Unit: 1 Strategic Management Introduction

Syllabus:
Introduction - Meaning and Definition – Need – Process of Strategic Management –
Strategic Decision Making – Business Ethics – Strategic Management.

Meaning

• The term ‘Strategic management refers to the set of managerial decisions and
actions that determines the long-run performance of a Business. It includes
environmental scanning (both external and internal), strategy formulation (strategic
or long range planning), strategy implementation, strategy evaluation and control.

• Strategic management emphasizes on monitoring and evaluating of external

opportunities and threats in light of a corporation’s strength and weakness.

Definition

• According to Lester A. Digman, “Strategic management is a continuous process that

involves attempts to match or fit the organization with its changing environment in
the most advantageous way possible.”

• According to James M. Higgins, “Strategic management is the process of managing

the pursuit of organizational mission while managing the relationship of the
organization to its environment.”

Characteristics of Strategic Management

Strategy is a contingent plan as it is designed to meet the demands of a difficult situation.

 Strategy provides direction in which human and physical resources will be deployed for
achieving organizational goals in the face of environmental pressure and constraints.

 Strategy relates an organization to its external environment. Strategic decisions are

primarily concerned with expected trends in the market, changes in government policy,
technological Strategy is an interpretative plan formulated to give meaning to other plans in
the light of specific situations.

 Strategy determines the direction in which the organization is going in relation to its
environment. It is the process of defining intentions and allocating or matching resources to
opportunities and needs, thus achieving a strategic fit between them. Business strategy is
concerned with achieving competitive advantage.
 The effective development and implementation of strategy depends on the strategic
capability of the organization, which will include the ability not only to formulate strategic
goals but also to develop and implement strategic plans through the process of strategic
management.

 A strategy gives direction to diverse activities, even though the conditions under which the
activities are carried out are rapidly changing.

 The strategy describes the way that the organization will pursue its goals, given the
changing environment and the resource capabilities of the organization.

 It provides an understanding of how the organization plans to compete.

 It is the determination and evaluation of alternatives available to an organization in

achieving its objectives and mission and the selection of appropriate alternatives to be
pursued.

 It is the fundamental pattern of present and planned objectives, resource deployments,

and interactions of a firm with markets, competitors and other environmental factors. A
good strategy should specify;What is to be accomplished.

Need for Strategic Management

1. Increasing Rate of Changes:

The environment in which the business operates’ is fast, changing.

A business concern which does not keep its policies up-to-date, cannot survive for a long
time in the market. In turn, the effective strategy optimises profits over a long run.

2. Higher Motivation of Employees:

The employees (human resources) are assigned clear cut duties by the top management viz.

what is to be done, who is to do it, how to do it and when to do it. ? When strategic

management is followed in any organisation, employees become loyal, sincere and goal

oriented and their efficiency is also increased.

They also get rewards and promotions resulting in higher motivation for the employees. A

strategy must respect human values and duly consider the aspirations of individual

members.

3. Strategic Decision-Making:
Under strategic planning, the first step is to set the goals or objectives of a business concern.

Strategic decisions taken under strategic management help the smooth sailing of an

enterprise. Strategic planning is the overall planning of operations for effective

implementation of policies.

4. Optimization of Profits:

An effective strategy should develop from policies of a concern. It takes into account actions

of competitors. It considers future operations in respect of market area and opportunity,

executive competence, available resources and limitations imposed by the Government. An

effective strategy should optimise profits over the long run.

5. Miscellaneous:

Mr. H.N Broom in his book on ‘Business Policy and Strategic Action’ has mentioned that a

strategy has a primary concern with the following:

(a) Marketing opportunity: Products, prices, sales potential and sales promotion.

(b) Available distribution channel and costs.

(c) The scale of company operations.

(d) The manufacturing process required to implement their scale of operations (with an

optimal production cost)

(e) The research and innovation programme.

(f) The type of organisation.

6. Discharges Responsibility: strategic management process discharges the

responsibility of various departmental managers with clarity in objective and
direction.
7. Minimizes the resistance to change: Strategic management, as a result has certain
behavioural consequences, One such encouraging behavioural consequence is that it
reduces the resistance to change that takes place in any area of management caused
by external forces.
 8. It provides a Framework for Decision-Making: Strategy provides a framework within
which all staff can make day-to-day operational decisions and understand that those
decisions are all moving the organization in a single direction.

9. It Supports better understanding of organizational strategy: Strategic Management

allows the staff participation in the strategic discussion and enables them to better
understand the organizational strategy.

10. Enables Measurement of Progress: A strategic management process forces an

organization to set objectives and measures to success.

11. It Provides an Organizational Perspective: Strategic management takes an

organizational perspective and looks at all the components of business
environment and their interrelationship.

Strategic Management Process

Strategic management is defined as the art and science of formulating, implementing,

and evaluating cross-functional decisions that enable the organization to achieve its
objectives."

a) Strategic intent

Strategic intent takes the form of a number of corporate challenges and opportunities,
specified as short term projects. The strategic intent must convey a significant stretch
for the company, a sense of direction, which can be communicated to all employees.
It should not focus so much on today's problems, but rather on tomorrow's
opportunities. Strategic intent should specify the competitive factors, the factors
critical to success in the future.
Strategic intent gives a picture about what an organization must get into immediately
in order to use the opportunity. Strategic intent helps management to emphasize and
concentrate on the priorities. Strategic intent is, nothing but, the influencing of an
organization’s resource potential and core competencies to achieve what at first may
seem to be unachievable goals in the competitive environment

b) Environmental Scanning

The environmental scanning includes the following components:

Analysis of the firm (Internal environment).
Analysis of the firm's industry (micro or task environment).
Analysis of the External macro environment (PEST analysis)

The internal analysis can identify the firm's strengths and weaknesses and the
external analysis reveals opportunities and threats. A profile of the strengths,
weaknesses, opportunities, and threats is generated by means of a SWOT analysis An
industry analysis can be performed using a framework developed by Michael Porter known
as Porter's five forces. This framework evaluates entry barriers, suppliers,
customers, substitute products, and industry rivalry.

c) Strategy Formulation
c) Strategy Formulation is the development of long-range plans for the effective
management of environmental opportunities and threats, in light of corporate
strengths & weakness. It includes defining the corporate mission, specifying
achievable objectives, developing strategy & setting policy guidelines

c) Strategy FormulationStrategy Formulation is the development of long-range plans

for the effecti Mission
i) Mission is the purpose or reason for the organization’s existence. It tells what
the company is providing to society, either a service like housekeeping or a
product like automobiles.
ii) Objectives
Objectives are the end results of planned activity. They state what is to be
accomplished by when and should be quantified, if possible. The achievement of
corporate objectives should result in the fulfillment of a corporation’s mission.
iii) Strategies
Strategy is the complex plan for bringing the organization from a given posture
to a desired position in a future period of time.
iv)) Policies
A policy is a broad guide line for decision-making that links the formulation of
strategy with its implementation. Companies use policies to make sure that employees
throughout the firm make decisions & take actions that support the corporation’s
mission, objectives & strategy.

d) Strategic Implementation
d) Strategy Implementation
It is the process by which strategy & policies are put into actions through the
development of programs, budgets & procedures. This process might involve changes
within the overall culture, structure and/or management system of the entire
organization.
i) Programs:
It is a statement of the activities or steps needed to accomplish a single-use plan.
It makes the strategy action oriented. It may involve restructuring the corporation,
changing the company’s internal culture or beginning a new research effort.
ii) Budgets:
A budget is a statement of a corporations program in terms of dollars. Used in
planning & control, a budget lists the detailed cost of each program. The budget
thus not only serves as a detailed plan of the new strategy in action, but also
specifies through proforma financial statements the expected impact on the firm’s
financial future
ii) Procedures:
Procedures, sometimes termed Standard Operating Procedures (SOP) are a system
of sequential steps or techniques that describe in detail how a particular task or job
is to be done. They typically detail the various activities that must be carried out in
order to complete.

e) Evaluation and control

e) Evaluation & Control
After the strategy is implemented it is vital to continually measure and
evaluate progress so that changes can be made if needed to keep the overall plan on track.
This is known as the control phase of the strategic planning process. While it may be
necessary to develop systems to allow for monitoring progress, it is well worth the
effort. This is also where performance standards should be set so that performance
may be measured and leadership can make adjustments as needed to ensure success

Evaluation and control consists of the following steps:

i) Define parameters to be measured
ii) Define target values for those parameters
iii) Perform measurements
iv) Compare measured results to the pre-defined standard
v) Make necessary changes.

Strategic Decision making process:

1. Define the Problem
2. Gather Information
3. Develop and Evaluate Options
4. Choose the Best Action
5. Implement and Monitor the Decision
1. Define the Problem —

This is the first way of making an effective strategic decision. This process involves defining
the need and understanding if it requires immediate attention. Then, there is the evaluation
of the company's objective and the identification of what need will be met by the decision

What is the problem? Can it be solved? Is this the real problem or a symptom of a larger
one?

Does it need immediate attention or can it wait? Is it likely to go away by itself? Can I risk
ignoring it?

What is my objective? What‘s to be accomplished by the decision?

2. Gather Information —
This step requires seeking information regarding the organization's needs. This information
can be collected from stakeholders or through research. The individuals coming up with the
strategic decision need to check on possible missing areas in their research before
proceeding.
Stakeholders: Talk to individuals or groups affected by the problem
Facts and data: research, benchmarking studies, interviews with credible sources, observed
events
Constraints: Lack of funding, resources, cultural barriers
Ask: What am I not seeing? What have I missed?

3. Develop and Evaluate Options —

This step requires the development and analysis of options. These options must be chosen
and evaluated wisely so that the company will understand the possible issues that might
arise in case the suggested changes or strategies are implemented. Also, a prediction should
be made concerning alternative solutions to ensure that the scenario has been considered
from every angle and that no issues might arise later that will surprise the company.
Choose options that show promise, need more information, can be combined or eliminated,
or will be challenged.
Weigh advantages/disadvantages of each. Consider cost to the business, potential loss of
morale/teamwork, time to implement the change, whether it meets standards, and how
practical the solution is.
Predict the consequences of each option. (“If/Then” or “What if?”)
Ask: What is the worst solution?

4. Choose the Best Action —

After weighing the alternatives,including consideration of facts and data, the company will
select the one they think works best for their business.
Consider factual data, your intuition, and your emotional intelligence when deciding a
course of action.
Accept that the solution may be less than perfect.
Consider the middle ground. Compromising on competing solutions may yield the best
decision.

5. Implement and Monitor the Decision

This step involves a planned development to implement the chosen business strategy.
During this step, resources for the implementation should be allocated to ensure success in
the implementation stage.
Step-by-step process or actions for solving the problem
Communications strategy for notifying stakeholders
Resource identification/allocation
Timeline for implementation
Measurements/benchmarks to gauge progress

6. Reviewing the Action

This step ensures that the implemented decision was successful. If it was unsuccessful,
another decision or solution could be implemented to improve the odds of the strategy
succeeding.

Business Ethics
Business Ethics studies how to deal with corporate governance, whistleblowing, corporate
culture, and corporate social responsibility. It emphasizes standard principles prescribed by
governing bodies. Non-compliance with business ethics leads to unnecessary legal actions.

Principles of Business Ethics

• Accountability: Ethics is all about taking individual responsibility. It goes both ways.
Individuals are responsible for unethical practices of the firm because they did not
come forward to become whistle-blowers. Similarly, when an employee indulges in
unethical business practices, the firm is responsible.
• Care and Respect: Professional interactions between co-workers should be
responsible and respectful. Firms should make sure that the workplace is safe and
harmonious.
• Honesty: The best way to gain the trust of the employees is to have transparent
communication with them.
• Avoid Conflicts: Firms need to minimize conflicts of interest in the workplace.
Excessive competition within the workforce can end disastrously.
• Compliance: Firms need to comply with all the rules and regulations.
• Loyalty: The employees should be faithful to the organization and uphold the brand
image. Grievances, if any, should be dealt internally.
• Relevant Information: It is necessary to provide information that is comprehensible.
All the relevant facts, whether positive or negative, must be disclosed. It is unethical
to hide unreasonable terms and conditions in the fine print.
• Law Abiding: Corporate laws protect the rights of every section of society. Any kind
of discrimination is unethical. Personal biases of individuals should not affect the
decision-making of leaders.
• Fulfilling Commitments: It is unethical to justify non-compliance by interpreting
agreements unreasonably.

Types of Business Ethics

• Corporate Responsibility: The organization works as a separate legal entity with
certain moral and ethical obligations. Such ethics safeguard the interest of all the
internal and external parties associated with the firm. This includes the employees,
customers, and shareholders.
• Social Responsibility: Making profits should not be at the cost of society. Therefore,
corporate social responsibilities (CSR) have been a common practice where
businesses work towards environmental protection, social causes, and spreading
awareness.
• Personal Responsibility: Employees are expected to act responsibly with honesty,
diligence, punctuality, and willingness to perform excepted duties. Individuals should
settle dues in time and avoid criminal acts.
• Technology Ethics: In the 21st century, companies have adopted e-commerce
practices. Technology ethics includes customer-privacy, personal information, and
intellectual property fair practices.
 • Fairness: Favouritism is highly unethical. Every individual possesses certain personal
bias. But at the workplace, personal beliefs and biases should not affect decision-
making. The firm has to ensure fair chances of growth and promotion for all.
• Trustworthiness and Transparency: Businesses should maintain transparency in
business practices and financial reports.

SWOT analysis is a business analysis technique that can be used to

generate strategic alternatives from a situation after conducting an
investigation. It can be applied at both the corporate and the
business unit levels, and it is frequently found in marketing
strategies. SWOT analysis is a strategic planning tool that identifies
the strengths, weaknesses, opportunities, and threats of a situation.
The process is divided into several stages, each of which involves
identifying the organization's strengths and weaknesses, as well as
the opportunities and threats that exist in
SWOT analysis is a business analysis technique that can be used to
generate strategic alternatives from a situation after conducting an
investigation. It can be applied at both the corporate and the
business unit levels, and it is frequently found in marketing
strategies. SWOT analysis is a strategic planning tool that identifies
the strengths, weaknesses, opportunities, and threats of a situation.
SWOT analysis is a business analysis technique that can be used to
generate strategic alternatives from a situation after conducting an
investigation. It can be applied at both the corporate and the
business unit levels, and it is frequently found in marketing
strategies. SWOT analysis is a strategic planning tool that identifies
the strengths, weaknesses, opportunities, and threats of a situation.