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Chapter - 1

Nature and concept of Strategy and


Strategic Management

Dr. Shyamal Gomes

Introduction:

The term ‘Strategy” is derived from the ancient Greek word ‘Strat Agos’
–which can noted the art & science of directing military General /
Forces. Strategy is, thus, a well thought out systematic plan of action to
defend one or to defeat rivals. Strategy is formulated in anticipation of the
possible positions, move actions and reactions of the rivals.

However, in business parlance, there is no definite meaning assigned to


strategy but it is a space of knowledge, the attitude in the struggle for
existence and growth which is indeed very hard for firms, in a
competitive environment.

Moreover, strategy can be defined as a Set of decisions – what business


are we in, what products and services will we offer, to whom , at what
prices, on what terms, against which competitors, on what basis will
we compete.

There are so many experts pointed out their views about the definitions of
Strategy, here is some example:

z Clausewitz 1820): Strategy is “the art of the employment of battles


as a means to gain the objects of WAR”.
z Chandler (1962): Strategy is “a comprehensive master plan” that
determinates the long term goals of an enterprise.
z Mintzberg: Strategy is a mediating force between the organization
and its environment: consistent patterns in streams of
organizational decisions to deal with the environment; 1979.
z Norman: Strategy is the art of creating value; 1993.
z Porter: Strategy deliberately choosing a different set of activities
to deliver a unique mix of value;1996.

Thus, Strategy is a comprehensive master plan stating how the


corporation will achieve its mission and long term objectives by Setting
the decisions – what business are they in, what products and services
they will offer, to whom , at what prices, on what terms, against which
competitors, on what basis will they compete.

According to Michael Porter, the Principles of Good Strategy are:

1. A good strategy is concerned with the structural evolution of the


industry as well as with the firm’s own unique position within that
industry.
2. A good strategy makes the company different, giving the company
a unique position, involving the delivery of a particular mix of
value to some array of customers, which represents a subset of the
industry.
3. If a company wants to serve a particular target customer group
with a particular definition of value, this must be inconsistent with
delivering other types of value to other customers. Therefore a
good strategy proves the value of the company in competitive
environment.

Policy Vs. Strategy:

Policy:

Broad Guideline for decision making that links the formulation of


Strategy with its implementation. It is a general course of action with
no defined time limits. Companies use policies to make sure that
employees throughout the firm make decisions and take actions that
support the corporation’s mission, its objectives, and its strategies.

Strategy:

A Strategy of a corporation is a comprehensive master plan stating


how the corporation will achieve its mission and long term Objectives.
Deals with strategic decisions that decide the long term health of an
enterprise. It maximizes competitive advantage and minimizes
competitive disadvantages

Example:

Policy: General Electric must be number one or two where ever it


competes (this supports GE’s objective to be number one in market
capitalization.)
Strategy: After TATA group of companies realized that it could no
longer achieve its objectives by continuing with its strategy of
diversification into multiple line of businesses, it sold its companies like
Tomco, Lakme etc. to Hindustan Levers Ltd.
TATA’s instead choose to concentrate on basic industries like steel,
automobiles, etc. an area that management felt had greater opportunities
for growth.

Strategy policy Pyramid: Fig. 1.1 (In terms of Planning)


Policy Strategy Pyramid: Fig – 1.2: In view of Vision, Mission and
Objectives

Strategy and Tactic:

Strategy and Tactics are distinct in terms of their dimensions Strategy and
tactics are both concerned with formulating and then carrying out courses
of action intended to attain particular objectives. A comparative studies
has shown in Table – 1.1.

Aspects Strategy Tactice


Scale of Objectives Grand Limited
Scope of the Action Broad and General Narrowly focused
Guidance Provided General and ongoing Specific and Situational
Degree of Flexibility Adaptable but hastily Fulid, quick to adjust and
changed adapt in minor or major
ways

Timing in Relation to Before Action During Action


Action

Focus of Resource Deployment Employment


Utilization
The typical business firm usually considers three types of strategy:

Corporate strategy (CS): It is the long term Strategy encompassing the


entire org. CS addresses fundamental questions such as what is the
purpose of the org. and what business it wants to be in and how to expand
into such business. CS – formulated by top level management

Business or Competitive Or SBU (Strategic Business Unit) Strategy:


is concerned with decisions Pertaining to the product Mix, market
segments and Competitive advantages. SBUS – formulated by Top level
SBU managers or top level single Business company manager

Functional strategies are strategies for different functional Areas like


production, Personnel, Marketing etc. FS formulated by Functional level
managers, section engineers, etc.

However, the economic liberalization (1991) and the concomitant wide


opening up of business opportunities and increase in competition have in
fact made strategic management a buzz word among the Indian corporate.

What is Strategic Planning?

Strategic Planning is the holistic process of determining the long term


objectives of an organization and the policies and strategies that govern
the acquisition, use and disposition of resources to achieve the vision
and mission of any organization. It tends to be a top management
responsibility

STRATEGIC PLANNING IS THE PROBLEM-SOLVING PROCESS OF


ESTABLISHING STRATEGIC OBJECTIVES AND FORMULATING
STRATEGIC PLANS TO ACCOMPLISH THOSE OBJECTIVES. STRATEGIC
PLAN IS BASED ON ANSWERING THESE 3 QUESTIONS:

1. WHERE ARE WE NOW?


2. WHERE DO WE WANT TO BE?
3. HOW DO WE GET THERE?
Types of Planning

Top management
Chief executive officer, Strategic planning:
president, vice president, 3-5 years
general managers, division
heads

Middle management Intermediate planning :


Divisional managers, product – line Six months to two years ???
managers, department heads

Lower Management
Operational planning :
Functional / Unit managers, first line
One week to one years
supervisors

Table: 1.2 : Types of Planning

Functional Difference between Strategic Planning, Tactical Planning


and Operational Planning:

Strategic Plans (long term) Intermediate (tactical) Operational ( short


plans term plans)
• Long range plan • Intermediate • Short range
• time frame – 3 or plan plan
more years • Time frame: 2- • Time frame –
• Top management 3 years yearly
responsibility • Performed by • Done usually
• Concerned with managers at at lower levels
broad objectives middle level • covers day to
• Focus on planning • concerned with day the work of
and forecasting integrating of various
the org. operations;
departments in implements
the org. internal goals
• Focus on • Focus on
coordination control
primarily.

Table: 1.3 : Fundamental different between SP, TP and OP


The Strategic planning basically helps to organization for:

– setting up of goals or objectives;


– the analysis of the environment and the resources of the
organization;
– the generation of strategic options and their evaluation;
and
– the planning of implementation the design of control
systems or monitoring mechanisms.

The Identifiable steps for Strategic Planning:

• This planning consists of six identifiable stages that fulfill the


requirements of the management thinkers:
– environmental scanning,
– evaluation of issues,
– forecasting,
– goal setting,
– implementation, and
– Monitoring.
• The merged stages allows information form the external
environment in the form of emerging developments to enter the
traditionally inwardly focused planning system, thereby enhancing
the overall effectiveness of an organization’s planning.

The advantages of Strategic planning for business organizations are:


– It is a highly systemized form of planning and therefore it is
easy to grasp the methods, procedures and rituals
programmed to execute the strategies.
– It provides a structured means of analysis and thinking about
complex strategic problems, requiring management to
question and challenge what they take for granted.
– It can be used to involve people in strategy development.
– It is also a way to communicate the intent of management to
members of the organization.
– It can be used as a means of control by regularly reviewing
performance and progress against agreed objectives.

Pitfalls of Strategic Planning:


• Strategic Planning is laborious and time consuming
• Immediate results are rarely obtained
• Strategic Planning quite often, restricts the organization and
executives to the more rational and risk free options.
• Again, it should be remembered that trying to reach 100%
perfection is an ideal intention that can never be satisfied
through strategic planning.

What is Strategic Planning is not?

According to Peter F. Drucker,


• It is not a box of tricks, a bundle of techniques. It is analytical
thinking and commitment of resources to action.
• It is not forecasting. It helps in tracking down faithful
opportunities and developing appropriate strategies to achieve
them.
• Strategic planning does not deal with future decisions. The
question as to what the organization should do tomorrow is not as
important as to what it has to do today to be ready for an uncertain
tomorrow.
• SP is not an attempt to eliminate or minimize risk, it only helps in
choosing rationally among risk – taking courses of action for long
term achievement.

Now the questions comes who is managing the strategic planning? Many
large organizations have a strategic planning Staff charged with
supporting both top management and the business units in the strategic
planning process. These planning staffs typically consist of just fewer
than 10 people, headed by a senior vice president or director of corporate
planning.

The staff’s major responsibilities are:

1. Identify and analyses companywide strategic issues and suggest


corporate strategic alternatives to top management.

2. Work as facilitators with business units to guide them through the


strategic planning process.

Other organizations engage in concurrent strategic planning, in which all


the organization’s units drafts plans for themselves after they have been
provided with the organization’s overall mission and objectives.
Here, the typical board of directors expects top management to manage
the overall strategic planning process so that the plans of all the units and
functional areas fit together into an overall corporate planning.
Therefore, Top management’s tasks includes of evaluating unit plans and
providing feedback. To do this, top management may require each unit to
justify its proposed objectives, strategies, policies and programmes in
terms of how well they satisfy the organization’s overall objectives in
light of available resources.

What is Strategic Management?

Business Policy as a distinct field of study was introduced at Harvard


Business School in 1911.This course aimed at improving the Business
Management Capabilities of Management students/ professionals in terms
of skills knowledge, ideas, plan and perspectives. Basically business
process is considered a capstone integrative course offered to students
who have already been through a set of core functional area of courses.

Terms such as strategic management, business policy, corporate


strategy and corporate planning are often used interchangeably.
However, a distinction may be drawn between some of them for clear
understanding. For instance a differentiation may be drawn between
corporate planning and corporate strategy. Even in the absence of
competition a company may have a corporate plan, a long-term
development plan. For example, even in a monopoly environment
companies like The Indian Telephone Industries and Cochin Refineries
had corporate plans but they were not corporate strategy or strategic
management. However, when the corporate plan is formulated in a
competitive environment, it would amount to corporate strategy /
strategic management / business policy.

The management scholars contributed their thought and ideas on


understands or definitions of Strategic management which are as follows:

The early 1980s:

Glueck (1984): Strategic Management as “ a stream of decisions and


actions, which leads to the development of an effective strategy or
strategies to help achieve corporate objectives”.

Hofer and others (1984): Strategic Management as “ the process which


deals with the fundamental organizational renewal and growth with the
development of strategies, structures, and systems necessary to achieve
such renewal and growth, and with the organizational systems needed to
effectively manage the strategy formulation and implementation
processes”.

Sharplin (1985) defines strategic Management as “ the formulation and


implementation of plans and carrying out of activities relating to the
matters which are of vital, pervasive or continuing importance to the total
organization”

A recent origin 1998s:

Harrison and St. John (1998) define Strategic Management as “ the


process through which organizations analyze and learn from their internal
and external environments, establish strategic direction, create strategies
that area intended to help achieve established goals, and execute these
strategies, all in an effort to satisfy key organizational stakeholders”.

Therefore, it has observed that different authors have defined Strategic


Management (SM) differently, yet there are several common elements in
the way it is defined and understood. SM is considered as either decision
– making and planning, or a set of activities related to the formulation and
implementation of strategies to achieve Organizational Objectives.

Strategic Management is that set of managerial decisions and actions


that determines the long – run performance of a corporation. It includes
Strategic Intent, Environmental scanning (both internal and external),
and strategy formulation (strategic planning), strategy implementation
and evaluation and control.

The study of strategic management therefore, emphasizes the monitoring


and evaluating of external opportunities and threats in light of a
corporation’s strengths and weaknesses in order to generate and
implement a new strategic direction for an organization.

Therefore, we may conclude, SM is the process by which an organization


try to determine what needs to be done to achieve LONG TERM or
corporate objectives and more importantly, how these objectives are to be
met.
Ideally, it is a process by which senior management examines the
‘organization’ and the ‘ environment’ in which it operates and attempt to
establish an appropriate and optional ‘fit’ between the two to ensure the
organization’s success.
Fig. 1.3: Thematic Overview of Strategic Management

Fundamental difference between strategic planning and Strategic


management:

Table - 1.4: Difference between SP and SM


Phases of Development:

The term business policy gradually changes into a new title called
Strategic Management. According to Hofer the evolution of business
policy to Strategic management in terms of four Paradigm shifts:

Phase – I Mid Paradigm of adhoc policy making, Basic Financial


1930s budgetary planning & financial control Planning
through annual budgets
Phase – II 1960s The integration of functional areas in a Forecast based planning
rapidly changing environment.
Critical look at the basic concept of
Business and relationship to the
environment
Phase – III 1980s Concept of Strategies – systems approach Externally oriented
with focus on value chain analysis planning
Phase – VI 1990s The quest for competitive advantage, Strategic Planning
benchmarking and resource based approach
- Strategic Management
Table - 1.5: Phases of development
Nature of Strategic Management:

The nature of Strategic Management is different form other aspects of


management as it demands attention to the "big picture" and a rational
assessment of the future options. It provides:
¾ a strategic direction endorsed by the team and stakeholders
¾ a clear business strategy and vision for the future
¾ a mechanism for accountability
¾ a framework for governance at the various levels
¾ a coherent framework for managing risk for ensuring
business continuity.
¾ the ability to exploit opportunities and respond to external
change by taking ongoing strategic decisions

Therefore, from the above discussion, it is clearly reveal that there are 4
important elements of strategic management:

1. Strategic Analysis: re-examining the position in the market place or


competition in-terms of its products, services, strategies etc.
2. Strategic Choice: formulation of suitable courses of action, their
evaluation and the choices between them.
3. Strategy Implementation: mobilizing employees to translates
formulated strategies into concrete actions.
4. Strategy evaluation and control: measure performance and take
corrective actions.

Benefits of Strategic Management:

Wheelen, Hunger and Rangarajan stated 3 most highly rated benefits


of Strategic Management to be:

• Clear sense of Strategic vision for the firm.


• Sharper focus on what is strategically important
• Improved understanding of a rapidly Changing environment

However, the important benefits of Strategic management mentioned


below highlight its relevance:

1. SM helps to envision an organization’s future, formulate mission


and make objectives clear.
2. SM Process helps to understand each and every people of an
organization what the present stands and what could be the
development path charted out, what are the planned results over a
period of time.
3. It makes people realize what are they working for, what is expected
of each SBU, division, functional department even the individuals.
4. SM helps to facilitates the better delegation, coordination,
monitoring, performance evaluation and control
5. The identification of Strengths and weaknesses may help an
organization to take measures to overcome / minimize the
weaknesses and reinforce the strength.
6. The SWOT analysis, which is a part of the SM, helps a company to
adopt suitable strategies for exploiting opportunities and combating
threats. It will also help the company to drop that business where it
would not be successful or which do not meet the objectives.
7. SM helps company to develop Realistic and long-term plan by
constant monitoring its objectives.
8. SM makes the management dynamic, appropriate to the
environment and result oriented.
9. SM enables a company to meet competition more effectively.
10. SM leads the company in a Standard and competitive.
Limitation and Misgivings:

Strategic Management is not without limitations. The important

limitations of Strategic management are the following:

• SM is based on certain premises and if the premises do not hold


valid the strategy or plans based on them would not be realistic
or effective.
• SWOT analysis is an important exercise in SM, which requires
lot of exercise and information. When these two are lacking the
utility of the SWOT analysis is questionable and it could even
lead to formulation of wrong or effective strategies.
• In SM effective implementation is vital that demands many
things – resource allocation, leadership implementation, right
structure and effective evaluation and control. The reason for
the failure of many strategies is the implementation failure.
• A serious problem generally rising in a company if there is lack
of involvement of the internal people in the strategy formulation
and when they are not equally taken into confidence.
• Strategic Planning is a complex and difficult task which
requires people with vision, expertise and commitment and an
appropriate system
• SM is a costly exercise
• One of the most important criticisms against Strategic
Management is that it sometimes makes the organization over
ambitious and resultant failure to reach the goals cause
frustration. Unrealistic strategies may land companies in severe
problems.

Conclusion:

Strategic Management has its roots in Business Policy, and evolves or


developed through four sequential phases.

Phase I: Annual Budgeting (Basic Financial Planning


Phase II: Long Range Planning (Forecast based planning)
Phase III: Environmental Scanning (Externally oriented planning)
Phase IV: Strategic Planning

Strategic Management is derived from Strategic Planning and is an


extension of the concepts embodied in it.
However, the initial focus of Strategic Management was on the
intersection of two broad fields of enquiry:
1. The strategic processes of business firms and
2. The responsibilities of general management.
Anyhow, in the competitive advantages Strategic management became
the prior subject for all management concern.

References:

• Upendra Kachru: Strategic Management – concept and cases


• Azhar Kazmi – Business Policy and Strategic Management
• David Hunger – Strategic Management and Business Policy.
• V.S.P..Rao – Strategic Management - concept and cases
• Porter M.E, What is Strategy, In Harvard Business Review. Nov. –
Dec. 1996, pp 61-78.

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