Module 1

Introduction to Strategic Management and

Business Policy
Notes
Course Outcome (CO) 1
The student will be able to evaluate alternative paradigms of
strategyand their influence on strategic decision making.

MBA Semester 3
Course – Strategic Management
Topics Covered
1. Evolution of Strategic Management and Business Policy
2. Development from Business Policy to Strategic Management
3. Understanding Strategy
4. Features of Strategy
5. Strategic Decision Making
6. Schools of Thought of Strategy Formation
7. Introduction To Strategy Management
8. Components of Strategy Management
9. Process of Strategy Management

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 Module – 1
Introduction to Strategic Management and Business Policy

1. Evolution of Strategic Management and Business Policy

The evolution of strategic management as a subject started as early as 1911, when ‘Business
Policy’ as a capstone course for the business administration programme was introduced in
Harvard Business School. In fact, the course focused on integrating the functional areas of
business administration like accounting, management, marketing, human resource, finance
and production.
Originally, this course aimed to provide practitioners and learners the ability to apply the
knowledge learned in previous courses to solve problems in business organisations. As such
the business policy course provided formal training and experience in handling issues
affecting the business environment and systematic and analytical thinking in resolving
problems affecting the performance of organisations.
The real stride in the growth of strategic management in the United States came after the
publication of two reports in 1959, the Gordon and Howell Report sponsored by the Ford
Foundation.
Based on their research and the advantages and benefits derived from the business policy
course, the Gordon and Howell Report recommended that the business policy course be made
a core course in the business administration curricula to all the universities in the American
Association of Colleges of School of Business Administration (AACSB). Since then, the business
policy course has been the major thrust of the business administration programmes at the
undergraduate and postgraduate levels.

2. Development from Business Policy to Strategic Management

There are two perspectives in the development of the business policy course. First, from the
perspective of the changing emphasis in the contents of the course, and the second one is from
the management planning perspective.

I Changing Emphasis in Business Policy Contents:

The business policy course underwent different changes since its introduction as a core
subject. The contents of the course had changed to cope with the changes in the dynamics of
the business environment. The emphasis in the course is attributed to the varying needs of
the business and non- business organisations in coping with the changing environmental
concerns.
There are four major factors contributing to the changing emphasis in the business policy course:
(i) Changing managerial roles in the organisation;
(ii) Rapid changes in business and non-business environment;
(iii) Emphasis on the case study method in learning; and
(iv) Other concerns affecting organisational performance.
When the business policy course was introduced at Harvard University, the perspective
adopted was that of the top management view of the organisation. In other words, in trying
to understand various issues in the organisation, participants in the course were asked to take
the role of the Chief Executive Officer/General Manager of an organisation, and see how they
would react to the varying issues affecting the organisation.
While this perspective was required to have an overall view of things in an organisation, the

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 perspective would also provide learners to relate various functional areas in an organisation
and how it could affect the overall organisation. Further, this perspective would provide
learners the interrelationship of external factors and their effects and impact on the
management and performanceof the organisation.
Getting the top management perspective of an organisation was found to be necessary but
not sufficient towards better performance in an organisation. The participative management
concepts and empowerment in management was found to be also important in ensuring
organisational success and performance.
Subsequently, the roles of middle management and first level management (that is, top down
and bottoms-up) in handling various managerial issues were more important. Thus, vertical
and lateral managerial perspective became important in trying to resolve managerial
concerns in an organisation. Thus, the managerial roles and expectations were changing to
cope with the impending needs of the environment.
The rapid changes in the business and non-business environments resulted in the change in
emphases and contents of the business policy course. External factors, such as economic,
social, political and technological, seemed to have evolved much in the last two decades.
The industrial renaissance of the 1980s affected the management of business and non-
business organisations in several ways. One major change was the information technology
revolution which promoted the development of new ways of doing business.
The increasing concerns for social responsibility, ethics, and the environment, for example,
concerns over pollution, poorly managed health system and social discrimination, also
contributed to the changing expectations of society towards organisational performance.
Finally, the changing micro-management expectations of the stakeholders like corporate
governance, transparency and social equity in organisational management also contributed
to the change in business and non-business environments. In recent years, learning about
organisations had changed much with the new developments in pedagogy and the
interrelated tools.
The impending globalisation trends and liberalisation of trade barriers also had an effect on
the curriculum of strategic management that is from an inward looking of one country to that
of an international and global perspective.
This had led to the concern for a more proactive or ‘strategic’ approach in handling complex
business and non-business issues affecting organisations. Consequently, the name of the
course had to be changed to ‘strategic management’ to reflect these changes in the
environment.

II Changing Management Planning Perspective:

In the field of organisational management, one of the major functions of management process
is planning. The management literature has often focused on the importance of planning in
managing organisations more effectively and efficiently. Traditional management planning
emphasises on the need to have a clear goal and objectives and preparing the necessary
budgets for resource allocation.
The rapid changes in the business environment have forced managers to make the necessary
adjustments in management planning and thus raised the development of a ‘strategic’
approach in management planning. In other words, the changing managerial planning
perspective has also contributed to the development in the field of business policy to ‘strategic
management’.

3. Understanding Strategy

The word “strategy” is derived from the Greek word “strategos”; 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

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 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 behaviour 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 thesegoals, 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.

4. 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 thebusiness 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 bedeveloped in future.
3. Strategy is created to take into account the probable behaviour of customers and
competitors.Strategies dealing with employees will predict the employee behaviour.
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 andto minimize the strengths of the competitors.
Strategy, in short, bridges the gap between “where we are” and “where we want to be”.

5. Strategic Decision Making

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 yourshorter-term plans with this deeper, broader mission – giving your
operations clarity and consistency. Strategic decision making aligns short-term objectives
with long-term goals, and a mission that definesyour company's big picture purpose. Shorter
term goals are expressed in quantifiable milestones thatgive 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 ofwhat 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.

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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 aligningyour 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.

6. Schools of Thought of Strategy Formation

Mintzberg et al. (1998) identified the ten schools of strategy, which are broadly
classified underprescriptive and descriptive schools. As has been said at the outset, all
these schools of thought influence organizational behaviour studies directly or
indirectly.

Prescriptive Schools:
The prescriptive schools can be classified into design, planning, and positioning schools.
These are discussed below:

1. The design school- approach views strategy formation as a process of matching the
task environment (internal to the organization) to the mega environment (external to the
environment).Hence, this school emphasizes the attaining of a fit between the strength and
the weakness (internal)and the opportunities and threats (external) to an organization by
adopting appropriate strategies. Strategy formulation, as per this school, is the application of
a conscious thought. Conscious thought is not analytical (formal) or intuitive (informal).
Conscious thought is the culmination of collective inputsof the members of an organization
for informed decisions.
The strengths, weaknesses, opportunities, and threats (SWOT) analysis helps organizations
to balance idealism and pragmatism for developing an effective strategy. A successful
organization builds on its strengths, removes its weaknesses, protects itself against internal
vulnerabilities and external threats, and exploits new opportunities. It does all these by
selecting the right strategic fit faster than its competitors.

2. The planning school- sees strategy formation as a formal sequence of steps. Breaking
down the process of strategy formation into some distinct and identifiable steps, this school
makes strategy formation more of a formal process than a cerebral one. Thus, in one way, this
school reflects most of the design school’s assumptions, except that it views the strategy
formation process as a formal checklist of logical steps.
For organizational behaviour studies, many managerial decisions are formal and are bound
by well- laid-down norms like the standard operating procedure (SOP) to ensure consistency
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 in a series of actions. However, the school suffers from the limitation of rigidity, as
organizations may often feel constrained to adopt real-time strategy within the ambit of
changing market scenarios.

3. The positioning school- is largely influenced by the works of Michael Porter and it views
strategy formation as an analytical process, placing the business within the context of the
industry that it is operating in and looking at how the organization can improve its
competitive positioning within that industry.
This school was the dominant view in strategy formulation in the 1980s. Sun Tzu, author of
The Art ofWar, and noted contributor to this school, reduced strategy to generic positions,
based on formalized analysis of industry situations. Hence, this school leverages on value
chains, game theories, and other ideas with an analytical bent.
The value chain model analyses the process of value addition in an organization, right from
the stage of receiving raw materials (inputs) to adding value through the various processes
within the organization and even extends to selling to customers. The game theory model
obtains insights into theway players in a market interact in specific circumstances.
Such an approach can not only help participants learn the right way to play but also to
understand the competitors’ behaviour and what is likely to happen if they alter the rules.
Game theory has greatly expanded the scope of analysis of business strategy, sharpening
corporate competitiveness and advancing policy.

Descriptive Schools:
Descriptive schools are classified into seven distinct schools of thoughts- entrepreneurial
school, cognitive school, learning school, power school, cultural school, environmental school,
and configuration school.
1. The entrepreneurial school- emphasizing on the central role of the leader, considers
strategy formation as a visionary process. Like the design school, the entrepreneurial school
considers die chief executive as the centre around whom the strategy formation process
revolves, as it is basically deeply rooted in intuition and gut feelings.
Hence, this school shifts the strategies from precise designs, plans, or positions to vague
visions, or perspectives, typically through metaphors. Success or fail-ure of the
entrepreneurial school’s strategy formation depends on the quality of the vision of the leader.

2. The cognitive school- considers strategy formation as a mental process and analyses how
people perceive patterns and process information. The cognitive school looks inwards into
the minds of strategists. This school subscribes to the view that strategies are developed in
people’s minds as frames, models, or maps.
An extension of this school of thought adopts a more subjective, interpretative, or constructive
view of the strategy process, that is, cognition is used to construct strategies as creative
interpretations, rather than to simply map reality in some more or less objective way.

3. The learning school- regards strategy formation as an emergent process, where the
management of an organization pays close attention to strategies that work or do not work
over time and incorporates these ‘lessons’ into the overall plan of action. Hence, for this
school, strategies emerge as and when people come to learn about a particular situation, as
well as their organization’s capability to deal with it.
Some of the related terms with this type of strategy formation are instrumentalism,
venturing, emerging strategy, retrospective sense making, etc. Thus, strategies are emergent,
they can be found throughout the organization, and the so- called formulation and
implementation intertwine with each other.

4. The power school- is a process of negotiation between power holders within the company

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 and the external stakeholders, or between the company and the external stakeholders. The
power school viewsstrategy as emerging out of power games within the organization and
outside it. This comparatively small but quite different school has focused on strategy making
rooted in power, in two senses— micro and macro.
Micro power sees the development of strategies within the organization as essentially
political—a process involving bargaining, persuasion, and confrontation among inside actors.
Macro power, on the other hand, takes the organization as an entity that uses its power over
others including its partners in alliances, joint ventures, and other network relation-ships to
negotiate ‘collective’ strategies in its interests.

5. The cultural school- views strategy formation as a collective process involving various
groups anddepartments within the company. The strategy developed is thus a reflection of
the corporate culture ofthe organization. This school views strategy formation as a process
rooted in the force of the culture of the organization.
As opposed to the power school, which focuses on self-interest and fragmentation, the cultural
school focuses on common interest and integration. Strategy formation is viewed as a social
process rooted inculture. The theory concentrates on the influence of culture in discouraging
significant strategic change.
Culture became a big issue in the US and Europe after the impact of Japanese management
was fully realized in the 1980s and it became clear that strategic advantage can be the product
of unique and difficult-to- imitate cultural factors.

6. The environmental school- sees strategy formation as a reactive process— a response to

the challenges imposed by the external environment. This school believes that a firm’s
strategy dependson events in the environ-ment and the company’s reaction to them.
Perhaps, strictly speaking, that may not be called strategic management if one takes the term
‘reac­tion’ to mean how organizations use their degrees of freedom to create strategy. The
environmental school, nevertheless, deserves attention for the light it throws on the demands
of the environment.
Among its most noticeable theories are the ‘contingency theory’, which considers the
responses expected of organizations facing particular environmen­tal conditions, and ‘the
population ecology writings’ that claim severe limits to strategic choice.

7. The configuration school- finally mandates strategy formation as a process of

transforming the organization from one type of decision-making structure into another. The
configuration school finally mandates strategy formation as a process of transforming the
organization from one type of decision- making structure into another.
The configuration school views strategy as a process of transforming the organization—it
describes therelative stability of strategy, interrupted by occasional and dramatic leaps to new
ones. This school enjoys the most extensive and integrated literature and practice at present.
One side of this school, which is more academic and descriptive, sees organization as a
configuration of coherent clusters of characteristics and behaviours—and so serves as one
way to integrate the claims of the other schools: each configuration, in effect, in its own place,
planning for example, in ma- chine-type organizations under conditions of relative stability,
entrepreneurship under more dynamic configurations of start-up and turnaround.

7. Introduction to Strategy Management

Strategic management is the concept of identification, implementation, and management of

the strategies that managers carry out to achieve the goals and objectives of their
organization. It can alsobe defined as a bundle of decisions that a manager has to undertake
which directly contributes to the firm’s performance. The manager responsible for Strategic
management must have a thorough knowledge of the internal and external organizational
environment to make the right decisions.
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 The basic concept of strategic management consists of a continuous process of planning,
monitoring, analyzing and assessing everything that is necessary for an organization to meet
its goals and objectives. In simple words, it is a management technique used to prepare the
organization for the unforeseeable future.
Strategy management helps create a vision for an organization that helps to identify both
predictable as well as unpredictable contingencies. It involves formulating and
implementing appropriate strategies so the organization can attain sustainable competitive
advantage.

8. Components of Strategy Management

1. Strategic Intent
Strategic Intent of an organization clarifies the purpose of its existence and why it will
continue to exist. It helps paint a picture of what an organization should immediately do to
achieve the company’s vision.

2. Mission
Mission component of strategy management states the role by which an organization intends
to serve its stakeholders. It describes why an organization is operating that helps provide a
framework within which the strategies to achieve its goals are formulated.

3. Vision
The visual component of strategy management helps identify where the organization
intends to be in the future. It describes the stakeholder dreams and aspirations for the
organization.

4. Goals and Objectives

Goals help specify in particular what must be done in order to attain an organization’s
mission orvision. Goals make the mission component of strategy management more
prominent.

9. Process of Strategy Management

The strategic management process includes 7 steps:

 Setting the Goal – The first and foremost stage in the process of strategic
management requires the organization to set the short term and long-term goals it
wants to achieve.
 Initial Assessment – The second stages say to gathers as much data and information
as possible to help state the mission and vision of the organization.
 Situation Analysis – It refers to the process of collecting, scrutinizing and providing
information for strategic purposes. It helps in analyzing the internal and external
environment that is influencing an organization.
 Strategy Formulation – Strategy formulation is the process of deciding the best
course of action to be taken in order to achieve the goals and objectives of the
organization.
 Strategy Implementation – Executing the formulated strategy in such a way that it
successfully creates a competitive advantage for the company. In simple words,
putting the chosen plan into action.
 Strategy Monitoring – Strategy Monitoring involves the key evaluation strategies
like taking into account the internal and external factors that are the root of the
present strategies and measuring the team performance.

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SWOT Analysis – It helps in determining the Strengths, Weaknesses, Opportunities and Threats
(SWOT) of an organization and taking remedial/corrective courses of actions to fight these
weaknesses and threats.

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