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    Strategic Management by Az Kazmi

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    Yogesh Sabale

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    SYLLABUS YBA 201 — STRATEGIC MANAGEMENT UNIT - 1 INTRODUCTION , Evolution of strategy management and business policy, Introduction to business policy, derstanding ‘strategy, strategic decision making, schools of thought on strategy formulation, introduction to strategic management, strategic intent, vision, mission, goals and objectives. UNIT - 1 STRATEGY FORMULATION Environmental appraisal ,concept of environment, environmental sectors, environmental Scanning, organizational appraisal — dynamics of intemal environment, organizational capability factors, considerations in organizational appraisal. UNIT ~ III CORPORATE LEVEL STRATEGIES Concentration, integration, diversification, stability strategy, retrenchment strategy, combination strategy and corporate restructuring, business ~ level strategies, strategic analysis and choice. UNIT - IV STRATEGY IMPLEMENTATION Short-term objectives, functional tactics, outsourcing functional activites, empowering Personnel organizational structure, globalization, internet, speed, outsourcing, Leadership and culture, strategic leadership, organizational culture. UNIT -V Strategy Evaluation, Control, Innovation and Entrepreneurship Establishing strategic controls, premise control, strategic surveilliance, special alert Gontrol, implementation control, balanced scorecard, innovation, entrepreneurship and intrapreneurship. REFERENCES; 1 Michael E.Porter, “Competitive Advantage”, The free press, 1998, 2.Charles W.L areth RJones- “Strategic Management sted Approach” Bizan's,\!ow Dethi,2004 3.Azhar | Kazmi, “Statcsic Management and Business Policy",Th Hill Companies,2008 Adohn A Pearce Xicvard B.Robinson,Jr,Anita Mital, “Strategic Mi. © -»"The MeGrawHill Co: 2508, PDrM.Jeyarathns:,.siness Policy and Strategic Management, “Himala, House,2008. 6.Thomas L.WI Hunger-Strategic Management,Addison V: Singapore Pyt.Ls!., 6° Ed vion,2008, Created with @ nitro” professional download the free tral online a atropd.com /orofesional Created with @ nitro” professional download the free tral online a atropd.com /orofesional CONTENTS UNIT NO: TOPIC PAGE NO. 1 INTRODUCTION 5 2 STRATEGY FORMULATION 33 3 CORPORATE-LEVEL STRATEGIES 55 4 STRATEGY IMPELEMENTATION 92 5 STRATEGY EVALUATION,CONTROL 121 INNOVATION & ENTREPRENEURSHIP ANNEXURE 1. Case Analy is 2. Model Ques‘icie Created with in) nitro" professional 12 free ial online at ntropal com professional Created with @ nitro” professional download the free tral online a atropd.com/profesional UNIT - [INTRODUCTION EVOLUTION OF STRATEGIC MANAGEMENT AND BUSINESS POLICY It is useful, as well as interesting to start the leaning of any subject with an idea about its historical evolution. In this brief section, we will lear about the genesis of strategic management and business policy and then look at how the discipline has undergone a process of historical evolution and what lies in store in the future. Finally we will study some new developments in the Indian context in the field of strategic ‘management and business policy. The Genesis of Strategic Management and Business Policy The origin of business policy can be retraced to 1911, when Harvard Business School introduced an integrative course in management aimed at the creation of general ‘management capability. This course was based on case studies which had been in use at the School for instructional purposes since 1908. In 1969, the American Assembly of Collegiate Schools of Business, a regulatory body for business schools, made the course of business policy a mandatory requirement for the purpose of recognition. During the last two decades, business policy has become an integral part of management curriculum. From the US, the practice of including business policy in the management curriculum spread to other parts of the world. The contents of the course, teaching methodology, etc. vary from institution to institution, but basically, business policy is considered as’a capstone, integrative course offered to students who have previously been through a set of core functional area courses. The term ‘Business Policy’ has been traditionally used, though new titles such as Strategic Management, Corporate Strategic and Policy, etc. are now being used extensively for the course. The discussion so far related to the academic status of the courses in business Policy. In practice, however, development has been on different lines, Evolution Based on Managerial Practices Gic. views the development in business policy as arisinz fiom the use of Planning ‘hv iques by managers. Starting from day-to-day plar. nz in earlier times, Managers >>» te try to anticipate the future through preparatio: and using controls s::.-5 {ise capital budgeting and management by objec: ith the inability of these « ws to adequately emphasise the role of preparis future, long- range pla to be used. Soon, long-range planning was \ by strategie planning anc. y strategic management-a term that is currentl o describe the process of s decision making. Strategic management is the framework for business j olicy courses today, Created with @ nitro” professional download the free tral online a atropd.com/profesional Historical Perspective of Evolution of Strategic Management and Business Policy Hofer and others view the evolution of business policy in terms of four paradigm shifts, For the sake of convenience, these shifts may be considered as four overlapping phases in the development of the subject of business policy. It is interesting to note that the development of business policy, as a field of study, closely followed the deniands of real-life business. According to Hofer and others (referred to above), the first phase, which can be traced to the mid-1930s, rested on the paradigm of ad hoe policy-making. The need for policy-making arose due to the nature of ‘American business firms in that period. The firms, which commenced operations with a single product line catering to a unique set of customers in a limited geographical area, expanded in one or all of these three dimensions. The informal control and coordination became partially irrelevant as expansion took place and a need arose to integrate the functional areas. This integration was brought about by framing policies to guide managerial action. Policy-making became the prime responsibility of erstwhile entrepreneurs, who later assumed the role of senior management. Due to the increasing environmental changes in the 1930s and 1940s in the U.S., planned policy formulation replaced ad hoc. policy-making. Based on this second paradigm, the emphasis shifted to the integration of function areas in a rapidly changing environment. Increasing complexity and accelerating changes in the environment made the planned policy paradigm irrelevant since the needs of business could no longer be served by policy-making and functional area integration alone. By the 1960s, there was a demand for a critical look at the basic concept of business and its relationship with the environment. The concept of strategy satisfied this requirement and the third phase, based on a strategy paradigm, emerged in the early sixties. Hambrick and Fredrickson model of strategic management ‘The five elements that make up the strategy, according to Hambrick and Fredrickson and those that form the core of their model of strategic management, in the form of questions are: 1, Arenas: The arenas att Typically, the arenas channels, geographic 2. Vehicles: The vehicle empt to answer the question: where will be active? omprise of the products, services, distribu“'» :nd technology in which the firm participates. cempt to answer the question: how will be get there? * vehicles thus, are the or entering new arenas such as through acquisit alliances or internal ¢ nent. 3. Differentiators: The ci -:sntiators attempt to answer the question: how w win in the marketplac- ie differentiators are the features and attributes © 's products or servics that help it compete in the market. Some examples differentiators could be ice. quality or reliability of products. 4, Staging: The staginy aticinpts to answer the question: what will be our spee sequence of moves? Tiuus, “he staging refers to the tiining and the p: Created with @ nitro” professional download the free tral online a atropd.com/profesional strategic moves. There are resources as well as limitations that determine when a firm moves into a market and at what speed. 5. Economic logic: The economic logic attempts to answer the question: how will | obtain our returns? Every firm has to ed a profit over and above its cost of capital. Explaining how profit will be created is the economic logic of the firm. “The direction in which strategie management is moving can, ke anticipated ffom what Ansoff calls an emerging comprehensive approach of ‘management of discontinuous change, which takes account of psychological, sociological, political and systemic characteristics of complex organisations. The Indian Scenario Formal management education started in India in the late fifties and gained an impetus with the setting up of the Indian Institutes of Management (IIMs) and the Administrative Staff College of India in the early sixties. In the formative years of the TMs, the curriculum and philosophy of management education ‘... were borrowed substantially from the American business schools’. The IM Ahmedadad based its teaching methodology on the Harvard model of developing and using case studies as the major pedagogical tool. With the spread of the network of IIMs and the creation of several university departments and private management institutes, management education has experienced an unparalleled growth. Almost all management education institutions offer the strategic management and business policy course, usually in the later part of the degree or diploma programme. The All India Council of Technical Education, the regulatory agency for management education in India, prescribed business policy, first in 1990 and again in 1995, as an integrative component in management studies curriculum, in the form of a course it corporate planning and strategic management. The Association of Indian Management Schools, a representative body of management institutes and university management departments, while recommending a standard curriculum, included business policy and strategic management as a compulsory course. The Alll India Management Association, ‘New Delhi, which is a national body for the promotion of scientific management in India, offers a popular distance education programme in management that includes a course on strategic management and ethics in its curriculum. An agenda for strategie m2; A consultant-academic duo has Indian companies over the three periods; the liberalisation stage, i.e. the 19° beyond, ‘The key patterns in strategic moment as practiced by the Indian companies in the three periods are as below: Pre-liberalisation stage: Strategic m ia Indian companies: ipted to analyse the strategic issues facing pre-liberalisation stage, icc. till the 1980s, the post liberalisation stage, i.e. 2000 and nt on government's fringes ‘he national planning framework. . acc bbiny opportunities £ High diversification, non-comp.vi.ive scales and weak technology capabilities * Secretive and ‘one man’ s “é goment process 7 Created with @ nitro” professional download the free tral online a atropd.com/profesional The decade of the 1990s: Transitional euphoria and reality-check * Carried ‘operation de-linked strategy’ mindset to the early 1990s ‘* ‘Foreign complex’ governed strategy in older groups in early 1990s ‘* Strategy of focus through rationalization and operations improvement by majority of companies in the late 1990s * Experimentation with intemational consulting firms in strategic management” : process. Post-liberalisation stage: Issues and agenda in 2000-2010 ‘* Acquire a ‘global maverick’ mindset and actively shed pre-liberalisation thinking ‘* Synergise entrepreneurial flair with professional skills in strategic management * Complete portfolio. rationalization, but also expand boundaries through internationalization and entry into emerging sectors. * Mobilize increased resources and ensure adequate growth through existing businesses ‘+ De-merge businesses as independent companies, for focus and improved market capitalization Actively promote development of technology capabilities Decentralize organisations and develop institutionalized control mechanisms INTRODUCTION TO BUSINESS POLICY Business policy, as defined by Christensen and others, is ‘the study of the function and responsibilities of senior management, the crucial problems that affect : success in the total enterprise and the decisions that determine the direction of the organisation and shape its future. The problems of policy in business, like those of policy public affairs, have to do with the choice of purpose, the moulding of organizational identity and character, the continuous definition of what needs to be done and the mobilization of resources for the attainment of goals in the face of competition or adverse circumstance, This comprehensive definition by Christensen and others covers many aspects of business policy. First, it is considered as the study of functional and responsibilities of the senior management related to those organizational problems which affect the success of the enterprise as a whole. Secondly, it deals with the determine a © organisation. Thirdly, it involves a choice done in order to mould the character and iden «tie organisation. Lastly, it} elso concemed with the mobilization of resoure: se help of which the ors. ‘sation can achieve its goals. U") “STANDING STRATEGY sal to the process of strategic management, is the .nicept of strategy that we understand first. After that, we will go on to dise.ss the process of strategic Created with @ nitro” professional download the free tral online a atropd.com/profesional The Concept of Strategy The concept of strategy is central. to understanding the process of strategic management. The term ‘strategy’ is derived ftom a Greek word strategos, which means generalship — the actual direction of military force, as distinct from the policy governing its deployment. Literally, therefore, the word ‘strategy’ means the art of the general. In business parlance, there is no definite meaning assigned to strategy. It‘is often used loosely to mean a number of things. A strategy could be © a plan or course of action or a set of decision rules making pattern or creating a common thread; © the pattern or common thread related to the organisation’s activities which are derived from the policies, objectives and goals. © related to pursuing those activities which move an organisation from its current position to a desired future state; * concemed with the resources necessary for implementing a plan ot following a course of action; © connected to the strategic positioning of a firm, making trade-offs between its different activities and creating a fit among these activities; and © the planned or actual coordination of the firm’s major goals and actions, in time and space that continuously co-align the firm with its environment. Levels at which Strategic Operates It is uncommon to find many companies, or a group of companies, that while being under the same top management, are working in different business lines with regard to either products/services, markets or technology. Here are a few illustrations: ‘© Hindustan Levers, the venerable multinational subsidiary, organizes itself into four businesses of home and personal care, foods, new ventures and exports. * The TVS Group has companies like Sundaram Fasteners, Lucas TVS, Brakes India, Wheels India, Sundaram Brake Linings, TVS Motor Company and TVS Electronics saies in technology areas as diverse as airbrake systems, aluminiu castings, automotive components, computer peripherals, software ¢ -wo-wheelers. * Balmer Lawrie, a public sector =» pany, has a diversified portfolio of businesses in the fields of gress. .d lubricants, leather & functional chemicals, packaging, turkey ps. « exports, travel and tourism and cargo and logistics. * Finolex Group is a business conglo’ rate with interests in diverse areas such as telecommunications, peivocl s, irrigation and education. For many companies, such as illustrs.: -ove. a single strategy is not only adequate but also inappropriate. The need # at ‘rategies at different level der to segregate different units or segi ach performing a common set of Created with @ nitro” professional download the free tral online a atropdf.com /orofesional activities, many companies organize on the basis of operating divisions or, simply, divisions. These divisions may also be known as profit centres or strategic business units (SBUs). An SBU, as defined by Sharpin, is “any part of a business organisation which is treated separately for strategic management purpose.” Different Levels of Strategy LEVELS OF MANAGEMENT LEVELS OF STRATEGY CORPORATE CORPORATE ~ LEVEL SBU BUSINESS ~ LEVEL FUNCTIONAL FUNCTIONAL - LEVEL Generally, SBUs are involved in a single line of business. A complementary concept to SBU, valid for the external environment of a company, is a strategic business area (SBA). It is defined as ‘a distinctive segment of the environment in which the firm does (or may want to do) business’. Corporate level strategy is an overarching plan of action covering the various functions that are performed by different SBUs. The plan deals with the objectives of the company, allocation of resources and coordination of the SUs for optimal performance, SBU level (or business) strategy is a comprehensive plan providing objectives for SBUs, allocation of resources among functional areas and coordination between them for making optimal contribution to the achievement of the corporate level objectives. Functional strategy deals with a relatively restricted plan, providing objectives for @ specific function, allocation of resources among different operations within that functional area and coordination between them for optimal contribution to the achievement of the SBU and corporate-level objectives, Pai manufac entities, Biotec is a health management company in India d marketing of pharmaceuticals, biopharms: products and vaccines. It is organized into five SBUs: Critical Care, . GROW and Best on Health (BOH), which enables it~» respond to changes in the inc...) and marketplace with speed and sensitivity. Critic. Co-= is focused on Nephrology. Diacar for diabetes and cardiovascular management, BU promotes therapeutic sroducts, GROW SBU caters to clinicians across the ¢-unt-y and “Best On Health’ (BCs) offers therapeutic solutions to cater to the speci dds o* customers and ‘rascal products developed through modern technology’ nd extes've research, din research, - new chemical Created with @ nitro” professional download the free tral online a atropd.com/profesional Another example of a company using multiple-level planning is Bajaj Electricals Ltd., (BEL). It is a part of the Bajaj Group, which is in the business of steel, sugar, two wheelers, besides that of consumer electrical products. The company commissioned Accenture, which recommended a comprehensive strategy for business growth with organizational restructuring. BEL has five major strategic business units compri of home appliance, fans, lighting, luminaries and engineering & projects. The SBU structure aims to lend greater empowerment to the employees and also bring about a significant accountability for the performance of each SBU with the SBU head and his senior team. STRATEGIC DECISION-MAKING Decision-making is the most important function of any manager. Strategic decision-making is the primary task of the senior management. Both these kinds of decision-making are essentially the same. The difference lies in the levels at which they operate. While decision-making pertains to all managerial functions, strategic decision- making largely relates to the responsibilities of the senior management. Most people agree that decision-making is the process of selecting a course of action from among many alternatives. The process works somewhat like this: ‘© Objectives to be achieved are detemined; Alternative ways to achieving the objectives are identified; Each alternative is evaluated in terms of its objective-achieving ability; and ‘The best alternative is chosen. The end result of the above process is a decision or a set of decisions to be implemented. Such a process of decision-making is deceptively. In practice, decision- making is a highly complex phenomenon. The first set of problems encountered in decision-making is related to objective- setting. Second, the identification of all possible alternatives is a difficult task. How to test the objective-achieving ability of each alternative is easier said than done and, lastly, choosing the best alternative is a formidable task too. Issues in Strategic Decision-making Being a complex process, strategic decision-making is difficult to perform. It is incomprehensible; it cannot be analysed and explained easily. Decision makers are unable to describe the exact manner in whi decisions are made. Like the working of the human mind, strategic decisior s is fathomless. And rightly so, for it is based on complex mental processes w not exposed to view. Henry Mintzberg, commenting on the nature of str: sion-making says that ‘the key managerial processes are enormously comple: us, drawing on the vaguest of information and using the least articulated of ric” | »rocesses. These processes seem to be more relational and holistic than ordered < ential and more intuitive than intellectual...” 1. Criteria for Decision-Making The process of decision-making requires as yardsticks to measure the efficiency and eft» »ective-setting. These objectives serve ss of the decision-making process. u Created with @ nitro” professional download the free tral online a atropd.com/profesional In this way, objectives serve as criteria for decision-making. There are three major view points regarding setting criteria for decision-making, a) The first is the concept of maximisation. It is based on the thinking of economists who consider objectives. as those attributes which are set at the highest point. The behaviour of the firm is oriented towards achieving these objectives and, in the process, maximizing its retums. b) The second view is based on the concept of satisficing, This envisages setting objectives in such a manner that the firm can achieve them realistically, through a process of optimization. ©) The third viewpoint is that of the concept of incrementalism. According to this, the behaviour of the firm is complex and the process of decision-making, which includes objective-setting, is essentially a continually-evolving political consensus-building. Through such an approach, the firm moves towards its objectives in small, logical and incremental steps. 2. Rationally in Decision-making Rationally, in the context of strategic decision-making, means exercising a choice from among various altemative courses of action in such a way that it leads to the achievement of objectives in the best possible manner. The economists who support the maximizing criterion consider a decision to be rational if it leads to profit maximisation, Behaviourists, who are the proponents of the satisfying concept, believe that rationality takes into account the constraints under which a decision maker operates. Incrementalists are of the opinion that the achievement of objectives depends on the bargaining process between different interested coalition groups existing in an organisation and therefore, a rational decision-making process should take all these interests into consideration. 3. Creativity in Decision-making To be creative, a decision must be original and different. A creative strategic decision-making process may considerably affect the search for alternatives where novel and untried means may be looked for and adopted to achieve objectives in an exceptional manner. Creativity, as a trait, is normally associated with individuals and is sought to be developed through techniques such as brainstorming. You may recall that one of the attitidinal objectives of a business policy course it to develnn the ability to go beyond ces oink, which, in other words, is using creativity in stra\-2i. decision-making, vitity in Decision-making is & common observation that, given an identica conditions, two decision ii. may reach totally different conclusions. Thi: hnappens during case discussions also. A case may be analysed differently by ind icuals in group of leaers and, depending on the differing perceptions of the problem »nd ‘its solutions, they may 258 of conception 2. Planning schoo! where strategy formativ»» mal process 3. Posit school where strategy forms'‘on is en analytical process 4. Entrepreneurial school where strategy is a visionary process, 5. Cognitive school where strategy forme ‘iss mental process 6. Learning school where the strategy for s an emergent process 7. Power school where the strategy forma »egotiation process 8. Cultural school where the strategy format collective process 9. Environmental process where the strat ‘on is a reactive process 10. Configuration school where the strate: vis a process of transformation Created with @ nitro” professional download the free tral online a atropd.com/orofesional Given below is a description and explanation of each school of thought: 1. The Design School: , ‘Which perceives strategy formation as a process of conception, developed mainly in the late 1950s and the 1960s. Under this school, strategy is seen as something unique and which is in the form of a planned perspective. The chief executive officer as the main architect, guides the process of strategy formation, The process of strategy formation is simple and informal, based on judgement and thinking. The major contributors to the design school are Selznick (1957) and Andrews (1965). 2. The Planning School: Which perceives strategy formation as a formal process, developed mainly in the 1960s. Under this school, strategy is seen as a plan divided into sub strategies and Programmes. The lead role in strategy formation is played by the planners. The process of Strategy formation is formal and deliberate, The major contributor to the planning school is Ansoff (1965), 3. The Positioning School: ‘Which perceives strategy formation as an analytical process, developed mainly in the 1970s and the 1980s. Under this school, strategy is seen as the organisation’s planned generic positions chosen on the basis of an analysis of the competition and the industry in which it operates. The lead role in strategy formation is played by the analysts, The process of strategy formation is analytical, systematic and deliberate. ‘The major contributors to the positioning school are Schendel and Hatten (1970s) and Porter . (1980s). 4. The Entrepreneurial School: Which perceives strategy formation as a visionary process, developed mainly in the 1950s. Under this school, strategy is seen as the outcome of a personal and unique perspective often aimed at the creation of a niche. The lead role in strategy formation is played by the entreprencur/leader. The process of strategy formation is intuitive, visionary and largely deliberate. The major contributors to the entrepreneurial school are ‘Schumpeter (1950s), Cole (1959) and several others, most of whom are economists. 5. The Cognitive School: tainly in the {concept that is played by the ‘cn perceives strategy formation as a mental process, cic: ¢ 1950s. Under this school, strategy is seen as an inciv mental perspective. The lead role in strategy fo. .2.1n 1940s av the oute« thinker-p::losopher. The process of strategy formation is m. emergent. The major co~“hwors to the cognitive school and Simon (1947 a. and March and Simon (i Created with @ nitro” professional download th free tral online a tropd.com profesional 6.The Learning School: Which perceives strategy formation as an emergent process, has had a legacy mg from 1950s through the 1990s. Under this school, strategy is seen as a pattern that is unique. The lead role is played by the leamer within the organisation, whoever that might be. The process of strategy formation is emergent, informal and messy. The major , Contributors to the learning school are Lindblom (1959, 1960), Cyert and March (1963), ‘Weick (1969), Quinn (1980), Senge (1990) and Prahalad and Hamel (carly 1990s). 7, The Power School: Which perceives strategy formation as a negotiation process, developed mainly during the 1970s and 1980s. Under this school, strategy is seen as a political and cooperative process or pattern. The lead role in strategy formation is played by any Person in power (at the micro level) and the whole organisation (at the macro level), The process of strategy formation is messy, consisting of conflict, aggression and cooperation. At the micro level, the process of strategy formation is emergent while at the macro level, it is deliberate, The major contributors to the power school are Allison (1971), Pfeffer and Salancik (1978) and Astley (1984), 8. The Cultural School: 7 Which perceives strategy formation as a collective process, developed mainly in the 1960s. Under this school, strategy is seen as a unique and collective perspective. The Jead role in strategy formation is played by collectivism displayed within the organisation. The process of strategy formation is ideological, constrained, collective and deliberate. The major contributors to the cultural school are Rhenman and Normann (late 1960s). 9. The Environmental School: Which perceives strategy formation as a reactive process, developed mainly in the late 1960s and the 1970s. Under this school, strategy is seen as something generic, occupying specific positions or niche in relation to the environment. The lead role is strategy formation is played by the environment as an entity, The process of strategy formation is passive and imposed and hence, emergent. The major contributors to the environmental school are Hannan and Freeman (1977) and contingency theorists like Pugh er al. (late 1970s). 10. The Configuration School: Which perceives strategy ° swsiion as a transformation process, developed duri . the 1960s and the 1970s. Unde ‘>is school, strategy is viewed in relation to a speci context and thus could be in th : ™ that corresponds to any process visualized unde any of the other nine schools of ght, The level role may be played by any actor : identified in the other nine schoo!s of thought. The process of strategy formation is integrative, episodic and sequentia! elements pointed out under the oth the configuration school are

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