing the capability factors affecting the internal environment. The firm's external environment.5.3.5 Pitfalls in environmental scanning 4.5. Process of external environment scanning.2 Characteristics of environment 4.5.3.4.3 Sources of Information for environmental scanning 4.Strategic Management UNIT-4 ENVIRONMENT COMPONENTS APPRAISING AND SCANNING CAPABILITY FACTORS Learning Objectives After the end of this unit. Unit Structure 4.4.4 Methods and Techniques used for environmental scanning 4.2 Approaches to environmental scanning 4.1 Remote environment 4.3 The external environment 4.3 Operating environment 4.

The environment is constantly changing in nature.10 Questions Environment Component-Appraising and Scanning Capability Factors 4. Due to the many and varied influence operating. • Environment is Dynamic.7. Some of the important and obvious characteristics are briefly described here: • Environment is complex.The environment consists of a number of factors.8 Summary 4. its understanding is of crucial important. This unit deals with the different aspects of external and internal environment. It is difficult to comprehend at once what factors constitute a given environment.7.relatively easier to understand in parts but difficult to grasp in its totality. • Environment is multi faceted.Strategic Management 4. Environment can be divided into external and internal. environment is a complex phenomenon.1 INTRODUCTION Just like everything exists in the physical environment.9 Keywords 4. These linkages are the strategies.What shape and character an environment assumes depends on the perception of the [ 43 ] . This is devoted to an understanding of the environment that organisations face. there is dynamism in the environment causing it to continuously change its shape and character. Since the environment influences an organisation in multitudinous ways. 4. The environment of any organisation is 'the aggregate of all conditions.2 Marketing capability factors 4.7. Strategic Management is basically about dealing with the external environment and establishing a linkage with it. All in all. organisations exists in the business environment.3 Operations capability factors 4. Environment literally means the surroundings. but interact with each other to create an entirely new sets of influences. events and influences that surround and affect it'. influences or circumstances under which someone or something exists.1 Financial capability factors 4.2 CHARACTERISTICS OF ENVIRONMENT The concept of environment can be understood by looking at some of its characteristics.4 Personnel capability factors 4. All these do not exist in isolation. events. external objects. conditions and influences aring from different sources.7.

• Environment has a far-reaching Impact .The environment has a far-reaching impact on organisations. its industry and its operating environment. ultimately. its organisational structure and internal processes. The growth and profitability of an organisation depends critically on the environment in which it exists. [ 44 ] and usually irrespective of any single firm's operating situation: . 4. dynamic. Since environment is complex. multifaced and has a far reaching impact.Strategic Management observer. These factors which constitute the external environment. may be viewed differently be different observers. dividing it into external and internal components.3 THE EXTERNAL ENVIRONMENT A host of external factors influence a firm's choice of direction and action and.3. 4.1 Remote Environment The remote environment comprises factors that originate beyond. suggests the interrelationship between the firm and its remote. these factors form the bases of the opportunities and threats that a firm faces in its competitive environment. can be divided into three interrelated sub categories: (1) Factors in the Remote Environment (2) Factors in the Industry Environment (3) Factors in the Operating Environment R e m o t e E n v ir o n m e n t • E c o n o m ic • S o c ia l • P o lit ic a l • T e c h n o lo g ie s • E c o lo g ic a l In • • • • • d u s t r y E n v ir o n m e n t O p e r a t in g E n v ir o n m e n t E n t r y b a r r ie r s • C o m p e tito r s S u p p lie r p o w e r • C r e d it o r s B uyer pow er • C u s to m e rs T H E F IR M S u b s t it u t e a v a i la b il it y • L a b o u r C o m p e tit iv e r iv a lr y • S u p p lie r s Figure 4. Any environment change has an impact on the organisation in several different ways. This is frequently seen when the same development is welcomed as an opportunity by one company while another company perceives it as a threat. A particular change in the environment. or a new development. enables us to understand it better. In combination.1.1 The firm's external environment Figure 4.

As social attitudes change. as developed from cultural. minimum wage legislature. religious. social forces are dynamic. the general public and the environment. managers must consider the general availability of credit. each firm must consider economic trends in the segments that affect its industry. administrative jawboning and many other actions aired at protecting employees. values. (3) Political Factors The direction and stability of political factors are a major consideration for managers on formulating company strategy. Because such laws and regulations are most commonly restrictive. On both the national and international level. tax programs. with constant change resulting from the efforts of inviduals to satisfy their desires and needs by controlling and adapting to environmental factors. opinions. and the propensity of people to spend. Such actions include patent laws. some political actions are designed to benefit and protect firms. ecological. educational and ethnic conditioning. and trends in the growth of the gross national product are other economic factors they should monitor. and product research [ 45 ] . the level of disposable income. inflation rates. activities and so on. books. attitudes. Prime interest rates. Like other forces in the remote external environment. Because consumption patters are affected by the relative affluence of various market segments. demographic. antitrust laws. consumers. Political factors define the legal and regulatory parameters within which firms must operate. Political constraints are placed on firms through fari-trade decisions.Strategic Management • • • • • Economic Social Political Technological Ecological factors Environment Component-Appraising and Scanning Capability Factors (1) Economic Factors Economic factors concern the nature and direction of the economy in which a firm operates. they tend to reduce the potential profits of firms. leisure. and lifestyles of persons in the firm's external environment. government subsidies. pollution and pricing policies. However. so too does the demand for various types of clothing. (2) Social Factors The social factors that affect a firm involve the beliefs.

all firms. which are diagrammed in figure 4. metal cans. as well as air. 4.Strategic Management grants.2. to mild in industries like oil-field services and equipment. and steel. Creative technological adaptations can suggest possibilities for new products or for improvements in existing products or in manufacturing and marketing techniques. It may spawn sophisticated new markets and products or significantly shorten the anticipated life of a manufacturing facility. loss of habital and biodiversity. To avoid obsolescence and promote innovation. where there is room for quite high returns. It ranges from intense in industries like tires. Threats to our life-supporting ecology caused principally by human activities in an industrial society are commonly reffered to as pollution. soft drinks and toiletries. a firm must be aware of technological changes that might influence its industry. The term ecology refers to the relationships among human beings and other living things and the air. (5) Ecological Factors The most prominent factor in the remote environment is often the reciporacal relationship between business and the ecology. water and land pollution. [ 46 ] . Thus. and most particularly those in turbulent growth industries. Thus. soil and water that support them. must strive for an understanding both of the existing technological advances and the probable future advances that can affect their products and services.2 Industry Environment The industry environment deals with the general conditions that influence all business that provides similar products and services.3. (4) Technological Factors The fourth set of factors in the remote environment involves technological change. where no company earns spectacular returns on investment. Specific concerns include global warming. political factors either may limit or benefit the firms they influence. The collective strength of these forces determines the ultimate profit potential of an industry. A technological breakthrough can have a sudden and dramatic effect on a firm's environment. The state of competition in an industry depends on fire basic forces.

t h r o u g h P r ic e s S e n s itiv ity P r ic e . There are six major sources of barriers to entry: (1) Economics of scale (2) Product Differentiation (3) Capital Requirements (4) Cost Disadvantages independent of size (5) Access to Distribution channels (6) Government Policy (2) Supplier Power Suppliers can exert bargaining power on participants in an industry by raising prices or reducing the quality of purchased goods and services. he or she obviously will not pose a serious threat of entering. the desire to gain market share.Strategic Management D e te r m in a n t s o f E n tr y E P B S C A A P c o n o m ic s o f s c a le r o p rie ta r y p r o d u c t d if fe r e n c e s r a n d id e n t it y w it c h in g c o s t s a p it a l r e q u ir e m e n t s c c e s s t o d is t r ib u t io n b s o lu t e c o s t a d v a n t a g e s r o p rie ta r y c u rv e A c c e s s to n e c e s s a r y in p u t s P r o p r ie t a r y l o w . can squeeze profitability out of an industry unable to recover cost increases in its own prices.c o s t p r o d u c t d e s i g n G o v e r n m e n t p o l ic y E x p e c t e d r e t a l ia t i o n D e t e r m in a n t s o f R iv a lr y In d u s try g ro w th F ix e d ( o r s t o r a g e ) c o s t s / v a lu e a d d e d I n t e r m it t e n t o v e r c a p a c i t y P r o d u c t d if f e r e n c e s B r a n d id e n t it y S w it c h in g c o s t s C o n c e n t r a t io n a n d b a l a n c e In fo r m a t io n a l c o m p le x ity D i v e r s it y f o c o m p e t i t o r s C o rp o ra te s ta k e s E x it b a r r ie r s New E n tra n ts T h re a t o f N e w E n tr a n ts Environment Component-Appraising and Scanning Capability Factors In d u s try C o m p e tito r s B a r g a in i n g P o w e r o f B u y e rs I n t e n s i t y o f R i v a lr y T h re a t o f S u b s t it u t e s B uyer S u p p l ie r s B a r g a in in g P o w e r o f S u p p lie r s D e t e r m in a n ts o f S u p p lie r P o w e r D e t e r m in a n t s o f B u y e r P o w e r B a r g a in in g L e v e ra g e B u y e r c o n c e n t r a t io n v e r s u s firm c o n c e n tr a tio n B u y e r v o lu m e B u y e r s w it c h i n g c o s t s r e la t iv e t o f i r m s w it c h in g c o s t s B u y e r i n f o r m a t io n A b i l it y t o b a c k w a r d s in t e g r a t e S u b s t it u t e p r o d u c t s P u ll. and often substantial resources.to ta l p u r c h a s e s P r o d u c t d if f e r e n c e s B r a n d id e n t it y I m p a c t o n q u a lit y / p e r fo rm a n c e B u y e r p r o f it s D e c is i o n m a k e r s in c e n t iv e s D i f f e r e n t i a t io n o f i n p u t s S w it c h in g c o s t s o f s u p p lie r s a n d f ir m s in t h e in d u s t r y P r e s e n c e o f s u b s t it u t e in p u t s S u p p lie r c o n c e n t r a t i o n I m p o r t a n c e o f v o l u m e t o s u p p l ie r C o s t r e l a t iv e t o t o t a l p u r c h a s e i n t h e in d u s t r y I m p a c t o f i n p u t s o n c o s t o r d if f e r e n t i a t i o n T h r e a t o f f o r w a r d in t e g r a t io n r e la t i v e t o t h r e a t t o b a c k w a r d in t e g r a t io n b y f ir m s in t h e in d u s t r y S u b s t it u t e s D e t e r m in a n ts o f S u b s t it u tio n T h r e a t R e la tiv e p ric e p e rfo rm a n c e o f s u b s tit u te s S w it c h in g c o s t s B u y e r p r o p e n s it y to s u b s tit u te Figure 4. Powerful supplies.2 Forces Driving Industry Competition (1) Entry Barriers New entrants to an industry bring new capacity. there by. If barriers to entry are high and a new comer can expect sharp retaliation from the entrenched competitors. The seriousness of the threat of entry depends on the barriers present and on the reaction from existing competitions that the entrant can expect. The power of each important supplier group depends on a number [ 47 ] .

It is not obliged to contend with other products for sale to the industry. These buyers. The products it purchases from the industry form a component of its product and represent a significant of its cost. and play competitors off against each other-all at the expense of industry profits. It poses a credible threat of integrating forward into the industry's business. The industry is not an important customer of the supplier group. (4) Substitute Availability Substitutes not only limit profits in normal times but also reduce the bonanza on industry can reap in boom times. The producers of fiberglass insulation enjoyed unprecedented demand as a result of high energy costs and severe winter weather. The buyers pose a credible threat of integrating backward to make the industry's product. rock wool. The industry's product does not save the buyer money. It earns low profits. A buyer group is powerful if • • • • It is concentrated or purchases in large volumes. however. are The industry's product is unimportant to the quality of the [ 48 ] . The products it purchases from the industry are standard or undifferentiated. which create great incentive to lower its purchasing costs. or if it has buildup switching costs. and Styrofoam. Its product is unique or atleast differentiated. Highly profitable generally less price sensitive. But the industry's ability to raise prices one tempered by the plethora of insulation substitutes. • • • buyer's products or services.Strategic Management of characteristics of its market situation and on the relative importance of its sales or purchases to the industry compared its overall business. (3) Buyer Power Customer likewise can force down prices. including cellulose. A supplier group is powerful if• • • • • It is dominated by a few companies and is more concentrated than the industry it sells. demand higher quality or more service.

How committed are other firms to the industry? To size up the commitment of potential competitors to the industry. firms can be mush more proactive in dealing with the operating environment than in dealing with the remote environment. comprises factors in the competitive situation that affect a firm's success in acquiring needed resources or in profitably marketing its goods and services. High substitutability levels force firms to compete fiercely for customers. Capability Factors Substitute products that deserve the most attention strategically are those that (a) (b) are subject to trends improving their price-performance tradeoff with the industry's product. Substitutes often can rapidly come into play if some development increases competition in their industries and causes price reduction or performance improvement. The operating environment is typically much more subject to the firm's influence or control than the remote environment. and its ability to attract capable employees. are produced by industries earning high profits. (5) Competitive Rivalry How to identify competitors? In identifying their firm's current and potential competitors. Among the most important of these factors are the firm's competitive position. the composition of its customers. executives consider several important variable: • How do other firms define the scope of their market? The more similar the definitions of the firms. (1) Competitive Position [ 49 ] .3. How similar are the benefits the customers derive from the products and services that other firms offer? The more similar the benefits of products or services.3 Operating Environment The operating environment. Such data may relate to potential resources commitments. • • 4. also called the competitive or task environment. its reputation among suppliers and creditors. the more likely the firms will view each other as competitors. reliable intelligence data are needed.Strategic Management Environment substitutes are bound to become an even stronger force once the Component-Appraising current round of plant additions by fiberglass insulation producers and Scanning has boosted capacity enough to meet demand. the higher the level of substitutability between them. Thus.

1. they are weighted to reflect their importance to a firm's success. Development of competitor profiles enables a firm to more accurately forecast both its short-and long-term growth and its profit potentials. strong (4).00 0. the following criteria are often included: • • • • • • • • • • • • • • • • • • • • Market share Breadth of product line Effectiveness of sales distribution Proprietary and key accounting advantages Price competitiveness Experience Advertising and promotion effectiveness Location and age of facility Union Relations Capacity and productivity Technological Position Raw material costs Financial position Relative product quality R & D advantages position Caliber of personnel General images Customer profile Patents and copyrights Community reputation Once appropriate criteria have been selected. as shown in table 4.20 0. weak (2). average (3). . Key Success Factors Market share Price competitiveness Facilities location Raw materials costs Caliber of personnel * [ 50 ] Weight 0.00+ Rating* 4 3 5 3 1 Weighted Score 1.30 The rating scale suggested is as follows: very strong competitive position (5 points).20 3.30 0.20 1. very weak (1). and the weighted scores are summed to yield a numerical profile of the competition.20 0. Then the competition being evaluated is rated on the criteria.10 0.60 1. Although the exact criteria used in constructing a competition's profile are largely determined by situational factors. the rating are multiplied by the weight.Strategic Management Assessing its competitive position improves a firm's chances of designing strategies that optimize its environmental opportunities.30 0.20 0.

Particularly at such times. and to reallocate resources so as to support forecast shifts in demand patterns. demographic. In the assessment of a firm's relationships with its supplies. to anticipate changes in the size of markets. weighting. other than the strength of that relationship should be considered. several factors. Table 4. psychographic and buyer behaviour information. and equipment. quality. the firm should address the following questions: • • • • Are the supplier's prices competitive? Do the supplies offer attractive quantity discounts? How costly are their shopping changes? Are the supplies competitive in terms of production standards? In terms of deficiency rates. (3) Supplies Dependable relationship between a firm and its supplies are essential to the firm's long-term survival and growth. Nevertheless. With regard to its competitive position with its suppliers. Developing a profile of a firm's present and prospective customers improves the ability of its managers to plan strategic operations. materials. are the supplier's abilities. [ 51 ] . The traditional approach to segmenting customers is based on customer profiles constructed from geographic. (2) Customer Profiles Perhaps the most vulnerable results of analysing the operating environment is the understanding of a firm's customers that this provides. the process of developing such profiles is of considerable help to a firm in defining its perception of its competitive position.Strategic Management + The total of the weights must always equal 1. and services competitive? Are the supplies reciprocally dependent on the firm? (4) Creditors Because the quantity. A firm regularly relies on its supplies for financial support. reputations. it is essential for a firm to have had an ongoing relationship with its supplies. In addition. it occasionally is forced to quick delivery. or broken-lot orders.00. liberal credit terms. price and accessibility of financial.1 : Competitor Profile Environment Component-Appraising and Scanning Capability Factors This type of competitor profile is limited by the subjectivity of its criteria selection. services. and evaluation approaches.

and its relationship with labour universe. (5) Labour A firm's ability to attract and hold capable employees is essential to its success. among the most important questions that the firm should address are the following: • • • • • Do the creditors fairly value and willingly accept the firm's stock as collateral? Do the creditors perceive the firm as having an acceptable record of past payment? A strong working capital position? Little on no leverage? Are the creditor's loan terms compatible with the firm's profitability objectives? Are the creditors able to extend the necessary lines of credit? The answers to these and related questions help a firm forecast the availability of the resources it will need to implement and sustain its competitive strategies. a firm's personnel recruitment and selection alternatives often are influenced by the nature of its operating environment. A firm's access to needed personnel is affected primarily by four factors: the firm's reputation an employer.1 SWOT Analysis SWOT is an acronym for the internal strengths and weaknesses of a firm and the environmental opportunities and threats facing that firm SWOT analysis is a historically popular technique through which managers create a quick overview of a company's strategic [ 52 ] . 4. local employment rates. assessment of supplies and creditors is critical to an accurate evaluation of a firm's operative environment. how well is the current strategy working? What is our current situation? Or what are our strengths and weaknesses. However. the ready availability of people with needed skills.4. The two approaches that are commonly used by managers by internal analysis are(1) SWOT Analysis (2) Value chain Analysis 4. With regard to its competitive position with its creditors.Strategic Management human and material resources are rarely ideal. Managers often start their internal analysis with questions like.4 INTERNAL ENVIRONMENT The internal environment refers to all factors within an organisation that impact strengths or cause weakness of a strategic nature.

and new or revised regulations could represent threats to a firm's success. It is based on the assumption that an effective strategy Environment Component-Appraising derives from a sound "fit" between a firm's internal resources and and Scanning its external situation. Accurately applied. and improved buyer or supplies relationships could represent opportunities for the firm. Key trends are one source of opportunities.Strategic Management situation. Opportunities An opportunity is a major favourable situation in a firm's environment. Identifying its strengths. technological changes. insightful implications for the design of a successful strategy. opportunities and threats. technological changes. The entrance of new competitors. 3. Identification of a previously overlooked market segment. slow market growth. 1. increased bargaining power of key buyers or suppliers. Threats are key impediments to the firm's current or designed position. Setting the objectives of the organisation or its unit. changes in competitive or regulatory circumstances. 2. Strengths arise from the resources and competencies available to the firm. this simple assumption has sound. Asking four question(a) How do we maximise our strengths? (b) How do we minimise our weaknesses? (c) How do we capitalise on the opportunities? [ 53 ] . A simple application of the SWOT analysis techniques involves these steps. Threats A threat is a major unfavorbale situation in a firm's environment. weaknesses. A good fit maximizes a firm's strengths and Capability Factors opportunities and minimizes its weaknesses and threats. Strengths A strength is a resources or capability controlled by or available to a firm that gives it an advantage relative to competitors in meeting the needs of the customers it serves. Weakness A weakness is a limitation or deficiency in one or more of a firm's resources or capabilities relative to its competitors that create a disadvantage in effectively meeting customer needs.

STRENGTHS .product lines .Uncertain competitors intentions .Low technology options available .Favourable industry trends .Weak management information . Useful as a starting point for strategic analysis. Recommending strategies that will optimise the answers from the four questions. • [ 54 ] May result in just compiling lists rather than think about what is really important for achieving objectives.Uncertain cash flow .Obstacles in licensing new business .Low worker commitment THREATS .Unfavourable political environment .Strategic Management (d) How do we protect ourselves from the threats? 4. .Lack of sustainable financial backing SWOT analysis has several benefits. The following could be the pitfalls of using the SWOT analysis indiscriminately• Simplicity of the use may turn to be simplistic by trivialising the reality that may be more complex than represented in SWOT matrices. weaknesses.System .Absence of strong USP for major . A typical SWOT analysis matrix for a hypothetical organisation is shown in table 4.2.2 A typical SWOT matrix WEAKNESSES .Possibility of niche target market .Good management reputation OPPORTUNITEIS . The SWOT analysis is usually done with the help of a template in the form of a four-cell matrix.ISO 9000 quality certification .Excellent distribution network .Established R & D Centre . each cell of the matrix representing the strengths.Favourable location .Availability of reliable business partners Table 4. among the major being: • • • • • • Simple to use Low cost Flexible and can be adapted to varying situations Leads to clarification of issues Development of goal-oriented alternatives. opportunities and threats.

and inventory control. Primary activities are directly related to the flow of the product to the consumer and include five sub-activities listed below: (1) Inbound logistics All activities that an organisation uses for receiving. These. Typical [ 55 ] . fabricating. • • Chances exist where strengths may be confused with opportunities or weaknesses with threats. forming a series of chains that Porter terms as the value system. maintaining and packaging. May encourage organisations to take a lazy course of action of looking for strengths that match opportunities rather than developing new strengths that could match the emerging opportunties. activities may begin with the procurement of basic raw material and go through processing in various stages right up to the end products marketed to the ultimate consumer. Typical inbound logistics activities performed in organisations are material handling. rather than be used as a means to open new Usually reflects an evaluator's position and viewpoint that can possibilities. Typical operations activities performed in organisations are assembling. and transporting outputs going out of the production process.2 Value chain Analysis This is a method for assessing the strengths and weaknesses of an organisation based on an understanding of the series of activities it performs. warehousing. (3) Outbound logistics All activities that an organisation uses for receiving. The value chain of a company may be linked to the value chain of its upstream supplier and downstream buyers. machining. (2) Operations All activities required for transformation for raw materials to finished products. 4.4. storing. A value chain is a set of interlinked value-creating activities performed by an organisation. Porter divided the value chain of a manufacturing organisation into primary and support activities. storing and transporting inputs going into the production process.Strategic Management • Environment Component-Appraising be misinterpreted to justify a previously decided course of and Scanning Capability Factors action. Porter (1985) is credited with the introduction of the framework called value chain.

appraising and compensating employees. equipment design and servicing procedures. Typical procurement [ 56 ] activities performed by organisations are purchasing fixed assets . (2) Human Resource Management All activities that an organisation uses for managing human resources. selection and training. Typical firm infrastructure activities performed by orgnisations are accounting. and warehousing. repair. developing and improving products and services. (5) Service All activities that an organisation uses for enhansing and maintaining a product's value. promoting and distributing. Typical service activities performed by organisations are of installation. (3) Technology development All activities than an organisation uses for creating. product design. Typical technological development activities performed by organisations are research and development. and customer training. for achieving its objectives. Support activities are provided to sustain the primary activities. Typical marketing and sales activities performed by organisations are of pricing. These consist of: (1) Firm Infrastructure All activities that an organisation uses for ascertaining the external opportunities and threats. developing products. process design.Strategic Management outbound logistics activities performed in an organisation are of materials handling. (4) Marketing and sales All activities that an organisation uses to market and sell its products to customers. order processing. developing. (4) Procurement All activities than an organisation uses for procuring inputs needed to produce products or provide services. planning. maintenance. legal support and managing government relations. general management. physical distribution. Typical human resource management activities performed by organisations are of recruitment. advertising. identifying strengths and weaknesses and generally managing of the organisation finance.

Identifying how the value configuration could be improved by innovatively reconfiguring on recombining activities. [ 57 ] . In general. Identifying how the value contribution can be increased so that it costs less to provide the same or move value. It is a Capability Factors representation of the interrelated chain of activities that are required to be undertaken for bringing the finished product to the doorstep of the customer. thereby increasing the profit margin for the organisation. Porter's generic value chain F ir m in f r a s tr u c t u r e H u m a n R e s o u rc e M a n a g e m e n t S u p p o r t a c t iv itie s T e c h n o lo g y D e v e lo p m e n t P r o fit m a r g in P ro c u re m e n t In b o u n d lo g is tic s O p e r a tio n s O u tb o u n d lo g is tic s M a r k e tin g a n d S a le s S e r v ic e P r im a r y a c t iv it ie s Figure 4. Identifying the things done in those activities that contribute to providing value for the customer. The profit margin that an organisation earns depends on how efficiently and effectively the value chain is managed. • The value chain analysis is a useful method for organisational appraisal as it helps in providing clarity about the areas where the strengths and weaknesses of the organisation reside.Strategic Management such as machinery and equipments raw materials and supplies. The value chain provides a systematic view of examining all the activities performed by an organisation and how these activities interact and are interrelated. Environment Component-Appraising and Scanning Figure 4.3 provides a simplified depiction of the value chain.3 Porter's generic value chain The value chain analysis requires: • • • Identifying the activities that make up the organizations' value chain and classify them into primary an support activities.

Strategic Management

the activities that can be provided in a manner that they crate more value to the customer at less cost, are strengths. Those activities that provide less value at more cost are weaknesses. In such a case, it would be better for the organisaton to outsource those activities to external parties who could perform them better. Those areas where the organisation is strong should be retained as they are the competencies. The techniques of value chain analysis has some limitations• • • • The technique is deceptively simple but difficult to implement. It applies to industrial organisations and needs to be adapted for application to service organisations. The concept of value is hazy. It is difficult to say what constitutes value for the customer. The determination of costs cannot rely on traditional cost accounting methods. Activity-based costing is required to access to correct estimates of costs. The analysis requires collecting data from varied sources. The periodicity of the sources of information needs to be common. Where figures of costs, for instance, are not available for the same period, it becomes difficult to make the analysis. The application of information technology upsets the calculations in the value chain analysis as often, it results in increasing valve and resolving costs simultaneously.

4.5 ENVIRONMENTAL SCANNING
Environmental scanning can be defined as the process by which organisations monitor their relevant environment to identify opportunities and threats affecting their business for the purpose of taking strategic decisions.

4.5.1 Factors Scanning

to

be

considered

for

Environmental

The external environment in which an organisation exist-consists of a bewildering variety of factors. These factors are events, trends, issues and expectations of different interested groups. These factors are explained below: (1) Events are important and specific occurrences taking place in different environmental sectors. (2) Trends are the general tendencies on the courses of action along which events takes place. (3) Issues are the current concerns that arise in response to events and trends.
[ 58 ]

Strategic Management

(4) Expectations are the demands made by interested groups in the light of their concern for issues. By monitoring the environment through environmental scanning, an organisation can consider the impact of the different events, trends, issues and expectations on its strategic management process. Since the environment facing any organization is complex and scanning it is absolutely essential, strategists have to deal cautiously with the process of environmental scanning. It has to be done in a manner that unnecessary time and effort is not expended, while important factors are not ignored. For this to take place, it is important to devise an approach, or a combination of different approaches, to environmental scanning.

Environment Component-Appraising and Scanning Capability Factors

4.5.2 Approaches to Environmental Scanning
Kubr has suggested three approaches which could be adopted for sorting out information for environmental scanning. We could call these approaches as systematic, adhoc and processed form approaches. (1) Systematic Approaches Under this approach, information for environmental scanning is collected systematically. impact on an Information related to markets and activities, government policy customers, changes in legislation and regulations that have a direct organisation's statements pertaining to the organisations business and industry, etc. could be collected continuously to monitor changes and take the relevant factors into account. (2) Adhoc Approach Using this approach, an organisation may conduct special surveys and studies to deal with specific environmental issues from time to time. Such studies may be conducted, for instance, when an organisation has to undertake special projects, evaluate existing strategies or devise new strategies. (3) Processed form Approach By adopting this approach, the organisation uses information in a processed from, available from different sources both inside and outside the organisation. When an organisation uses information supplied by government agencies or private institutions, it uses secondary sources of data and the information is available in a processed form.
[ 59 ]

Strategic Management

4.5.3 Sources Scanning

of

Information

for

Environmental

Given below are some important types of sources of information: • Documentary or secondary sources of information like different types publications. These could be newspapers, magazines, journals, books, newsletters etc. Macs media such as radio, television, internet. Interval sources like company files and documents, internal reports and memoranda, company employee sales staff etc. External agencies like customers, intermediaries, trade associations etc. supplies, marketing,

• • • • •

Formal studies done by employees, market research agencies, consultants, and educational institutions. Spying and surveillance through ex-employees of competitors, industrial espionage agencies, or by planting 'moles' in vival companies.

Strategist use different information sources depending on their needs for environmental scanning.

4.5.4 Methods and Techniques used for Environmental Scanning
The range of methods and techniques available for environmental scanning is wide. There are formal and systematic techniques as well as intuitive methods available. Strategists may choose from among these methods and techniques, those which suit their needs in terms of the quantity, quality, availability, timeliness, relevance and cost of environmental information. Lebell and Krasner outline nine groups of techniques: • • • • • • • • • single-variable extrapolation theoretical limit envelopes dynamic modes mapping multivariable interaction analysis unstructured expert opinion structured expert opinion structured inexpert opinion unstructured inexpert speculation

Owing to the increasingly complicity of the external environment, inevitably there have been attempts to utilise the emerging information
[ 60 ]

technologies

in

assisting

strategic

planners

in

environmental scanning. Techniques based on artificial intelligence,

The environment scanning function should not be integrated too closely with the operational and functional activities of the organisation. strategic planners may focus excessively on the influences in the relevant environment that they miss out on the trends and issues in the general environment that really matter.Strategic Management neural networks. thus aligning it too closely with the interests of those activities. The purpose of environmental scanning is to uncover influences that matter for the future of the organisational strategic decision-making. This is due to many factors that affect the process of environmental appraisal. no two strategists or two organisations would appraise the environment in a similar fashion.related factors (3) Environment . making it an impersonal. may not use statistical information but employ informed judgemenet and intuition to predict what the future is most likely to be. meaning that environmental scanning can create such an overload of information that it may prevent timely action. data mining and a knowledge-based system have Environment Component-Appraising been proposed while many of the environmental techniques are and Scanning based on statistical methods and increasingly. Similarly.5. This purpose should not be lost and enviornmental scanning should not be used for purposes other than this. some of them. We could identify these factors by classifying them into three categories: (1) Strategist . • • • • 4. staff function. • Sometimes.6 FACTORS AFFECTING EXTERNAL ENVIRONMENTAL APPRAISAL Given the same environmental conditions.related factors (2) Organisations . the use of Capability Factors sophisticated software in computer-assisted environmental scanning and forecasting.5 Pitfalls in Environmental Scanning Just like any other strategic planning techniques. This means that it should not become a line function.related factors [ 61 ] . We could enumerate at least five pitfalls faced while using environmental scanning. environmental scanning should not be too far from the realities of the organisation. 4. environmental scanning has its soft underbelly. There is a danger of 'paralysis by analysis'. expressed in the from of a descriptive statement or report. like scenario-writing.

their characteristics such as age. These are finance. size and complexity. motivation level. Some of the factors which influence financial capability of any organisaton are: (1) • • • [ 62 ] Factors related to sources of funds Capital structure Procurement of capital Controllership Financing pattern • . volatility or turbulence. These characteristics are the nature of business the organisation is in. hostility and diversity. education. usages and management of funds and all allied aspects that have a bearing on an organisations capacity and ability to implement its strategies. (3) Environmental-related Factors The nature of environment facing an organisation determines how its appraisal could be done. strain of responsibility have an impact their organisation's environment and how well they are able to do it. experience. Different types of capability factors exist within the internal environment of an organisation.Strategic Management (1) Strategist-Related Factors Since strategist play a central role in the formulation of strategies. marketing. operations and personnel. which are of crucial importance to strategy formulation and implementation. cognitive styles.7 CAPABILITY FACTORS AFFECTING THE INTERNAL ENVIRONMENT Capability factors are the strategic strengths and weaknesses existing in different functional areas within an organisation.1 Financial Capability Factors Financial capability factors related to the availability. 4.7. (2) Orgnaisation-related Factors Many characteristics of the organisation also have an impact on the environmental appraisal process. the nature of its market's and the product or services that it provides. The nature of the environment depends on its complexity. its age. 4. Information processing perspectives suggest that scanning activity will increase in response to increasing environmental uncertainty.

2 Marketing capability Factors Marketing capability factors relate to the pricing. Some of the important factors which influence the marketing capability of an organisation are as follows: (1) Product-Related factors • • • • • Variety Differentiation Mix quality Positioning Packaging [ 63 ] . all the allied aspects that have a bearing on an organisation's capacity and ability to implement its strategies.Strategic Management • • • • • Borrowings Working capital availability Reserves & Surplus] Relationship with lenders Banks and financial Institutions (2) Factors related to usage of funds Environment Component-Appraising and Scanning Capability Factors • • • • • • Capital investment Current assets Fixed asset acquisition loans and advances Divident distribution Relationship with shareholders (3) Factors Related to Management of funds • • • • • • • • • • Financial Management control system Accounting and budgeting systems Cash Inflation Credit Cost reduction and Control Tax planning State of financial health 4. promotion and distribution of products on services.7.

7.Strategic Management (2) Price-Related Factors • • • Pricing objectives Policies changes Protection (3) Place-Related factors • • • • Distribution Transportation and Logistics Marketing channels Marketing intermediaries (4) Promotion-Related factors • • • Promotional tools Sales promotion Advertising public relations (5) Integrative and systemic factors • • • • • • Marketing Mix Market standing Company image Marketing organization Marketing system Marketing management information system 4.3 Operations Capability Factors Operations capability factors relate to the production of products or services. use of material resources and all allied aspects that have a bearing on an organisaston's capacity and ability to implement its strategies. Some of the factors which influence the operations capability of an organisation are as follows: (1) Factors related to the production system • • • • • • [ 64 ] Capacity Location Layout Product Design Work system Degree of automation (2) Factors related to the operations and control system .

selection.4 Personnel Capability Factors Personnel capability factors relate to the existence and use of human resources and skills.Strategic Management • • • • • Aggregate production planning Material supply Inventory Cost and quality control Maintenance systems and procedures Environment Component-Appraising and Scanning Capability Factors (3) Factors related to R & D system • • • • • Personnel facilities Product Development Patent rights Level of technology used Technical collaboration and support 4. and all allied aspects that have a bearing on an organisation's capacity and ability to implement its strategies. Some of the important factors which influence the personnel capability of an organisation are as follows: (1) Factors related to the personnel system • • • Systems for manpower planning. developments Communication and appraisal Position of the personnel department within the organisation related to organisational and employee (2) Factors characteristics • • • • Corporate image Quality of managers Working conditions Staff and workers perception organisation as an employer about the image of the (3) Factors related to industrial relation • • • • • Union-management relationship Collective bargaining Safety Welfare and security Employee satisfaction and morale [ 65 ] .7.

Strategic Management 4. threats and constraints that the firm force. including entry barries. opportunities and threats pertaining to one organisation and its environment. There could be formal and informal sources and written and verbal sources. SWOT analysis is a systematic approach to find the strengths. It can be divided into external and internal parts. There are formal and systematic techniques as well as intuitive methods available. The approaches used for environmental scanning are the systematic. A variety of methods and techniques are available for environmental scanning. Capability is described in terms of four areas of finance. Value chain analysis has managers look at and disaggregate their business as a chain of activities that occur in a sequential manner to create the product nor services they sell. dynamic. trends. The operating environment comprises factors that influence a firm's immediate competitive situation-competitive position. data sources could be external and internal. The various sources of information tapped for collecting data for environment scanning could be classified in different ways. organisational structures and internal processes. marketing. supplies. and ecological factors. technological. multi-faceted and has a farreaching impact on an organization. Capability is the inherent capacity or potential of an organisation to use its strengths and overcome its weaknesses in order to exploit opportunities and face threats in its external environment. Strategists may choose from among these methods and techniques those which suits their needs. operations and personnel. creditors and the labour market. customer profiles. the availability of substitutes and the bargaining power of buyers and supplies. In terms of origin. Factors that more directly influence a firm's prospects originate in the environment of its industry. The remote environment comprises factors originating beyond and usually irrespective of any single firm's operating situation-economic.8 SUMMARY The environment is complex. competitors rivalry.9 KEYWORDS (1) External Environment : The factors beyond the control of the firm [ 66 ] that influence its choice of direction and action. weakness. social. The factors to be considered for environmental scanning are events. adhoc and processed for approaches. issues and expectations of different interested groups. . political. 4. A firm's external environment consists of three interrelated sets of factors that play a principal role in determining the opportunities.

(12) Value chain analysis : An analysis that attempts to understand how a business creates value by examining the contribution of different activities within the business to that value. What is value chain analysis? Mention the important factors that influence the capability of an organisation in each of the following functional areas: [ 67 ] . (3) Pollution : Threats life-supporting ecology caused principally by human activities in an industrial society. (11) Value chain : A perspective in which business is seen as a chain of activities that transforms input into outputs that customers value. What is the concept of environment in strategic management? Mention some of the important characteristics of environment. (4) Industry : A group of companies that provide similar products and services. 9. (6) Operating Environment : Factors in the immediate competitive situation that affect a firm's success in acquiring needed resources. (9) Strength : A resource advantage relative to competitors and the needs of the markets a firm serves or expect to serve. 4.Strategic Management (2) Ecology : The relationships among human beings and other living things and the air. 5.10 QUESTIONS 1. 2. (8) Threat : A major unfavourable situation in a firm's environment. Explain all the true factors that make up the firm's external environment. (10) Weakness : A limitation or deficiency in one or more resources or competencies relative to competitors that impedes a firm's effective performance. soil and water that supports them. 8. 7. (5) Switching costs : Fixed costs that buyers face in changing supplies. What is the rationale behind performing a SWOT analysis? Explain the process of environment scanning. 3. : A major favourable situation in a firm's Environment Component-Appraising and Scanning Capability Factors 4. (7) Opportunity environment. What are the pitfalls in using environment scanning? Explain the factors related with environmental appraisal. 6.

11. Enumerate (b) Marketing the pitfalls of (c) Operations using the (d) Personnel SWOT analysis indiscriminately.Strategic Management (a) Finance 10. Explain these terms clearly in the context of environmental scanning: (a) Events Expectations (b) Trends (c) Issues (d)  [ 68 ] .

3.2 Process of strategic choice 5.2 Perception of CSFs and Distinctive competencies 5.2 Analysing the strategic Alternatives 5.3.3 Evaluating the strategic Alternatives 5. The manner in which organisations handle unforeseen environmental events through formulation of contingency strategies. An organisation has to look inwards. The concepts of gap analysis.Strategic Management UNIT-5 STRATEGIC ALTERNATIVE & CHOICE Strategic Alternative & Choice Learning Objectives After the end of this Unit the readers will be able to understand(1) (2) (3) (3) The process of strategic choice.1 Introduction 5.3. An [ 69 ] .4 Contingency strategies 5.7 Questions 5.4 Strategist's decision styles and attitude to risk 5. Naturally. things often happen that were not foreseen. a lot of analysis goes into making a strategic choice. outwards and sideways before taking a leap into the unknown.3.3. Choice is an in alienable part of the decisionmarking process.2.1 INTRODUCTION Organisations continually face the challenge of exercising choice among alternatives.3.3 Subjective factors in strategic choice 5.3 Commitment to past strategic actions 5.2.1 Focussing on strategic Alternatives 5. Unit Structure 5. Once on the course.1 Considerations for Governmental Policies 5. (5) Steps involved in the contingency planning process.2.6 Timing and competitor considerations 5. The subjective factors in strategic choice.5 Summary 5.5 Internal political considerations 5.4 Choosing from among the strategic Alternatives 5.6 Keywords 5.2.

but if only a few alternatives are considered. This unit will focus on the issues related to the different facets of strategic alternatives and choice. A [ 70 ] company sets objectives for a future period of time. On the other hand. a decision maker would. There are four steps in the process of strategic choice as enumerate below: (1) Focusing on strategic alternatives (2) Analysing the strategic alternatives (3) Evaluating the strategic alternatives (4) Choosing form among the strategic alternatives There four steps in the process of strategic choice are describe further. This is done through gap analysis. They act as guides to decision making and considerably simplify the process of selection. Such a situation frequently poses a dilemma before the decision maker. Focussing on alternatives could be done by visualising the future state and working backwards. For making a choice from certain criteria on which to accept or reject alternatives. generating alternatives.2 PROCESS OF STRATEGIC CHOICE The process of strategic choice is essentially a decision-making process. The decision involves focussing on a few alternatives. These criteria are the selection factors. Theoretically.Strategic Management organisation has to be prepared with contingency strategies for the anonymous possibilities. which otherwise would be a very difficult task. The decision-making process consists of setting objectives. it is possible to consider all the alternatives.2. choosing one or more alternatives that will help the organistion achieve its objectives in the best possible manner and finally. evaluating the alternatives against these criteria and making the actual choice. It is still difficult to tell what that 'reasonable' number would be. 5. in practice. Strategic choice could be defined as "the decision to select from among the grand strategies considered.1 Focusing on strategic alternatives The aim of focussing on a few strategic alternatives is to narrow down the choice to a manageable number of feasible strategies. the strategy which will best meet the enterprise's objectives. Considering too many alternatives would make the process unwieldy and unproductive. considering the selection factors. the decision maker has to focus on a reasonable number of alternatives. say three . 5. limit the choice to a few alternatives. implementing the chosen alternative.

stability strategies would seem to be a feasible alternative. combination strategies are likely. due to expected environmental opportunities. How wide or narrow the gap is. enable a decision [ 71 ] . the choice leads to a situation of dynamic competitive positioning where low-cost and differentiation are not discrete positions. expansion.1 Gap analysis for focussing on strategic alternatives At the business level.Strategic Management through five years and then works backward to find out where it Strategic Alternative & can reach through the present level of efforts. differential or focussed. If it is large due to past and expected bad performance. retrenchment and combination. If the gap is large. its importance and the possibility of it being reduced. influence the focus on alternatives.1. Focusing on alternatives at the business level could also be understood by reverting to the business definition. In a complex scenario where multiple reasons are responsible for the gap. retrenchment strategies may be more suitable. the strategic alternatives are four. Where the gap is narrow. Figure 5. Organisations need to understand the conditions in the industry and weigh carefully. but lie on a continuum. In practice. organisations need to think of alternative ways of competing. The choice is essentially between positioning the business as being low-cost. The true dimensions along which a business is defined (Customer groups.2. the risks and benefits of each competitive positioning before making a choice. Choice D e s ir e d p e r fo r m a n c e P e rfo rm a n c e g a p p e r fo r m a n c e P re s e n t p e rfo rm a n c e T 1 T 2 T im e Figure 5. expansion. By analysing the difference between the projected and desired performance. strategies are more likely. customer functions and alternative technologies). At the corporate level. a gap could be found. This can be seen in figure 5. stability. shows how gap analysis works.

collapsible tube) or different additives (e. generating a number of feasible alternatives. F o c u s e d d iffe r e n tia to r s D iff e r e n t ia t o r s F o c u s e d d iffe r e n ti a to r s D iffe r e n tia tio n ( h ig h e r c o s t s /h ig h e p r ic e s ) F o c u s e d c o s t le a d e r s C o s t le a d e r s F o c u s e d c o s t le a d e r s C o s t l e a d e r s h ip ( lo w e r c o s t s / lo w e r p r i c e s ) Figure 5.g.3 Possible business definition of an oral care company 5.2 Analysing the strategic Alternatives Narrowing down the strategic choice should lead to a few feasible [ 72 ] alternatives. For instance. even within the context of an industry or business.2.g. These alternatives have to be subjected to a thorough . a company catering to the cosmetic segment could cover the fluoride segment as well. clove oil orveem). Other alternatives could be to use alternative packaging (e. In this way.3 illustrates one way how this could be done for a company which is in the oral care business. C u s to m e r F u n c tio n s F o rm Foam F re sh n e s s F la v o u r D e n ta l/ O r a l h e a lt h C o s m e t ic segm ent A lt e r n a t iv e T e c h n o lo g ie s F l u o r id e segm ent C u s to m e r G ro u p s P a s te /p o w d e r D i f f e r e n t p a c k a g i n g m a t e r ia l D iff e r e n t b a s e m a t e r ia l D iff e r e n t f la v o u r in g m a te r ia l D if f e r e n t a d d i t iv e s Figure 5. several alternatives can be considered.2 Dynamic competitive positioning Figure 5. Using a business definition. a company could create alternatives by working forward from the present to the future position it wishes to be in.Strategic Management maker to think in a structured fashion and systematically move in one or more dimensions.

A blueprint has to be made that will describe the strategies and the conditions under which they would operate. Narrowing the choice leads to a few alternatives. Choice 5. analysing and evaluating them and chossing the best one. An example of a subjective factor is the perception of the company's top management regarding the prospects of the business in the next 23 years.2. strategic choice would simply be a rational. of making the strategic choice. normative or prescriptive factors. The selection factors can be broadly divided into two groups: the objective and subjective factors. There is no set procedure and strategists may use any approach which suits the circumstances. Besides the chosen strategies. Such an analysis has to rely on certain factors. systematic process of finding alternatives. [ 73 ] . An example of an objective for selection is the market share. Subjective factors. The alternatives that are generated in the first step have to be subjected to analysis on the basis of these selection factors. Evaluation of strategic alternatives basically involves bringing together the analysis done on the basis of the objective and subjective factors. The final step is. One or more strategies have to be chosen for implementation. lie at the heart of such an evaluation. They could also be termed as rational.2. Successive iterative steps of analysing the different alternatives on the basis of selection factors. 5.3 Evaluating the strategic Alternatives Selection factors are the criteria on the basis of which a final choice of strategy has to be made.3 SUBJECTIVE FACTORS IN STRATEGIC CHOICE It the world were utterly logical. some contingency strategies would also have to be devised. collective or descriptive factors.4 Choosing from among the strategic Alternatives The evaluation of strategic choice should lead to a clear assessment of which alternative is the most suitable under the existing conditions. expressed as percent of the total market share of a company's business in its industry. 5. therefore. Objective factors are based on analytical techniques and are hard facts or data used to facilitate a strategic choice. They determine the criteria on the basis of which the evaluation of strategic alternatives can take place.Strategic Management analysis. are based on one's personal judgement. on the other hand. These Strategic Alternative & factors are termed as selection factors. each of which has to be evaluated for its capability to help the organisation achieve its objectives.

3. How they are perceived by strategists make them important subjective factors in strategic choice. banking. retrenchment. government policies are the deciding factor. A shift in policies can have a significant impact on the future prospects of companies. railways or telecommunications that depend heavily on government regulations. strategists could be guided by the distinctive competencies that the organisation. pharmaceuticals. which the strategic alternatives would lead to. or liquidation types of corporate strategies can only be feasible if the governmental polices act as a major subjective factor in screening alternatives.3 Commitment to past strategy Actions [ 74 ] It is rare that an organisation completely breaks away from its past .Strategic Management It is widely accepted that strategic decision-making is a complex activity. This is especially true in the case of industries such as airlines. 5. in several cases. can lead the organisation to build its strategy around the CSFs. The industries. We identify six types of subjective factors that are discussed farther in this section(1) Considerations for governmental policies (2) Perception of critical success factors (CSFs) (3) Commitment to past strategic actions (4) Strategist's decision styles and attitude to risk (5) Internal political considerations (6) Timing and competitor considerations 5. Subjective factors are essentially intuitive and descriptive in nature. While considering several strategic alternatives. possesses and the CSFs that ensure success in an industry. If the distinctive competencies it has. How strategists actually make a choice among several alternative strategies has been a subject of considerable interests to researches in management in general and strategic management.3.2 Perception of CSFs and Distinctive Competences Critical success factors and distinctive competencies are important issues in environmental and organisational appraisal. Expansion. 5. in particular. No one set of factors can be sufficient for exercising a strategic choice. have their own CSFs.1 Considerations for Governmental Policies Strategists within organisations are aware of the crucial role that the government plays in setting down policies and priorities. Strategic alternatives considered by governmental polices.3. The important thing to focus on the extent of the match that exists between the competencies and the CSFs. power. then success is more likely. In fact.

5.. In this way. Strategic actions involve not only the formulation of particular strategies. They are neutral. Only under pressing circumstances and imminent threat from the environment does on organisation move. that politics and the use of power are not necessarily bad. given the same set of environmental factors and identical organisational factors.. however.e. while the other may out defensively and react to changes.' The main issue for CEO is to see [ 75 ] . It is of much interest to note that. and work up in the way that had been adopted by it to reach where it was.. There is another practical reason why past strategic actions affect strategic choice.. The crucial variable responsible for the difference between the two approaches is the decision style and attitude to risk of respective strategists.4 Strategist's decision styles and attitude to risk The decision style adopted by strategists. it is difficult to move to areas where existing resources and personnel become redundant. the strategic choice is more likely to be for those alternatives which arise out of past strategic actions. or is forced to move. 'Political behaviour in organisation is perfectly natural and legitimate.3. interest groups or cliques emerge which affect the strategic choice process and try to make the process work in their favour.3. This give rise to another subjective factor in strategic choice i. When strategy formulation is viewed as a political process.Strategic Management strategies and embarks upon a totally new course of action.. away from its existing position. One may act in an aggressive manner and adopt a proactive stance with regard to strategy formulation. Choice 5. Having made a serious commitment. two organisations may follow different strategic paths. strategists are viewed as a coalition of interests.5 Internal Political Consideration By 'Internal political considerations' is meant the strategist's interrelationship and power structure and balance... Therefore.. strategists are more likely to start from where the organisation is. Strategic Alternative & Experience shows that they move in an incremental fashion. A dominant CEO is able to affect strategic choice decisively where the CEO is perceived as weak. strategies tend to eliminate the strategic alternatives that lead the organisation too far away from their existing positions. decision styles and attitude to risk. Called upon the exercise a strategic choice. particularly by the chief executive officer (CEO) and their attitude to risk is a determining subjective factor in strategic choice. but also commitment in terms of resources and personnel. Politics and power are neither good nor bad. It should be noted. or invites participation.

some of which may result in more harm than can be dealt with by operational contingency . 5. the shift in assumptions is sudden. say of related diversification. leaving very little time for the strategists to reorient strategies. Internal political considerations are crucial for strategic choice as such a choice determines where the resources of organisations will be allocated. where changes could be sudden and leave little time for the strategists to readjust to the situation. The strategies may have to be shelved. then the strategy chosen becomes partly irrelevant.4 CONTINGENCY STRATEGIES Strategic choice is made on the basis of certain conditions assumptions and premises. When there is a change of conditions. regulatory or the international environment. are such changes can be anticipated well in advance. could be made when no other alternative is as attractive and the required strategic choice for instance.3. Most changes occur in the company's environment. such as the social environment. is for the short or long-run. shift in assumptions and the premises do not turn out to be wholly valid. Timing answers the following questions: • • • When to exercise a strategic choice? When a particular strategic choice is to be made? For what time period is a strategic choice to be made? A strategic choice has to be exercised when the strategists are sufficiently satisfied that all possible alternatives have been considered and the environmental analysis and diagnosis indicates that no other major feasible alternatives are likely to emerge in a near future. for instance. Often. stability strategy. organisations face the prospects of emergencies or disasters. the market. Then there are other types of environment.6 Timing and Competition Considerations The time element and competition consideration is another set of important subjective factors that influence strategic choice. Contingency strategies are formulated in advance to deal with uncertainties that are a natural part of the business. alter gradually.Strategic Management that they do not adversely affect the process of negotiations and support conditions that are necessary for the coalition of interests to work. A particular strategic choice. Certain components of the environment. 5. Apart [ 76 ] from environmental changes.

Strategic Management

measures. These may occur due to unfortunate circumstances, Strategic Alternative & often beyond the control of organisations. Factory fires, natural catastrophe like hurricanes, wars and civil disturbances, epidemics and crashing of IT systems are examples of such unexpected developments. Under these circumstances, contingency strategies could play a proactive role in dealing with emergencies and disasters. It is not as if only unfortunate circumstances can create the need for contingency strategies. Sometimes even unforeseen but fortuitous circumstances that prove to be lucky for organisations, can call for contingency strategies. The phenomenon of serendipity stumbling across good things unexpectedly sometimes, play a beneficial role in moving an organisation towards new and profitable directions. Examples of these may be an unexpected opportunity opening up for foreign collaboration, a sudden shift in government policy favouring the industry that the company operates in or a technological breakthrough having positive benefits for the company. The idea of contingencies is well accepted in accounting. Companies routinely keep aside contingency reserve funds for unforeseen expenses. Scenario planning too relies on developing alternatives scenarios based on pessimistic, most likely and optimistic assumptions. The pessimistic and optimistic assumptions are, in fact. Contingency that might occur in the future. There are a few approaches to help companies develop and implement contingency strategies. One such approach is based on model of contingency planning process. The model consists of three steps(1) Identifying the contingent events (2) Establishing the trigger points. (3) Developing strategies and tactics. Essentially, the requirements of the model are to list events that may occur in future that are critical to a company's strategy, formulation process. Trigger points in the form of indicator are established that signal the impending occurrence of these events, after such strategies or tactics are employed to deal with the changed situation. Contingency strategies have received a fair amount of attention from policy researchers as they are of immense value to strategists, who have to deal with a transient phenomenon like the business environment.

Choice

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5.5 SUMMARY
The strategic choice process is based on strategic decision-making, which is a highly complex activity. The process of strategic choice is divided into four steps of focussing on alternatives, considering the selection factors, evaluation of strategic alternatives and making the strategic choice. The subjective factors in strategic choice are six: consideration for government polices, strategist's perception related to CSFs and the firm's distinctive competencies, their commitment to past strategic actions, their decision styles and attitude to risk, internal political considerations and timing and competitor considerations. Contingency strategies are formulated to take into account unforeseen events occurring during the strategy implementation, owing to which, midcourse corrections might have to be made.

5.6 KEYWORDS
(1) Strategic choice : The decision to select from among the grand strategies considered, the strategy which will best meet the enterprise's objectives. (2) Gap analysis : Analysis of the differences between the projected and desired performance. (3) Stability strategies : Safety oriented status-quo type strategy without affecting any major change in its present operations. (4) Retrenchment strategies : Desirability of or necessity for reducing its product or service lines, markets, or functions and reduction of activities in units with negative cash flows. (5) Liquidation : A strategy that involves closing down the operations of a business and selling its assets and operations to pay its debts and distribute any gains to stockholders. (6) Long-term objective : The results that an organisation seeks to achieve over a multiyear period.

5.7 QUESTIONS
(1) Describe the manner in which the process of strategic choice works. (2) Differentiate between the objective and subjective strategy selection factors. (3) In what way timing and competition reaction be crutial for a strategic choice? (4) Exemplify how commitment to past strategies actions may
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restrict the strategic choice for a firm.

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(5) Why does the need for developing contingency strategies arise? Strategic Alternative &
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Choice

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2.4 Grand Strategic Plan 6. Keivetsus.1 Concentrated Growth 6.Strategic Management UNIT-6 GRAND STRATEGIC PLAN Learning Objectives After the end of the Unit the reader will be able understand – (1) (2) (3) (4) The concept of grand strategies 15 principal of grand strategies Grand strategy selection matrix Grand strategic plan Unit Structure 6. .6 Keywords 6.3 Product Development 6.2.2. play on important part through which companies set their strategies. Competition [ 80 ] is a pervasive term in the business world.2.2.10Divestiture 6.2 Market Development 6.2.12Bankruptcy 6.5 Horizontal Integration 6.2.2.9 Turnaround 6.2.14Strategic Alliances 6. and Chaebols 6.2 Grand Strategies 6.2.1 INTRODUCTION Business strategies often known as grand strategies.2.7 Concentric Diversification 6.13Joint Ventures 6.2.3 Grand Strategy selection matrix 6.2.2.7 Questions 6.8 Conglomerate Diversification 6.6 Vertical Integration 6.5 Summary 6.11Liquidation 6.15Consortia.1 Introduction 6.4 Innovation 6.2.

Joint Ventures 14. product lines. on customer groups – [ 81 ] . Grand Strategic Plane 6. Thus. advantages from using technology and living the best people available in the recruitment market. a grand strategy can be defined as a comprehensive approach that guides a firm’s major actions. Therefore. Grand strategies indicate the time period over where long-range objectives are to be achieved. this unit focus on the formulation of grand strategies. They are basis of coordinated and sustained effort directed towards achieving longterm business objectives. often called master or business strategies. 3. market space and customers attention and money. and Chaebols Any one of these strategies could serve as the basis achieving the major long-term objectives of a single firm. 5. Strategic Alliances 15. Concentrated growth Market Development Product Development Innovation Horizontal Integration Vertical Integration Concentric Diversification Conglomerate Diversification Turnaround 10. provide basic direction for strategic actions. 4. 2. corporation or companies operate through their business.2 GRAND STRATEGIES Grand strategies. Keiretsus. Consortia. The 15 principal of grand strategies are 1. Liquidation 12. 8. Just like a human being functions through his limbs. 6. Organization also compete for resources from the external environment. 7. Bankruptcy 13. But a firm involved with multiple industries. business. and to describe the various concepts and options of grand strategies which are available to the firms. 9. Divestiture 11. Strategies designed to make an organization competitive and stay that way through sustained competitive advantage is the subject matter of this unit.Strategic Management Organizations compete for market share.

phychographically or geographically defined markets. and it achieves a competitive edge by concentrating in the product market segment it knows best. sometimes called a market penetration on concentration strategy. A firm employing concentrated growth groups by building on its competencies. A major misconception of about the concentrated growth strategy is that the firm practicing it will settle for little or no growth.2 Market Development Market development commonly ranks second only to concentration as the least costly and least risky of the 15 grand strategies.Strategic Management as many firms are usually combines several grand strategies. 6.1 Concentrated Growth Concentrated growth is the strategy of the firm that directs it resources to the profitable growth of a single product. The product development strategy often is adopted either . For clarity. often with only cosmetic modification. This is certainly true for a firm that correctly utilizes the strategy. and more efficient use of its technology. Knowledge of buyer behaviour. allows firms to practice a form of concentrated growth by identifying new uses for existing products and new demographically. Frequently changes in media selection in. with a single dominant technology. A firm employing this strategy is aiming for the growth that results from increased productivity. and effectiveness of promotion are characteristics of a concentrated growth strategy. customer price sensitivity.2. The main rationale for this approach. in a single market. better coverage of its actual production market segment. 6.2. The ability to assess market needs. each of the principal grand strategies is described independently in this section 6. promotional appeals.3 Product Development Product development involves the substantial modification of existing products or the creation of new but related products that can be marketed to current customers through established [ 82 ] channels. and distribution are used to initiate this approach. however. Market development.2. is that the firm thoroughly develops and exploits its expertise in delimited competitive arena. to customers in related market areas by adding channels of distribution or by changing the content of advertising or promotion. It consists of marketing present products. Concentrated growth strategies lead to enhance performance.

Thus. this strategy differs from the product development strategy of extending an existing products life cycle. The acquiring firm is able to greatly expand its operations. They seek to reap the initially high profits associated with customer acceptance of a new or greatly improved product. If the shirt manufacture had merged with a clothing store. To illustrate.Strategic Management to prolong the life cycle of current products on to take advantage of a favorite reputation or brand name. since the acquired firm operates at an earlier stage of the production – marketing process. 6.2. The underlying rationale of the grand strategy of innovation is to create a new product life cycle and thereby make similar existing products obsolete.6 Vertical Integration – When a firm’s grand strategy is to acquire firms that supply it with inputs on are customers for its outputs. they search for other original or novel ideas. if a shirt manufacture acquires a textile producer – by purchasing its common stock. some firms fit it profitable to make innovation their grand strategies. As a result. it would have been forward vertical integration – the acquisition of a firm nearer to the ultimate consumer.5 Horizontal Integration When a firm’s long term strategy is based on growth through the acquisition of one or more similar firms operating at the same stage of the production marketing chain. Grand Strategic Plane 6. The principal attractions of a horizontal integration grand strategy are readily apparent. In addition. Then. and increasing the efficiency of capital use. Such acquisitions eliminate competitors and provide the acquiring firm with access to new market.2. Both consumer and industrial market have come to expect periodic changes and improvements in the product offered.2. thereby achieving greater market share. improving economics of scale. these benefits are achieved with only moderately [ 83 ] . Figure 6. The idea is to attract satisfied customers to new products as a result of their positive experience with the firm’s initial offering. 6.1 depicts both horizontal and vertical integration. its grand strategy is called horizontal integration. or exchanging ownership interests – the strategy is vertical integration. vertical integration is involved. rather than face stiffening competition as the basis of profitability shift from innovation to production or marketing competence. In this case. it has become increasingly risky not to innovation. it is backward vertical integration. buying its assets.4 Innovation In many industries.

whose acquisition results in synergies but not complete interdependence. since the success of the expression is principally dependent on proven abilities – Textile producer Textile producer Shirt manufacturer Shirt manufacturer Clothing store Clothing store Acquisitions or mergers of suppliers or customer businesses are vertical integrations. the risks result from the firm’s expansion into areas requiring strategic managers to broaden the base of their competencies and to assume additional responsibilities. 6. 6. Acquisitions or mergers of competing business are horizontal integrations. The ideal concentric diversification. technologies.Strategic Management increased risk. 6. particularly a very large one plans to acquire a business because it represents the most promising investment opportunity available. Thus. For vertically integrated firms.7 Concentric Diversification Concentric diversification involves the acquisition of business that are related to the acquiring firms in terms of technology. occurs when the combined company profits increase the strengths and opportunities and decrease the weaknesses and exposure to risk. distribution channels. the acquiring firm searches for new businesses whose products. markets or products. markets. and often the . For horizontally integrated firms. This grand strategy is commonly known as [ 84 ] conglomerate diversification.1 Vertical and Horizontal Integrations Some increased risk are associated with both types of integration.8 Conglomerate Diversification Occasionally a firm.2. Fig. With this grand strategies the selected new businesses possess a high degree of compatibility with the firm’s current business.2. the risks stem from increased commitment to one type of business. and resource requirements are similar to but not identical with its own. The principle concern.

9 Turnaround For any one of the large number of reasons. of the acquiring firm is the profit pattern of the venture. Unlike concentric diversification. its financial health is threatened. inefficiencies'. a firm can find itself with declining profits. This grand strategy is known as Fig.2 : A model of the Turnaround Process A turnaround situation represents the absolute and relative to industry declining performance of a sufficient magnitude to wavent [ 85 ] . whereas conglomerate diversification is based principally on profit considerations. products. The principal difference between the two types of diversification is that concentric diversification emphasizes some commonality in markets. Unchecked decline places the firm in a turnaround process. Grand Strategic Plane 6. breakthroughs by competitors. 6. production Among these reasons and are economic innovatives recessions. the model begins with a depiction of external and internal factors as causes of a firm's performance downturn. In many cases' strategic managers believe that such a firm can survive and eventually recover if a concreted effort is made over a period a few years to fortify its distinctive turnaround. The model of the turnaround process is shown in figure 6.2.2. on technology. When these factors continue to determinately impact the firm. competencies. conglomerate diversification gives little concern to creating product market synergy with existing business.Strategic Management role concern.

Stability may be achieved through cost retrenchment alone. Turnaround responses among successful firms typically include two stages of strategic activities: retrenchment and the recovery phase. When turnaround situation severity is high. A second reason is corporate financial needs. Turnaround situations may be the result of years of gradual slowdown on months of sharp decline. they often arise because of partial mismatches between the acquired firm and the parent cooperation. For firms facing declining financial performance.10 Divestiture A divestiture strategy involves the sale of the firm or a major component of a firm.Strategic Management explicit turnaround actions. turnaround has been most frequently achieved through efficiency strategies. must be supun off. Some of the mismatched parts cannot be integrated into the corporation's main stream activities and thus. a firm must immediately stabilize the decline or bankruptcy is imminent cost reductions must be supplemented with more drastic asset reduction measures. For firms that declined primarily as a result of external problems. the recovery response. A third reason for divestiture is government antitrust action when a [ 86 ] firm is believed to monopolize or unfairly dominate a particular . the recovery. a firm has some financial cushion. 6. phase of the turnaround process is likely to be more successful in accomplishing turnaround when it is preceded by planned retrenchment that results in the achievement of nearterm financial stafilization. Assets targeted for divestiture are those determined to be underproductive. Recovery is achieved when economic measures indicate that the firm has gained its predounturn levels of performance. When severity is low. Severity is the governing factor in estimating the speed with which the retrenchment response will be formulated and activated.2. The immediacy of the resulting threat to company survival posed by the turnaround situation is known as situation severity. For firms that decline primarily as a result of internal problems. the key to successful turnaround rests in the effective and efficient management of the retrenchment process. Retrenchment consists of cost cutting and asset reducing activities. In either case. The primary causes of the turnaround situations have been associated with the second phase of the turnaround process. The reasons of divesture vary. turnaround most often has been achieved through creative new entrepreneurial strategies.

company and personal bankrupcy commonly to hand in hand. to themselves and their employees.2. the owners and strategic managers of a firm are admitting failure and recognize that this action is likely to result in great hard ships. Investor lose their money. Keiretsus.15 Consortia. such consortia are known as keiretsus in Japan and chaebols in south Korea. In selecting liquidation. and chaebols Consortia are defined as interlocking relationship between business of an industry. 6. 6. Grand Strategic Plane 6.13 Joint Ventures Occasionally two or more capable firm lack a necessary component for success in a particular competitive environment. For these reasons.Strategic Management market.11 Bankruptcy When the company is unable to pay its debts. 6. the grand strategy is known as bankruptcy.2. In owner managed firms. In this the company closes its door. no single petroleum firm controlled sufficient resources to construct the Alaskan pipeline. liquidation usually is seen as the least attractive of the grand strategies. strategic alliances one partnerships that exist for a defined period during which partners contribute their skills and expertise to a cooperative project.11 Liquidation When liquidation is the grand strategy. For example. employees loose their jobs.2. the firm typically is sold in parts. as they become due or has more debt than assets. 6.2. 6.3 GRAND STRATEGY SELECTION MATRIX One valuable guide to the selection of a promising grand strategy is [ 87 ] . only accasionally as a whole but for its tangible assets value and not as a going concern.14 Strategic Alliances Strategic alliances are distinguished form joint ventures because the companies involved do not take an equity position in one another. which are commercial companies created and operated for the benefit of the co-owners. In many instances. and managers lose their credibility. The solution was a set of joint ventures. Those co-operative arrangements provide both the funds needed to build the pipeline and the processing and marketing capacities needed to profitably hand the flow of petroleum.2.

A firm in quadrant I. more experts agree that strategy selection is better guided by the conditions of the planning period and by the company strengths and weaknesses. The basic idea underlying the matrix is that two variables are of central concern in the selection process : 1. Now. The principal purpose of the grand strategy The choice of an internal or external emphasis for growth or profitability. with "all its eggs in one basket". planners were advised to follow certain rules or prescriptions' in their choice of strategies. It should be noted. that even the early approaches to strategy selection sought to match concern over internal versus external growth with a desire to overcome weaknesses or maximize strengths.3 : Grand Strategy Selection Matrix In the past. with which provides a profitable alternative diversity . One reasonable solution is vertical integration. however. 2. The same consideration led to the developer of the grand strategy selection matrix. Fig.3. 6. Often views itself as over committed to a particular business with limited growth opportunities or high risks. [ 88 ] Another is conglomereate investment diversification.Strategic Management grand strategy selection matrix shown in figure 6. which enables the firm to reduce risk by reducing uncertainty about inputs or access to customers.

Two alternative approaches are market development and product development. It strives to solidity its position by reinvesting resources to fortify its strengths. Strategic Grand Strategic Plane management considering these approach must grand against exchanging one set of weaknesses for another. The preferred option in such cases are shown in Quadrant IV. When the firm's strengths are in creative products design on unique production technologies. The final alternative for increasing resource capability through external emphasis is a joint venture on strategic alliance. the firm attempts to broaden its operation.Strategic Management management attention from the original business. If the weaknesses of the business arose from inefficiencies. Market development is chosen if the firms strategic managers feel that its existing products would be well received by new customer groups. that is. strategy. retrenchment can actually save as turnaround 6. Concentric diversification is a good second choice for similar reasons. In quadrant III. sales can be stimulated by accelerating perceived obsolescence. this is the principle underlying the innovative grand strategy. is a document which provides information regarding the different elements of strategic management and the [ 89 ] . Divestiture offers the best possibility for recouping the firm's divestment. This alternative allows a firm to extend its strengths into competitive arenas that it would be hesitant to enter alone. Horizontal integration is attractive because it makes possible a quick increase in output capability.4 GROUND STRATEGIC PLAN A grand strategic plan. but even liquidation can be an attractive option if the alternatives are bankruptcy or an unwanted drain on the firm's resources. The final alternative for quadrant III is innovation. the most common approach is concentrated growth. Most conservative approaches to overcoming weaknesses are found in quadrant II. pruning the current activities of a business. The least disruptive of the quadrant II strategies is retrenchment. The firm that selects this strategy is strongly committed to its current products and markets. With these strategies. Maximizing a firm's strengths by aggressively expanding its base of operations usually requires an external emphasis. market penetration. Products development is chosen if they feel that the firm existing customers would be interested in products related to its current lines.

5 SUMMARY Grand strategies were defined as comprehensive approaches guiding the major actions designed to achieve long term objectives. goals and objectives. strategic diversification. a grand strategic plan document could run into several pages and be treated as a formal report. Measures to be used to evaluate performance and asses the success of strategy implementation. innovation. integration.. Twelve grand strategies were [ 90 ] identified that will help managers in choosing which grand strategy . Results of internal appraisal. a strategic plan document has to be communicated down the line to . 3. who will be responsible for its implementation. product development.Strategic Management manner in which an organization and its strategist purpose to put the strategies into action. joint ventures. Strategic budget for the purpose of resource allocation for implementing strategies and the schedule for implementation. mission. A comprehensive grand strategic plant document should contain the following information : 1. 7. A clear statement of strategic intent covering the vision.. 6. that when approved and accepted. Managers in single or dominant product/service business face problems of choosing an appropriate grand strategies that make best use of competitive advantage. market development. integration. 5. 2. 8. Fifteen grand strategy options were discussed : concentrated growth. level managers. horizontal divestiture. vertical bankruptcy. major opportunities and threats. Much would depend upon the nature and size of the company of and the the management plan policies document. regarding It must the be preparation strategic remembered. Results of environmental appraisal. conglomerate diversification. major strengths and weaknesses Strategies chosen and the assumption under which those strategies would be relevant. Typically. Structural and functional implementation. Contingent strategies to be used under different conditions. 4. alliances and consortia. however. business definition. concentric turnaround. liquidation. 6. Another possibility is that a brief document of 3-5 pages could briefly cover the points mentioned above.

Grand strategy : A comprehensive general firm's major actions. 6.  [ 91 ] . 4. Explain the concept of grand strategies Explain the 15 principals of grand strategies Describe the grand.Strategic Management would work best through grand strategy matrix. or has more debts than assets. 2. Joint venture : A grand strategy in which the companies create a co. Turnaround : A grand strategy of cost reduction and asset reduction by a company to survive and recover from declining profits.6 KEYWORDS 1. Grand Strategic Plane 6. Liquidation : A grand strategy that involved the sale of the assets of the business for their salvage value. strategic selection matrix. 5.owned business that operates for there mutual benefits.7 QUESTIONS 1 2. Bankruptcy : when a company is unable to pay its debts as they become due. Innovation : A grand strategy that seeks to reap the premium margins associated with creation and customer acceptance of a new product or service. Propose the outlines of strategic plan for a medium sized company. The grand strategic plan is a document which provides information regarding the different elements of strategic management and the manner in which an organization and its strategists propose to put strategies into action. 3. 6. 4. 3.

Need of structural implementation.1 Introduction 7.9 Types of organisational structures 7.8.1 What is structure 7.9. the readers will be able to understand(1) (2) (3) (4) (5) (6) (7) (8) (9) Characteristics of strategy implementation.7. (11) The relevance of vertical and horizontal fits to functional strategies.4 The role of stegists in strategy implementation 7. need and development of functional plans and policies. Organisation structure implementation.8.1 Entrepreneurial structure [ 92 ] from the view point of strategy 7.7 A model of strategy implementation 7. (12) The nature. Linkage between strategy formulation and strategy implementation.2 Structure and strategy 7.Strategic Management UNIT-7 STRATEGIC IMPLEMENTATIONSTRUCTURAL AND FUNCTIONAL IMPLEMENTATION Learning Objectives After the end of this Unit.2 Nature of strategy implementation 7. (10) Different types of structure used for strategy implementation.1 Major themes in strategy implementation 7. Barriers to strategic implementation.5 Barriers to strategy implementation 7. Model of strategy implementation.2 Functional structure .6 Interrelationship of formulation and implementation 7.9. Strategists role in strategy implementation. Unit Structure 7.3 Mckinsey 7-S framework 7.8 Structural implementation 7. Ways to overcome the barriers of strategic implementation. Mckinsey 7-S framework.

Although implementation considerations usually follow strategy formulation. A good strategy without effective implementation is not likely to succeed. As we discuss the different aspects of strategy implementation. budgets.e.10. Implementation is necessary to spell out more precisely how the strategic choice will come to be. The strategic plan devised by the organisation proposes the manner in which the strategies could be put into action. All the efforts of strategy formulation bear fruit in this phase. management. implementation is a key part of strategic coin.4 SBU structure 7. Strategic.3 Divisional structure 7.5 Matrix structure 7. They are.6 Network structure 7. Strategy formulation and strategy implementation should thus be considered as two sides of the same 7.2Functional plans and policies 7.Strategic Management 7.12 Keywords 7. structural and functional implementations.9. Strategic implementation involves the activities required for the execution of a strategic plan. we move to the next phase of strategic management.13 Questions Strategic ImplementationStructural & Functional Implementation 7.10.9. Strategic implementation is the 'proof of the pudding in the eating' phase. Implementation tasks are mean to realise the intent.1Functional strategies 7. our focus will be mainly on two aspects of implementation i. Strategies by themselves. in a sense.9. do not lead to action. In this process. Structural and administrative mechanisms which are compatible and workable need to be established to reinforce the chosen strategic direction and to provide guides for action. [ 93 ] .1 INTRODUCTION With this unit.10 Functional Implementation 7.11 Summary 7. and procedures.2 NATURE OF STRATEGY IMPLEMENTATION Strategy implementation concerns the managerial exercise of putting a freshly chosen strategy into place. strategies and policies are put into action through the development of programs. a statement of intent.9.

Strategy implementation renders the intellectual content of strategy formulation into the operational process of practice. strategy implementation has to act in a holistic manner. They are interrelated and therefore. a wide range of knowledge. Each task or activity performed is related to another. have to be activated through implementation. • Demanded varied kills Since strategy implementation involves a wide range of activities. • Integrated Process The various tasks in strategy implementation are not stand alone activities. This means that the strategic plan has to be properly communicated to and understood by the middle level managers before they can play an effective role in strategy implementation. [ 94 ] . which is primarily a top management responsibility. skills. • Comprehensive in scope The different aspects involved in strategy implementation cover practically everything that is included in the discipline of management studies. strategy implementation necessitates the involvement of middle level managers. attitudes and abilities.Strategic Management therefore. creating an interconnected network. a strategist has to bring to his on her task. The characteristics of strategy implementation listed below. • Wide ranging involvement As opposed to strategy formulation. the hub of which has to be the strategic plan. • Action Orientation The essential nature of strategy implementation is that is entails action. Strategy implementation involves putting the formulated strategies into action through the management process. save to highlight the essential nature of strategy implementation.

Strategic Management 7. 5. Shared values (or super – ordinate goals)– The values beyond. capital budgeting system manufacturing processes. 7. 7. To fit the concept these values must be shared by most people in an organization. Here it is very useful to think not about individual personalities but about corporate demographics. 6. implementation takes place in a cascade fashion through the basic structural hierarchy of [ 95 ] . quality control systems – all would be good examples). Structure : The organization chart and accompanying baggage that show who reports to whom and how tasks are both divided up and integrated. 3. improving position visà-vis customers or allocating resources. 4. Style : Tangible evidence of what management considers important by the manner it collectively spends time and attention and uses symbolic behaviour. Strategy : A coherent set of actions aimed at gaining a sustainable advantage over competition. Skills are those capabilities that are possessed by an organization as a whole as opposed to the people in it.4 THE ROLE OF STRATEGISTS IN STRATEGY IMPLEMENTATION Once basic decisions are made.1 Mckinsey 7-S framework The Mckinsey framework suggests that the following components must fit together to make a strategy work effectively: 1.3 MCKINSEY 7-S FRAMEWORK S tr u ctu re S tr a te g y Strategic ImplementationStructural & Functional Implementation S y stem s S h ared V a lu e s S t y le S k ills S ta ff Figure 7. of course. Skills : A derivative of rest. 2. Systems : The processes and flows that show how an organization gets things done form day-to-day (information systems. Staff : The people in an organization. but might well include simple goal statements in determining corporate destiny.

but for the reason that they were not implementation effectively. we often come across statements like ‘its’ much more difficult to implement a strategy than to formulate it’ or ‘a good enough strategy. consultants may be lined to help out. Table 7. the strategy implementer’s best judgment and implementer’s ability to us a particular change techniques. All managers become strategic implementers in their areas of authority and responsibility. At that point. . tasks are assigned inform to the of organizations. major policy decisions are made by the top manager.Strategic Management the organization. based on individual company situations and circumstance. implementation awfully’. For instance. They are expected to communicate the case for organizational change clearly and persuasively to organization members and enthusiasm to turn the implementation process a company crusade. Strategies require a customer approach to strategy implementation. Active support and co-operation of middle and lower level managers is necessary to push strategic changes into functional areas and operating units to carry out the strategy effectively.1 : The role of strategists in Strategy Implementation Strategists Resource allocation and Setting policies and organizing administrative systems Decide Decide for their units Advise and help manage the planning system major Rarely involved hired to Often hired to advise Corporate top managers Decide SBU top managers Corporate planners Board of directors Consultants Decide for their units Advise Approves changes Occasionally advise 7. If there is a small corporate planning staff or no corporate planning staff. their budgets are Any provided personnel and or communications through the administrative system are designed to people responsibilities. organization changes which might be needed must also be made. The SBUs then choose their specific strategies and implement them into their departments. Strategies often fail not because they were not formulated well. It is indeed true that doing is move difficult than thinking about doing. Research studies report that strategists often find that strategy [ 96 ] implementation is much move difficult than strategy formulations.5 BARRIERS TO STRATEGY IMPLEMENTATION In strategy literature. These executives may ask the corporate planning staff to work out detailed policy changes in conjunction with affected line executives.

there is much left to be desired. overarching issues that impede strategy implementation. formulation and being interdependent yet being done by two different group of managers. • Effective Management of Change in Complex Situations [ 97 ] Implementation almost always creates the need to manage change . of the implementation process. What is required is a clear model of strategic implementation process that can provide unambiguous guidelines to the managers implementing the strategy. in the light of the short coming we noted above. implementation moves in fits and starts. the top managers are reluctant to soil their hands in the dirty task of implementation. At the same time. so that there is a high level of understanding about how the process has to proceed. there needs to be a comprehension of how the various elements on themes are interconnected. Strategic ImplementationStructural & Functional Implementation Although there could be several ways to improve upon the implementation process. the effectiveness of the implementation efforts. Among them is the fact that managers are often trained to plan and not to execute strategies. The uneven progress of the process does not do much good for. Hrebiniak points same general. and implementation involving many more people within an organization than does formulation. putting pressures on managers to show results. Such a model should lay down the elements or at least the major themes. typically’ implementation taking longer than formulation. the means to overcome the barriers to strategy implementation usually revolve around the following two main suggestions: • Adopting a clear model of strategy implementation Often implementation activities take place according to the abilities and initiatives of the managers involved in them. Hrebiniak’s own empirical finding listed the following major obstacles: • • • • • • An inability to manage change Poor or vague strategy Not having guidelines or a model to guide implementation efforts Poor or inadequate information sharing Unclean responsibility and accountability Working against the organizational power structure.Strategic Management Strategists have developed skills to formulation strategies well but when it comes to implementation. Even through it being a process.

strategic alternatives. starting with the various constituents of strategic indent through environmental and organizational appraisal. For instance. strategic analysis and choice to the strategic plan. multifaceted and messy in nature. creating conditions for a suboptimal implementation of strategies. Two types of linkages exist between these two phases of strategic management as shown in figure 7.2 : Two-way linkage between formulation and implementation of strategy Forward Linkages The different elements in strategy formulation. many change have to be effected within the organization. Clearly. leadership style changes required to implement different kinds of strategies or the cultural changes to be brought about to facilitate new strategy implementation are intricate matters that call for careful handling.2. the strategies [ 98 ] formulated provide the direction for implementation. determine the course that on organization adopts for itself.Strategic Management in complex organizational context. while the backward linkages are concerned with the impact in the opposite direction.6 INTERRELATIONSHIP OF FORMULATION AND IMPLEMENTATION In real life. 7. managers often fail to manage these complex organizational issues satisfactorily. the formulation and implementation processes are intertwined. shown in a bigger sized arrow as compared to the backward linkage. For instance. No wonder. . 7. The forward linkage is stronger and is therefore. or reformulation leading to modified strategies. Many of these areas of change are behavioural in nature and are therefore. A whole lot of the changes have to be undertaken in operationalising the formulated strategies. the organizational structure has to undergo a change in the light of the requirement of the modified or new strategy. The forward linkages deal with the impact of the formulations on implementation. In this way. With the formulation of new strategies. The style of leadership has to be adapted to the formulation of strategies. S tr a te g y F o r m u la tio n (T h o u g h t) S tra te g y Im p le m e n ta tio n (A c tio n ) Fig.

3 presents a model of strategy implementation that attempts to capture the major themes in strategy implementation and the activities that make up each theme. Such incremental changes. formulation is a managerial task requiring analysis and thinking. [ 99 ] . which can be implemented with the help of the present structure of resource.making. combined with same additional efforts. Organizations tend to adopt strategies. Backward Linkages Just as implementation is determined by the formulation of strategies. the formulation process is also affected by factors related with implementation. Looked at from another angle. 7. take the organization from where it is to where it whishes to be.Strategic Management the formulation of strategies has forward linkages with their implementation. over a period of time. It is to be noted that while strategy formulation is primarily an entrepreneurial activity. based on strategic as well as operational decision.making. the implementation of strategy is mainly an administrative task. the nature of which keeps changing according to the emerging circumstances. while implementation primarily rests an action and doing.7 A MODEL OF STRATEGY IMPLEMENTATION Figure 7. Formulation and implementation of strategies operate in an interactive manner where both feed up on each other in a two way relationship. The forward linkage from strategic plan guide the implementation process and connects it to the preceding phase of strategy formulation. formulation The and forward and backward creates linkages a between inter implementation dynamic Strategic ImplementationStructural & Functional Implementation connection. based on strategic decision . The feedback flowing in reverse from the following step of strategy evaluation and control moves through the implementation phase and goes back to strategy formulation establishing the backward linkage.

3 : A model of strategy implementation 7. Managing change – The next theme is the core of strategy implementation and deals with managing change in complex situations. procedural implementation 7. along with the depiction of the relationship that exists between the various position. leadership implementation and behavioural implementation. This theme will cover two sets activities of functional and operational implementation. 7. Achieving effectiveness – The last theme in strategy implementation is the outcome of the process. 2.Strategic Management A c ti v a t in g S tra te g ie s P ro je c t I m p le m e n ta tio n M a n a g in g C hange A c h ie v in g E ffe c tiv e n e s s S tru c tu ra l I m p le m e n ta tio n L e a d e r s h ip I m p le m e n ta tio n B e h a v io u ra l I m p le m e n ta tio n F u n c tio n a l I m p le m e n ta tio n E v a lu a tio n & C o n tro l O p e r a tio n a l I m p le m e n ta tio n S tra te g ic P la n P ro c e d u ra l I m p le m e n ta tio n R eso u rc e A llo c a t io n Feed B ack Fig. To a strategist an organization structure is not only a chart but much more. The3se are and project resource implementation.8 STRUCTURAL IMPLEMENTATION We usually conceive of an organization structure as a chart consisting of boxes in which the name of positions or designations of personnel are written in a hierarchical order.1 Major themes in Strategy Implementation The model of strategy implementation depits three major themes: 1. 3.7. [ 100 ] . We have identified three sets of activities under this theme that should enable us the cover most of the major implementation tasks: structural implementation. for Indian organization. We have identified three sets of activities under this theme and we believe to be relevant allocation. Activating strategies – The theme of activating strategies serves to prepare the ground for managerial tasks and activities of strategy implementation.

The first two components constitute the structural framework.1 What is Structure? From a strategy implementation standpoint an structure is the arrangement of tasks and subtasks required to Strategic Implementationorganization Structural & Functional Implementation implement a strategy.4 shows these structures - [ 101 ] . that support the structure.8. 2. which is the vertical structure created through the process of differentiation that involves cross functional information systems and teamwork. 3. such as controls.Strategic Management 7. making it work. coordination and integration of efforts across departments. An organization structure specifies three key components that are enumerated below: 1. but a chart shows only the 'skeleton'. including the number of levels in the hierarchy and the span of control of managers. It specifies the grouping of individuals into department and of departments into the total organization. The diagrammatical representation structure could be an organization Chart. redesigning when required and implementing changes that will keep the structure relevant to the need of the strategists that have to be implemented. But a strategist has to grapple with the complexities of creating the structure. It consists of design of systems to ensure effective communication. It identifies the formal reporting relationships. The 'flesh and blood' that makes an organization alive is the several administrative mechanisms. All these cannot be depicted on a chart. Figure 7.

4 : Vertical and horizontal structures The vertical structure is designed primarily for exceeding control by superiors over subordinates. the vertical structure will have these characteristics: • • • • • • Specialized tasks Hierarchy of authority Rules and regulations Vertical communication and formal reporting system Centralized decision making Emphasis on efficiency The horizontal structure will have these characteristics: • • • • • Shared tasks Flexible authority Horizontal communication and sharing of information Decentralized decision making Emphasis on learning 7.2 Structure and Strategy [ 102 ] The prescription for consciously matching the organization . 7. The horizontal structure is designed for coordination and collaboration of work among peers in the organization. work in the organization.Strategic Management V e r t ic a l s tr u c tu r e d o m in a n t : S p e c ia lis e d ta s k s H ie r a rc h y o f a u th o r ity R u le s a n d r e g u la tio n s V e r tic a l c o m m u n ic a tio n a n d f o r m a l r e p o r tin g sy ste m C e n tr a lis e d d e c is io n m a k in g E m p h a sis o n e ffic ie n c y H o r iz o n t a l s t r u c t u r e d o m in a n t : S h a re d ta sk s F le x ib le a u th o r ity F e w ru le s a n d re g u la tio n s H o r iz o n ta l c o m m u n ic a tio n a n d s h a rin g o f in fo r m a tio n D e c e n tr a liz e d d e c is io n m a k in g E m p h a s is o n le a r n in g Fig.8. Typically.

managers notice mismatches that occur owing to a variety of reasons. who proposed the idea that Structural & Functional structure follows strategy. As they are implemented. present a two way relationship of structure and strategy. affect the strategic choice.5 : Interrelationship of structure and strategy Figure 7. This cyclical process goes on as new strategies are [ 103 ] . It does this by providing the necessary infrastructure and administrative mechanisms that enable implementation of the chosen strategy. It is the process of matching the structure of an organization with its chosen strategy. As a consequence of these mismatches. performance improve. Figure 7. form structure to strategy. This means that strategy determines the structure in a major way.5. For instance. When the structure is changed appropriately so as to resolve the problems. The structure once established might support or preclude the selection of some types of strategies and thereby. Implementation D e te r m in e STRATEG Y STRATEG Y A ffe c ts Fig. leading to a reduction in effectiveness. supports operational flexibility to improvise and revamp as implementation moves on and facilitates the choice of future strategies. but to a lesser extent.Strategic Management structure to the particular needs and requirements of strategy has Strategic Implementationrisen out of research done by chandler. then new or modified strategies are put in place. conflicts may arise. the administrative mechanisms in the organization may not be relevant to the strategies being implemented on interdepartmental.6 shows why structure implementation is needed. When an organization implements a new or revised strategic plan. the performance declines. Note the emphasis is on the forward relationship. Ideally. The structure conversely impacts the strategy. The two way relationship between strategy and structure helps us to understand what structural implementation is. the structure of an organization should be such that it enables a smooth implementation of the chosen strategies. The implementation of these strategies starts taking place. leading to better effectiveness. 7.

E n v ir o n m e n t S tr a te g y S tr u c tu r e E f fe c t iv e n e s s Fig.Strategic Management implemented. would be required to respond to complex and uncertain environmental conditions outsides. This could be understood by the fact that greater is the environmental complexity and uncertainly the higher may be the intricacy and elaborateness of the organization structure. structure. which then determines the structure. He says that managerial choice occurs at the interface of environment and strategy. since a more elaborate and intricate organizational arrangement within.7 : Environment. The relationship between strategy and structure is spanned by environment in one direction and effectiveness in the other. 7. 7. strategy.7. S tr a te g ic p la n is im p le m e n te d New s tr a te g ie s p u t in p la c e im p le m e n ta t io n of new s tr a te g ie s M is m a tc h e s occur P e r fo r m a n c e im p r o v e s S tr u c tu r e is c h a n g e d E ffe c t iv e n e s s is r e d u c e d P e r fo r m a n c e d e c lin e s Fig. as we can see in figure 7. and effectiveness [ 104 ] Structure implementation is more concerned with the match that . This is understandable. the theory of organization structure was extended by child to include environment and effectiveness in the sequences to pinpoint the nature of choice that strategists make.6 : Why is structural implementation needed? Further to the 'structure follows strategy' prescription by chandler.

Typically.1 Entrepreneurial Structure The entrepreneurial structure. product. [ 105 ] . Here some major types of structures are described.9. with special emphasis on there appropriateness for the different types of strategies. a small proprietary concern on a mini-service outlet may exhibit the characteristics organizations which are based on an entrepreneurial structure.Strategic Management should exist between strategy and structure. But here again.8. theory offers alternatives. What shape the structure should take if a particular strategy to be implemented successfully is difficult to answer. these organization are single business. In other words. operational matters or of a strategies nature. a Strategic Implementationparticular strategy creates special requirements that should be Structural & Functional fulfilled by the structure if it does not. 7. then the structure will have Implementation to be redesigned.9 TYPES OF ORGANIZATION STRUCTURE There are several types of structures that are found in organizations. 7. whether they are day-to-day. or service firms that serve local markets. One such alternative is to link structure to the stage of development that an organization exists in at a given point of time. 7.8 : Entrepreneurial Structure The advantages that the entrepreneurial structure offers are • • • Quick decision making. shown in figure 7. Owner-Manager Employees Fig. A small scale industrial unit. as power is centralized. is the most elementary form of structure and is appropriate for an organization that is owned by one person. Timely response to environmental changes Informal and simple organization systems The disadvantage of entrepreneurial structure • Excessive reliance on owner -manager and so proves to be demanding for the owner manager. The owner managers looks often all decision.

Leads to function and line staffs conflicts. 7.Strategic Management • • May divert attention of owner manager to day-to day operational matters and ignore strategic decisions. often at the cost of the overall benefit of the organization. The functional structure seeks to distribute decision making and operational authority along functional lines. Creates specialists which results in narrow specialization.9. Increasingly inadequate for future requirements if volume of business expands.9 : Functional Structure The advantages that a functional structure offers are: • • • Efficient distribution of work through specialization. 7. A typical functional structure is shown in figure 7.2 Functional Structure As the volume of business expands. Delegation of day-to-day operational functions Providing time for the top management to focus on strategic decision. The need arises for specialized skills and delegation of authority to managers who can look after the different functional areas. The disadvantages of a functional structure are: • • • Creates difficulty in coordination among different functional areas. the entrepreneurial structure may outlive its usefulness.3 Divisional Structure [ 106 ] The structural needs of expansion and growth are satisfied by the . 7.9.9. C h ie f E x e c u tiv e O ff ic e r P u b li c R e la t i o n s Legal F in a n c e M a r k e tin g H u m a n R e s o u rc e M anagem ent P r o d u c t io n Fig.

Basically. Some form of divisional structure is necessary to deal with such situations. [ 107 ] . and then. particularly if the business and corporate objectives are ill-defined. market segmentation and Implementation diversification make the functional structure inadequate. separate divisions or groups operate.10. • Generates quick response to environmental changes affecting the business of different division. The disadvantage of divisional structure are• Problems in the allocation of resource and corporate overhead costs. A divisional structure is shown in figure 7. 7. the functional structure may still C o r p o ra te F in a n c e C o r p o ra te L e g a l/P R G e n e ra l M a n a g e r D iv is io n A G e n e ra l M a n a g e r D iv is io n B M a r k e tin g M a r k e tin g O p e r a tio n O p e r a tio n H u m a n R e s o u rc e M anagem ent H u m a n R e s o u rc e M anagem ent Fig. Within divisions. • Inconsistency arising fro the sharing of authority between the corporate and divisional levels. • Enables the top management to focus on strategic matters. C h ie f E x e c u tiv e O ffic e r are created and placed under the divisional level management. work is divided on the basis of product lines. types of customers served or geographic area covered. There comes a time in Strategic Implementationthe life of organization when growth and increasing complexity in Structural & Functional terms of geographic expansion.10 : Divisional Structure The advantage that a divisional structure offers are • Enables grouping of functions required for the performance of activities related to a division.Strategic Management functional structure but only up to a limit.

Conceptually. Essentially.. size and number of divisions. The advantage that the SBU organizational structure offers are • • • Establishes coordination between division having common strategic interests. diverse organizations. 7. the concept of SBU is helpful in creating an SBU organizational structure. Fixes accountability at the level of distinct business units.4 SBU Structure A strategic business unit (SBU) has been defined by sharkline as any part of business organization which is treated separately for strategic management purposes. it becomes difficult for the top management to exercise strategic control. [ 108 ] .9.Strategic Management • Policies in consistencies between the different divisions. an SBU is 'a discrete element of the business serving specific product makers with readily identifiable competitors and for which strategic planning can be conducted'. When organizations face difficulty in managing division operations due to increasing diversity. SBUs can be created by adding another level of management in a divisional structure after the divisions have been grouped under a divisional top management authority on the basis of common strategic interest. Hence. Facilitates strategic management and control of large.

9. such a type of structure is created by assigning functional specialists from different areas form a group or team and report to a team leader.5 Matrix Structure In large organization. diverse organization. The result is the requirement of a matrix type of organization structure. 7. • Difficulty in assigning responsibility and defining autonomy for SBU heads. there is often a need to work on major products or project each of which is strategically significant. Once the project is completed. 7. [ 109 ] . Figure 7. the team members revert to their parent departments.11 : SBU organizational Structure The disadvantage of the SBU organizational structure are • There are too many different SBUs to handly effectively in large.Strategic Management C h ie f E x e c u tiv e O f f ic e r Strategic ImplementationStructural & Functional Implementation G ro u p H ead SBU 1 G ro u p H ead SBU 2 G ro u p H ead SBU 3 D iv is io n A D iv i s i o n A D iv is io n A D iv i s io n A D iv is io n A D iv is io n A D iv i s i o n A D iv is io n A D iv is io n A Fig.12 illustrates a matrix structure. Essentially. • Addition of another layer of management between corporate and divisional management. Simultaneously. they may also work in their respective department.

Provide good exposure to specialists in general management.9.13. Rather than being located in one place. Requires a high level of vertical and horizontal combination. illustrates a network structure. requiring quick response.6 Network Structure Figure 7. Shared authority may create communication problems 7. The structure is highly decentralised and the organised around customer groups or geographical regions. The disadvantages of the matrix structure are: Dual accountability creates confusion and difficulty for individual team members. [ 110 ] . high level of adaptability and strong innovation skills. The network structure is most suited to organisations that face a continually changing environments. the business functions are scattered far and wide. Fosters creativity because of pooling of diverse talents. 7.12 : Matrix organizational structure The advantage that the matrix structure offers are : • • • • • • • Allows individual specialists to be assigned where their talent is most needed.Strategic Management C h ie f E x e c u t iv e O ffic e r F in a n c e M a r k e t in g H u m a n R e s o u rc e M anagem ent O p e r a t io in P ro je c t M anager A F u n c t io n a l S p e c ia lis t P ro je c t M anager B P ro je c t M anager C Fig.

13 Network organisational structure The advantages that the network structure offers are: • • • High level of flexibility to change structural arrangements in line with business requirements. 7. High costs as duplication of resources could exist.10. The disadvantage of network structure are: • • • Loss of control and lack of coordination as there are several partners. Adaptability to cope with rapid environmental change. Let us now firstly understand the concept of functional strategies.1 Functional Strategies Functional strategy deals with a relatively restricted plan designed to achieve objectives in specific functional area. 7.Strategic Management P r o je c t g r o u p M s tr u c tu r e Strategic ImplementationStructural & Functional Implementation R e g io n A s tr u c tu r e F u n c tio n X s tr u c tu r e C o r p o ra te H e a d q u a rte r R e g io n B s tr u c tu r e F u n c tio n y s tr u c tu r e P r o je c t N s tr u c tu r e Figure 7. Risks of over specialisation as most tasks are performed by others. Functional implementation functional plans and policies in different functional areas. allocation of resources among different operations within that functional area and coordination among different functional areas for optimal [ 111 ] . Permits concentration on core competencies of the firm.10 FUNCTIONAL IMPLEMENTATION Functional strategies are carried out through is done functional through implementation.

why they are needed and how they are developed.14 Vertical and horizontal fit 7. among different activities taking place at the same level. A key task of strategy implementation is to align or fit the activities and capabilities of an organisation with its strategies.10. We now see the nature of functional plans and policies. Figure 7.2 Functional Plans and Policies For effective functional implementation.lv e l s tr a te g ie s B u s in e s s . C o r p o ra te . [ 112 ] .lv e l s tr a te g ie s M a r k e tin g p la n s a n d p o lic ie s F in a n c ia l p la n s a n d p o lic ie s O p e r a tio n s p la n s a n d p o lic ie s H um an re s o u rc e m anagem ent p la n s a n d p o lic e s I n fo r m a t io n m anagem ent p la n s p o lic ie s V e r tic a l f it H o r iz o n ta l fit Figure 7. strategists have to provide directions to functional managers regarding the plans and policies to be adopted.Strategic Management contribution to the achievement of the business and corporate-level objectives.14 shows the nature of vertical and horizontal fit and how they exist in the frame work of strategies. This is the horizontal fit. Functional strategies are derived from business and corporate strategies and are implemented through functional implementation. there has to be congruence and coordination. In fact. the effectiveness of strategic management depends critically on the manner in which strategies are implemented. Such congruence is the ‘vertical fit’ then.lv e l s tr a te g ie s F u n c tio n a l. Strategies operate at different levels and there has to be congruence and coordination among the strategies.

Many of these policies could have been [ 113 ] . Functional plans and policies.2. Functional plans tell the functional managers what has to be done while functional policies state how the plans are to be implemented. strategies can be implemented by the functional managers. therefore.10. practically feasible at the functional level.10. Larger and more complex organisations may have several hundred policies related to every major aspect.plans or tactics to implement business strategies-are made within the guidelines set at higher levels. are in the nature of tactics to make a strategy work.1 Nature of Functional Plans and Policies policies. In this way.Strategic Management Strategic ImplementationFunctional strategies defined in terms of functional plans and Structural & Functional Implementation 7. 7. (2) There is a basis available for controlling activities in the different functional areas of business. (3) The time spend by functional managers in decision-making is reduced as plans lay down clearly what is to be done and policies provide the discretionary framework within which decisions need to be taken.10.2 Need for Functional Plans and Policies Glueek suggests five reasons why functional plans and policies are needed.3 Development of Functional Plans and Policies The development of functional plans and policies is aimed at making the strategies formulated at the top management level. The process of development of functional plans and policies may range from the formal to informal. (4) Similar situations occurring in different functional areas are handled in a consistent manner by the functional managers. (5) Coordination across the different functions takes place where necessary. Functional managers need guidance from the corporate and business strategies in order to make decisions.2. thereby augmenting the horizontal fit. Functional plans and policies are developed to ensure that: (1) The strategic decisions are implemented by all the parts of an organisation.2. Strategy need to be segregated into viable functional plans and policies that are compatible with each other. 7. Plans are made to select a course of action while policies are required to act as guidelines to action.

Two major suggestions for effective strategy implementation are [ 114 ] adopting a clear model of strategy implementation and . demanding varied skills. There are several barriers to implementing strategies and many means to overcome these barriers. systems. the actual process of choice is influenced by objective as well as subjective factors. the resource allocation decisions.15. staff. Strategy implementation is much more difficult than strategy formulation. Figure 7. structure. Functional plans and policies affect and are affected by. The process of development of functional plans and policieswhether formal or informal-is similar to that for strategy formulation. Organisational plans and policies affect the choice of functional plans and policies. Environmental factors relevant to each functional area have an impact on the choice of plans and policies. comprehensive in scope. shared valued and skills. The five characteristics implementation are: action orientation.11 SUMMARY Strategy Implementation concerns the managerial exercise of putting a freshly of chosen strategy strategy into place.Strategic Management formulated through the formal process and laid down in company manuals and documents. Finally.15 The configuration of functional plans and policies 7. style. clearly shows the configuration of functional plans and policies. In te g ra tio n o f f u n c t i o n a l p la n s a n d p o lic ie s I n te g r a tio n o f f u n c tio n a l p la n s a n d p o lic ie s In te g r a tio n o f f u n c t io n a l p la n s a n d p o li c i e s In te g r a tio n o f f u n c tio n a l p la n s a n d p o lic ie s In te g r a tio n o f f u n c tio n a l p la n s a n d p o lic ie s I n te g r a tio n o f f u n c tio n a l p la n s a n d p o lic ie s Figure 7. most of which would be informal and understood rather than written down. wide range involvement and integrated process. Smaller organisations with simpler businesses may operate with a few policies. 7-S of Mckinsey are strategy.

Plans are made to select a course of action while policies are required to act as guidelines to action. divisional. The forward linkages deal with the impact of the concerned with the impact in the opposite directions. (2) Enumerate the major barriers to strategy implementation. precedent-setting decisions that guide or substitute for repetitive or time-sensitive managerial decision making. (5) Discuss the major themes in strategy implementation.Strategic Management Strategic ImplementationTwo types of linkages exist between two phases of strategic Structural & Functional Implementation effective management of change in complex situations. Functional strategies are defined in terms of functional plans and policies. 7. (6) Describe the manner in which structural mechanisms operate in an organisation. managing change and achieving effectiveness. (4) Plan : Blue print of idea. Structure in the context of strategic management is the way in which tasks and sub-tasks required to implement a strategy are arranged. 7. (4) Suggest the means to overcome the barriers to strategy implementation. (3) Explain Mckinsey 7-S framework. functional. Six major types of structures are entrepreneurial. (7) Describe the various types of structures.13 QUESTIONS (1) Describe the characteristics of strategy implementation to highlight its essential nature. (2) Strategic business unit : An adaptation of the divisional structure in which various divisions or parts of the divisions are grouped together based on some common strategic elements. [ 115 ] .12 KEYWORDS (1) Policies : Broad. Organisation structure is distinguished into vertical and horizontal structures. management. SUB. usually linked to distinct product/market differences. which are the plans or tactics to implement business strategies. formulation on implementation while the backward linkages are The model of strategy implementation is based on three major themes of activating strategies. matrix and network. (3) Implementation : putting plan into action.

(10) Why does the need for functional plans and policies arise? (11) How does the development of functional plans and policies take place?  [ 116 ] .Strategic Management (8) How does strategy affect structures? (9) Distinguish between vertical and horizontal structures.

1 8. Unit Structure 8.6 Barriers in evaluation 8.10.Strategic Management UNIT-8 STRATEGIC EVALUATION AND CONTROL Strategic Evaluation and Control Learning Objectives After the end of this Unit the readers will be able to understand(1) Nature and importance of strategic evaluation and control. (5) Qualitative and Quantitative criteria for evaluation.3 Evaluation and control process 8.8.11 The Reward System 8.1 Premise Control 8. (7) Role of Reward System in Evaluation.13 Keywords 8.1 Introduction 8.4 Implementation control 8.5 Participants in strategic evaluation 8.2 Quantitative criteria Qualitative criteria 8.14 Questions 8.10.7 Requirement for effective evaluation 8. (6) Four types of strategic control.2 Strategic surveillance 8.10 Types of strategic control 8. (4) The barriers to evaluation and the requirements for effective evaluation.8. (2) Process of strategic evaluation and control.12 Summary 8.8 Criteria for evaluation 8.9 Strategic control 8.10.3 Special alert control 8.1 INTRODUCTION Strategic control in an organization is similar to what the steering is [ 117 ] .2 Nature of strategic evaluation and control 8.4 Importance of strategic evaluation 8.10. (3) Role of participants in evaluation.

8. In both industrial as well as emerging markets. and act accordingly. The evaluation system is also needed as a way to recycle the [ 118 ] feedback as an input for new strategic planning and as a means for . There are also several other crutial components of an effective administrative system. A follow-through on strategy and its implementation requires• • • a control system an appropriate reward system an effective information system which provides managers with an accurate complete feedback in time so that they can act on data. We now assume that the infrastructure is in place. with a view towards future action. rewarding and reorienting the functioning of the business units. Steering keeps a ship. Strategic control involves the monitoring and evaluation of plans. evaluating.2 NATURE OF STRATEGIC EVALUATION AND CONTROL Evaluation of strategy is that phase of the strategic management process in which managers try to assure that the strategic choice is properly implemented and is meeting the objectives of the enterprise. corruptions. The concept of steering is at the heart of cybernetics. and triggering appropriate interventions. (a) These components are needed to make sure that all other elements work properly. these systems have become very important for early detection and prevention of corporate scandals. providing a warning signal through diagnosis of data. stables on its course. A plan to carry out the chosen strategy has been specified and activities have been assigned to the organization resources have been provided for doing these tasks and policies have been developed and communicated as also the leadership system and style have been formed so that the climate is geared to the strategy and its plans. It can also sense when it is on course not to attain the goal. A control system aims towards the goal. so that the organizations behaviour and/or context can be modified.Strategic Management in a ship. which is literally derived from the grade word for a steersman. This information is fed to the decisionmakers. Strategic control system offer a framework for tackling. for instance. activities. and accounting irregularities. and results. and can sense when it is on course to attain it.

Similarly. a manager may decided not to forward a proposal which is thought to run counter to the desires of top management even though the idea may be a potentially useful alternative. They may. such as: • • • • • Are the decisions made consistent with the policy? Are there sufficient resources to get the job done? Are the resources being used wisely? Are events in the environment occurring as anticipated? Are goals and targets-both short-term and long-term-being net? Should we proceed with the plan as we have formulated it? (d) In terms of our gap analysis approach. unless evaluation and control are integrated with a plan. Further. a failing strategy might continue to be pursued. changing the track or changing our beliefs about the gaps and the objectives. we want to determine whether the gaps between the expected results and the ideal outcomes are being closed. the omissions and commissions of managers directly and indirectly affect the strategy of the organization as reflected in its action. The evaluation process should alert us to these conditions so that corrective action can be taken-getting back on track. new strategies or policies might never be considered. strategic planning may be little more [ 119 ] . In other words. New alternatives would not be considered. if a manager fails to forward information that is potentially damaging to the unit. in which sub systems perform their tasks. use resources and interpret policy give meaning to the intended strategy. work against an intended strategy. This would be tagged a "sin of ommission". So. (c) Control and evaluation of processes help strategists monitor the progress of a plan. in fact. They seek to answer a number of questions. to the extent that these managers are protecting "their sub system". We might call this behaviour a "sin of commission". SBU and functional managers quite often have a fairly large range of discretion in interpreting policy and using resources. For instance.Strategic Management double-checking that the strategic choice is• • • consistent appropriate workable Strategic Evaluation and Control (b) The ways. and we want to know if any internal or external changes in the plan might alter our expectations regarding these gaps.

(4) Compare actual performance with the standard [ 120 ] If the actual performance results are within the desired tolerance . (3) Measure actual performance Measurements must be made at predetermined times. as needed. STO P Figure 8. This process can be viewed as a five-step feedback model.1. The focus should be on the most significant elements in a process-the ones that account for the highest proportion of expense on the greatest number of problems. 1 D e te r m in e W h a t to m e a s u re 2 3 M e a su re a c tu a l p e rfo rm a c e . but also for intermediate stages of production output. Each standard usually includes a tolerance range.1 Evaluation and Control Process (1) Determine what to measure Top managers and operational managers must specify implementation process and results to be monitored and evaluated. 4 D oes N o p e rfo rm a n c e m a tc h s ta n d ard s? Yes 5 Take c o rre c tiv e a c tio n . The process provides the feedback necessary for management to evaluate the results and take corrective action. 8. which defines any acceptable derivations. Standards can be set not only for final output. They are measures of acceptable performance results. as depicted in figure 8. The processes and results must be measurable in a reasonably objective and consistent manner. corporate activities and performance results are monitored so that actual performance can be compared with desired performance. Measurements must be found for all important areas regardless of difficulty.Strategic Management than a pious hope rather than a means of achieving the desired future. (2) Establish standards of performance Standards used to measure performance are detailed expressions of strategic objectives.3 EVALUATION AND CONTROL PROCESS Through the evaluation and control process.

Appraisal and Reward There is a need within an organisation to receive feedback on current performance so that appraisal can be done and good performance rewarded. The following issues must be resolved: • • • Is the deviation only a chance fluctuation? Are the processes being carried out incorrectly? Are the processes appropriate for achieving the desired standard? Top management is often better at the first two steps of the control model than they are in the last three follow-through steps. the measurement process stops here. In the absence of coordinating and controlling mechanisms. This is essential for the motivation of employees. division. The action must not only correct the deviation. SBU or the whole organisation. individuals managers may pursue goals which are inconsistent with the overall objectives of the department. • Check on the validity of strategic choice Strategic evaluation helps to keep a check on the validity of a strategic choice. infact. but also prevent its recurrence. This is due to efficacy of strategic evaluation to determine the effectiveness of strategy. An ongoing process of evaluation would. (5) Take corrective action If the actual results fall outside the desired tolerance range. • Congruence between decisions and intended strategy [ 121 ] . provide feedback on the continued relevance of the strategic choice made during the formulation phase. Besides the basic reason of coordinating tasks there could be several other motives for strategic evaluation as described below: • Need for feedback. The tendency to establish a control system and then delegate the implementation to others may lead to unfortunate results. Strategic Evaluation and Control 8. division or SBUs .through control of performance.4 IMPORTANCE OF STRATEGIC EVALUATION The importance of strategic evaluation lies in the manager's ability to coordinate the tasks performed by individual managers-and also groups.Strategic Management range. action must be taken to correct the derivation.

In the absence of such evaluation managers discretion. we are also interested in knowing who are the ones that are appraised and how they help in strategic evaluation. In addition to the obvious reasons described above. Motivating discussions Debates about strategic uncertainties 8. rewards and review helps in successful culmination of the strategic management process. all internal and external stakeholders are participants in strategic evaluation and control but the major ones have a more [ 122 ] direct interest and stake. reasons why mangers use strategic evaluation and control. This will answer the question: who evaluates the strategy and how they do it? Going beyond the role of evaluators. These are: • • • • • • • Using control systems to overcome resistance to change. Communicating new strategic agenda Ensuring continuing attention to new strategic initiatives. • Creating inputs for New strategic planning Lately the process of strategic evaluation provides a considerable amount of information and experience to strategists that can be useful for new strategic planning. Strategic evaluation can help to assess whether the is decisions due to match the the intended nature strategy of any requirements. feedback.Strategic Management During the course of strategy implementation. managers are required to take scores of decision. through its process of control.5 PARTICIPANTS IN STRATEGIC EVALUATION It is important to know who are the participants and what role they play in strategic evaluation and control. Formalising beliefs Setting boundaries on acceptable strategic behaviour. Theoretically. This inherent administrative system which leaves some amount of discretion in the hands of managers. there are certain other and not-so-obvious. We describe below the role of the major . • Successful culmination of the strategic management would not explicitly know how to exercise such process Strategic evaluation.

Strategic Management

participants in strategic evaluation and control. Every organisaton is ultimately responsible to its shareholders: ownes, lenders and public in the case of private companies and the government in the public sector companies. The role of stakeholders, in practice, however is limited. This is especially true of the general public where the individual holding is too small to be of any effective value in strategic evaluation. Lenders such as financial institutions and banks which have equity stake, are typically concerned about the security and returns on their shareholding rather than in a long-term assessment of strategic success. The government, through its different agencies, does play a significant role in strategic evaluation and control of public sector companies. The Bord of Directors enact a formal role of reviewing and screening executive decisions in the light of their environmental, business and organisational implications. In this way, the Board is required to perform the functions of strategic evaluation in more generalised terms. But there is a lot of variation among Indian companies in the way in which the board may perform its control functions. In some companies, the Board may have the real authority to oversee strategic evaluation while in others, its authority may be usurped by others like the chief executive or a higher de facto authority such as the family council in the case of family-owned companies, the headquarters in the case of MNC subsidiaries or the controlling ministry in the case of public sector companies chief Executives are ultimately responsible for all the administrative aspects of strategic evaluation and control. Ideally, a chief executive should not sit in judgement over the performance of the organisation under his or her control. Rather, the chief executive should be evaluated on the basis of organisaton's performance and the long-term value created. This leads to the question of who should evaluate the chief executive. Normally, the evaluation of a person should be done by an individual or a group to whom he reports. In most cases, the CEO would be evaluated by the board of directors as it is also responsible for the selection, compensation and termination of the CEO. This is the reason why it is so important to have an independent board. In cases where the chief executive is accountable to no one in particular, it is difficult to allocate the responsibility apart from relying on self evaluation. The SBU or profit centre heads may be involved in performance evaluation at their levels and may facilitate evaluation by corporate-level executives.

Strategic Evaluation and Control

[ 123 ]

Strategic Management

Financial controllers, company secretaries and external and internal auditors from the group of persons who are primarily responsible for operational control based on financial analysis, budgeting and reporting. Audit and executive committee, set up by the Board or the chief executive, may be charged with the responsibility of continuous screening of performance. The corporate planning staff or department may also be involved in a supporting role for strategic evaluation. Middle-Level Managers may participate in strategic evaluation and control as providers of information and feedback, as well as recipients of directions from above to take corrective action. In the manner described above, there are several participants in the process of strategic evaluation and control and each of them plays a different role.

8.6 BARRIERS IN EVALUATION
Their are five major types of barriers in evaluation: • • • • • The limits of control Difficulties in measurement Resistance to evaluation Tendency to rely on short-term assessment Relying of efficiency versus effectiveness

We describe the barriers and also suggest the means to deal with them. (1) Limits of Controls By its very nature, any control mechanism presents the dilemma of too much versus too less control. It is never an easy tasks for strategists to decide the limits of control. Too much control many impair the ability of managers, adversely affect initiative and creativity difficulties and in create unnecessary impediments to efficient use of performance. On the other hand, too less control may create coordination, encourage indiscriminate managerial discretion and make the strategic evaluation process inefficient and redundant. Experience is a great teacher which could help create a balance between too much and too less control. (2) Difficulties in Measurement
[ 124 ]

Strategic Management

The process of evaluation is fraught with dangers of difficulties in measurement. These mainly relate to the reliability and validity of measurement techniques used for evaluation, lack of quantifiable objectives or performance standards and the inability of the information system to provide timely and valid information. The solution lies in using reliable and validated measurement systems and standardised procedures for measurement, quantification of objectives as far as possible and enhancement of the quality of information system. (3) Resistance to Evaluation The evaluation process involves controlling the behaviour of individuals and, like any similar organisational mechanism, is likely to be resisted by managers. Such resistance can be reduced by open communication between the participants in the evaluation process. (4) Short - termism Managers often tends to rely on short-term implications of activates and try to measure the immediate results. Often, the long-term impact of performance on strategy and the extended effect of strategy on performance are ignored. This is so since immediate assessment seems to be the easy way out and taking into account the long-term implications may seen as too tedious. Obviously, a change of emphasis on achieving long-term results rather than short-term gains can help to correct this bias. (5) Relying on efficiency versus effectiveness It is instructive to remember that efficiency is 'doing the things right' while effectiveness is 'Doing the right things'. Measuring wrong parameters may lead to a situation where the right type of performance does not rewarded. In fact, sometimes performance that does not really contribute to the achievement of objectives may be rewarded is assessed on the basis of efficiency alone. The solution lies in creating a sharp focus on effectiveness as opposed to efficiency.

Strategic Evaluation and Control

8.7 REQUIREMENT FOR EFFECTIVE EVALUATION
The basic issue in all evaluation needs to be that control should be dictated by strategy. There needs to be a vertical fit between the strategy requirements and the evaluation and control exercised over performance. The guidelines below are suggested in order to make control effective.
[ 125 ]

• • • • Control system monitor only managerial activities and results even if the evaluation is difficult to perform. Quantitative measurement is quite appropriate here along with subjective judgments. stock price. divident rates. Controls should be timely so that corrective action can be taken quickly. Different criteria may be appropriate depending on the purpose for the evaluation. Controls should aim at pinpointing exceptions as nitpicking does not results in effective evaluation. Evaluation is typically assumed to be an after-the fact or real-time method of detecting whether the content of strategy is working or has worked. Let's examine these two approaches separately. . growth in sales. 8. needs to be emphasised. an organization can evaluate its performance on various quantitative factors such as net profit. 8. [ 126 ] production costs and efficiency. Evaluations can be based on objective and subjective factors. return on capital.8 CRITERIA FOR EVALUATION It is not easy to choose the factors upon which to focus the evaluation.1 Quantitative Criteria In attempting to evaluate the effectiveness of corporate-strategy quantitatively. days lost per employee as a result of strikes. The '80:20 principle' where 20 percent of the activities result in 80 percent of achievement. distribution costs and efficiency. market share. earning per share.8. Long-term and short-term controls should be used so that a balanced approach to evaluation can be adopted. But qualitative assessment can also be done to address the question will it work? A qualitative check of the strategic management process can be done before the fact of activating plans for change. Too complex a system of evaluation may make it difficult to implement while a simplistic system may be in adequate. return on equity. Excessive emphasis on penalties tends to pressurise the managers to accentuate efficiency rather than effectiveness.Strategic Management • Control should involve only the minimum amount of information as too much information tends to clutter up the control system and creates confusion. There should be balanced emphasis on the level of complexity of the process of strategic evaluation itself. • Reward of meeting or exceeding standards should be emphasised so that managers are motivated to perform.

But outside assessments can help executives evaluate their performance and.the factors which are most important to the strategy and is being successful in the business. Then the factors and the developed plans need to be stated in terms of specific measures by which you can judge whether a success factor is being attained. risk analysis. Efficiency isn't too hard to judge. Which factors should be used? Establishing the standards and tolerance limits is not as easy as one might expect. chances are it is a winner on all measures.2 Qualitative Criteria Subjective assessments of the environmental assumptions should be included with the quantitative measures of performance to be sure that the strategy is resting on safe ground. Time: Do we evaluate short run or long-run effectiveness? Precision and Variety of measurement: Not all measures are easy to compute and there are different ways of computing measures. Techniques such as sensitivity test. absenteeism and satisfaction indices. Measurement comparisons become more difficult when more than one criteria are used to measure success.Strategic Management employee turnover. a number of problems are involved in the measurement effectiveness: • • • Suitability of criteria: A criterion emphasized at one point may not be valid later on. However. If a firm is a "winner" on three measures. • It is a lot easier to measure success when a company shows consistent results on most of the measures in most years. In fact. The list is long and many other factors could be included. thus. This is a subjective approach. We need to first define the critical success factors . There are no magic numbers to assign evaluation factors to. For example. A series of qualitative questions can be [ 127 ] .8. Strategic Evaluation and Control 8. efficiency and effectiveness can be measured on a number of dimensions. the use of outcome matrices. the use of models and simulations can help managers evaluate results and the strategies. But the criteria here tend to be more appropriate for examining a plan in its entirety before the organization is asked to charge direction or put a strategy into effect. Another approach is to ask "experts" which firms are the most successful. their strategic performance in an other than qualitative manner. research indicates that there is a high inter-correlation among organizational variables.

(A) Consistency Is the comprehensive integrated plan consistent with the objectives. Internal Conditions: Are the policies. does the plan provide for obtaining them when needed? Are the total available resources appropriate for what we want to accomplish? 5. strategies and plans are consistent. environmental assumptions and internal conditions? 1. Time Horizon: Are the objectives stated in terms of an [ 128 ] appropriate time for achievement? Is rapid expansion appropriate. risk preference and time horizon? 4. Environmental Assumptions: Are we making an adaptive response to critical changes that we might anticipate? Will the plan full exploit domestic and also international opportunities? Does it mitigate threats? Are R & D and production consistent with technological or supplier development? Have staff policies taken into consideration governmental changes? 3. appropriate and workable. Risk Preference: Does the strategy entail unnecessary risk? Is the degree of risk acceptable to top management? Is it too high or too low? Are we "betting the entire company"? Is that necessary? Does the plan depend on internal resources whose continued existence is not assured? Does it depend on environmental assumptions about which we are very uncertain? 6. Objectives: Will the plan probably close the gaps of importance to us? Are the standards of performance linked to critical success factors? Are there mutually inconsistent objective where we have made trade-off decisions? Are the goal trade-offs consistent without real priorities? 2. organizational structure and the administrative system co-ordinate with one with one another? Is there an integrated pattern of implementation which fits the strategy and develops needed competitive advantages? Does the strategy rely on weaknesses or do anything to reduce them? Are performance-evaluation criteria and rewards tied to the policies we want to reinforce? (B) Appropriateness Is the comprehensive integrated plan appropriate. Resource Capabilities: Are critical resources in place? If not. given our resource capabilities. .Strategic Management developed for each of the three criteria. The basic questions are whether the integrated and comprehensive objectives. resource allocations.

Strategic controls are necessary to steer the firm through these events they must provide the basis for adapting the firm's strategic actions and directions in response to these developments and changes.10 TYPES OF STRATEGIC CONTROL The four basis types of strategic control are: (1) Premise control (2) Strategic surveillance (3) Special alert control (4) Implementation control [ 129 ] . changes are taking place in both the environmental situation and the firm's internal situation. during that time. Also. 8. Feasibility: Does the plan overtax our resources and Strategic Evaluation and Control management capabilities? Does it create unsolvable sub-problems? Is the strategy identifiable and clear? Is the strategy reasonable? Will there be unintended consequences that we can avoid? 8. investments are made and numerous projects and actions are undertaken to implement the strategy.9 STRATEGIC CONTROL The control of strategy can be characterized as a form of "steering control". As time elapses between the initial implementation of a strategy and achievement of its intended results.Strategic Management given our capabilities? Have we committed resources for a sufficient period so that the strategy will have a chance to work? Are we making changes at frequent intervals or taking drastic leaps or making steady sustained progress? (C) Workability Is the comprehensive integrated plan feasible and stimulating? 7. Stimulation: Will managers be committed to making the strategy work? Is there a consensus among the executives that the plan will work? Are reward-systems designed to encourage effort in the desired directions? Are the personal aspirations of key strategists taken into consideration so that they may be involved in decisions about the strategy? 8.

Strategic Management S t r a t e g i c S u r v e ill a n c e P re m is e C o n tro l S p e c ia l A le r t C o n tr o l Im p le m e n ta tio n C o n tro l S tra te g y F o rm u la tio n T im e 1 T im e 2 S tr a t e g y Im p le m e n ta tio n Figure 8.1 Premise Control Every strategy is based on certain planning premise-assumptions or [ 130 ] predictions.2 Four Types of Strategic Control Table 8.10. Premise control is designed to check systematically and .1 : Characteristics of the Four types of Strategic Control Types of Strategic Control Basic Characteristics Objects of control Premise Control Implementatio n Control Strategic Surveillance Potential threats and opportunities related to the strategy Low Special Alert Control Occurrence of recognizable but unlikely events High Planning Key strategic premises thrusts and and milestones projections High High Degree of focusing Data acquisition: Formalization Centralization Use with: Environmental factors Industry factors Strategyspecific factors Companyspecific factors Medium Low High Medium Low Low High High Yes Yes No No Seldom Seldom Yes Yes Yes Yes Seldom Seldom Yes Yes Yes Seldom 8.

The appraisal system performs the critical role of evaluating managerial performance in the light of organisational objectives. the strategy may have to be changed. A special alert control is the thorough. is special alert control. Strategic surveillance is designed to monitor a broad range of events inside and outside the firm that are likely to affect the course of its strategy. unexpected event. and moves that occur over an extended time. it is their contribution to the organisational objectives that is sought [ 131 ] . Resources are mobilized. the better are the chances that an acceptable shift in the strategy can be devised. however. is a part of the wider control system. Implementation control is designed to access whether the over-all strategy should be changed in light of the results associated with the incremental actions that implement the overall strategy. reconsideration of the firm's strategy because of a sudden. Its significant role in evaluation. The sooner an invalid premise can be recognized and rejected. Strategic Evaluation and Control 8. The basic idea behind strategic information surveillance may be is that important by a yet unanticipated uncovered general monitoring of multiple information sources. Functional areas initiate strategy related activities.2 Strategic Surveillance By their nature. Key people are added or reassigned.11 THE REWARD SYSTEM Organizations design and operate their reward systems on the basis of the appraisal of performance of individuals. and often rapid. 8.10. programs. is unfocused. incremental actions and results of specific units and individuals.10. strategic surveillance. investments. Implementation control is the type of strategic control that must be exercised as those events unfold. 8. premise controls are focused controls.Strategic Management continuously whether the premises on which the strategy is based are still valid. is to be acknowledged.10. managers implement strategy by converting broad plans into the concrete. Special programs are undertaken. In other words. 8. If a vital premise is no longer valid. however.4 Implementation Control Strategy implementation takes place as a series of steps. really a subset of the other three. The appraisal system actually evaluates performance and so. When the performance of managers is appraised.3 Special Alert Control Another type of strategic control.

strategists can adjudge whether their strategy is in consonance with the environment and whether the performance to tasks would lead to the achievement of objectives. or if they do. Criteria for evaluation can be categorized on . certain barriers can be expected. Thus the achievement of a department or a profit centre is the sum total. The board of directions and the CEOs enact the central role while the other participants play a supportive role. The reasons for its importance are several: need for feedback. Strategic evaluation and control tests the effectiveness of the strategy. it is difficult to differentiate strictly between the performance of individuals and that of the organisational units they belong to. tendency to rely on short-term assessment and relying on efficiency instead of an effectiveness. In practice. congruence between decisions and intended planning. then they are corrected by the means of rewards and penalties. The evaluation the actual performance and provides the basis for the control system of work. Because evaluation involves an assessment of performance. financial controller and audit committees. Effective evaluation can take place through observing certain [ 132 ] guidelines for control. The importance of evaluation lies in its ability to control strategy implementation and performance. CEOs. The relevance of reward systems of strategy implementation can be seen from the fact they are to be linked to the control system at one end and to motivation at the others. or even more. board of directions. of the individual performance of managers and employees in that department or profit centre. 8. resistance to evaluation. Through evaluation.12 SUMMARY The nature of strategic evaluation is judgmental. The motivation systems play a significant role in ensuring that deviations do not occur. There are various participants in evaluation including the strategy. SBU heads. appraisal and reward. difficulties in measurement.Strategic Management to be measured. Five major types of barriers in evaluation are: the limits of control. The central role of the motivation system is to induce strategically desirable behaviour so that mangers are encouraged to work towards the achievement of organisational objectives. check on the validity of strategic choice. synergistically. successful culmination of the strategic management process and creating inputs for new strategic shareholders.

(5) Special alert control: Management actions undertaken to thoroughly. (6) Implementation of results control: Management the efforts designed actions to assess whether the overall strategy should be changed in light associated with incremental that implement the overall strategy. and often very rapidly." Explain this statement. (4) Strategy surveillance: Management efforts to monitor a broad range of events inside and more often outside the firm that are likely to affect the course of its strategy over time. 8. (2) Strategic control: Tracking a strategy as it is being implemented.14 QUESTIONS (1) "Sins of omission and commission are two reasons why organisations establish control and evaluation mechanisms as part of strategic management. Strategic controls are intended to steer the company towards its long-term strategic goals under uncertain.13 KEYWORDS (1) Feedback: The analysis of post-implementation results that can be used to enhance future decision making. (4) What types of barriers are commonly faced during evaluation? How can these be avoided? (5) Diagrammatically explain the evaluation and control process. Strategic Evaluation and Control 8. Reward systems helps develop and motivate personnel to receive rewards on the basis of performance appraisal. (2) Why is strategic evaluation important to organisations? (3) Highlight the role that the board of directions and the CEOs play in strategic evaluation. and often changing circumstances. and to make necessary adjustments. All four types are designed to meet top management's needs to track the strategy as it is being implemented. to detect underlying problems. special alert controls and implementing controls are types of strategic control. consider a firm's strategy because of a sudden unexpected event. [ 133 ] . Premise controls. (3) Premise control: Management process of systematically and continuously checking to determine whether premises upon which the strategy is based are still valid. detecting problems or changes in its underlying premises. and making necessary adjustments. strategic surveillance.Strategic Management two parts: qualitative criteria and quantitative criteria.

(7) Briefly review the role of reward system in strategic evaluation.  [ 134 ] .Strategic Management (6) Explain various types of strategic control.

Strategic Management Strategic Evaluation and Control [ 135 ] .

OBJECTIVE UNIT-4 ENVIRONMENT COMPONENTS . PURPOSE.Strategic Management Table of Contents STRATEGIC MANAGEMENT UNIT-1 CONCEPT OF STRATEGY UNIT-2 PROCESS OF STRATEGIC MANAGEMENT UNIT-3 ROLE OF STRATEGISTS-MISSION.APPRAISING AND SCANNING CAPABILITY FACTORS UNIT-5 STRATEGIC ALTERNATIVE & CHOICE UNIT-6 GRAND STRATEGIC PLAN UNIT-7 STRATEGIC IMPLEMENTATION-STRUCTURAL AND FUNCTIONAL IMPLEMENTATION UNIT-8 STRATEGIC EVALUATION AND CONTROL 111-127 88-110 76-87 66-75 40-65 27-39 13-26 1-12 [ 136 ] .

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