Strategic Management Notes

Strategic Management is a stream of decisions and actions

which lead to the development of an effective strategy or
strategies to help achieve corporate objectives.
The Strategic Management process is the way in which
strategists determine objectives and make strategic
decisions. Strategic Management can be found in various
types of organizations, business, service, cooperative,
government, and the like.
Strategic management is an on-going process that evaluates
and controls the business and the industries in which the
company is involved; assesses its competitors and sets goals
and strategies to meet all existing and potential competitors;
and then reassesses each strategy annually or quarterly [i.e.,
regularly] to determine how it has been implemented and
whether it has succeeded or needs replacement by a new
strategy to meet changed circumstances, new technology,
new competitors, a new economic environment, or a new
social, financial, or political environment. --Lamb Robert
(1984)
Just as a football team needs a good game plan to have a
chance for success, a company must have a good strategic plan
to be able to complete successfully. A strategic plan results
from tough managerial choices among numerous good
alternatives, and signals commitment to specific markets,
policies, procedures, and operations in line of other, “less
desirable” courses of action.
Strategic management is the process of decision making and
planning which leads to the development of an effective strategy to
help achieve organizational objectives. Strategic Management is all
about identification and description of the strategies that managers
can carry so as to achieve better performance and a competitive
advantage for their organization. Strategic management can also be
defined as a bundle of decisions and acts which a manager
undertakes and which decides the result of the firm’s
performance. It is a way in which strategists set the objectives and
proceed about attaining them. It deals with making and
implementing decisions about future direction of an organization. It
helps us to identify the direction in which an organization is moving.
Strategic management is a continuous process that evaluates and
controls the business and the industries in which an organization is
involved.

Nature and Scope of Strategic

Management
Strategic management is both an Art and science of formulating,
implementing, and evaluating, cross-functional decisions that
facilitate an organization to accomplish its objectives. The purpose
of strategic management is to use and create new and different
opportunities for future.
Strategic Management – Nature: Strategic
Management as a Process, Top Management
Functions, Long-Term Issues, Flexibility,
Innovation and a Few Others
Nature of strategic management specifies its
characteristics which are as follows:
1. Strategic Management as a Process:
Strategic management is basically a process. It has emerged
out of management in other fields where the concept of
management is taken as a process for achieving certain
objectives of the organization. Thus, strategic management
involves establishing a framework to perform various
processes. The concept of strategic management must embody
all general management principles and practices devoted to
strategy formulation and implementation in the organization.
2. Top Management Function:
Strategic management is basically top management function.
Thus, in order to ensure effective top management function, it
is necessary that a distinction should be made between
strategic management and operational management which
emphasises day-to-day operations in the organization, so that
top management can focus more attention on the strategic
aspect rather than emphasising on operational management.
Since the environment of the organization is always changing
providing new opportunities and threats, top management
must spend more and more time on this aspect. Thus, there is
a considerable change on the emphasis of top management
functions in the organizations, particularly in large and
complex organizations. The change is from operational
management to strategic management.
3. General Management Approach:
Strategic management has general management approach.
This approach has three characteristics – (i) This approach
uses system frame of reference in dealing with wholeness of
an organization. In this dealing, the emphasis is put on
identifying tendencies of various phenomena in the
organization and relationships among these tendencies, (ii)
Decision criteria are based on overall betterment of the
organization as a whole, not the criteria used by functional
specialists, (iii) Attempt is made to achieve organizational
equilibrium and generation of synergy. This may be even
suboptimal for some departments or units of the organization.
4. Relating Organization to Environment:
The focus of strategic management is on relating the
organization to its external environment. This emphasises
that there is continuous interaction between the organization
and its environment taking an open systems approach. Thus,
the organization must create adequate channel through which
external information will pass to various points in the
organization.
5. Long-Term Issues:
Strategic management deals primarily with long-term issues
of the organization that may or may not have an immediate
effect. For example, investment in research and development
(R&D) may yield no immediate effect in terms of new product
development. However, this investment may lead to
development of new products and, therefore, enhanced
profits.
6. Flexibility:
Strategic management has flexibility. This flexibility is
required because strategic management works in the context
of environment which is quite dynamic. As a result, many
strategic actions planned maybe either left, postponed, or
changed in the light of environmental requirements.
7. Innovation:
Strategic management puts emphasis on innovation which is
the process of introducing new things or new ways of working.
Innovation is achieved through new strategic actions which
are quite different from the previous actions. Innovation is
required to face environmental challenges effectively.
Strategic Management – Importance
i. It helps the organization to be more proactive instead
of reactive in shaping its future. Organizations are able
to analyze and take action instead of being mere
spectators.
ii. It provides framework for all the major business
decisions of an enterprise such as – decisions on
businesses, products, and markets, manufacturing
facilities, investments and organizational structure.
iii. It seeks to prepare the corporation to face the future
and acts as a pathfinder to various business
opportunities. Organizations are enabled to identify
the available opportunities and identify ways and
means to reach them.
iv. It helps organizations to avoid costly mistakes in
product market choices or investments.
v. It helps organizations to evolve certain core
competencies and competitive advantages that assist
in their fight for survival and growth.
vi. Strategic management looks at the threats present in
the external environment and thus companies can
 either work to get rid of them or else neutralizes the
threats in such a way that they become an opportunity
for their success.
vii. It also adds to the reputation of the organizations
because of the consistency that results from
organizational success.
viii. It often brings order and discipline to a firm.
ix. It allows for identification, prioritisation and
exploitation of opportunities.
x. It provides an objective view of management problems.
(xv) It represents a framework for improved control of
activities.
(xx) It provides a basis for the clarification of individual
responsibilities.
(xxi) It gives encouragement to forward thinking.
(xxii) It provides cooperative, integrated and enthusiastic
approach to tackling problems and
opportunities.
(xxiii) It encourages favourable attitude towards change.
(xxiv) It gives a degree of discipline and formality to the
management of business.

(xii) It often brings order and discipline to a firm.

(xiii) It allows for identification, prioritisation and
exploitation of opportunities.
(xiv) It provides an objective view of management problems.
(xv) It represents a framework for improved control of
activities.
(xvi) It minimises the effects of adverse conditions and
changes.
(xvii) It allows major decisions and supports established
objectives.
(xviii) It allows fewer resources and less time to be devoted for
correcting erroneous or adhoc
decisions.
(xix) It helps to integrate the behaviour of individuals into a
total effort.
(xx) It provides a basis for the clarification of individual
responsibilities.
(xxi) It gives encouragement to forward thinking.
(xxii) It provides cooperative, integrated and enthusiastic
approach to tackling problems and
opportunities.
(xxiii) It encourages favourable attitude towards change.
(xxiv) It gives a degree of discipline and formality to the
management of business.
Strategic Decision Making
Managers in the business world often fail to make a decision
at the right time and allow the
opportunities to be grabbed by the competitors and the
problems remain or magnify and culminate
into a crisis. Decisions should be taken at the right time and
implemented after problems have been

thoroughly analysed. Decision-making means to come to a

conclusion and implement it. Decision-
making is defined as “the selection based on some criteria of
one behaviour alternative from two or

more possible alternatives.” The need for decision-making

arises only when there are two or more
alternative solutions for a problem.

Approaches to Strategic Decision-Making

Different theories have suggested different approaches of decision-

making. These approaches

are discussed hereunder:

(a) The Intuitive-Emotional Approach

Decision-maker takes decisions based on intuition which is
characterised by the use of hunches, inner feelings or the ‘gut-
feeling’ of the decision-maker. Decision-maker who makes decisions
based on intuition, practices management exclusively as an art. This
decision-maker prefers habit or experience, relative thinking, and
instincts using the unconscious cognitive process. The decision-
maker takes into account a number of alternatives into
consideration, but simultaneously jumps one step in analysis and
search for another and back again.

(b) The Rational-Analytical Approach

In the rational-analytical approach, the decision-maker is intelligent

and rational. The decision-maker makes the choice in full awareness
of all available feasible alternatives to maximise advantages. The
decision-maker considers all alternatives as well as consequences of
all possible choices, order these consequences in the light of a fixed
scale of preferences, and chooses the alternative that procures the
maximum gain.

The rational approval to decision-making includes the following

steps:

(i) Recognise the need for a decision;

(ii) Establish, rank and weight criteria;

(iii) Gather available information and data;

(iv) Identify possible alternatives;

(v) Evaluate each alternative with respect to all the criteria; and

(vi) Select the best alternative.

(c) A Satisfying Approach

There are limits to human rationality. Therefore, an individual must

take decisions based on limited and incomplete knowledge. In view
of this, the individual decision-maker cannot optimise but only
satisfy.

Optimising means choosing the best possible alternative. Satisfy

means choosing the first alternative that meets the decision-maker’s
minimum standard of satisfaction. Satisfying approach to decision-
making is presented. If the decision-maker is satisfied that an
acceptable alternative has been found, it is selected otherwise, the
decision-maker searches for an additional alternative.

(d) Political-Behavioural Approach

Normally, decisions made by organisations affect a variety of people

and organisations. Hence, another view suggests that the
corporations must consider all the people and organisations in
making decisions. Corporations interact with a variety of
stakeholders as the corporation and its stakeholders are mutually
dependent on each other.

The employees exchange their human resources for fair salaries,

benefits and harmonious industrial and human relations. Customers
exchange their money for qualitative products and courteous
services. Shareholders exchange their money for high rate of
 dividend and safety of their capital. Government provides security
and protection and in turn expects payment of taxes regularly.
Financial institutions exchange their finance for high rate of interest,
security of principal amount and regular payment of interest.
Suppliers of inputs expect fair terms of trade and continuous
business. Competitors exchange information through chamber of
commerce, trade and industry for mutual existence and
development. The dealers expect continuous business. Thus, a
stakeholder is an individual or organisation who can affect or is
affected by the decision-making and achievement of organizational
purpose and objective.

3 phases of the strategic management

process.
1. Formulation phase.

2. Implementation phase.

3. Evaluation phase.

Formulation Phase
The formulation phase is the cognitive phase of the strategic
management process.

It is during this phase that deliberations and decisions about the

broad scope of business (intent), the key areas of business
(corporate strategy), and key drivers of business (core values and
commitments) are taken.
 The decisions are based on a reasoned analysis of SWOT factors,
assessment of managerial aspirations and acknowledgment of
society’s expectations. The formulation begins with asking very
fundamental questions:

1. Who are we? (answered by the intent/mission), and

2. What can we be and how can we be? (Answered by corporate

strategy).

The information asymmetry, while formulating corporate strategy,

makes the moderating role of strategic thinking important. Strategic
thinking implies thinking beyond the boundaries of one’s assigned
domain such as a function or a division.

It is the capacity to see interrelationships in the web of disjointed

information.

Implementation Phase
This is the action phase of the strategic management process. The
formulation phase has laid down the general direction through
intent and strategy.

If formulation was talking about things within the realm of the

possible, implementation is pushing plans to the realm of attainable.
Implementation is organization-wide.

In the implementation phase, the resource allocation decisions are

strategic managers allocate resources among current and future
activities.
 A balance between the two is important.

Some of the tools used in resource allocation are BCG matrix, GE

Matrix, and Experience curve.

In the implementation phase, the organization also accomplishes

strategic change since the structural configuration of the
organization, leadership, and culture may undergo an intended or
inadvertent change.

The soft skills are equally important to steer the implementation.

The managerial responsibility for implementation spans the
different line functions and verticals.

Effective implementation is as much a reflection on managerial

capabilities as is formulation. Strategy implementation requires:

 Developing an “execution” mind-set. Managers tend to be

enamored of the formulation phase whereas results come from
execution – implementation. Such a mindset requires that
management time is apportioned to identifying key tasks, setting
standards of performance and designing reward/motivation
systems.

 Integration among different units’ processes and functions. The

purpose of strategic management is to develop an integrative
perspective across the organization. Leveraging cross-functional and
divisional competencies is done during implementation.

 Creation of a sense of ownership among managers for the decisions

which systemically would be changing the organization. Those who
implement must feel a sense of ownership for those decisions that
 they implement otherwise the efforts would be half-hearted. Strong
measures for employee engagement are recommended, more so if
radical changes in “doing” things are needed for increasing
efficiency.

 Implementation requires different skills, attitudes, knowledge, and

abilities. There is a possibility of dissent as new changes are brought
in, resource allocations are revised, and organization design is
reconfigured. Implementation requires “manmanagement” skills.

 Facilitating new learning. Implementation brings about changes in

almost every aspect of the business. The use of better technology
means learning new things, being more responsive to customers
also means learning more things, so does installation of Enterprise
Resource Planning. Organization-wide learning is initiated if the
organization is adapting to global-level changes. If the organization
does not anticipate the learning requirements and leaves people to
be on their own, implementation runs into serious problems.

 Preparation for implementation precedes implementation, with the

groundwork done well before. Even though the managers
responsible for implementation may be different from those
responsible for formulation in large diversified organizations, on-
going consultation between the two to probe, discuss and decide
the plan of action is important to lend the phase a push.

 Communicating clearly and effectively is important. Resource

allocation, organization, design change, and technology adoption
almost churn an organization. To enable a smooth passage through
this, communication plays a vital role.
 Designing an appropriate arrangement that fits the organization’s
new or emerging plans and activities would also require developing
new key managers. If an organization is diversifying and adding a
new SBU, it has to identify, equip and train key managers for that
SBU.

Evaluation Phase: Strategic evaluation and

control
The objective of the evaluation phase is to check if there is any
fundamental flaw in the strategy that can be corrected.

For example, many Indian business houses had a strategy to enter

the organized retail segment in 2005-2006 but the high price of
retail space made the foray unprofitable.

It was pertinent to ask two basic questions:

1. Was our strategy based on a sound analysis of opportunities and

threats? The strategy was based on pragmatic analysis that showed
there were indeed good opportunities in the organized sector.

2. Did the strategy entail an acceptable level of risk? The answer to this
question was that the risk owing to the astronomical escalation in
the price of prime real estate was too high. Future profitability at
those rents was not an attractive proposition.

The answer to the two questions reconciled the internal

inconsistency among the key assumptions on which the strategy
was based. Withdrawal from retail before any significant losses were
reported was done.
This shows how evaluation helps in avoiding suicidal mistakes and
how flexibility can be built in strategic decisions. The other objective
is to judge performance through operating results.

The deviation in results compared to the desired outcome can imply

that either the standards need revision or resource allocation has to
be reconfigured or employee skills have to be upgraded. The course
correction is made possible sooner.

Broad qualitative criteria can be the guidelines to develop

quantitative criteria for evaluation. These are more objective and
measurable.

Levels of Strategy-Making
Corporate strategy is formulated at the top level of a
diversified company (in our country, a diversified
company is popularly known as ‘group of companies’
or ‘group of industries.’

Such a strategy describes the company’s overall

direction in terms of its various businesses and
product lines. Corporate strategy generally affects all
the business-units under its umbrella.

Corporate strategy, for example, of Uniliver may be

acquiring the major tissue paper companies in India
to become the unquestionable market leader.
Business strategy is formulated at the business-unit
level or product level. This strategy emphasizes the
strengthening of a company’s competitive position of
products or services. Business strategies are
composed of competitive and cooperative strategies.

functional strategy refers to a strategy that

emphasizes a particular functional area of an
organization.

It is formulated to achieve some objectives of a

business unit by maximizing resource productivity.
Sometimes functional strategy is called departmental
strategy since each business-function is usually vested
with a department.

Examples of the functional strategy include product

strategy, marketing strategy, human resource
strategy, and financial strategy.

The functional strategy is concerned with

developing distinctive competence to provide a
business unit with a competitive advantage.
Each business unit or company has its own set of
departments, and every department has a functional
strategy. Functional strategies are adopted to support
a competitive strategy.

For example, a company following a low-cost

competitive strategy needs a production strategy that
emphasizes reducing the cost of operations and also a
human resource strategy that emphasizes retaining
the lowest possible number of employees who are
highly qualified to work for the organization.

Other functional strategies such as marketing

strategy, advertising strategy, and financial strategies
are also to be formulated appropriately to support
the business-level competitive strategy.

Operating strategy is formulated at the operating

units of an organization. A company may develop an
operating strategy for its sales territories.

Role of strategists

Strategists are individuals or groups who are primarily involved in

the formulation, implementation, and evaluation of strategy. In a
lim-ited sense, all managers are strategists. There are persons
outside the organization who are also involved in various aspects of
strategic man-agement. They too are referred to as strategists. We
can identify nine strategists who, as individuals or in groups, are
concerned with and play a role in strategic management.

1. Consultants

2. Entrepreneurs

3. Board of Directors

4. Chief Executive Officer

5. Senior management

6. Corporate planning staff

7. Strategic business unit (SBU) level executives

8. Middle level managers

9. Executive Assistant
A brief description of how the different strategists approach the
process is outlined here.

1. Consultants: Many organizations which do not have a corporate

planning department owing to reasons like small size, infrequent
require-ments, financial constraints, and so on, take the help of
external consult-ants in strategic management. Besides the Indian
consultancy firms, such as, A.F.Ferguson, S.B. Billimoria and several
others, now there are many foreign consultancy firms. They offer a
variety of services.

McKinsey and Company, specializes in offering consultancy in the

areas of fundamental change management and strategic visioning;
Andreson Consulting, is in business restructuring, and info tech and
systems; Boston Consulting helps in building competitive
advantage; and KPMG Peat Marwick is in strategic financial
management and feasi-bility studies for strategy implementation.

2. Entrepreneurs are promoters who conceive the idea of starting a

business enterprise for getting maximum returns on their
investment. They are waiting for an environment change and
thereby for an opportu-nity to exploit the situation in their best
interest. Thus they start playing their role right from the promotion
of the proposed venture. So, their strategic role to make the venture
a success is very conspicuous in a new business enterprise.
Therefore, it is expected of an entrepreneur that he should posses
foresight, sense of responsibility, desire to work hard and dashing
spirit to bear any future contingencies. According to Drucker, “the
entrepreneur always searches for change, responds to it and exploits
it as an opportunity”. Here is an example of a successful women
entre-preneur.

Kiran Mazumdar Shaw, a young entrepreneur, set up an export-

oriented unit manufacturing a range of enzymes. As an expert in
brew-ing technology, Mazumdur entered the field of biotechnology
after ex-periencing problems in getting a job. Later she set up
another plant for manufacturing two new enzymes created by her
own research and development (R&D) department. As managing
director, Mazumdar was actively involved in all aspects of policy
formulation and implementa-tion for her companies.
3. Board of Directors are professionals elected on the Board of Di-
rectors (BOD) by the shareholders of the company as per rules and
regu-lations of the Companies Act, 1956. They are responsible for
the general administration of the organization. They are supposed
to guide the top management in framing business strategies for
accomplishing predeter-mined objectives. It is also the responsibility
of the Board to review and evaluate organizational performance
whether it is as per the strategy laid down or not. The Board is also
empowered to make appointments of senior executives. In this
connection, it should be noted that the success of strategies much
depends on the relative strength in terms of power held by the
Board and the Chief Executive (CE).

4. Chief Executive Officer: In the management circle, the chief ex-

ecutive is the top man, next to the directors of the Board. He
occupies the most sensitive post, being held responsible for all
aspects of strategic management right from formulation to
evaluation of strategy. He is des-ignated in some companies as the
managing director, executive director or as a general manager.
Whatever the designation be, he is considered the most important
strategist being responsible to play major role in strategic decision-
making.

5. Senior Management: Starting from the chief executive to the lev-

el of functional or profit-centre heads, these managers are involved
in various aspects of strategic management. Some of the members
of the senior management act as directors on the board usually on a
rotational basis. All of them serve on different top-level committees
set up by the board to look after matters of strategic importance
and other policy is-sues. Executive committees, consisting of senior
managers, are respon-sible for implementing strategies and plans,
and for a periodic evaluation of performance.
Strategic planning at MRF Ltd. used senior management expertise
by dividing them into five groups dealing with products and
markets, environment, technology, resources, and manpower. Each
group had a leader who helped to prepare position papers for
presentation to the board. The executive directors in the company
were actively involved in SWOT analysis through the help of
managers and assistant managers.
6. SBU level executives: “SBU” stands for strategic business unit.
Under this approach, the main business unit is divided into
different independent units and is allowed to form their own
respective strategies. In fact, the business is diversified and thus the
departmental heads are supposed to act as the main strategist,
keeping an eye on optimum ben-efit for their departments. Hence
strategists i.e., the departmental heads enjoy the maximum amount
of authority and responsibility within their strategic business units.

At Shriram Fibres, the strategic planning system covered the dif-

ferent businesses ranging from nylon yarn manufacture to the
provision of financial services. Strategic plans were formulated at
the level of each SBU as well as at the corporate level. The corporate
planning depart-ment at the head office coordinated the strategic
planning exercise at the SBU-level. Each SBU had its own strategic
planning cell.

7. Corporate-planning staff plays a supporting role in strategic

management. It assists the management in all aspects of strategy
for-mulation, implementation and evaluation. Besides this, they are
respon-sible for the preparation and communication of strategic
plans, and for conducting special studies and research pertaining to
strategic manage-ment. It is important to note that the corporate
planning department is not responsible for strategic management
and usually does not initiate the process on its own. By providing
administrative support, it fulfills its functions of assisting the
introduction, working, and maintenance of the strategic
management system.

8. Middle level managers: They are basically operational planners

they may, at best, be involved as ‘sounding boards’ for
departmental plans, as implementers of the decisions taken above,
followers of policy guidelines, and passive receivers of
communication about functional strategic plans. As they are
basically involved in the implementation of functional strategies, the
middle-level mangers are rarely employed for any other purpose in
strategic management.

9. Executive Assistant: An executive assistant is a person who as-sists

the chief executive in the performance of his duties in various ways.
These could be : to assist the chief executive in data collection and
analy-sis, suggesting alternatives where decisions are required,
preparing briefs of various proposals, projects and reports, helping
in public relations and liaison functions, coordinating activities with
the internal staff and outsiders, and acting as a filter for the
information coming from differ-ent sources. Among these “the most
important and what one manager labels the “bread and butter role”
of EA (executive assistant) could be that of corporate planner”.
Vision

Vision statement indicates what the company wants to create in the

future. A clear vision is

essential to develop an appropriate mission statement.

Mission Mission

Organisations normally perform some function which is valued by

the society as they are part

and parcel of the society. Some functions are valued more highly
than others depending upon the

requirements of the society. Of course, these priorities change over

time. Thus, organisations

perform various functions to meet the societal requirements for

their long run survival and legitimate

existence. Organisations are likely to be allowed to survive over the

long term. (See Fig 3.1).

Organisations define the basic reason for their existence in terms of

a mission statement,–– its

purpose, image and character. Thus, mission statement provides a

link between the societal requirements

and organisational business.

Business Definition
Part of the mission statement is the definition of the business. A
good business definition will

include a statement of products, markets and functions. It should

meet a certain criteria: it should

be as precise as possible and indicate major components of strategy

(products, markets, human

resources and finance). It should also indicate how the mission is to

be accomplished.

Objectives

Objectives are the ends towards which activity is aimed. They also
represent end towards

which organising, staffing, leading and controlling are aimed. The

strategic business units also

formulate objectives and they are related to the objectives of the

firm and contribute to the firm’s

objectives. The strategic managers should be aware of the

objectives of the firm, strategic business

units and departments while formulating the strategies.

Goals

Goal is precise and is expressed in clear and specific terms. The goal
for the objective of

increase in the rate of profitability may be stated as increase in the

percentage of net profit of the
company to the equity capital employed from 15% in 2009 to 18%
in 2011.

Strategy StrategyStrategy

A strategy is a unified, comprehensive and integrated plan/action

that relates to the strategic

advantages of the firm to the challenges of the environment. It is

designed to ensure that the basic

objectives of the enterprise are achieved through proper execution

by the organisation.