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Strategy

Definition: Strategy is a fundamental pattern of present and planned objectives, resource


deployment & interactions of an organization with markets, competitors and other
environmental factors.

Thus, strategy is the major programme of action chosen to reach the goals & objectives and
major pattern of resource allocations used to relate the org. to it’s environment. It is a plan of
purposeful action. That is, the outcome of a carefully managed process of translating a firm’s
strategic intent into a systematic as well as communicated plan of action.

Strategic management
Strategic management is the continuous planning, monitoring, analysis and assessment of all
that is necessary for an organization to meet its goals and objectives. The strategic
management process helps company leaders assess their company's present situation, chalk
out strategies, deploy them and analyze the effectiveness of the implemented strategies.

Importance of strategic management


Strategic management necessitates a commitment to strategic planning, which represents an
organization's ability to set both short- and long-term goals, then determining the decisions and
actions that need to be taken to reach those goals.

The strategic management process is a management technique used to plan for the future:
Organizations create a vision by developing long-term strategies. This helps identify necessary
processes and resource allocation to achieve those goals. It also helps companies strengthen and
support their core competencies.

By determining a strategy, organizations can make logical decisions and develop new goals
quickly to keep pace with the changing business environment. Strategic management can also
help an organization gain competitive advantage and improve market share.

Characteristics of strategic management

1. Strategy is a systematic phenomenon: Strategy involves a series of action plans, no way


contradictory to each other because a common theme runs across them. It is not merely a good
idea; it is making that idea happen too. Strategy is a unified, comprehensive and integrated plan
of action.

2. By its nature, it is multidisciplinary: Strategy involves marketing, finance, human resource


and operations to formulate and implement strategy. Strategy takes a holistic view. It is
multidisciplinary as a new strategy influences all the functional areas, i.e., marketing, financial,
human resource, and operations.

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3. By its influence, it is multidimensional: Strategy not only tells about vision and objectives,
but also the way to achieve them. So, it implies that the organization should possess the
resources and competencies appropriate for implementation of strategy as well as strong
performance culture, with clear accountability and incentives linked to performance.

4. By its structure, it is hierarchical: On the top come corporate strategies, then come business
unit strategies, and finally functional strategies. Corporate strategies are decided by the top
management, Business Unit level strategies by the top people of individual strategic business
units, and the functional strategies are decided by the functional heads.

5. By relationship, it is dynamic: Strategy is to create a fit between the environment and the
organisation’s actions. As environment itself is subject to fast change, the strategy too has to be
dynamic to move in accordance to the environment.

Success of Microsoft appears to be very simple as far as software for personal computers are
concerned, but Microsoft strategy required continuous decisions in a turbulent and dynamic
environment to remain leader.

6. The purpose of strategy is to create competence (things firm does better than
competitors), synergy (between different parts of the organisation and their activities) and
value creation so as to attain vision and mission.

An organisation can reach its destiny (vision) only if it can create value for the firm and its
stakeholders (mission). Value creation involves economic value addition (profits for the
company), customer value addition (Value customers perceive in relation to competitors), people
value addition (Value gained from enabling employees to be most productive resource.) so as to
fulfil the needs of all concerned.

7. Strategy requires searching for new sources of advantage: To achieve sustainable long
term competitive advantage the firm must invent new rules and new games to become unique
and create wealth. Simply copying the leader means value is destroyed for all the firms. Thus to
look different, strategy differentiation is a must.

8. Strategy is almost always the result of some type of collective decision-making process:
The vision, mission, objectives, and corporate strategies are determined by top management.
Business Unit strategies are decided by heads of business units and functional plans by
functional heads. But the top management consent is a must. It is the senior management which
resolves paradoxes between the conflicting objectives, existing functions and future activities,
and the resources allocation.

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Strategy and Tactics:

Often we find the two terms – strategy and tactics – being used simultaneously. However, the
two terms are different as given in the Table 8.1.

Table 8.1: Distinction between Strategy and Tactics:

Basis Strategy Tactics

Who formulates? A prerogative of top management Lower level management

What is the scope? Deals with many things Narrow focus

Time horizon Longer period Shorter period

Timing of action Prelude to action During the action

Type of guidance General guidance to whole Specific and situational


guidance to specific
Organisation section of organisation

From the above- table it should not be concluded that they are exclusive from each other. In fact
the two are mutually reinforcing. It is the strategy which provides the reason to initiate tactics. If
the vision is to be industry leader, increases sales is part of this strategy, but to sell in bulk to
achieve the vision, the discount given to a bulk buyer is tactic.

Concept of Strategy Formulation:

Strategy formulation refers to the process of choosing the most appropriate course of action for
the realization of organizational goals and objectives and thereby achieving the organizational
vision.The process of strategy formulation basically involves of the following five steps. Though
these steps do not follow a rigid chronological order, however they are very rational and can be
easily followed in this order.

a. Strategic Intent: It provides Vision – what the organisation wants to become, Mission – what
business the firm is in, Values – a common set of beliefs guiding the behaviour of organisational
members, and Objectives — Qualitative goals.

b. Situational Analysis:The three kinds of environments need to be scanned – External,(to know


of Opportunities and Threats), Internal (to know of strengths and weaknesses), and Industry (to
determine competitive scenario)

c. Setting Long-term Quantitative Objectives or Goals: The results expected from pursuing
certain strategies. The objectives should be quantitative, understandable, challenging,

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hierarchical, obtainable, and in harmony among organisational units. The time horizon of
objectives and strategies should be consistent.

d. Formulation of strategic Alternatives: In its journey towards its destination the strategy
formulation has to find and evaluate different strategic alternatives.

e. Selection of Strategy: To create a fit between the environment and the strategic intent of the
organisation, a suitable strategy has to be selected for implementation.

Types of Strategies:

1. Corporate Strategies or Grand Strategies:

There can be four types of strategies a corporate management pay pursue: Growth, Stability,
Retrenchment, and Combination.

1. Growth strategy can be put to use by way of:

a. Concentration: It means bringing in resources into one or more of a firm’s business keeping
customer needs, customer functions, alternative technologies, singly or jointly so as to expand.

b. Integration: Integration means joining activities related to the present activities of a firm.
Integration not only widens the scope of business but also a subset of diversification strategies.
Integration can be of following types:

Horizontal Integration:

It means when a firm takes over the other firm operating at the same level of production or
marketing. Recently ICICI Bank decided to acquire Bank of Rajasthan and Reckit Benkier of
UK took over Paras of India.

Vertical Integration:

When a firm acquires control over another firm operating into the same value chain. It can be of
two types, viz., Backward Integration – acquiring a firm engaged in raw materials (Tata steel
buying a coal mine company in Indonesia); and Forward Integration — acquiring control over a
firm/activity taking it nearer to the ultimate consumer (Reliance Industries, a petro refining
company, also starting petrol pumps).

c. Diversification: Adding a new customer function(s), customer group(s), or alternative


technologies to an existing business is known as diversification. Diversification strategies can be
of following types:

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Concentric diversification:

Adding new, but related products or services is known as concentric diversification. It can be
market-related concentric diversification (using common channels); Technology-related (a bank
also selling mutual fund policies-similar procedure); and Marketing and technology related
concentric diversification (Amul, selling butter, curd, Shrikhand, and buttermilk along with
milk). A retailer selling kids wear also starts selling lady wears is a case of related concentric
diversification.

Conglomerate or unrelated diversification:

If a firm takes up business not related to the existing one neither in terms of customer groups,
customer functions, nor alternative technologies, it is known as conglomerate diversification –
Tata Sons is a conglomerate, as it is unrelated businesses, steel, power, chemicals, hospitality,
education, publishing, beverages, etc.

Horizontal Diversification:

It means adding new products or services for present customers. Escort Fortis Hospital may offer
bank, bookstore, coffee shop, restaurant, drug store in their compound for the visitors to the
hospital.

d. Internationalization:

It means marketing product/service beyond national market.

e. Cooperation:

It means cooperation among competitors. It may take the form of Mergers and Acquisitions (like
Tata Motors acquired Jaguar Land Rover facilities of UK); Joint Ventures (like Indian Oil
company floated an oil marketing company in Sri Lanka in collaboration with a local company),
and Strategic Alliances (the two cooperating firms remain independent but cooperate for
synergy).

f. Digitalization:

It includes computerization, electronisation, and digitalization (conversion of analogue electrical


signals into digital signals).

2. Stability Strategies: When the firm wants to go for incremental improvement of its
performance, it is known as stability strategy. Basic approach in the stability strategy is ‘maintain
present course: steady as it goes.’ It can be No-change strategy (taking no decision is a decision
too); Profit strategy (lying low and managing profit through cost cutting, price rise, etc. Pause or
proceed-with-caution strategy (when getting into non-core business, like Hindustan Unilever
selling shoes).

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3. Retrenchment Strategies: It means substantially reducing the scope of business activities. It
includes turnaround strategy (to bring back to health through internal and external restructuring);
Divestment strategy (Sell-off or hive-off – to sell off a non-core business divisions; Spin-off -
demerging the business activities; and Split-off – division of business into two separate
ownership; Disinvestment – dilution of control through sale of equity -very recently Government
of India has sold stake through FPO in Power Finance Corporation); and Liquidation Strategy
(the last resort in retrenchment, Lehman Brothers of USA was finally liquidated ).

4. Combination Strategy: All the strategies discussed above can be applied simultaneously,
sequentially, or in a combination.

2. Business Level Strategies:

Business-level strategies are fundamentally concerned with the competition. In this regard
Michael Porter has given three generic strategies, which can be converted into four.

To compete successfully the first generic strategy is Cost- leadership (Microsoft produces
software for PCs at such a cost that no hardware manufacturer ever thinks of producing himself);
second is Differentiation (Dell computers are sold online, whereas all other manufacturers use
physical distribution); and finally it is Focus. Focus may rely on either cost leadership or
differentiation, but its market size is very small, where large competitors do ignore them.

3. Functional Strategies:

These strategies may be Operations Strategy, Marketing Strategy, Finance Strategy, and Human
Resource Strategy.

Components of strategic management:

1. Establishing the hierarchy of strategic intent:

a. Creating & communicating a vision


b. Designing a mission statement
c. Defining the business
d. Setting objectives

2. Formulation of strategies:

e. Performing environmental appraisal


f. Doing organizational appraisal
g. Considering corporate-level strategies
h. Considering business-level strategies
i. Undertaking strategic analysis
j. Exercising strategic choice
k. Formulating strategies
l. Preparing a strategic plan

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3. Implementation of strategies:

m. Activating strategies
n. Designing structures & systems
o. Managing behavioral implementation
p. Managing functional implementation
q. Operationalising strategies

4. Performing strategic evaluation & control:

r. Performing strategic evaluation


s. Exercising strategic control
t. Reformulating strategies

Guidelines for crafting strategies


1. Gather the facts: To know where you’re heading, you have to know where you are right
now. Before you start, review the past performance & current situation. Look at each area
& determine what worked well, what could have been better & what opportunities lie
ahead. The most important part of this process is involving right people to make sure
you’re collecting the most relevant information.
2. Develop a vision statement: This statement should describe the future direction of
business & it’s aim in the medium to long term. It’s about describe one’s purpose &
values.
3. Develop a mission statement: It also outlines it’s primary objectives. This focuses on
what needs done in short term to realize long term vision. For vision, where do we want
to be in 5 years? For mission statement you’ll be ask ques: what do we do?, how do we
do it?, whom do we do it for?, what value do we bring?
4. Identify strategic objectives: at this stage, the aim is to develop a set of high –level
objectives for all areas of business. They need to highlight the priorities and inform the
plans that will ensure delivery of company’s vision & mission. Objectives should be
SMART( specific, measurable, achievable, realistic, time-related).
5. Tactical plans: Now it’s time to translate strategic objectives into more detailed short
term plans. These will contain actions for departments & functions in your organization.
You are now focusing on measurable results & communicating to shareholders what they
need to do it & when.
6. Performance management: it is vital to continually review all objectives & action plans
to make sure you’re still on track to achieve that overall goal. Managing & monitoring a
whole strategy is a complex task, which is why managers, directors & business leaders
are looking to alternative methods of handling strategies, creating , managing &
reviewing a strategy requires you to capture the relevant information , breakdown large
chunks of information, plan, capture relevant information & have a clear strategic vision.

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Tailoring strategies to fit specific industry:

1. Strategic avenues for competing in an emerging industry:

a. Try to win early race employing broad or focused differentiation strategy


b. push to perfect the technology, improve the quality & product
c. adopt dominant technology quickly
d. form strategic alliances with suppliers
e. acquire alliances with companies having related or complementary techno
expertise
f. try to capture first mover advantages
g. pursue new customer groups, new user applications, entry into new geographical
areas
h. begin to shift advertisement to increase frequency of use & building brand loyalty
i. use price reductions to attract next layer of price sensitive buyers into market

2. Strategies for competing in turbulent, high velocity markets:

a. invest aggressively in R & D


b. develop quick response capability
c. initiate fresh actions every few months- create change proactively
d. keep company’s products & sevices fresh

3. Strategic moves in mature industries:


a. more emphasis on value chain innovation
b. Trimming costs
c. increasing sales to present customers
d. building new or more flexible capabilities
e. acquiring rival firms at bargain prices

4. Strategies for firms in stagnant or declining industries:

a. pursue fastest growing market segments in industry


b. strive to drive cost down
c. stress differentiation based on quality improvement & product innovation

5. Strategies for competing in fragmented industries:


a. .Becoming a low cost operator
b. Specializing by customer type
c. Focusing on limited geographical area
d. Specializing by product type
e. Constructing & operating formula facilities

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