This action might not be possible to undo. Are you sure you want to continue?
UNIT:I STRATEGIC PLANNING CHAPTER :I STRATEGIC CONTEXT AND TERMINOLOGY
On completion of this chapter you should be able to: • You should be able to understand the nature, need, benefits and terminology of the processes for producing and implementing major plans directing business activity.
• You will come to know about the nature and value of
means generalship. The word strategy, therefore, means the art of the general. When the term strategy is used in military sense, it refers to action that can be taken in the light of action taken by opposite party. According to Oxford Dictionary, ‘military strategy is the art of so moving or disposing the instruments of warfare (troops, ships, aircrafts, missiles, etc.) as to impose upon the enemy, the place, time and conditions for fighting by oneself. Strategy ends, or yields to tactics when actual contact with enemy is made’. In management, the concept of strategy is taken in slightly different form as compared to its usage in military form; it is taken more broadly. However, in this form, various experts do not agree about the precise scope of strategy. Lack of unanimity has resulted into two broad categories of definitions: strategy as action inclusive of objective setting and strategy as action exclusive of objective setting. Let us see some definitions in these two categories in order to conceptualize strategy properly. You must have heard about the term strategy, let us discuss what does it mean: First of all you need to look at the different views and opinions expressed by leading thinkers in the field of business strategy. Tomorrow always arrives. It is always different. And even the mightiest company is in trouble if it has not worked on the future. Being surprised by what happens is a risk that even the largest and richest company cannot afford, and even the smallest business need not run. -Peter Drucker If we know where we are and something about how we got there, we might see where we are treading and if the outcomes which lie naturally in our course are unacceptable, to make timely change. -Abraham Lincoln Without a strategy, a company is like a ship without a rudder, going around in circles. It’s like a tramp; it has no place to go. -Hoel Ross and Michael Kami If a man takes no thought about what is distant, he will find sorrow near at hand. He who will not worry about what is far off will soon find something worse that worry. -Confucius It is human nature to make decisions based on emotion, rather than fact. But nothing could be more illogical. -Toshiba Corporation No business can do everything. Even if it has the money, it will never have enough good people. It has to set priorities. The worse thing to do is a little bit of everything. This makes sure that nothing is being accomplished. It is better to pick the wrong priority than none at all. -Peter Drucker So, Tell me what do you mean by strategy?
strategic management, emphasizes the practical value of a strategic management approach for a business organization.
• You will understand that strategic management activities
are undertaken at three levels: corporate, business and functional.
• You will understand that business strategy is a set of
decisions and actions resulting in the formulation and implementation of strategies designed to achieve the objectives of an organization. Dear Student, As an entrepreneur, one is expected to connect oneself with the external environment such that requisite strategies are formulated & implementated for achieving organizational goals. Lets now look at what is this ‘strategy’ is all about?
Definition of Strategy
There is considerable confusion in management literature regarding the various terms used in strategic management. A recent survey by the American Management Association revealed that respondents found it difficult to define policy, and differentiate between strategy, policy and objectives, further compounding the difficulty. According to Andrews, strategy, policy and objectives embrace a range of statements from the “broad” and “important” to “narrow” and “unimportant”. Policies get merged into procedures and procedures into rules. Strategies get blended into tactics, resulting in an “end-means continuum”. This can be illustrated by the following example. Suppose a company decides upon a sales growth of 35 per cent and desires to achieve this by acquiring other companies, instead of introducing new products. Acquisition in this case can be considered as a strategy chosen by the company. The company will then have to decide on the size of the firm to be acquired. If it decides on acquiring a small company, this becomes the objective. Strategy The word strategy has entered the field of management more recently. At first, the word was used in terms of Military Science to mean what a manager does to offset actual or potential actions of competitors. The word is still being used in the same sense, though by few only. Originally, the word strategy has been derived from Greek ‘Strategos’, which
© Copy Right: Rai University
markets… that defines the essential nature of business that the organization was or planned to be in future”. Ansoff has stressed on the commonality of approach that exists in diverse organizational activities including the products and markets that define the current and planned nature of business. William F Glueck (1972) Further, Based on various thinkers point of view we need to define strategy: Management is an art as well as science. Many of the concepts used in building management theory have been derived from practice. Unlike the pure sciences, which have their foundation in experimental research, management studies draw upon the practical experiences of managers in defining concepts. Business policy is rooted in the practice of management and has passed through different phases before taking its shape in the present form of strategic management. One of the earliest contributors to this young subject was Alfred D Chandler. Alfred D Chandler (1962) Chandler made a comprehensive analysis of interrelationships among environment, strategy, and organizational structure. He analyzed the history of organizational change in 70 manufacturing firms in the US. While doing so, Chandler defined strategy as: “The determination of the basic long-term goals and objectives of an enterprise and the adoption of the courses of action and the allocation of resources necessary for carrying out these goals.” Note that Chandler refers to three aspects:
• Determination of basic long-term goals and objectives, • Adoption of courses of action to achieve these objectives,
Another well-known author in the area of strategic management was Glueck, who was a Distinguished Professor of Management at the University of Georgia till his death in 1980. He defined strategy precisely as: “A unified, comprehensive and integrated plan designed to assure that the basic objectives of the enterprise are achieved”. The three adjectives, which Glueck has used to define a plan, make the definition quite adequate. ‘Unified’ means that the plan joins all the parts of an enterprise together; ‘comprehensive’ means it covers all the major aspects of the enterprise, and ‘integrated’ means that all parts of the plan are compatible with each other. Henry Mintzbeg (1987) Mintzberg of McGill University is a noted management thinker and prolific writer on strategy. He advocates the idea that strategies are not always the outcome of rational planning. They can emerge from what an organization does without any formal plan. He defines strategy as: “a pattern in a stream of decisions and actions”. Mintzberg distinguishes between intended strategies and emergent strategies. Intended strategies refer to the plans that managers develop, while emergent strategies are the actions that actually take place over a period of time. In this manner, an organization may start with a deliberate design of strategy and end up with another form of strategy that is actually realized. Michael E Porter (1996) Michael Porter of the Harvard Business School has made invaluable contributions to the development of the concept of strategy. His ideas on competitive advantage, the five-forces model, generic strategies, and value chain (you will get to learn about all these later at appropriate places in this book) are quite popular. He opines that the core of general management is strategy, which he elaborates as: “… developing and communicating the company’s unique position, making trade-offs, and forging fit among activities”. So, you can see how strategy got evolved. Write down five names associated with business strategy and their area of contribution?
• Allocation of resources necessary for adopting the courses of
action. Kenneth Andrews (1965) Andrews belongs to the group of professors at Harvard Business School who were responsible for developing the subject of business policy and its dissemination through the case study method. Andrew defines strategy as: “The pattern of objectives, purpose, goals, and the major policies and plans for achieving these goals stated in such a way so as to define what business the company is in or is to be and the kind of company it is or is to be”. This definition refers to the ‘business definition’, which is a way of stating the current and desired future position of company, and the objectives, purposes, goals, major policies and plans required to take the company from where it is to where it wants to be. Igor Ansoff (1965) Professor Ansoff is a well-known authority in the field of strategic management and has been a prolific writer for the last three decades. I n one of his earlier books, Corporate Strategy (1965), he explained the concept of strategy as: “The common thread among the organization’s activities and product-
© Copy Right: Rai University
So what exactly business strategy is all about? Strategic position is based on customers’ needs, customers’ accessibility, or the variety of a company’s products and services. A company’s unique position relates to choosing activities that are different from those of the rivals, or to performing similar activities in different ways. However, a sustainable strategic position requires a trade-off when the activities that a firm performs are incompatible. Creation of fit among the different activities is done to ensure that they relate to each other. It must be noted that the different approaches referred to above to define strategy cover nearly a quarter of a century. This is an indication of what a complex concept strategy is and how various authors have attempted to define it. To put it in another way, there are as many definitions as there are experts. The same authors may change the approach they have earlier adopted. Witness what Ansoff said 19 years later in 1984 (his earlier definition is of 1965): “Basically, a strategy is a set of decision-making rules for the guidance of organizational behavior”. I have tried to give you an assortment of definitions out of the many available. Rather than an assortment, it may be more appropriate to call this section a bouquet of definitions and explanations of strategy. Each flower (definition) is resplendent by itself yet contributes synergistically to the overall beauty of the bouquet. The field of strategy is indeed fascinating, prompting an author to give the title-: What is Strategy and does it matter?”- to his thought-provoking book. Drucker goes to the extent of terming the strategy of an organization as its “theory of the business”. By means of the deeper insight that developed through years of experience and thinking, they have attempted to define the concept of strategy with greater clarity and precision. So, you can see that this discipline is in the process of evolution and a uniform terminology is still evolving. By combining the above definitions we do not attempt to define strategy in a novel way but we shall try to analyze all the elements that we have come across. You should note that strategy is:
• A plan or course of action or a set of decision rules forming
Is Strategy Static in Nature or Dynamic?
Because the firm’s internal and external environment change over time, the Strategy also changes consequently, the idea that strategy is dynamic is inherent in our conception of strategic management. Strategy has Four Components First, strategy should include a clear set of long term goals. Second components are that it should define the scope of the firm i.e. the types of products the firm will serve etc. Thirdly, a strategy should have a clear statement of what competitive advantage it will achieve and sustain. Finally, the strategy must represent the firms’ internal contest that will allow it to achieve a competitive advantage in the environment in which it has chosen to compete. Thus, you may say, ‘Goals’ are ‘What’ of the strategy ‘Competitive Advantage; is how of the strategy and the; logic is the ‘Way’ of the strategy. Examples: Goals—————’ Where’—————— Where does the management of the firm want it to be? Scope—————’ What’—————— What kinds of products will the firm produce? Or
What Markets will the Firm Target?
Competitive Advantage——’How’—How the firm intends to have the cost leadership?
How the Firm Intends to Achieve its Long-Term Goals?
Logic————————’Why’——————Sree Leathers, the shoe manufacture’s strategy is to attract more and more of middle class and lower middle class customers by offering low priced durable leather shoes. Similarly, you take an example and try to explain how company A or company B focuses on its business strategy?
a pattern or creating a common thread,
• The pattern or common thread related to the organization’s
activities which are derived from its policies, objectives and goals,
• Related to pursuing those activities, which move an
organization from its current position to a desired future state. You have looked at a few practical illustrations in the previous section, which were aimed at developing an understanding of strategy and at some representative definitions of strategy, in this section. Lets take an example to focus more on strategy: Strategy defines a framework for guiding the choice of action. Some time we may ask, “What is Coca-Cola’s strategy to go on to become a market leader?
Strategic management is a science of choosing the alternatives from the designed and available courses. The managers have to decide on a process that will be most suitable to their conditions and that would enable them to achieve a desired position for their organization. Thus, strategic management can be defined as follows:
© Copy Right: Rai University
Strategic management is the process of systematically analyzing various opportunities and threats vis-à-vis organizational strengths and weaknesses, formulating, and arriving at strategic choices through critical evaluation of alternatives and implementing them to meet the set objectives of the organization. So, in your opinion, what is the single major benefit of using a strategic management approach? Justify your answer
Thus, you find that Strategic Management is a set of rules aimed at taking decisions for sustenance and growth of an organization in a given environment. Activity 1 Now you try to do an activity, which is aimed at giving practical exposure about how companies focus on strategic management. Step1. Choose any company that is listed on the stock exchange and whose information is freely available e.g. Reliance industries. Step 2. Identify what you consider to be threats, strengths, weaknesses & opportunities for the company identified. Step 3. Through discussion, compare your number of factors to those developed by other teammates. Further add some factors to your list from the discussion. Keep this information for use in later activities.
If you recall what various thinkers contributed to the study: It has been defined by Lloyd L. Byars as-Strategic management is concerned with making decisions about an organizations’ future direction and implementing those decisions. Alfred D.Chandler (1962) made a detailed analysis of various inter-relationships among environment, strategy, and organization structure in 70 manufacturing firms in the US and defined strategy as, ‘The determination of the basic long term goals and objectives of an enterprise and the adoption of the courses of action and the allocation of resources necessary for carrying out these goals’. It is pertinent to note here what Alfred D. Chandler has made reference to three basic aspects of strategic process; i. Determination of basic long-term goals, ii.. Adoption of course of actions to achieve these goals, and iii. Allocation of necessary resources for carrying out these goals. Kenneth Andrews (1965) outlines business strategy definition as a method of describing the future position of a company, its objectives, purposes, goals, policies, and plans that may be required for guiding the company from its existing position to where it desires to be. Andrews defines strategy as, ‘The pattern of objectives for achieving these goals and the major policies and plans for achieving these goals stated in such a way so as to define what business the company is in or is to be and the kind of company it is or is to be.” Igor Ansoff (1965) in his book Corporate Strategy has defined strategy as, ‘The common thread among the organizations’ activities and product markets that defines the essential nature of business that an organization was or plans to be in future. Professor William F. Glueck (1972) defines strategy as, ‘A unified, comprehensive, and integrated plan, designed to assure that the basic objectives of the enterprise are achieved.’ So, by now you have understood how the old rules of business have become obsolete and there is a paradigm shift in approaches to business.
Thus you see, strategy covers the following aspects. i. Exploring and determining the vision of the company in the form of a vision statement. ii. Developing a mission statement of the company that should include statement of methodology for achieving the objectives, purposes, and the philosophy of the organization adequately reflected in the vision statement. iii. Defining the company profile that includes the internal culture, strengths and capabilities of an organization. iv. Critical study of external environmental factors, threats, opportunities etc. v. Finding out ways by which a company profile can bematched with its environment to be able to accomplish mission statement. vi. Deciding on the most desirable courses of actions for accomplishing the mission of an organization. vii. Selecting a set of long-term objectives and also the corresponding strategies to be adopted in line with vision statement. viii.Evolving short-term and annual objectives and defining the corresponding strategies that would be compatible with the mission and vision statements. ix. Implementing the chosen strategies in a planned way based on budgets and allocation of resource, outlining the action programs and tasks. x. Installation of a continuous compatible review system to create a controlling mechanism and also generate data for selecting future course of action) SO, in what ways you as a learner expect to benefit in your personal life by studying business strategy?
© Copy Right: Rai University
This action might not be possible to undo. Are you sure you want to continue?
We've moved you to where you read on your other device.
Get the full title to continue reading from where you left off, or restart the preview.