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Learning objectives
On completion of this chapter you should be able to:
You should be able to understand how companies meet the
challenges of strategic management.
You should be able to understand that global economy has
resulted in a number of challenges and opportunities.
You should be able to understand how companies can hope
to achieve any measure of success in global markets; it must
strategically become competitive in its domestic markets.
You should be able to understand the need for strategic
You will come to know that strategic management is a
sequential activity and therefore can be readily organized by
employing formal procedures.
So, we can now discuss about various challenges faced by
strategic management:
All firmsand managersare challenged to achieve strategic
competitiveness and earn aboveaverage returns. This challenge
can be formidable. A primary challenge facing managers today is
the need to recognize by such companies as Infosys and
Reliancethat the strategic management process and the striving
for strategic competitiveness takes place in a dynamic global
economy. As a result of this ongoing struggle, success today
does not necessarily equate with success tomorrow.
An inspection of Table points out that not all companies will
be able to successfully meet the challenges of strategic manage-
ment as measured by market value added (defined as market
value minus capital invested).
Look at the table given below and tell me your interpretations:
Wealth Creators in India between 199697 and 1999-2000
Lets discuss :
As shown in Table above, Wipro and Infosys lead the list of
wealth creators for several consecutive years as they have
created more wealth (measured by market value added) than
other Indian firms.
The transient nature of strategic competitiveness is pointed
out even more clearly when one realizes that only 16 of the
100 largest industrial companies in the world in 1900 remain
competitive in the 1990s and that six members of 2000s top
ten wealth creators above were not among the top ten in
This transient nature of strategic competitiveness means that
companies in both traditional and new industries (including
Infosys, Wipro, Zee Telefilms, Reliance Industries, Hindustan
Lever and ITC) must be prepared to compete flexibly and
anticipate the unexpected if they hope to achieve long term
strategic competitiveness. One key to success will be which
firms strategies will represent the best fit between the
demands of the external environment and the resources and
capabilities in their respective internal environments.
The competitive environment of today implies that tradi-
tional sources of competitive advantage economies of scale
and large advertising budgetsmay not be as important in the
future as they were in the past. The rapid and unpredictable
technological change that characterizes this new competitive
landscape implies that managers must adopt new ways of
thinking. The new competitive mindset must value flexibility,
speed, innovation and integration.
A term often used to describe the new realities of competi-
tion is hyper competition, a condition that results from the
dynamics of strategic moves and countermoves among
innovative, global firms: a condition of rapidly
escalating competition that is based on pricequality
positioning, battles to achieve firstmover advantage and
battles to protect or to invade established product or
geographic markets.
In four years: 1996-97 to 1999-2000
Company Increasein
MVA (Rs Cr.)
Wipro 61,971 104% 14% 29%
Infosys Technologies 43,999 881% 4% 30%
Hindustan Lever 29,666 230% 8% 36%
RelianceIndustries 27,999 72% 2% 13%
HCL Technologies 16,205 N.A. 17% 17%
ITC 14,014 84% 5% 22%
HFCL 9,645 168% -2% 8%
SatyamComputer 9,487 631% 7% 24%
ZeeTelefilms 8,475 3726% -17% 7%
Ranbaxy Laboratories 6,198 41% -1% 13%
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Similarly if you look at the next table:
The World Competitiveness Scoreboard 1999
The emergence of this global economy has resulted in a
number of challenges and opportunities. For instance, Europe
is now the worlds largest single market (despite the difficulties
of adapting to multiple national cultures). Including the
nations that make up the former Soviet Union and the rest of
the Eastern bloc, the European economy has a gross domestic
product (GDP) of $ 8 trillion, comparable to the US, with 700
million potential customers. In addition, China is seen as an
emerging giant that is expected to have a higher GDP (but a
lower per capita output) than Japan by 2015 or sooner. Table
1.3 shows the recent competitiveness rankings for 20 nations
(top 15 and 5 others including India).
Improving a nations competitiveness involves several factors
and outcomes. It creates a higher standard of living for a
countrys citizens. It requires companies to view the world as its
marketplace. It involves both additional benefits and risks.
Internationalization or globalization of markets and industries
has added another dimension of challenge, which makes it
quite difficult to classify many companies as purely domestic.
You take an example: Honda, a major player in the global
automobile industry, builds over 70% of cars for the US market
in the US. Another automaker, Toyota continues to reduce its
Japanese employment while expanding its global workforce and
builds its Avalon sedan, Camry coupe and station wagon, and
Sienna minivan exclusively in us.
Thus, these automobile companies are more properly
thought of as global companies striving for strategic
competitiveness in todays competitive landscape.
Because of the economic benefits, it is likely that the
trend toward further globalization of industries will be
For example, using the EuropeUSJapan Triad as an
example, free trade is expected to positively impact the
Triad with a 5 to 10% increase in annual economic
outputs of manufactured goods and a 15 to 20%
additional increase in economic outputs from free trade
in services.
This potential for continued economic growth means
that all industrialized nations must continue to seek
the expansion of agreementssuch as the European
Union, NAFTA and GATTthat will eliminate national
laws that impede free trade among all nations.
As a result of this emerging competitive landscape,
companies must rethink how they can achieve strategic
competitiveness by positioning themselves to ask
questions from a more global perspective. This would
enable them to (at least) meet or exceed global
standards. The questions could include questions like:
Where should value adding activities be performed?
Where are the most costeffective markets for new
Can products designed in one market be successfully
adapted for sale in other markets?
How can we develop cooperative relationships or
joint ventures with other companies that will enable us to
capitalize on international growth opportunities?
As a result of globalization and the spread of information
technology, competition will become more intense. As a result
of this:
Customerseven domestic customerswill continue to expect
high levels of product quality at competitive prices;
Global competition will continue to pressure companies to
shorten product developmentintroduction time frames;
Strategically competitive companies successfully leverage
insights learned both in domestic and global markets,
modifying them as necessary.
However, before a company can hope to achieve any measure of
success in global markets, it must be strategically competitive in
its domestic market.
Now something important for you to understand is the need
for strategies and their management?
Those in favor of setting strategies argue that strategies are
needed to give companies direction. Without strategies,
incorporating objectives, companies would be adrift. If
companies do not decide where they want to go, any direction
and any activity is fine. People in companies would not know
what they were working towards and, therefore, would not be
able to judge what constitutes effective managerial behaviour.
S. No. COUNTRY 1998 RANK 1999 RANK
1 USA 1 1
9 GERMANY 14 9
10 CANADA 10 10
11 IRELAND 11 11
12 AUSTRALIA 15 12
13 NORWAY 6 13
14 SWEDEN 17 14
16 JAPAN 18 16
34 THAILAND 39 34
38 KOREA 35 38
39 INDIA 41 39
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However, those not in favor argue that directionsetting
strategies can also block out peripheral vision, keeping compa-
nies sharply, yet myopically, focused on one course of action.
Thus, strategies may limit the companys ability to open to new
opportunities and threats as these unfold and to deviate from a
set course as the company interacts with its environment and
Lets get down to discuss who is in favor of strategic manage-
ment and put down five reasons:
Strategists hit back arguing that early commitment to a course
of action are highly beneficial. By setting objectives and drawing
up a strategy to accomplish these, companies can invest
resources, train people, build up production capacity and take a
clear position within their environment. Strategies allow
companies to mobilize themselves and to dare to take actions
that are difficult to reverse and have a long payback period. We
need to point out that commitment has a flip side, inflexibility,
especially when mechanisms to change course midway are not in
place. The absence of strategies does give the company flexibility
to easily change course.
Strategic plan also has the benefit of coordinating all strategic
initiatives within a company into a single cohesive pattern. A
companywide master strategy can ensure that differences of
opinion are ironed out and one consistent course of action is
followed throughout the entire company, avoiding overlapping,
conflicting and contradictory behaviour. But the flip side is that
developing a master strategy may lead to the squashing of
initiative, either purposely or inadvertently.
Strategists also point out that strategies also facilitate optimal
resource allocation. Drawing up a strategy disciplines strategists
to explicitly consider all available information and consciously
evaluate all available options before committing to a course of
action. Documented strategies also permit corporatelevel
strategists to compare the courses of action proposed by their
various business units and to allocate scarce resources to the
most promising initiatives. However, strategies sometimes
place a disproportionate emphasis on thinking over action.
Enormous amount of time and effort are put into analyses,
paperwork, meetings and presentations, trying to arrive at the
optimal strategy. Often the result is that producing a strategy
becomes an end in itself. Action is seen merely as
operationalizing the strategy, instead of as the primary input
into further strategy formation. The absence of explicit
strategies, therefore, gives strategists the opportunity to merge
thinking and acting, and to form strategies through learning.
Last, but not least, strategies are a means for programming all
organizational activities in advance. Having detailed strategies
allows companies to be run with the clockwork precision,
reliability and efficiency of a machine. Activities that might
otherwise be plagued by poor company, inconsistencies,
redundant routines, random behaviour, helterskelter
firefighting and chaos, can be programmed and controlled if
strategies are drawn up. However, using strategies to prepro-
gram all activities within a company grossly overestimates the
extent to which a company can be run like a machine. For
adaptation, experimentation and learning to take place and for
new ideas to emerge from within the company, a certain
measure of chaos might actually be beneficial. The absence of
detailed topdown strategies encourages employees to be
responsible, entrepreneurial and combine thinking and action.
In this way, new strategic initiatives are not organized and
controlled topdown, but emerge spontaneously through
bottomup processes of selfcompany So, after this discussion:
What clearly comes out of these conflicting views is that
strategies are required but should not be walled ironclad into
the one fixed set and not be changed, for that is the major
objection against the requirement of strategies. They should be
adaptable as the circumstances warrant and under the light of
new developments as they keep on happening in the dynamic
and hyper competitive world of business today. Having
established the need of strategies (whether explicitly written
down or not) you now turn your attention to the formal
strategic management process.
After we have seen the need for strategies we need to see the
need for its management:
You can argue that strategy formation by means of strategic
management lends itself well to formalization. By its very
nature, strategic management is a very structured and sequential
activity and therefore can be readily organized by employing
formal procedures. Extensive formalization can culminate in the
establishment of a strategic management system. In such a
system, strategy formation steps can be scheduled, tasks
specified, responsibilities assigned, decisionmaking authority
clarified, budgets allocated and control mechanisms installed.
Formal vs. Inf ormal Process
The advantage of formalization, according to advocates of the
strategic management perspective, is that it structures and
disciplines the strategy formation process. Formalization
facilitates tighter company, unambiguous responsibilities, clearer
accountability and stricter review of performance.
A formal strategic management system forces managers to
comply with a planning approach to strategy formation. It also
gives top management more control over the company, as all
major activities must be in approved strategies and the imple-
mentation of strategies is checked.
Formal strategic management systems could use bureaucratic
means to make strategy. Formalization strongly over empha-
sizes those aspects which can be neatly organized such as
meetings, writing reports, giving presentations, making
decisions, allocating resources and reviewing progress, while
marginalizing essential strategymaking activities that are difficult
to capture in procedures. Important aspects such as creating new
insights, learning, innovation, building political support and
entrepreneurship are sidelined or crushed by the bureaucratic
mechanisms used to produce strategy. Moreover, strategic
management bureaucracies, once established, come to live a life
of their own, creating rules, regulations, procedures, checks,
paperwork, schedules, deadlines, and doublechecks, making the
system inflexible, unresponsive, ineffective and demotivating.
Dif f erentiated vs. Integrated Tasks
Many advocates of the strategic management perspective also
believe that a division of labour within strategy formation
processes is an important advantage of formal strategic
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management systems. The most important split
facilitated by strategic management systems is
between those who formulate the strategies and
those who implement them. Formulation can also
be divided into the task of developing strategies
and the task of deciding which strategies should be
implemented. Of course, other specialized func-
tions can also be created such as strategic planner,
competitive intelligence analyst, new business
developer and controller. A major benefit of task
differentiation is that the best managers are liberated
from timeconsuming operational matters, so that
they can focus on strategic issues. Furthermore, a
certain measure of isolation from daytoday
operations gives the manager formulating strategy
the necessary distance to judge a business more
objectively. Separating formulation and implementa-
tion tasks can seriously inhibit the formation of
novel strategies. if strategists need to be explorers,
inventors and organizational developers, they
cannot afford to view formulation and implementa-
tion as distinct activities, but must approach them
as tasks that should be integrated.
Formal strategic management can be used when
some conditions are present and is difficult to use
when the opposite is true. In his book Strategic
Planning: What Every Manager Must Know, George A. Steiner
(New York: Free Press, 1979) develops a table differentiating
between the positions where formal strategic planning would
be more successful and where it would not be.
Exhibit Forces Influencing Design of Strategic-Planning
Systems (Table )
Last but not the least, what is the face of strategic management
in the next millennium?
Strategic management faces many challenges in the coming
decades of the next century. The complexity and dynamics of
the environment makes predictions about the future highly
cumbersome. Such unpredictability makes it difficult for the
management to be proactive. However,
management must be prepared to utilize
all resources at its disposal to adopt an
aggressive reactive approach to meet such
changes and challenges of the future.
Some of the issues, strategic manage-
ment & strategic managers must be
prepared to deal with, are discussed as
Ethics and Social Responsibility over the
centuries, businessmen have been
perceived as profit oriented people,
whose primary purpose has been to
make money with little respect for the
welfare of the people whom these
businesses served. This is specially true
in the developing countries where big
businesses wield tremendous power
over government and society. In India
and Pakistan, for example, there are
millions of people working as bonded
labour, where workers have absolutely
no freedom. They cannot leave or change
their jobs where they are paid minimum
wages and are exploited fully. Because of
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monopolized industries in some of the developing countries,
materials of substandard quality are deliberately produced
without proper regard for the interests of the community
around. The hoarding of grain, cement and other consumer
needed commodities and then inflating their prices are well
known tactics of businesses in India.
However, the value system in the business world is changing.
Ethical behaviour on the part of all organizational members is
expected and encouraged and it has become an integral part of
the organizational manifesto. Organizational ethics are being
widely adopted by organizations worldwide.
Corporate social responsibility involves a set of obligations on
the part of management to protect and enhance the society in
which it functions. This means, first, that social responsibility is
an obligation for which the business should be held account-
able. Second, it is the responsibility of business to protect the
welfare of society in terms of not polluting the environment,
producing safe and quality products, not discriminating in
hiring practices, not advertising deceptively and so on. Finally, it
must enhance the societys welfare by creating positive benefits
for society such as supporting charitable causes, culture and arts,
educational institutions and other community projects, which
improve the quality of life in general.
Global Perspectives
The map of the world today is very different than the map of
the world only two or three decades ago. In the last decade
alone, the political and geographical boundaries have changed
tremendously. The geographical boundaries are no longer rigid.
Communism as a political system has fallen. Eastern Europe,
once behind the Iron Curtain and inaccessible to the outside
world is now joining hands with Western Europe for common
economic growth. The worlds largest McDonalds restaurants
are in Russia and China. China is becoming a market economy,
thus opening doors for foreign companies. India, bound by the
socialistic economic philosophy for four decades is now openly
inviting American, European and Japanese companies for joint
ventures with Indian companies.
Our daily lives are strongly influenced by businesses around the
world. We probably drive a Japanese car, wear Italian shoes,
wear suits made in Romania, wear shirts made in Korea, drink
coffee imported from Brazil or Colombia or use a Toshiba
laptop computer for our business activities. Our major
industries have indeed become international and according to
Stephen Kobrin, even the biggest companies in the biggest
countries cannot survive in their domestic markets if they are in
global industries. They have to be in all major markets. This
impact is seen by the fact that people in Germany drive Fords,
use IBM mainframe computers in Japan, eat McDonalds
hamburgers in France and drink Pepsicola in China. Air India
buys its jets from Boeing in America and most Middle East
countries use Indian construction companies to build their
roads and buildings and so on.
Going global has become necessary not only for growth but
also for survival and strategic managers must not fail to
consider the global perspective when formulating strategies.
Transition from an Industrial to a Knowledge Based Society
Knowledge is the most powerful strategic tool of successful
organizations. Knowledge of changing technology assists in
creating new products, processes or services. Knowledge about
changing preferences of customers can give an organization a
competitive edge. Industrial economies will be more and more
dominated by computers in terms of web sites and networks
containing information about various aspects of the external
environment and this information will become very crucial for
survival and growth of the company, The labour will have to be
more skilled and knowledge based in order to be innovative to
meet the challenges of the competition and innovation would
be acritical factor in strategic success.
Technological Changes
Changes in technology in practically all industries have been
dynamic and strategic managers must be prepared to adapt to
these changes and be innovative to maintain their strategic
advantage. New technological developments such as cellular
phones, laptop computers, satellite communications, electronic
networks for online communication, fax machines, robotics,
computer aided designs (CAD) and computer aided manufac-
turing (CAM) have been instrumental in improvements in
product technology, process technology and information
Managers must not only embrace change and learn how to
manage it, but they must also ensure that all organization
members become a willing part of the changed internal
environment. These fast and dynamic changes pose a tremen-
dous challenge to strategic management and it must learn to
adapt to these changes successfully and must be able to thrive
on chaos.
Diversity in the Workf orce
As the international economy increases competitive pressures,
the organizations must draw on the skills of the workers,
irrespective of their race, culture, creed or sex. The demography
of the workforce is changing and will continue to change. A
high percentage of the workforce of the future in America will
consist of women and ethnic minorities. It is expected that by
the year 2005, half of all labour force entrants will be women
and more than onethird will be Hispanics and African-Ameri-
cans. Strategic management will have to face the challenge of
bringing the people of different backgrounds, cultures and
values into cohesive work teams.
India is also becoming a country of mobility where workers
from Punjab are employed in textile mills of Gujarat and
Bengalis are employed in the power plants of Madhya Pradesh.
More and more women are joining the workforce. Management
is learning to cope with different cultural values of workers
from various provinces within the country.
The workforce of the next millennium will be highly heteroge-
neous and the management will face the challenge of enabling
such heterogeneous workforce to perform to its potential in an
equitable work environment where no one group or individual
has an unfair advantage or disadvantage.
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Complexity of the Strategic Management
Rapid changes in the business environment are increasing its
overall complexity. Accelerating rate of change, increasing
competition at a global level, unstable economic conditions,
resource shortages, knowledge expansion, demographic
mobility and increased expectations of all constituencies in
terms of higher quality in products and services are all elements
that are going to add to the complexity of business environ-
ment. Strategic management will need to formulate and
reformulate strategies and policies to deal with more and more
variables and fast changes occurring in the values of these