UNIT I: INTRODUCTION TO STRATEGIC MANAGEMENT

STRUCTURE

1. Introduction
2. Introduction to Strategic Management
3. Evolution of the concept of strategic management
4. Company Vision
5. Mission statements
6. Components of strategic management
7. The three levels of strategic planning
8. making strategic decisions
9. Strategic Management Process
10. Benefits and limitations of Strategic Management
11. Company Vision
12. Mission statements.
13. Summary
14. Self-Assessment Questions
15. Suggested Readings

INTRODUCTION TO STRATEGIC MANAGEMENT

A strategy is an action plan built to achieve a specific goal or set of goals within a definite time,
while operating in an organizational framework.

According to Rajiv Nag, Donald Hambrick& Ming-Jer Chen, “Strategic management is the
process of building capabilities that allow a firm to create value for customers, shareholders,
and society while operating in competitive markets.”

The process of strategic management entails −

 Specifically pointing out the firm's mission, vision, and objectives

 Developing the policies and plans to achieve the set objectives

 Allocating the resources for implementing these policies and plans

 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. An organization is said to have competitive advantage if its
profitability is higher than the average profitability for all companies in its industry.

 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. The manager
must have a thorough knowledge and analysis of the general and competitive
organizational environment so as to take right decisions. They should conduct a SWOT
Analysis (Strengths, Weaknesses, Opportunities, and Threats), i.e., they should make best
possible utilization of strengths, minimize the organizational weaknesses, make use of
arising opportunities from the business environment and shouldn’t ignore the threats.

 Strategic management is nothing but planning for both predictable as well as unfeasible
contingencies. It is applicable to both small as well as large organizations as even the
smallest organization face competition and, by formulating and implementing appropriate
strategies, they can attain sustainable competitive advantage.

 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; evaluates its competitors and sets
goals and strategies to meet all existing and potential competitors; and then reevaluates
strategies on a regular basis to determine how it has been implemented and whether it
was successful or does it needs replacement.
  Strategic Management gives a broader perspective to the employees of an
organization and they can better understand how their job fits into the entire
organizational plan and how it is co-related to other organizational members. It is
nothing but the art of managing employees in a manner which maximizes the ability of
achieving business objectives. The employees become more trustworthy, more
committed and more satisfied as they can co-relate themselves very well with each
organizational task. They can understand the reaction of environmental changes on the
organization and the probable response of the organization with the help of strategic
management. Thus the employees can judge the impact of such changes on their own job
and can effectively face the changes. The managers and employees must do appropriate
things in appropriate manner. They need to be both effective as well as efficient.

 One of the major role of strategic management is to incorporate various functional areas
of the organization completely, as well as, to ensure these functional areas harmonize and
get together well. Another role of strategic management is to keep a continuous eye on
the goals and objectives of the organization.

The word “strategy” is derived from the Greek word “stratçgos”; stratus (meaning army) and
“ago” (meaning leading/moving).

Strategy is an action that managers take to attain one or more of the organization’s goals.
Strategy can also be defined as “A general direction set for the company and its various
components to achieve a desired state in the future. Strategy results from the detailed strategic
planning process”.

A strategy is all about integrating organizational activities and utilizing and allocating the scarce
resources within the organizational environment so as to meet the present objectives. While
planning a strategy it is essential to consider that decisions are not taken in a vaccum and that
any act taken by a firm is likely to be met by a reaction from those affected, competitors,
customers, employees or suppliers.

Strategy can also be defined as knowledge of the goals, the uncertainty of events and the need to
take into consideration the likely or actual behavior of others. Strategy is the blueprint of
 decisions in an organization that shows its objectives and goals, reduces the key policies, and
plans for achieving these goals, and defines the business the company is to carry on, the type of
economic and human organization it wants to be, and the contribution it plans to make to its
shareholders, customers and society at large.

Features of Strategy

1. Strategy is Significant because it is not possible to foresee the future. Without a perfect
foresight, the firms must be ready to deal with the uncertain events which constitute the
business environment.
2. Strategy deals with long term developments rather than routine operations, i.e. it deals
with probability of innovations or new products, new methods of productions, or new
markets to be developed in future.
3. Strategy is created to take into account the probable behavior of customers and
competitors. Strategies dealing with employees will predict the employee behavior.

Strategy is a well defined roadmap of an organization. It defines the overall mission, vision
and direction of an organization. The objective of a strategy is to maximize an organization’s
strengths and to minimize the strengths of the competitors.

Strategy, in short, bridges the gap between “where we are” and “where we want to be”.

EVOLUTION OF THE CONCEPT OF STRATEGIC MANAGEMENT

From his extensive work in the field, Bruce Henderson of the Boston Consulting Group
concluded that intuitive strategies cannot be continued successfully if;

1. The corporation becomes large,

2. The layers of management increase, or
3. The environment changes substantially.

PHASES OF EVOLUTION OF STRATEGIC MANAGEMENT

The phases of evolution of strategic management are

Phase 1 - Basic financial planning: Seek better operational control by trying to meet budgets.
Phase 2 - Fore-cast based planning: Seeking more effective planning for growth by trying to
predict the future beyond next year.
Phase 3 - Externally oriented planning (strategic planning): Seeking increasing responsiveness to
markets and competition by trying to think strategically.
Phase 4 - Strategic management: Seeking a competitive advantage and a successful future by
managing all resources. Phase 4 in the evolution of the strategic management includes a
consideration of strategy implementation and evaluation and control, in addition to the emphasis
on the strategic planning in Phase 3.
Concepts are often corrupted by the way that organisations use them, and problems that arise in
practice are sometimes because of the way an approach is applied, and not the fault of the
approach itself. It is also true to say any of the ‘new’ ideas, some of which move into common
currency, are not as novel as the authors and readers believe. Many of the new thoughts of today
are remarkably similar to many of the new ideas of the 1950s and 1960s. The strategic
management literature can both enlighten and confuse for all these reasons.

Although many of the ideas appear to pull in different directions, there is often more agreement
between authors than they themselves acknowledge. And if you take a contingency view, they
are probably all appropriate some of the time. In this chapter tries we will try to sort out some of
the strands which contribute to the role of modern thinking about strategy, and we will try to do
this in a way that does not discard the old every time something new appears.

Strategic management is a modern concept, but is not the beginning of all thinking about
business strategy. In the previous days, talking about the 1920’s till 1930’s, the managers used to
work out the day-to-day planning method. Till this time they do not concentrated about the future
work. However after this period, managers have tried to anticipate and predict about the future
happenings. They started using tools like preparation of budgets and control systems like capital
budgeting. However these techniques and tools also failed to emphasize the role of future
adequately. Then long-range planning came into picture, giving the idea of planning for the long-
term future. But it was soon replaced by Strategic planning and later by Strategic management-a
term that is currently being used to describe the process of Strategic decision-making.
COMPANY VISION
A vision statement describes what a company desires to achieve in the long-run, generally
in a time frame of five to ten years, or sometimes even longer. It depicts a vision of what the
company will look like in the future and sets a defined direction for the planning and
execution of corporate-level strategies. Key Elements of a Good Vision Statement

While companies should not be too ambitious in defining their long-term goals, it is critical to set
a bigger and further target in a vision statement that communicates its aspiration and motivates
the audience. Below are the main elements of an effective vision statement:

 Forward-looking
 Motivating and inspirational
 Reflective of a company’s culture and core values
 Aimed at bringing benefits and improvements to the organization in the future
 Defines a company’s reason for existence and where it is heading

Example of a Vision Statement

Let’s look at Microsoft Corp.’s Vision Statement. Microsoft Corp. is an American multinational
company that develops, manufactures, licenses, and sells technology products, including
computer software, electronics, and personal computers. It is also one of the largest corporations
in the world, alongside companies such as Apple, Inc. and Amazon.com, Inc.

MISSION STATEMENTS

A mission statement defines what an organization is, why it exists, its reason for being. At a
minimum, your mission statement should define who your primary customers are, identify the
products and services you produce, and describe the geographical location in which you operate.

If you don't have a mission statement, create one by writing down in one sentence what the
purpose of your business is. Ask two or three of the key people in your company to do the same
thing. Then discuss the statements and come up with one sentence everyone agrees with. Once
you have finalized your mission statement, communicate it to everyone in the company.

It's more important to communicate the mission statement to employees than to customers. Your
mission statement doesn't have to be clever or catchy--just accurate.

If you already have a mission statement, you will need to periodically review and possibly revise
it to make sure it accurately reflects your goals as your company and the business and economic
climates evolve. To do this, simply ask yourself if the statement still correctly describes what
you're doing.

If your review results in a revision of the statement, be sure everyone in the company is aware of
the change. Make a big deal out of it. After all, a change in your mission probably means your
company is growing-and that's a big deal.

Once you have designed a niche for your business, you're ready to create a mission statement. A
key tool that can be as important as your business plan, a mission statement captures, in a few
succinct sentences, the essence of your business's goals and the philosophies underlying them.
Equally important, the mission statement signals what your business is all about to your
customers, employees, suppliers and the community.

The mission statement reflects every facet of your business: the range and nature of the products
you offer, pricing, quality, service, marketplace position, growth potential, use of technology,
and your relationships with your customers, employees, suppliers, competitors and the
community.

WHAT IS A MISSION STATEMENT?

A mission statement is used by a company to explain, in simple and concise terms, its purpose(s)
for being. The statement is generally short, either a single sentence or a short paragraph.
These statements serve a dual purpose by helping employees remain focused on the tasks at
hand, as well as encouraging them to find innovative ways of moving toward an increasingly
productive achievement of company goals.

A company’s mission statement defines its culture, values, ethics, fundamental goals, and
agenda. Furthermore, it defines how each of these applies to the company's stakeholders—its
employees, distributors, suppliers, shareholders, and the community at large—use this statement
to align their goals with that of the company.

The statement reveals what the company does, how it does it, and why it does it. Prospective
investors may also refer to the mission statement to see if the values of the company align with
theirs. For example, an ethical investor against tobacco products would probably not invest in a
company whose mission is to be the largest global manufacturer of cigarettes.

It is not uncommon for the largest companies to spend many years and millions of dollars to
develop and refine their mission statements. In some cases, many mission statements eventually
become household phrases.

HOW TO WRITE A MISSION STATEMENT

While it may be difficult to narrow down the focus of your company in a single statement, there
are some tips to help you write a good mission statement.

The first thing to do is to outline what your company does. This may be a good or service you
produce or provide to your customers—whatever makes your business run.

Next, describe the way in which your company does what it does. But instead of being
technical—that's not the point here—think of what values go into the core of your business.
Maybe you value quality or customer service, being sustainable, or you foster creativity and
innovation in your business. These are key points to outline in your mission statement.

Finally, including why you do what you do in your mission statement is key. This helps you
stand out as a business, highlighting what sets you apart from the others in your industry.
Remember to keep the mission statement short and to the point.
After you've drafted it, remember to look it over, edit it, and have someone else give it the once
over. After you've approved it, you'll need to find a way to incorporate it wherever you can
including on your website or as part of your ad campaigns—anywhere that it's visible to your
stakeholders.

ADVANTAGES AND DISADVANTAGES OF MISSION STATEMENTS

Companies can benefit from having a mission statement. First, it outlines its goals and position
in the industry for its consumers and other stakeholders. It also helps the company focus and stay
on track to make the right decisions about its future.

Furthermore, the mission statement helps clarify the company's purpose. With a mission
statement, a company's customers and investors can rest assured that the company is fully
committed to achieving its goals and values. It is also useful to guide and motivate employees,
keeping them in line with the company's values.

But there are drawbacks to having a mission statement. Mission statements may sometimes be
very lofty and far too unrealistic, which can detract employees from the company's goals. Even
though they are short and concise, they may take a lot of time and money to develop. The
resources spent on a bad mission statement could be better spent elsewhere.

MISSION STATEMENTS VS. VISION STATEMENTS

A company’s mission statement differs from its vision statement. While the mission statement
remains unchanged for the most part and represents who the company is or aspires to be for the
entirety of its existence, the vision statement can change. This statement outlines what the
company needs to do to remain the way it has presented itself to be. In effect, a company’s
mission is its identity, and the vision is its journey to accomplishing its mission.

COMPONENTS OF STRATEGIC MANAGEMENT

Strategic management is a highly complex and new subject. To more clearly understand it, we
must examine its components.
These are as follows:
1. Company Mission:
The mission of a company is the unique purpose that sets it apart from other companies. This is a
statement of why the company exists.
Company statements of purpose may fall into three groups:
i. The purpose is to create shareholder value.
ii. The purpose is to meet the needs and expectations of all the stakeholders – employees,
customers suppliers and the community as well as investors.
iii. The purpose is of a higher order in that it is aspirational and idealistic, or challenging and
inspiring.
In short, the company mission describes the company’s product, market, and technological areas
of emphasis. For example, Bank of Baroda’s mission is to be a top-ranking National Bank of
international standards.
2. Policies:
In the context of company strategy, policies are guiding rules or principles that are regarded as
an integral part of the company’s success. They are practices or ways of doing things. Policies
are broad, precedent-setting decisions that guide managerial decision making. Creating policies
guides and “preauthorizes” the thinking, decisions, and actions of operating managers in
implementing the business’s policies. Policies empower actions.
3. Objectives:
The results that a company seeks over a multiyear period are its long-term objectives. Such
objectives typically belong to profitability, return on investment, competitive position,
technological leadership, productivity, employee relations, employee development, etc. Short-
term objectives are the desired results that a company seeks over a period of one year or less.
4. Internal Analysis:
The company should analyze:
i. The quantity and quality of the company’s financial, human, and physical resources.
ii. The strengths and weaknesses of the company’s management and organisational structure.
iii. Company’s current capabilities or distinctive competences.
iv. Costs and benefits structure, and
v. Company’s past successes and failures.
5. External Environment:
A firm’s external environment consists of the conditions and forces that affect its strategic
options and define its competitive situation. The external environment may relate to industry
forces, the remote and operating environments of various types.
6. Opportunities and Threats:
An important part of the strategic process is the identification of opportunities in the market-
place. These are then matched with the company’s capabilities. The competitive environment is
also scanned for potential threats to the competitiveness of the business.
7. Organisational Design:
Organisational design matches the strategic goals and purpose of the organisation with the
people who will do the work and the way they are organised to do it.
8. Key Decisions and Strategists:
Strategic decisions are ones that are of fundamental importance. They are normally such that
they are irreversible or at least can only be reversed at considerable cost. Grand strategy indicates
how the objectives are to be achieved.
In any organisation, the strategists include all the people who influence an organisation’s overall
strategies. These include the board of directors, the CEO, various managers, outside planners and
consultants, and sometimes those in middle management positions. The duty of strategist is to
see the organisation as a whole, to understand the inter-dynamics of the organisation, and to
make decisions in light of the environment in which the organisation operates.
9. Strategic Analysis and Choice:
Strategic analysis and choice center around identifying strategies that are most effective at
building sustainable competitive advantage based on core competencies of the firm.
10. Capabilities or Competencies:
These are skills and technologies that enable a company to provide a particular benefit to
customers.
To be considered a core competence a skill must pass four tests:
i. It must be difficult for competitors to copy.
ii. It must make a contribution to customer value.
iii. It must be competitively unique.
iv. It must be applicable to a range of products.
This distinctive capability includes – Architecture, Reputation, Innovation, Strategic assets like
costs of infrastructure or benefits from regulations or licensing requirements that restrict entry to
the market.
11. Action Plans:
Action plans translate strategies into “action” by incorporating these elements:
i. They identify specific actions to be undertaken.
ii. They establish a clear time frame for completion of each action.
iii. Action plans create accountability by identifying who is responsible for each ‘action’ in the
plan.
12. Functional Tactics:
Within the general framework of generic and grant strategies, each business function needs to
undertake activities that help build a sustainable competitive advantage. These short-term,
limited scope plans are called functional tactics.
13. Sustainable Competitive Advantage:
Rivals almost always copy ideas that work. The challenge, therefore, is to create competitive
advantages that are sustainable. This is what the strategy is designed to achieve — a position in
the market such that the company is not only able to earn a higher profit margin than its
competitors, but is able to sustain the position over a long period of time.
Some Other Components of Strategic Management:
The key components of the strategic management model will be defined and briefly described.
The intention here is simply to provide an introduction to the major concepts.
1. Corporate Mission:
The mission of a business is the fundamental and unique purpose that sets it apart from other
firms of its type and identifies the scope of its operations in product and market terms. The
mission is a general, enduring statement of company intent. It embodies the business philosophy
of strategic decision makers, implies the image the company seeks to project, reflects the firm’s
self-concept, and indicates the principal product or service areas and primary customer needs the
company will attempt to satisfy.
In short, the mission describes the product, market, and technological areas of emphasis for the
business in a way that reflects the values and priorities of the strategic decision-makers.
Because conceptualizing a company mission can be difficult. The mission statement of ABC
Ltd., is abstracted from an annual report to its stockholders.
Corporate Profile:
A firm’s internal analysis determines its performance capabilities based on existing or accessible
resources. From this analysis, a company profile is generated. At any designated point in time,
the company profile depicts the quantity and quality of financial, human, and physical resources
available to the firm.
The profile also assesses the inherent strengths and weaknesses of the firm’s management and
organizational structure. Finally, it contrasts the historical successes of the firm and the
traditional values and concerns of management with the firm’s current capabilities in an attempt
to identify the future capabilities of the business.

THE COMPONENTS OF STRATEGIC MANAGEMENT

Strategic Management is perhaps most crucial to organizational planning and direction. It gives
long-term focus to the organization and ensures the achievement of goals within the stipulated
time period.
The onus of strategic management usually lies with the top bosses in the organization. They may
delegate certain tasks of strategic management, but the core planning and monitoring remain in
their purview. Usually, they prefer to delegate to experienced employees only or novices who at
least hold strategic management certificate.

Strategic management comprises the following components:

Goal Setting
The American entrepreneur and life coach Tony Robbins says, “Setting goals is the first step in
turning invisible to visible.” How well-said! Unless the organization knows what it wants to
achieve, there is no point in planning ahead. This component is all about setting short-term as well
as long-term goals. These goals should be SMART – Specific, Measurable, Attainable, Relevant
and Timely.

Gathering Information
The next component of strategic management pertains to collecting information about all those
internal and external factors that could influence the implementation and hence, the achievement
of goals. For example,
 Are there enough resources in terms of finances and manpower to execute a process?
 Are there any laws or regulations to be taken care?
 What are competitors doing in the same space?
 What are the problems and opportunities that may arise in the future?

Strategy Formulation
Once the goals and research are in place, now is the time to formulate a strategy. It determines
what actions need to be taken to accomplish the goals. This is the most elaborate component of
strategic management because how well the strategy is formulated will ensure the success of it. It
also involves the allocation of resources at each phase of implementation. For instance, phase one
will require 20 employees and an investment of Rs5 lakhs, and then phase two will require 15
employees and an investment of Rs2 lakhs.

Strategy Implementation
Well, you have the strategy ready in the written format. The next component is to execute it
seamlessly. This is the practical and most rigorous part of strategic management. Whatever you
have planned is converted into actual activities and actions geared towards the delivery of goals.

Strategy Evaluation
A strategy on paper may look perfect and doable. But, implementation can prove otherwise. There
can be certain loopholes or deviations from the original planning which may render the strategy
futile. In order to ensure that this doesn’t happen, the implementation has to monitor and
evaluated at regular intervals. If there are any issues, they should be plugged immediately.

THE THREE LEVELS OF STRATEGIC PLANNING

Strategy is not just for top executives, middle and lower level managers too must be involved in
strategic-planning process to the extent possible. In most of the organizations there are three
levels of strategies: corporate, business and functional levels.
1. Corporate Level Strategy

Corporate level strategy is fundamentally concerned with the selection of businesses that the
organization should compete and with the development and coordination of that portfolio of
business. It includes all the objectives and scope of the organization to satisfy stakeholder’s
expectation. It is an essential level since it is to a great extent affected by investors in the
business and acts to guide strategic decisions across the enterprise.

2. Business Unit Level Strategy

It is responsible for how a business competes successfully and beating rivals in its particular
market. At this level competitive strategy is usually formulated. These are strategic decisions on
the choice of products, satisfying customer needs, gain an advantage over competitors, exploiting
or creating new opportunities, etc.

3. Functional Strategy (Departmental Level or Operational Strategy)

It focuses on how every part of business is organized to present the corporate and also business-
unit level strategic path. Strategy of the functional areas like marketing, financial, productive and
human resources are based on the functional capabilities of an organization. For each functional
area, first major sub-areas are identified and then for each of these sub functional areas,
functional content strategies, important factors, and its importance in the process of
implementing the strategy is identified.

MAKING STRATEGIC DECISIONS

Strategic decision-making is the process of charting a course based on long-term goals and a
longer term vision. By clarifying your company's big picture aims, you'll have the opportunity
to align your shorter term plans with this deeper, broader mission – giving your operations
clarity and consistency.

Tip

Strategic decision making aligns short-term objectives with long-term goals, and a mission that
defines your company's big picture purpose. Shorter term goals are expressed in quantifiable
milestones that give you the capacity to measure your success and your adherence to your
vision.

MISSION AND VISION

Strategic decision-making should start with a clear idea of your company's mission and vision
– the reasons you exist as a business. Your business may be dedicated to providing
environmental solutions, or you may simply want to make as much money as possible. Either
way, if you know what you want over the long term, you'll be better positioned to infuse these
aims and principles into your daily decisions. Start by writing your mission and your vision.

This statement can be as simple or complex as you wish, depending on the degree of formality
you use in your everyday business decisions as you run your company. Even if your mission is
only one sentence – the act of thinking about and articulating this sentence will help you
develop a better idea of what you want. Having this written statement will also enable you to
communicate your long-term vision to your employees and to other stakeholders, to get them
on board with the strategic decisions you make.
LONG-TERM GOALS

Long-term goals are the concrete embodiment of your mission and vision. A vision is an idea,
and long-term goals are expressions of how these ideas play out – with milestones and real-
world objectives. These goals are critical to the strategic decision-making process, because
they guide your choices, and provide measurable and quantifiable ways to assess whether you
are successfully aligning your company's direction with the values you've articulated to guide
your business.

If your business designs environmentally friendly technologies, you might create a long-term
goal of wanting to be carbon-neutral within five years. With this goal in mind, you'll then make
strategic decisions aimed at reducing your carbon footprint during that time.

SHORT-TERM GOALS

It's easy to lose sight of the strategic decision-making process when you're focusing on short-
term goals and decisions that concern day-to-day activities and issues. Short-term goals and
decisions usually relate to immediate needs, such as improving cash flow so that you can cover
outstanding bills. Despite the immediacy and urgency of these goals, your strategic decision-
making process should still enable you to proceed with an eye toward both your vision and
your longer term objectives.

If your values are centeredaround sustainability, and your company's official company car dies,
it would be more consistent with your mission to finance a fuel-efficient replacement than to
buy a cheap gas guzzler.

STRATEGIC MANAGEMENT PROCESS

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
organisation.
An organisation is said to have competitive advantage if its profitability is higher than the
average profitability for all companies in its industry.
The strategic management process defines the organization’s strategy. It is also the process
which helps managers make a choice of a set of strategies for the organization that will enable it
to achieve better performance.
Strategic management is a continuous process that appraises the business and industries in
which the organization is involved, its competitors; and fixes goals to meet all the present and
future potential competitors and then reassesses each strategy.
In this article we will discuss about the various steps, stages and phases involved in the strategic
management process.

The steps, stages and phases involved in strategic management process can be studied
under the following heads:
Strategic management process has following steps:
1. Developing a Strategic Vision and Business Mission 2. Setting Objectives 3. Crafting a
Strategy 4. Environmental Scanning 5. Strategy Formulation 6. Strategy Implementation & 7.
Strategy Evaluation and Control.

The process of strategic management consists of:

1. Defining the Mission Statement 2. Analysing the Environment 3. Organisational Self-
Assessment 4. Establishing Goals and Objectives and 5. Formulating Strategy.
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 organisation.
An organisation is said to have competitive advantage if its profitability is higher than the
average profitability for all companies in its industry.
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. The manager must have a
thorough knowledge and analysis of the general and competitive organisational environment so
as to take right decisions.
They should conduct a SWOT analysis strengths, weaknesses, Opportunities, and Threats), i.e.,
they should make best possible utilization of strengths, minimize the organisational weaknesses,
make use of arising opportunities from the business environment and shouldn’t ignore the
threats.
Strategic management is nothing but planning for both predictable as well as unfeasible
contingencies. It is applicable to both small as well as large organisations as even the smallest
organisation faces competition and, by formulating and implementing appropriate strategies, they
can attain sustainable competitive advantage.
Strategic management 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 organisation.
It helps us to identify the direction in which an organisation is moving.
Strategic management is a continuous process that evaluates and controls the business and the
industries in which an organisation is involved; evaluates its competitors and sets goals and
strategies to meet all existing and potential competitors; and then revaluates strategies on a
regular basis to determine how these have been implemented and whether these were successful
or require replacement.
Strategic management gives a broader perspective to the employees of an organisation and they
can better understand how their job fits into the entire organisational plan and how it is correlated
to other organisational members. It is nothing but the art of managing employees in a manner
which maximizes the ability of achieving business objectives.
The employees become more trustworthy, more committed and more satisfied as they can
correlate themselves well with each organisational task. They can understand the reaction of
environmental changes on the organisation and the probable response of the organisation with
the help of strategic management.
Thus, the employees can judge the impact of such changes on their own job and can effectively
face the changes. The managers and employees must do appropriate things in appropriate
manner. They need to be both effective as well as efficient.
The strategic management process defines the organization’s strategy. It is also the process
which helps managers make a choice of a set of strategies for the organization that will enable it
to achieve better performance. Strategic management is a continuous process that appraises the
business and industries in which the organization is involved, its competitors; and fixes goals to
meet all the present and future potential competitors and then reassesses each strategy.
Strategic management process has following five steps:
Step # 1. Mission and Goals:
The first step in the strategic management begins with senior managers evaluating their position
in relation to the organization’s current mission and goals. The mission describes the
organization’s values and aspirations; and indicates the direction in which senior management is
going. Goals are the desired ends sought through the actual operating procedures of the
organization. It typically describe short-term measurable outcomes.
Step # 2. Environmental Scanning:
Environmental scanning refers to a process of collecting, scrutinizing and providing information
for strategic purposes and helps in analyzing the internal and external factors influencing an
organization. After executing the process, management should evaluate it on a continuous basis
and strive to improve it.
Step # 3. Strategy Formulation:
Strategy formulation is the process of deciding best course of action for achieving organizational
objectives. After conducting environment scanning process, managers formulate corporate,
business and functional strategies.
Step # 4. Strategy Implementation:
Strategy implementation implies putting the organization’s chosen strategy in to action and
making it work as intended. Strategy implementation includes designing the organization’s
structure, distributing resources, developing decision making process, and effectively managing
human resources.
Step # 5. Strategy Evaluation:
Strategy evaluation which is the final step of strategy management process involves- appraising
internal and external factors, measuring performance, and taking remedial/corrective actions.
Evaluation assure the management that the organizational strategy as well as its implementation
meets the organizational objectives.
These steps are carried by the businesses, in chronological order, when creating a new strategic
management plan. Present businesses that have already created a strategic management plan will
revert to these steps as per the situation’s requirement, so as to make essential changes.
What is Strategic Management Process
Strategic management involves certain functions or activities. The systematic way of doing these
functions or activities is described as strategic management process.
It consists of:
ADVERTISEMENTS:

1. Strategy formulation,
2. Implementation,
3. Evaluation & control
Process # 1. Strategy Formulation:
Strategy formulation is the first phase in the strategic management process. It is concerned with
devising a suitable plan of action after studying the external business environment, analysing the
industry and assessing the internal capabilities of the business concern. It involves six important
steps.
They are:
i. Defining the company mission,
ii. Analysis of the external business environment,
iii. Industry analysis,
iv. Internal analysis of the firm,
v. Strategic alternatives, and
vi. Strategic choice.
The steps to be followed for the formulation of a strategy are explained below:
i. Defining the Company Mission:
The first step in the formulation of a strategy is a clear definition of the mission of the company.
This is necessary to formulate an ideal strategy. Otherwise, the strategy will not produce the
desired results. An ideal strategy is one which reflects the mission of the company. A mission is
the long-term vision of what an organisation wants to be and to whom it wants to serve and what
impact on the society. The mission is, thus, the basic, unique purpose that differentiates a
business from others.
ii. Analysis of the External Business Environment:
The second step in the formulation of a strategy is an analysis of the external business
environment. It is concerned with studying or observing what is prevailing in the external
business environment and what changes have taken place. Such an assessment is necessary
because every incident or change will have either positive or negative impact on the business.
It involves – (a) analysis of remote environment and (b) analysis of operating environment. The
external business environment thus provides opportunities or threats to the business concerns.
The business concern must formulate a suitable strategy to exploit the opportunities or manage
threats depending up on its strengths or weaknesses.
iii. Analysis of the Industry:
The third step in the formulation of a strategy is an analysis of the industry. It involves the
examination of certain forces operating in an industry to understand the nature and the degree of
competition in that industry. The level of competition in an industry depends on five basic forces
which determine the profit potential of an industry. They are (a) the threat of new entrants, (b)
The bargaining power of buyers, (c) The bargaining power of suppliers, (d) The threat of
substitute products, and (e) Rivalry among the existing firms.
The study of these forces indicates the trend of industry, the strength and weakness of the
company in the industry. Such a study will be useful to formulate a suitable strategy to utilise the
opportunities or threats.
iv. Internal Analysis of the Firm:
The fourth step in the formulation a strategy is a thorough internal analysis of the firm. It is
concerned with a systematic appraisal or examination of the internal capabilities of a firm. Such
an appraisal is necessary to know the strengths and weaknesses of the firm in the areas of
finance, production, marketing, technology, research and development, and human resource
management.
A systematic internal analysis of the firm involves (a) identification of strategic internal factors
and (b) evaluation of the strategic internal factors to identify the key strategic strength and
weakness. A factor is considered a strength only when a firm has a distinct competency in it than
the competitors in the industry.
A factor is considered a weakness only when a firm performs it poorly than the competitors in
the industry. A new strategy therefore has been formulated after considering the internal strategic
strengths and weaknesses of the firm to utilise the external opportunities or minimise its
activities to overcome threats.
v. Strategic Alternatives:
The fifth step in the formulation of a strategy is developing strategic alternatives. They are
concerned with identifying other possible ways of achieving the same strategy formulated to
utilise external business opportunities or minimise the firm’s activities to overcome threats.
For example, growth strategy may be achieved by intensive growth strategy of market
penetration, market development, and product development or integrative growth strategy of
horizontal integration and vertical integration or diversification strategy depending upon the
internal strengths and weaknesses provided the external business environment is favorable.
vi. Strategic Analysis and Choice:
The last step in the formulation of a strategy is strategic analysis and choice. Strategic analysis
involves a systematic evaluation of strategic alternatives with reference to certain criteria. Each
alternative has its own merits and demerits but all alternatives cannot be equally appropriate.
Each alternative should be examined to determine its:
a. Relevancy,
b. Feasibility and
c. Acceptability.
a. Relevancy:
Relevancy of a strategy refers to the examination of the appropriateness of a strategy with
reference to certain aspects. So, the strategists should examine whether –
(i) The strategy is relevant to the mission of the company or not
(ii) The strategy is helpful to accomplish the long-term objectives or not
(iii) The strategy is fit to the strategic strengths and weaknesses of the company or not
(iv) The strategy exploits the external business opportunities or minimises its activities to
overcome the threats or not.
b. Feasibility:
Feasibility of a strategy refers to the possibility of achieving the strategy. For testing the
feasibility of a strategy, the strategists should examine before the selection of a strategy whether
–
(i) The availability of resources are sufficient or not
(ii) The availability of the technology is appropriate or not
(iii) The availability of inputs are sufficient or not
(iv) The organisation’s structure is suitable or not.
c. Acceptability:
Acceptability of a strategy refers to the examination of the agreeableness of a strategy to certain
interested parties in an organisation. So, the strategists should examine whether –
(i) The strategy satisfies the criterion of ROI to the management or not
(ii) The strategy is acceptable to the shareholders or not
(iii) The strategy will affect the present employees or not
(iv) The strategy will affect the relationship with the existing customers and suppliers or not
vii. Strategic Choice:
Strategic Choice is concerned with the selection of the best strategy among alternatives. The
process of strategy formulation, thus, comes to an end with the choice of an appropriate strategy.
Process # 2. Strategy Implementation:
Strategy implementation is the second phase in the strategic management process. It is concerned
with putting the strategy into operation or translating the strategy into strategic action. It
necessitates three interrelated activities of (i) Determination of annul objectives, (ii)
Development of specific functional strategies, and (iii) Development of policies. For the
successful implementation, the strategy must be also institutionalised through structure,
leadership, and culture.
Process # 3. Strategy Evaluation and Control:
Strategy evaluation and control is the last phase in the strategic management process. Strategy
evaluation is concerned with examining whether the strategy implemented is working or
producing results or accomplishing its objectives or not. Strategic control is concerned with
continuous monitoring and tracking the strategy— putting the strategy in the right path or
direction.

BENEFITS AND LIMITATIONS OF STRATEGIC MANAGEMENT

Benefit of Strategic Management

There are many benefits of strategic management and they include identification,
prioritization, and exploration of opportunities. For instance, newer products, newer markets,
and newer forays into business lines are only possible if firms indulge in strategic planning.
Next, strategic management allows firms to take an objective view of the activities being done by
it and do a cost benefit analysis as to whether the firm is profitable.

Just to differentiate, by this, we do not mean the financial benefits alone (which would be
discussed below) but also the assessment of profitability that has to do with evaluating whether
the business is strategically aligned to its goals and priorities.

The key point to be noted here is that strategic management allows a firm to orient itself to its
market and consumers and ensure that it is actualizing the right strategy.

Financial Benefits

It has been shown in many studies that firms that engage in strategic management are more
profitable and successful than those that do not have the benefit of strategic planning and
strategic management.

When firms engage in forward looking planning and careful evaluation of their priorities, they
have control over the future, which is necessary in the fast changing business landscape of the
21st century.

It has been estimated that more than 100,000 businesses fail in the US every year and most of
these failures are to do with a lack of strategic focus and strategic direction. Further, high
performing firms tend to make more informed decisions because they have considered both the
short term and long-term consequences and hence, have oriented their strategies accordingly. In
contrast, firms that do not engage themselves in meaningful strategic planning are often bogged
down by internal problems and lack of focus that leads to failure.

Non-Financial Benefits

The section above discussed some of the tangible benefits of strategic management. Apart from
these benefits, firms that engage in strategic management are more aware of the external threats,
an improved understanding of competitor strengths and weaknesses and increased employee
productivity. They also have lesser resistance to change and a clear understanding of the link
between performance and rewards.
The key aspect of strategic management is that the problem solving and problem preventing
capabilities of the firms are enhanced through strategic management. Strategic management is
essential as it helps firms to rationalize change and actualize change and communicate the need
to change better to its employees. Finally, strategic management helps in bringing order and
discipline to the activities of the firm in its both internal processes and external activities.

Closing Thoughts

In recent years, virtually all firms have realized the importance of strategic management.
However, the key difference between those who succeed and those who fail is that the way in
which strategic management is done and strategic planning is carried out makes the difference
between success and failure. Of course, there are still firms that do not engage in strategic
planning or where the planners do not receive the support from management. These firms ought
to realize the benefits of strategic management and ensure their longer-term viability and success
in the marketplace.

Limitations of strategic Management

Strategic management involves long-term plans and objectives that allow a company to
leverage capabilities, increase opportunities, and achieve competitive advantage. Although
there are many advantages to strategic management, such as reducing the resistance to change
and promoting collaboration, there are also disadvantages. The strategic management process
is complex, time consuming, and difficult to implement; it requires skillful planning in order to
avoid pitfalls.

A COMPLEX PROCESS

Strategic management involves continuous assessments of critical components, such as

external and internal environments, short-term and long-term objectives, organizational
structure, and strategic control. These components are interrelated, so a change in one
component may affect other areas.

For example, in an economic downturn, a company may need to reduce its workforce. The
external factor, which is the poor economy, changes the internal environment, which is the
number of people employed. Then, a company may need to review objectives and make
necessary adjustments. All of these factors ultimately influence a company’s management,
leadership and structural systems, which have a bearing on decision-making.

TIME CONSUMING

Managers spend a great deal of time preparing, researching and communicating the strategic
management process, which may impede day-to-day operations and negatively impact the
business. For example, managers may overlook daily issues needing resolution, and
inadvertently cause a decrease in employee productivity and short-term sales. When issues are
not resolved in a timely manner, higher employee turnover can result. This could force a
company to redirect critical resources, putting strategic management initiatives on a sidetrack.

DIFFICULT TO IMPLEMENT

The implementation process requires a clearly communicated plan, implemented in a way that
requires full attention, active participation, and accountability of not only company leaders, but
also of all members across the organization. Managers must continuously develop and improve
synergies among employees to ensure buy-in and to garner support for the company’s
objectives and mission. There are instances where this can become particularly challenging.
For example, if a manager was involved in the strategic formulation process, but not equally
involved in the implementation process, he in turn may not feel accountable for decisions
made.

REQUIRES SKILLFUL PLANNING

Although strategic plans help reduce uncertainty in meeting long-term objectives, the planning
process itself provides opportunities for missteps. An organization needs to anticipate the
future, which involves various degrees of change as well as risks. In order to avoid pitfalls,
managers need to have the right skill sets to plan the strategy and mitigate risk factors. For
example, managers should monitor as well as develop business contingency plans to address
possible future changes in the external environment, such as market conditions, competitive
forces, and economic factors that may negatively affect the business.
COMPANY VISION

A vision statement is a statement of an organization’s overarching aspirations of what it hopes

to achieve or to become. Here are some examples of vision statements:

 Disney: To make people happy

 IKEA: To create a better everyday life for the many people
 British Broadcasting Company (BBC): To be the most creative organization in the
world
 Avon: To be the company that best understands and satisfies the product, service and self-
fulfillment needs of women—globally
 Sony Corporation: To be a company that inspires and fulfills your curiosity[1]

The vision statement does not provide specific targets. Notice that each of the above examples
could apply to many different organizations. Instead, the vision is a broad description of the
value an organization provides. It is a visual image of what the organization is trying to produce
or become. It should inspire people and motivate them to want to be part of and contribute to the
organization. Vision statements should be clear and concise, usually not longer than a short
paragraph.

MISSION STATEMENTS

The vision statement and mission statement are often confused, and many companies use the
terms interchangeably. However, they each have a different purpose. The vision statement
describes where the organization wants to be in the future; the mission statement describes what
the organization needs to do now to achieve the vision. The vision and mission statements must
support each other, but the mission statement is more specific. It defines how the organization
will be different from other organizations in its industry. Here are examples of mission
statements from successful businesses:

 Adidas: We strive to be the global leader in the sporting goods industry with brands built
on a passion for sports and a sporting lifestyle.
 Amazon: We seek to be Earth’s most customer-centric company for four primary
customer sets: consumers, sellers, enterprises, and content creators.
  Google: To organize the world’s information and make it universally accessible and useful
 Honest Tea: To create and promote great-tasting, truly healthy, organic beverages
 Jet Blue Airways: To provide superior service in every aspect of our customer’s air travel
experience
 The New York Times: To enhance society by creating, collecting and distributing high-
quality news and information[2]

Notice that each of these examples indicates where the organization will compete (what industry
it is in) and how it will compete (what it will do to be different from other organizations). The
mission statement conveys to stakeholders why the organization exists. It explains how it creates
value for the market or the larger community.

Because it is more specific, the mission statement is more actionable than the vision statement.
The mission statement leads to strategic goals. Strategic goals are the broad goals the
organization will try to achieve. By describing why the organization exists, and where and how it
will compete, the mission statement allows leaders to define a coherent set of goals that fit
together to support the mission.

SUMMARY

Strategic management is the ongoing planning, monitoring, analysis and assessment of all
necessities an organization needs to meet its goals and objectives. Changes in business
environments will require organizations to constantly assess their strategies for success. The
strategic management process helps organizations take stock of their present situation, chalk out
strategies, deploy them and analyze the effectiveness of the implemented management strategies.
Strategic management strategies consist of five basic strategies and can differ in implementation
depending on the surrounding environment. Strategic management applies both to on-
premise and mobile platforms.

SELF-ASSESSMENT QUESTIONS

1. Explain strategic management

2. What are the components of strategic management?
3. What is strategic decision?
 4. What is the process of strategic management?

SUGGESTED READINGS

1. Fred R. David, Strategic Management, Prentice Hall, New Delhi, 2010

2. Strategic Management – An Integrated Approach, Charles Hill & Gareth Jones/ Biztantra