CHAPTER 2 STRATEGY & STRATEGIC PLANNING

MEANING OF STRATEGY:

Strategy is derived from Greek word ‘strategos’ where ‘stratos’ means army and ‘agos’ means to lead. Thus, the word
strategy has evolved in the context of war and deception of enemy. Strategy can be described as plans or methods to
achieve the purpose/ objective of an organization. Strategy is the direction that an organization chooses to follow in
order to fulfil its mission.

Basically, strategy is an approach, which is flexible and intended towards achievement of the desired results. The term
strategy is associated with unified action for achieving pre-determined goals.

STRATEGY – FEATURES

Long Term

Action Oriented / Specific

Integrated / Coordinated

Flexible / Dynamic
Strategy
Top Mgt. driven

Core Competence

Competitive Advantage

Proactive / Reactive

DEVELOPMENT OF STRATEGIES

Strategies are described as general directions in which an organization plans to go to attain its goals. They are big and
important plans. Every well managed organization has strategies though they may not be stated explicitly. Management
control systems are tools to implement strategies.

Strategies differ from organization to organization and the controls should be tailored to the specific requirement of
strategies. Different strategies require different task priorities, different key success factors and different skills,
perspective and behaviours.

Development of Strategies:
A firm develops its strategies by matching its own core competencies with industry opportunities. Strategy formulation
arises as a result of evaluation of company’s strength and weaknesses in the light of opportunities and threats that fit
the company’s core competencies with environmental opportunities.

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CHAPTER 2 STRATEGY & STRATEGIC PLANNING

Environment Analysis Internal Analysis

Competitor
Technology know-how
Customer
Manufacturing know-how
Supplier
Marketing know-how
Regulatory
Distribution know-how
Social / Political

Opportunities and Threats Strengths and Weaknesses

Identify Opportunities Identify Core Competencies

Internal core competencies are merged with external opportunities and firm’s strategies are developed.

LEVELS OF STRATEGY

Corporate Multi business

Level Corporation

Business Strategic Strategic Strategic

Level Business Unit 1 Business Unit 2 Business Unit 3

Functional Research and Human

Manufacturing Marketing Finance
Level Development Resources

An organization can be classified into three categories for the purpose of strategic decision-making. Such classification
facilitates identifying the decision-making areas as well as the nature of information needed for such decision-making.
Further, such classification also helps in analysis of business environment. It defines the time horizon of planning.

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CHAPTER 2 STRATEGY & STRATEGIC PLANNING
A. Corporate Level Strategy
Corporate Level Strategy is the essence of strategic planning process. It determines the growth objective of the
company, i.e. direction, timing, extent and pace of the firm’s growth. Corporate Mgt. consists of the Chief Executive
Officer (CEO), other Senior Executives, the Board of Directors, and corporate staff. Their role includes defining the
mission and goals of the organization, determining nature of businesses, allocating resources among different
businesses, formulating and implementing strategies that cover individual businesses, and providing leadership
for the organization. Corporate Managers are the guardian of shareholders’ welfare. It is their responsibility to
ensure that corporate and business strategies are consistent with maximizing shareholder wealth.

At corporate level, the issues are:

1. The business in which firm will participate
2. The deployment of resources among those businesses

The net result of corporate wide strategic analysis are decisions involving businesses to delete, businesses to retain
and businesses to add to the firms portfolio.

Companies can be classified into one of the three categories:

Companies can be categorized as

Single business firms Related diversified firms Unrelated diversified firms

Operate in multiple industries but

Operate in totally unrelated
businesses are connected to each
Operate in one line of business markets and autonomous
other by common customers,
businesses
distribution channels, technology etc

Example - Apple, McDonald's, Procter and Gamble, Johnson and Reliance, ITC, Adani Enterprises,
Volkswagen Johnson, Gillette Tatas etc

Corporate strategy is continuum with single business strategy at one end and unrelated diversification at the other
end. Many companies do not fit exactly into one of these classes. However, most companies can be classified along
this continuum. The corporate strategy also differs according to the category business fits into.

B. Business Level Strategy

A Strategic Business Unit (SBU) is a self-contained division (with its own functions) that provides a product or
service for a particular market. Since each product / market segment has a distinct environment, a SBU is created
for each such segment. For each product group, the nature of market in terms of customers, competition, and
marketing channel differs. Therefore, it requires different strategies for its different product groups. Thus, each SBU
sets its own strategies to make the best use of its resources (its strategic advantages) given the environment it faces.
The Business Level Management consists of Dept. Heads, Divisional Heads and their staff. The strategic role of
business level managers is to translate the general statements of direction and intent that come from the corporate
level into concrete strategies for individual businesses.

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CHAPTER 2 STRATEGY & STRATEGIC PLANNING
C. Functional Level Strategy
Functional Strategy relates to a single functional operation and the activities involved therein. Decisions at this level
are tactical. Functional strategy deals with relatively restricted plan providing objectives for specific function,
allocation of resources within that functional area and coordination between them for optimal contribution to the
achievement of the SBU and corporate-level objectives.

E.g. Marketing strategy, a functional strategy, can be subdivided into promotion, sales, distribution, pricing
strategies etc. Functional level managers are responsible for the specific business functions (HR, Purchase, Product
Development, Finance, Customer service etc.) i.e. one activity.

An analysis of functional segments can be understood as follows:

Functional
Strategy

Research and
Production Human Resource Finance Marketing
Development

Manpower
Quantity Financing Advertising Research
Planning

Quality Recruitment Investment Distribution Development

Supervision Selection Dividend Pricing

Training

Appraisal

Remuneration

Distinction Between - Corporate Level Strategy & Business Level Strategy

Sr. Corporate Level Business Level

1 Based on the mission statement, related to goals
and objectives to be achieved
2 Designed by Top Level Management
3 Decisive and Legislative in nature
4 Covers entire organization
5 Long term strategy
6 Maximizing company profits and growth
7 Wide coverage, external in nature
Strategy framed by specific SBU managers for the growth
of concerned business unit
Designed by Middle Management
Executive and governing in nature
Covers specific business unit only
Medium or short-term strategy
Competition successfully in market-place
Narrow scope, internal in nature

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CHAPTER 2 STRATEGY & STRATEGIC PLANNING
STRATEGIC PLANNING

 “Strategic planning is an organization’s process of defining its strategy, direction, and making decisions on
allocating its resources to pursue this strategy. It may also extend to control mechanisms for guiding the
implementation of the strategy.” (Allison & Kaye).
 Basically, the environment is highly complex, uncertain, dynamic and multi-dimensional. Businesses have to
respond to such hostile environment in pursuit of their aims and objectives.
 Hence, strategic planning is vital to sustain, grow and succeed in this environment.
 Strategic planning is a management tool which facilitates an organization to achieve its goals in a better way. Assess
and adjust an organizations’ direction in response to a changing environment.
 Strategic Planning is a disciplined effort to produce fundamental decisions and actions that shape and guide an
organization. Thus, formulation of corporate strategy forms the crux of the strategic planning process.
 Strategic planning is process of determining organizational strategy. It gives direction to the organization and
involves making decisions and allocating resources to pursue the strategy.
 It is the formal consideration of future course of an organization. Basically, strategic planning is a top-level
management function.

STRATEGIC PLANNING PROCESS

Vision &
Mission

Formulate Purpose &

Strategy Goals

SWOT Internal
Outcome Issues

External
Issues

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CHAPTER 2 STRATEGY & STRATEGIC PLANNING
Although procedure differs according to nature, size and business of the organization, strategic planning generally
involves the following steps:

1. Determining the Vision & Mission

Vision Statement

 Vision serves the purpose of stating what an organization wishes to achieve in the long run. It expresses the
position that the organization would like to occupy in future.
 The vision is about looking forward; it is a future aspiration that leads to an inspiration of being the best in one’s
business sphere. It creates a common identity and a shared sense of purpose.
 A vision statement is a company’s road map, indicating both what the company wants to become and guiding
transformational initiatives by setting a defined direction for the company’s growth.
 Vision statements undergo minimal revisions during the life of a business, unlike operational goals which may
be updated from year-to-year.
 Vision is a combination of visualization, ambition and commitment.
 Basically, a vision statement answers the questions –
 Who we are?
 Where we are now?
 Where we want to be?

Illustrations of Vision Statements –

 Tata Steel – ‘We aspire to be the global steel industry benchmark for Value Creation and Corporate Citizenship’
 Amazon – ‘Our vision is to be earth’s most customer-centric company; to build a place where people can come
to find and discover anything they might want to buy online’
 Disney – ‘To make people happy’
 Instagram – ‘Capture and Share the World’s Moments’
 Infosys – ‘To be a globally respected corporation providing best business solutions, leveraging technology,
delivered by best-in-class people’

Mission Statement
 A Mission statement broadly describes the company’s present capabilities, customer focus, activities and business
structure. Such a statement reflects the corporate philosophy, identity, character, and image of an organization.
 A mission statement is a short statement of an organization’s purpose, identifying the goal of its operations: what
kind of product or service it provides, its primary customers or market, and its geographical region of operation.
Succinct
 It communicates primarily to the people who make up the organization – its members or employees – giving
them a shared understanding of the organization’s intended direction.

Illustrations of Mission Statements –

 State Bank of India – ‘Committed to providing simple, responsive and innovative financial solutions’
 Tesla – ‘To accelerate the world’s transition to sustainable energy’
 Amazon – ‘We strive to offer our customers the lowest possible prices, the best available selection, and the
utmost convenience’
 TED – ‘Spread Ideas’
 Google – ‘To organize the world’s information and make it universally accessible and useful’
 Samsung – ‘Become one of the world’s top five brands by 2020’
 Facebook – ‘To give people the power to build community and bring the world closer together’

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CHAPTER 2 STRATEGY & STRATEGIC PLANNING

Differentiate between Vision and Mission

Sr. VISION MISSION

1 Vision outlines ‘Where’ you want to be. Defines Mission talks about ‘How’ to get there. Defines
purpose and values of firm. primary objectives to reach goal
2 “Where do we aim to be?” “What do we do? What makes us different?

3 Vision talks about the future Mission talks about present, and going fwd.

4 Where you see yourself in future. It inspires you to Internal purpose to define key measures of success.
do best, and rationale for working. Lists the goals to be achieved.
5 Usually, permanent statement over time May change as per changing scenario

6 Broad statement, wide scope, abstract in nature, Specific statements, target clients, goal oriented,
realistic aspirations, values etc. narrow coverage

2. Purpose and Goals

Purpose and goals are targets that a company has set for itself to achieve. Clearly defining them is a pre-requisite of
the strategic planning process. Goals can be achieved as broad statements of what organization wants to achieve in
the long run or on a permanent basis. Goals are thus fairly timeless statements. In a formal management control
system profitability is probably the most important goal.

3. External & Internal Analysis

External Analysis Internal Analysis

 Customer Analysis
Segments, motivations, demand gaps
 Competitor Analysis
Identity, strategic groups, performance, image,
objectives, strategies, culture, cost structure,
strengths, weaknesses.
 Market Analysis
Size, projected growth, profitability, entry
barriers, cost, strengths, weaknesses
 Environmental Analysis
Technological, Govt., economic, cultural,
demographic, information needs etc.
 Performance Analysis
Profitability, sales, shareholders’ value
analysis, customer satisfaction, product
quality, brand associations, relative cost,
new products, employee capability and
performance, product portfolio analysis.
 Determinates Analysis
Past / current strategies, strategic issues,
organizational capabilities & constraints,
financial resources, constraints, strengths
and weaknesses.

4. SWOT Outcome
SWOT analysis is an important component of the strategic thinking process. SWOT stands for Strength, Weakness,
Opportunity and Threat. SWOT analysis helps the generation of strategic alternatives, or choices of future strategies.
 Strength is inherent capability of organization which creates strategic advantage over competitors
 Weakness is inherent limitation/ constraint of organization which creates strategic disadvantages.
 Opportunity is favourable condition in entity’s environment which helps to strengthen its position.
 Threat is an unfavourable condition in entity’s environment creates risk or damage to its position.

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CHAPTER 2 STRATEGY & STRATEGIC PLANNING
The main purpose of SWOT analysis is to formulate strategies that will create a firm-specific business model. Such
model will match a company's resources & capabilities to the demands of the environment. SWOT provides a
focussed approach in strategy formulation and chances of success increase.

Importance of SWOT

a) Logical Framework – SWOT analysis provides a logical framework for systematic handling of issues,
identifying influencing factors, generate alternative strategies and finally strategy creation.
b) Comparative Account – SWOT analysis provides information about both external and internal environment in
a structured form. Hence, it becomes possible to compare external opportunities and threats with internal
strengths and weaknesses. Such objective comparison helps to form a suitable strategy by developing certain
patterns of relationship.
c) Strategy Identification – At times, the correlation between external and internal factors of a firm may be tough.
In such situation, SWOT analysis guides the strategist to think of overall position of the organization that helps
to identify the major purpose of the strategy under focus.
d) Business Model – SWOT analysis helps managers to design a business model(s) that will allow a company to
gain a competitive advantage in its industry. Competitive advantage leads to higher profitability and
maximizes a company's chances of rapid growth.

Examples of potential SWOT

Potential Strength & Competitive Capabilities Potential Weakness, Competitive Deficiency

Valuable skills and experience in key areas No clear strategic direction

Strong financial condition & financial resources
Strong brand name, image / company reputation
Market leader and an attractive customer base.
Economies of scale, learning curve effects
Superior technological skills, important Patents
Superior IPR capital compared to key rivals
Cost advantages
Strong advertising and promotion
Product innovation skills
Proven skills in improving product processes
Superior use of e-commerce and process
Superior skills in supply chain management
Excellent customer service
Wide geographic coverage, global distribution
Alliances/JV with foreign players
Obsolete facilities
Weak balance sheet, High level of borrowings
Higher cost / unit, compared to key competitors
Less management depth & intellectual capital
No cost control measures
Suffering from internal operating problems.
Inadequate e-commerce capabilities and plans
Too narrow a product line compared to rivals
Weak brand image or reputation
Weak dealer network, less global distribution
Shortage of funds for good projects
Large amount of underutilized plant capacity
Inadequate R&D, no improvements, technology
Not attracting new customers as fast as rivals
Availability of raw material

Potential Opportunities Potential Threats

Enter new geographic / product markets
Broader range of customer needs
Enter new product lines or new businesses
Internet & e-commerce to cut costs, new sales
Integrating forward or backward
Falling trade barriers in attractive foreign markets.
Openings to capture market share from rivals
Sharp rise in demand in market segments
Acquisition of rival firms or companies
Alliances or JV to expand market coverage
Openings to exploit emerging new technologies
Using brand name for new geographic areas.
Likely entry of strong new competitors
Loss of sales to substitute products
Competition from e-commerce / online sales
Rising intensity of competition
Innovations reducing demand for the product
Slowdowns in market growth
Adverse forex rates and trade policies
Costly new regulatory requirements
Rising bargaining power of customer/ supplier
Change buyer needs, tastes and preferences
Adverse demographic changes – less demand
Vulnerability to industry driving forces

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CHAPTER 2 STRATEGY & STRATEGIC PLANNING
5. Formulate Strategy
The last stage in strategic planning process is formulating a strategy that will best help in achieving objectives of the
organization.

BENEFITS OF STRATEGIC PLANNING

Strategic planning can help your organization in a number of critical ways:

1. Improved results and confidence: A proper plan may positively in sequence organizational performance and can
contribute to a greater sense of purpose, progress and accountability among its team.

2. Focus: Good strategic planning forces future thinking and can refocus and re-energise a disorientated organization.

3. Problem solving: Strategic planning focuses on an organization’s most critical problems, choices and
opportunities.

4. Teamwork: Strategic planning provides an excellent opportunity to build a sense of teamwork, to promote
learning, and to build commitment across the organization.

5. Communication: All stakeholders have an interest in knowing the direction in which organization is heading and
also how their contribution will  t in overall plan.

6. Greater control: Strategic planning can provide an organisation greater control the environment in which it
operates.

LIMITATION OF STRATEGIC PLANNING

1. Costs can outweigh benefits: Strategic planning can consume a lot of time and money. This can be wasteful if the
strategic planning is not successful.

2. Development of poor plans: Faulty assumptions about the future, poor assessment of an organization’s
capabilities, poor group dynamics and information overload can lead to the development of poor plans.

3. Implementation: If not implemented properly, whole planning exercise will go futile. Disillusionment, cynicism
and feelings of powerlessness often result if people have contributed energy for development of a plan which is
not implemented.

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