National Institute of Business Management

Chennai - 020

SECOND SEMESTER EMBA/MBA

Subject : Strategic Management

Attend any 4 questions. Each question carries 25 marks

(Each answer should be of minimum 2 pages / of 300 words)

Q1.Explain the setting of rights priorities and objectives for

business strategy planning.

Introduction:

The purposes of an operating plan are both

(a) To describe what changes are required of the operating system to enhance
its support of the SBU’s (strategic business unit) business strategy.

(b) To outline how these changes are to be achieved.

For an operating plan to achieve these purposes. It must be closely aligned the
business strategy. This means that the strategic imperatives or demands required
of the operating system by the business strategy need clear articulation. Further,
these strategic imperatives must drive the focus and objectives of the operating
plan. A useful and easy to apply vehicle for achieving a tight linkage and
alignment between business strategy and operating plan can be derived from the
concept of operating system priorities.
Strategic planning is an organization's process of defining its strategy, or
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. Strategic planning became prominent in
corporations during the 1960s and remains an important aspect of strategic
management. It is executed by strategic planners or strategists, who involve
many parties and research sources in their analysis of the organization and its
relationship to the environment in which it competes.

Strategy has many definitions, but generally involves setting goals, determining
actions to achieve the goals, and mobilizing resources to execute the actions. A
strategy describes how the ends (goals) will be achieved by the means
(resources). The senior leadership of an organization is generally tasked with
determining strategy. Strategy can be planned (intended) or can be observed as a
pattern of activity (emergent) as the organization adapts to its environment or
competes.

Consider the consequences in three situations where operating system priorities

were misaligned the requirements of the business strategy.

Some Key Issues in Achieving Alignment

Several important issues must be addressed to ensure a correct alignment of

operating plans with business strategies

• The operating system priorities required by a business strategy are not

necessarily understood at the operating unit level. Often, business strategy is
determined by senior executives in marketing and finance. Yet when most
company assets and a substantial portion of the payroll are in operations and in
technical functions, these often develop their own sense of priorities and
momentum, which are often at odds with the business strategy.
• Cost reduction is not necessarily the only or even the primary objective of an
operating plan. Cost reduction should have top priority only when the business
strategy requires a reduction in operating costs or the cost of goods and services
sold.

• When a single operating plan serves two or more businesses, each with its own
strategy, differentiated priorities must reflect any different strategic imperatives.
Each business strategy must be supported by an appropriate operating plan that
addresses its special requirements.

When operating priorities are implicit rather than explicit, they are seldom
understood uniformly among key executives and the entire management and
supervisory group. Priorities are frequently determined by individual managers,
applying their own best judgment. Disagreement about priorities is natural. Yet
a uniform understanding of operating and improvement priorities by all
executives, managers and supervisors is critical for the successful
implementation of any operating plan.

How to ensure alignment

It is crucial that the management group responsible for implementing an

operating plan shine a common understanding of the business strategy they are
supporting. Its strategic imperatives for the operating system, and the implied
priorities. First, these managers must recognize the need to achieve this uniform
understanding. Once this occurs. I have found that when they employ a process
of systematic analysis and discussion few management groups have difficulty in
reaching consensus on operating system priorities. Their consensus can then be
made explicit, communicated broadly throughout the operating system, and
incorporated into day-to-day decision-making.
There is a four-step process for developing consensus about operating system
priorities.

First, operating system managers need to make explicit whatever perceptions

they have about the priorities that are actually driving current decisions.

Second, the planning group reviews the current priorities that are actually
driving current decisions. The planning group reviews the current business
strategy to identify the strategic imperatives for the operating system.

Third, in light of these strategic imperatives and the capabilities of the operating
system to perform against these imperatives, the planning group discusses and
reaches consensus on what the operating system priorities should be, in order to
support the business strategy.

Fourth the planning group compares their consensus with the perceptions of
current actual priorities. The nature and extent of any difference will determine
the actions required to reorient and redirect all managers and supervisors in the
operating system.

This instrument is based on a single premise. Any operating system, whether it

supports a business based primarily on goods, services, or some combination,
must be responsive to only two or three out of seven possible strategic
imperatives called for by any business strategy.

1. Low total cost

2. Consistently providing appropriate quality defined by customer requirements

3. Medina delivery commitments reliably

4. Responding nimbly to very short-term unexpected, relatively minor changes
in demand volume

5. Utilizing fixed assets effectively

6. Flexibility in changing capacity to meet major changes in demand

7. Flexibility in meeting market requirements for new products and services in

the shortest possible time.

Some guidelines for setting appropriate priorities

A few generic concepts can be useful to test how appropriate the proposed
operating system priorities are to current business strategies. The Sponsor can
use these concepts both to review and validate an operating plan, and to allocate
resources among several operating plans in order to fund those strategies with
the highest potential for leverage in changing the operating system.

There is a widely accepted notion that an entire industry, like the market
offerings within it, progresses through a life cycle . Such cycles can range from
less than a decade to less than a century depending on the industry. One can
divide each lifecycle into four phases: embryonic, growth, mature and aging. In
general most businesses in mature and aging industries pursue strategies
intended to maintain market position and maximize profit and cash generation.
Their operating plans focus internally on improving operations both to lower
total costs, and improve utilization of material, energy, capital and people.

On the other hand businesses in embryonic or growth industries will typically

pursue strategies aimed at increasing market share by exploiting combinations
of and new markets or through market penetration. Their operating plans focus
externally to improve quality, delivery reliability, and operating-system
flexibility so as to allow changes either in capacity, or in products and services.
Optimizing asset utilization is a focus typical for businesses whose industries
are in the late growth or early mature phases of their lifecycle.

The appropriate focus of an operating plan corresponding to different business

strategies can be illustrated by a series of generic relationships . Such
relationships can be considered normative. An operating plan that deviates
would require special justification, and should be carefully reviewed.

Using Operating System Priorities to Determine Operating Plan Objectives

Once the planning group agrees on what the operating system priorities should
be they can apply these to the list of potential high-leverage target opportunities
identified in the process of validating the operating system description. When
first generated, this list is an undifferentiated collection of nominations for
possible targets to be addressed by the operating plan. These nominations must
now be re-examined to identify those with the greatest relevance to achieving
the changes in the operating system most crucial to the success of the business
strategy.
The task for the planning group is now to identify the highest-leverage target
opportunities. They must sort through 20 to 40 possible high-leverage targets of
opportunity to identify the 4 or 5 with the most promise for serving as the basis
for the operating plan’s objectives. The process is essentially one of screening
each nominated target against the priority criteria. The process described
enables a management group to derive operating system priorities from both
business strategy imperatives and operating system performance capabilities.

A company’s business plan is one of its most important documents. It can be

used by managers and executives for internal planning. It can be used as the
basis for loan applications from banks and other lenders. It can be used to start
up ventures, the process of preparing a business plan serves as a road map to the
future by making entrepreneurs and business owners think through their
strategies, evaluate their basic business concepts, recognize their business’s
limitations, and avoid a variety of mistakes.

Virtually every business needs a business plan. Lack of proper planning is one
of the most often cited reasons for business failures. Business plans help
companies identify their goals and objectives and provide them with tactics and
strategies to reach those goals. They are not historical documents rather; they
embody a set of management decisions about necessary steps for the business to
reach its objectives and performance in accordance with its capabilities.

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Q4. Explain the growth of E-Business in India.

E-business (electronic business), derived from such terms as “e-mail” and “e-
commerce,” is the conduct of business on the Internet, not only buying and
selling but also servicing customers and collaborating with business partners.
One of the first to use the term was IBM. When, in October, 1997, it launched a
thematic campaign built around the term. Today, major corporations are
rethinking their businesses in terms of the Internet and its new culture and
capabilities. Companies are using the Web to buy parts and supplies from other
companies, to collaborate on sales promotions, and to do joint research.
Exploiting the convenience, availability, and world-wide reach of the Internet.
Many companies, such as Amazon.com, the book sellers, has already discovered
how to use the Internet successfully

E-Business in India

India has an internet user base of about 140.1 million as of Jan 2015..Lh1121
The penetration of e-commerce is low compared to markets like the United
States and the United Kingdom but is growing at a much faster rate with a large
number of new entrants. The industry consensus is that growth is at an
inflection point.

Unique to India cash on delivery is a preferred payment method. India has a

vibrant cash economy as a result of which 80% of Indian e-commerce tends to
be Cash on Delivery. However COD may harm e-commerce business in India in
the long run [4] and there is a need to make a shift towards online payment
mechanisms similarly. Direct imports constitute a large component of online
sales. Demand for international consumer products (including long all items) is
growing much faster than in-country supply from authorized distributors and e-
commerce offerings

Market size and growth:

India’s e-commerce market was worth about $3.8 billion in 2009. It went up to
$12.6 billion in 2013. In 2013, the e-retail market was worth USS 2.3 billion.
About 70% of India’s e-commerce market is travel related.51 India has close to
10 million online shoppers and is growing at an estimated 30% [61 CAGR vis-
à-vis a global growth rate of 8—10%. Electronics and Apparel are the biggest
categories in terms of sales.

Key drivers in Indian e-commerce are:

• Increasing broadband Internet (growing at 20%m Mom) and 3G

penetration.18

• Rising standards of living and a burgeoning. Upwardly mobile middle class

with high disposable incomes

• Availability of much wider product range (including long tail and Direct
Imports) compared to what is available at brick and mortar retailers
• Busy lifestyles, urban traffic congestion and lack of time for offline shopping

• Lower prices compared to brick and mortar retail driven by disintermediation

and reduced inventory and real estate costs

• Increased usage of online classified sites, with more consumer buying and
selling second-hand goods

• Evolution of the online marketplace model with sites like Jabong.com. Flip
kart.

Asia- Pacific Region at a CAGR of over 57% between 2012—16

As per “India Goes Digital’ the Indian e-commerce market is estimated at Rs
28.500 Crore ($6.3 billion) Online travel constitutes a sizable portion (87%) of
this market today. Online travel market in India is expected to grow at a rate of
22% over the next 4 years and reach Rs 54.800 Crore ($12.2 billion) in size by
2016. Indian e-tailing industry is estimated at Rs 3.600 crore (US$800 mn) in
2011 and estimated to grow to Rs 53.000 Crore ($11.8 billion) in 2016.
Overall e-commerce market is expected to reach Rs 1.07.800 crores (US$24
billion) by the year 2016 with both online travel and e-tailing contributing equal
Another big segment in e-commerce is mobiIe DTH recharge with nearly 1
million transactions daily by operator websites.

The growth of e-business:

In the last few years of the 20th century all kinds of companies began to think
about doing business through the Internet. This is astonishing given that,
according to one view, e-commerce was ‘virtually non-existent’ in 1995. By
1998 the electronic economy (e-economy) represented 6.5 percent of US GDP
and 1 percent of Japan’s GDP. This may not sound very much but the US e-
economy was expanding fast- by 65 percent in 1998. The rate of growth to
access the Internet grew dramatically. Already by 1996 tens of millions of
people had access to the Web, but the numbers were doubling each year at the
time. At the start of the 2 1 century some half a dozen countries, including the
United States and Germany, had one in five of their population with online
access to the Web via their own PCs. Internet service providers proliferated. The
United States had over 4,000 of them in 1996. Some, such as America Online
(AOL), quickly emerged as strong contenders for leadership of this segment of
the e-economy. Then banks, insurance firms, book retailers, travel companies
and various other kinds of business moved quickly to establish a presence on
the Net. Many companies may have done so because they saw opportunities.
Many may have joined the Internet band wagon simply in order to keep up with
what their rivals are doing, or might soon do.

That e-commerce is a growing business is indisputable and that the Internet

gives companies a way to achieve rapid growth in fairly commonplace. The
emerging e-economy is full of businesses that have grown extraordinarily fast,
often returning growth rates that until recently were unimaginable. However,
this is not a simple story of new opportunities. Established firms may feel
threatened by the development of e-business. According to Thomas (2000),
everywhere you look it seems that cyber upstairs are challenging the old order,
seemingly teleporting in and threatening established brands in retail, finance
and service industries.

Some Internet companies enjoyed a growth of turnover that was hard to believe.
In the UK the winner of the 1999 Deloitte and Touche National Technology Fast
50 was Data Discovery, a Scottish firm that grew by over 9,000 percent in one
year.

E-business strategies for established firms:

In addition to looking at operational matters, firms may decide to make a
strategic response to the opportunities of the internet For example, a firm must
decide whether it wants to enter this new competitive space immediately, wait
until the nature of the threats and opportunities of the economy becomes clearer,
or concentrate on becoming more efficient or effective in terms of its current
strategic posture. As with any need to interpret market signals, there is ample
scope for internal disagreement within the individual firm. This disagreement
can centre on the feasibility and returns of c-business projects.

If established firms decide that a response is needed they have at least two
options. As shown by the case of the European insurance industry, they can
respond by maintaining their existing business designs but adding a Web site, or
by launching a properly designed c-business of their own.

Those firms adopting the first option face problems. Some are relatively minor,
such as that of seeking to register the firm’s name on the World Wide Web only
to find, as Rolex Watches did, that their name had already been registered by
someone else. This was an early lesson for established firms. The Internet is a
channel to business activity with its own peculiar rules- such as registering
names on a first come first served basis. This must add to the sense of
uncertainty about the risks.

Evolution to e-business:

The preceding discussion of how established firms respond to the challengers

of the c-business might be compared with a model presented by Price
Waterhouse Coopers (1999). According to this model, established businesses
might pass through four stages in the transition to c-business:

1. Implement a Web site

2. Extend the capabilities of the Web site into supply chains.

3. Develop online alliance.

4. Work on industrial convergence.

In the first stage firms use a Web site for buying and selling processes. In the
second stage the emphasis is on the closer integration of suppliers. In the third
stage alliances develop entailing important shifts in how industry operates. In
the fourth stage innovative products result from the convergence of sectors.

Electronic Business, or “E-business”, may be defined broadly as any business

process that relies on an automated information system. Today, this is mostly
done with Web-based technologies. Electronic business methods enable
companies to link their internal and external data processing systems more
efficiently and flexibly, to work more closely with suppliers and partners, and to
better satisfy the needs and expectations of their customers.

In practice, e-business refers to more strategic focus with an emphasis on the

functions that occur using electronic capabilities, while e-commerce to be a
subset of an overall e-business strategy. E-commerce seeks to add revenue
streams using the Worldwide Web or the Internet. to build and enhance
relationships with clients and partners and to improve efficiency. Often, e-
commerce involves the application of knowledge management systems.

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Q5. Does strategic management work? Examine

Strategic Management is all about identification and description of the strategies

that managers can carry so as to achieve better performance and a competitive
advantage for their organization. An organization is said to have competitive
advantage if its profitability is higher than the average profitability for all
companies in its industry.

Strategic management can also be defined as a bundle of decisions and acts

which a manager undertakes and which decides the result of the firm’s
performance. The manager must have a thorough knowledge and analysis of the
general and competitive organizational environment so as to take right
decisions. They should conduct a SWOT Analysis (Strengths, Weaknesses,
Opportunities, and Threats), i.e., they should make best possible utilization of
strengths, minimize the organizational weaknesses, make use of arising
opportunities from the business environment and shouldn’t ignore the threats.
Strategic management is nothing but planning for both predictable as well as
unfeasible contingencies. It is applicable to both small as well as large
organizations as even the smallest organization face competition and, by
formulating and implementing appropriate strategies, they can attain sustainable
competitive advantage.

It is a way in which strategists set the objectives and proceed about attaining
them. It deals with making and implementing decisions about future direction of
an organization. It helps us to identify the direction in which an organization is
moving.

Strategic management is a continuous process that evaluates and controls the

business and the industries in which an organization is involved; evaluates its
competitors and sets goals and strategies to meet all existing and potential
competitors; and then reevaluates strategies on a regular basis to determine how
it has been implemented and whether it was successful or does it needs
replacement.

Strategic Management gives a broader perspective to the employees of an

organization and they can better understand how their job fits into the entire
organizational plan and how it is co-related to other organizational members. It
is nothing but the art of managing employees in a manner which maximizes the
ability of achieving business objectives. The employees become more
trustworthy, more committed and more satisfied as they can co-relate
themselves very well with each organizational task. They can understand the
reaction of environmental changes on the organization and the probable
response of the organization with the help of strategic management. Thus the
employees can judge the impact of such changes on their own job and can
effectively face the changes. The managers and employees must do appropriate
things in appropriate manner. They need to be both effective as well as efficient.

One of the major role of strategic management is to incorporate various

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

Following are the important concepts of Strategic Management:

Strategy - Definition and Features

Components of a Strategy Statement

Strategic Management Process

 Environmental Scanning

Strategy Formulation

Strategy Implementation

Strategy Formulation vs Implementation

Strategy Evaluation

Strategic Decisions

Business Policy

BCG Matrix

SWOT Analysis

Competitor Analysis

Porter’s Five Forces Model

Strategic Leadership

Corporate Governance

Business Ethics

Core Competencies

Strategic management is a combination of three main processes which are as

follows:

Strategy formulation

Performing a situation analysis, self-evaluation and competitor analysis: both

internal and external; both micro-environmental and macro-environmental.
Concurrent with this assessment, objectives are set. These objectives should be
parallel to a timeline; some are in the short-term and others on the long-term.
This involves crafting vision statements (long term view of a possible future),
mission statements (the role that the organization gives itself in society), overall
corporate objectives (both financial and strategic), strategic business unit
objectives (both financial and strategic), and tactical objectives.

These objectives should, in the light of the situation analysis, suggest a

strategic plan. The plan provides the details of how to achieve these objectives.

This three-step strategy formulation process is sometimes referred to as

determining where you are now, determining where you want to go, and then
determining how to get there. These three questions are the essence of strategic
planning. SWOT Analysis: I/O Economics for the external factors and RBV for
the internal factors.

Strategy implementation

• Allocation and management of sufficient resources (financial, personnel,

time, technology support)

• Establishing a chain of command or some alternative structure (such as

cross functional teams)

• Assigning responsibility of specific tasks or processes to specific

individuals or groups

• It also involves managing the process. This includes monitoring results,

comparing to benchmarks and best practices, evaluating the efficacy and
efficiency of the process, controlling for variances, and making adjustments to
the process as necessary.
• When implementing specific programs, this involves acquiring the
requisite resources, developing the process, training, process testing,
documentation, and integration with (and/or conversion from) legacy processes.

Strategy evaluation

• Measuring the effectiveness of the organizational strategy. It's extremely

important to conduct a SWOT analysis to figure out the strengths, weaknesses,
opportunities and threats (both internal and external) of the entity in question.
This may require to take certain precautionary measures or even to change the
entire strategy.

General approaches

In general terms, there are two main approaches, which are opposite but
complement each other in some ways, to strategic management:

• The Industrial Organizational Approach

o based on economic theory — deals with issues like competitive rivalry,

resource allocation, economies of scale

o assumptions — rationality, self discipline behaviour, profit maximization

• The Sociological Approach

o deals primarily with human interactions

o assumptions — bounded rationality, satisfying behaviour, profit sub-

optimality. An example of a company that currently operates this way is Google

Strategic management techniques can be viewed as bottom-up, top-down, or

collaborative processes. In the bottom-up approach, employees submit
proposals to their managers who, in turn, funnel the best ideas further up the
organization. This is often accomplished by a capital budgeting process.
Proposals are assessed using financial criteria such as return on investment or
cost-benefit analysis. Cost underestimation and benefit overestimation are major
sources of error. The proposals that are approved form the substance of a new
strategy, all of which is done without a grand strategic design or a strategic
architect. The top-down approach is the most common by far. In it, the CEO,
possibly with the assistance of a strategic planning team, decides on the overall
direction the company should take. Some organizations are starting to
experiment with collaborative strategic planning techniques that recognize the
emergent nature of strategic decisions.

The strategy hierarchy

In most (large) corporations there are several levels of strategy. Strategic

management is the highest in the sense that it is the broadest, applying to all
parts of the firm. It gives direction to corporate values, corporate culture,
corporate goals, and corporate missions. Under this broad corporate strategy
there are often functional or business unit strategies.

Functional strategies include marketing strategies, new product development

strategies, human resource strategies, financial strategies, legal strategies,
supply-chain strategies, and information technology management strategies. The
emphasis is on short and medium term plans and is limited to the domain of
each department’s functional responsibility. Each functional department
attempts to do its part in meeting overall corporate objectives, and hence to
some extent their strategies are derived from broader corporate strategies.

Many companies feel that a functional organizational structure is not an

efficient way to organize activities so they have reengineered according to
processes or strategic business units (called SBUs). A strategic business unit is a
semi-autonomous unit within an organization. It is usually responsible for its
own budgeting, new product decisions, hiring decisions, and price setting. An
SBU is treated as an internal profit centre by corporate headquarters. Each SBU
is responsible for developing its business strategies, strategies that must be in
tune with broader corporate strategies.

The “lowest” level of strategy is operational strategy. It is very narrow in focus

and deals with day-to-day operational activities such as scheduling criteria. It
must operate within a budget but is not at liberty to adjust or create that budget.
Operational level strategy was encouraged by Peter Drucker in his theory of
management by objectives (MBO). Operational level strategies are informed by
business level strategies which, in turn, are informed by corporate level
strategies. Business strategy, which refers to the aggregated operational
strategies of single business firm or that of an SBU in a diversified corporation
refers to the way in which a firm competes in its chosen arenas.

Corporate strategy, then, refers to the overarching strategy of the diversified

firm. Such corporate strategy answers the questions of "in which businesses
should we compete?" and "how does being in one business add to the
competitive advantage of another portfolio firm, as well as the competitive
advantage of the corporation as a whole?"

Since the turn of the millennium, there has been a tendency in some firms to
revert to a simpler strategic structure. This is being driven by information
technology. It is felt that knowledge management systems should be used to
share information and create common goals. Strategic divisions are thought to
hamper this process. Most recently, this notion of strategy has been captured
under the rubric of dynamic strategy, popularized by the strategic management
textbook authored by Carpenter and Sanders [1]. This work builds on that of
Brown and Eisenhart as well as Christensen and portrays firm strategy, both
business and corporate, as necessarily embracing ongoing strategic change, and
the seamless integration of strategy formulation and implementation. Such
change and implementation are usually built into the strategy through the
staging and pacing facets.One of the difficulties faced by managers trying to
decide whether it is worth studying strategy is that there is a wide spread belief
that it just does not work. This is especially true when people start to discuss
entrepreneurial and innovative behavior. Here the common sense perception is
that for entrepreneurs to be successful strategy and plans are the last thing they
need. These are seen as hemming them in and constricting them. Improvisation
or ‘off the cuff’ action is what is needed. Very few of us though can be quick
wined enough to manage spontaneous and clever action. It often comes as a
shock to people when they learn that many television shows are not the
spontaneous events they are made out to be.

Apart from those who believe that over-strategizing can lead to an

impoverishment of what is possible. curtailing the actions of managers, others
simply do not believe that strategic management actually delivers what it sets
out to achieve. Pragmatically we believe that you have to judge whether or not
it works for the type of situations you will find yourself in.

There sufficient evidence from academic research to suggest that managers

would be advised to take strategic management seriously. However, it can be
said that the question of the value o strategic management is complex. We can
look at studies of actual organizations and see if there is evidence that shows a
correlation between strategic plans and success. Strategic management however,
is not simply the use of strategic plans. It is a way of looking at the
responsibilities of management. It is a way of looking at the organization’s
present and future environment. It may make use of a variety of techniques. It
may produce formal documents, but it may not. It is a way of generating
actions, or streams of action, top provide benefits to stake holders, to beat
competitors, and to make use of the capacity of the organization.
There are argument between protagonists of different kinds of strategic
management vocabulary. They may try to settle which type of strategic
management is right or true, but their arguments and counter-arguments are
remarkably inconclusive. Choosing between them seems to be more a matter of
choosing how you like to look at management and what kinds of questions and
phenomena you find interesting and want to address. The choice, then, is a
personal decision based on the attractiveness of the approach rather than its
scientific validity. This is not just true of strategic management. There are in
fact, lots of broad theoretical approaches in management that cannot easily

Here we need to stress yet again the importance of your own assessment of what
is worthwhile in terms of the outcomes achieved. We do not believe it is
possible to say categorically: do this as opposed to that in these circumstances;
but we do believe that you have to judge the value of what you have done by its
effects.

Benefits of strategic planning:

Over the years there have been numerous studies of strategic planning and
performance. Early studies measured the existence or nature of planning and
looked at organizational aspects of strategic planning. One study indicated that
organizations that planned performed better than organizations that did not plan.
Some studies showed that organizations doing formal planning performed better
than other organizations. A study by Ansoff and colleagues (1970) found that
deliberate and systematic preplanning of acquisition strategies was correlated
with better financial performance. Overviews of such empirical studies usually
conclude that there is a preponderance of evidence in favor of a link between
company performance and planning.
Practitioners

While there is not total unanimity among researchers about the link between
formal strategic planning and better performance, most practitioners would no
doubt think even a modest level of support for the link would make it
worthwhile to invest their time and effort in developing strategic plans. In fact,
the evidence is better than modest. And surveys of practitioners suggest that
their experience has confirmed that investing in strategic planning is a good
idea.

A functional view

Even if academic research finds a correlation between strategic planning and

performance it might still be objected that the case for strategic planning is
unproven. It might be said, for example, that better performing organizations
have the extra management capacity needed to carry out strategic planning. In
contrast. Organizations that are doing less well may not have the time or spare
attention to think about strategic planning.

Benefits of strategic innovation

Innovation has come to be seen as key driver of growth and profitability. In the
last couple of year the United States generated more than a half of its economic
growth from new industries born in the last decade. However, this is not really
new. Innovation is part and parcel of the history of business cycles. Each major
business cycle is characterized by the rise of new industries. In the late 1 8th
and early 19th century textiles and iron were the new industries. In the second
half of the 19th century rail and steel industries became important. In the last
century the new industries included electricity and chemicals, then
petrochemicals, electronics and aviation came to the force. The latest wave of
innovation covering the present period is summed up by describing the period
as the Information Age, meaning that there are new products and services
clustering around digital technology, software and new media.

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Q6.Write an essay on ‘Why Strategies fail’?

It is very striking why so many strategies have failed in implementation. It is

striking that most companies remain committed to strategic planning despite the
disappointing returns on their investments to date. The reasons for this are
rooted in the needs that led firms to adopt strategic planning in the first place.
Their managements have come to realize that financial controls alone are
insufficient to steer the business. Balance sheet feedback is too aggregated, too
stripped of connotative information and often too late It managers are to make
more timely and appropriate mid-course corrections in response to external
change, financial plans must be augmented and supplemented by strategic plans.
Without these, the penalty for inability to adapt along the way is simply too
great.

Another reason that companies persist in planning despite disappointment stems

from a tendency by managers to separate in their thinking, strategy formulation
from strategy execution. If one believes that the strategy was soundly developed
in the first place, then subsequent failures in

Implementation can be blamed on the poor work of those lower down in the
organization responsible for executing the strategy. However, when one
examines in depth the relationship between strategy formulation and strategy
execution, this tendency to view the two aspects of strategy as distinctly
separate issues can be seen to be wrongheaded.
While the data on strategic plan failure rates is all over the map, suffice it to say
it’s HIGH! Below you’ll find ten common reasons strategic plans fail. It’s
likely that the last strategic initiative to fall short in your organization could be
attributed to one (or some combination) of these ten causes.

1. History - You have to be mindful of your history when it comes to launching

strategic initiatives. If you’re the kind of organization which, just a year ago,
launched a new initiative with great fanfare only for it to have died an
unceremonious death, then your employees are not likely to be fooled again.
They’re smarter than Charlie Brown, who as you recall was repeatedly foiled by
Lucy every time he was asked to kick the football. If your announcement is met
with rolling eyes and a collective groan, then you stand little chance of real
success no matter how brilliant the plan.

2. People/Culture -Knowing what to do in the abstract is usually the easy part.

Knowing what YOU can do based on the unique skills and mindset of your
team is an entirely different matter. Understanding your people, the culture and
sub-cultures within your organization, and shared vision/values are essential to
developing a plan that stands a chance of success. Failure to do so is a recipe
for disaster. Dave Logan’s research on “tribes” in his book Tribal Leadership
offers a practical framework for understanding and working with your culture to
achieve what Peter Senge describes as the difference between
apathy/compliance and commitment/enrollment.

3. Leadership - How committed is your leadership team to the success of the

strategic plan? Not just in terms of what they say when the plan is announced,
but how they communicate (words & actions) during the life of the plan. What
signals do they send to the employees? As Kouzes and Posner might ask: How
is your leadership modeling the way? If employees sense that the leadership’s
commitment is tepid, then that’s what leaders can expect in return.
4. Discipline - Let’s say you’ve got committed leaders and employees. That’s
great, but commitment to achieving strategic goals is still not enough. The
question is: Do they have the discipline necessary to make real behavioral
change? Jim Collins refers to this in terms of “disciplined people, disciplined
thought, and disciplined action.” So in individual terms, someone might be
committed to losing ten pounds, yet lack the discipline to do what’s necessary to
achieve the goal and maintain the weight. It’s no different in organizations.
David Maister says that without discipline your strategic plan will have all the
teeth of a typical New Year’s Resolution.

5. Communication - Most strategic-related communications, even if

thoroughly planned and executed, are designed only to create clarity around
what management wants the employees to do. (Which by itself can be a tall
order). As a result, the communication efforts fall woefully short of the mark.
Good strategic communication should have one goal: To make sure everyone in
the company sees the strategic plan NOT as just the leadership’s plan, but as
THEIR plan. Failing that, you’re asking your employees to be more committed
to your goals than their own. Not sure that’s very realistic.

6. Monitoring, Measurement, Feedback – Even the best conceived strategic

plans require adjustments along the way. It’s critical to monitor the plan’s
progress, measure outputs as well as outcomes, and obtain feedback from all
your stakeholders. It’s also essential to consider unintended effects. For
example, is success in one area of your company undermining results elsewhere
in the organization? Are you realizing short-term gains at the expense of long-
term growth? Have you considered delays, both positive and negative, that
could result in outcomes you may have to wait months or years to fully
understand? So if your organization didn’t listen along the way and lacked
patience, it was likely accompanied by a failed effort.
7. Lack of Flexibility – While it’s helpful to have all the right systems in place
to track your progress, it’s all for naught if you lack the will, the flexibility, and
the triggers necessary to make adjustments along the way. Over time, and
presented with solid evidence, you can’t be afraid to depart from the original
plan. Keep the goal, change the plan – not the other way around!

8. Milestones/Rewards - Most strategic initiatives of any consequence take

time. Even for the most disciplined among us, we need to be motivated and
inspired to achieve a longer-term goal. Consider what it takes to keep your
people on track. How do you stay focused on the goal and celebrate your
progress? What are the best milestones and rewards for your plan? Your
organization? You can’t let your organization lose steam.

9. Bad Planning - Make a list of the people in your organization who were
involved in developing your last strategic plan. Who were they? How deep did
you go in the organization? How wide? What was the extent of their
involvement? OR, did the senior leadership team develop the plan on its own
and then announce it to the organization? How did that work for you? Off-site
huddles by the senior management team to develop a strategic plan often result
in developing a plan that has no chance of success.

10. Bad Plan - Sometimes plans fail because they are simply bad plans, and I
would argue that they are often bad plans because we don’t tend to get everyone
involved that we should. We either fail to tap into the collective talents and
dedication of our people or we misjudge the external environment and the
response of our stakeholders. It can make employees feel isolated and the
leadership look out of touch.

The reasons for Strategies Fails:

1. Poor Preparation of Line Managers

It was noted that since the early 1980s. An increasing number of companies
have recognized that the responsibility for formulating strategy belongs to line
managers, not staff planners. The latter’s rule is supportive and facilitative. But
in many instances, line executives have been inadequately prepared to assume
this responsibility.

Line managers need to understand the key concepts and language of strategic
planning. It is unlikely that without some help, they will uniformly understand
the operational meaning of such notions as ‘bases of competition’, ‘strategic
issues’, ‘key success factors’, ‘portfolio role’, and ‘strategic management’.
Typically, line managers view strategic planning as an additional burden
imposed from above, diverting them from ‘running the business’. All too often,
many line managers adopt a grudging, mechanistic approach to their planning
duties. Small wonder that staff planners creep back in to lend a hand and help
fill the void.

Another aspect of preparing line managers to become more effective strategy

formulators has to do with broadening their perspective. They need to think
about the business as a whole rather than only their own function. They also
need to know what questions will be asked and what challenges to expect when
they submit their proposed business plans

2. Faulty Definition of the business

How the management of a firm conceives of and defines each of the businesses
they are conducting can have a profound hearing on the business’s strategic
behavior, its competitive clout and on the strategic options management may
choose to implement.

These examples are meant to illustrate two issues relevant to the connection
between business definition and successful strategy implementation. The first
issue has to do with ‘getting the definition right’. In this context, ‘right’ means
in tune with the marketplace requirements and competitive dynamics. It means
the definition which best positions the firm to compete successfully.

The other issue has to do with how similarly each manager and executive
perceives and understands the business definition. Successful strategy
implementation depends heavily on an agreed business definition among the
entire management group. Differences in perception will undermine the
effectiveness of strategy implementation.

3. Faulty Definition of the Strategic Business Unit (SBU)

When a multi-business fails to define its SBUs correctly within its

organizational structure, an excellent planning process cannot undo the damage.
When strategic planning is newly installed, it is often assumed that the
organizational units already in place should handle the planning. Because these
units are typically a result of historical evolution, they may owe their
boundaries to many factors that make them inappropriate to use as a ha.sis for
planning: geography, administrative convenience, the terms of old acquisition
deals, product lines, traditional profit centers, a belief in healthy internal
competition, or old ideas about centralization and decentralization.

Such rationales for unit boundaries often lead to faultily defined SBUs.
Executives who take organizational structure as a given before planning begins
seldom realize that their SBU definitions are defective. Organization theory and
strategic management hold that the main purpose of organization.

The faultiness of the reorganization logic and its consequences for strategic
planning can be attributed to ignorance or discounting of customer and
competitor behavior in the major borne appliance market specifically, the
product line organization with its associated localized strategic perspective
impeded consideration of several important factors that characterize this market.
These includes

Quality and style: customers expect that the refrigerator, dishwasher, cooking
range, etc. Which they purchase be coordinated in terms of quality (materials
used, performance warranties& etc.) arid appearance (color, tones, physical
design, features. etc.).

Price: customers expect a pricing policy that unifies the major kitchen
appliances within the context of the manufacturer’s ‘quality and style’
philosophy.

Competition: the division responsible for cooking ranges quickly discovered

that its competitors and distribution channels were identical to those faced by its
sister divisions, which manufactured refrigerators, dishwashers, etc. Despite this
extensive overlap each division was waging its own battle with the same set of
competitors.

4. Excessive Focus on the Numbers

When in strategic planning there is an excessive focus on financial and other

numbers relevant to business performance, the resultant plan is likely to have
serious distortions and be of limited value in guiding implementation. A
numbers-driven plan is often the result of a short- term bottom-line mindset on
the part of top management. There is also likely to be an excessive focus on the
numbers when the staff supports function for planning is under the control of
the corporate financial function.

When performance numbers govern strategy formulation. SBU managers

responsible for carrying out the strategy tend to make arbitrary or constrained
strategic choices. Such choices seldom reflect the realities of the industry,
markets and competitive environment.

5. Imbalance between External and Internal Considerations

Earlier we have noted that strategic planning differs from earlier efforts to plan
for the long term by its primary emphasis on the firm’s external environment In
practice, this means developing an understanding of the firm’s industry,
markets, customers and competition, and using this knowledge to determine
what is strategically relevant when assessing the firm’s capabilities, and
competitive strengths and weaknesses. Understanding and focusing on externals
is crucial in making the strategic choices that will lead to the desired long-term
outcomes.

6. Unrealistic Self-assessment

There is another element in strategic planning that can significantly influence

the quality of the strategic choices and the extent to which a strategy can be
implemented successfully. This is the quality of management’s analysis of their
organization’s capabilities to carry out various strategies. Management’s
assessment of the firm’s strengths and weaknesses in the light of possible
courses of action is an important consideration in the choice of strategic options.
Further, this assessment is an important input to the definition of the work
required to implement the selected options.

7. Insufficient Action Detailing

Implementation is bound to go awry if strategy formulation goes no further than

defining general thrusts and end-point goals.

About seven out of ten companies do not carry the formulation of strategy much
beyond some general statement of thrust such as market penetration or internal
efficiency and some generalized goal such as excellence. Having only
generalizations to work which makes implementation very difficult. Targets
don’t mean much if no one maps out the pathways leading to them. After this
kind of half- baked strategy is handed over for execution, subordinates who
have not been in on the formulation of the strategy are left to deal with its cross-
impacts and trade-offs when they bump into them.

The cure for half-baked strategy is action detailing, but this task often baffles
and irritates many executives. Only one in three of the companies have a
process or a forum for the inter functional debate and testing of unit strategies.
Their procedures for action detailing and other kinds of reality testing are often
nonexistent or merely rudimentary. Action detailing of a sort is carried on in
some places as a part of operational planning, but it usually follows strategic
planning and takes the strategy as given. Planning in detail should be used as a
further test of a strategy’s feasibility.

8. Insufficient Effective Participation Across Functions

Strategic plans are of better quality and are more likely to be implemented
successfully when the plan is formulated by a team of executives and managers
working together in ‘real time’. This team should include the SBU general
manager, the functional heads who report to this executive and middle-level
managers Elected for their ability to contribute usefully to the debate. In
addition, the planning team should include other functional executives and
managers outside the SBU who are responsible in providing strategically
significant resources and supporting services to the SBU.

9. Poor Management of corporate Face-off

In a multi-business corporation, even when all the steps in the strategy

development process are taken according to the principles of best practice,
strategic plans can be ruined and the whole system undermined at the final
corporate review stage. The issue here is how good is the design and
management of the planning cycle when the SBUs’ proposed plans hit the
corporate screen. This may be called the corporate face-off.

The face-off is a moment of inevitable, healthy conflict Not only do all the
units’ resource requests often exceed what Corporate is prepared to provide, but
also their aggregate performance promises are often less than the Corporate
requires. Performance requirements typically come from an analysis of Capital
Market.

10. Conflicts with Institutionalized controls and systems

The foregoing nine factors describe flaws in the ‘upstream strategic planning
process that can undermine ‘downstream’ strategy implementation.

This tenth factor is the only one directly applicable to the implementation
process. Astrategic planning system can’t achieve its full potential until it is
integrated with other control systems such as budgets, information, and rewards.
The badly designed, poorly managed face-off is a manifestation of a deeper
problem - compartmentalized thinking which treats various existing control
systems as freestanding and strategically neutral. When this is the case, there is
a high probability that conflicts will arise between the requirements and
organizational impact of each SBU’s intended strategies, and the requirements
of institutionalized control systems. These are usually far more deeply rooted in
the organization’s culture than strategic thinking and planning. When conflicts
occur, the existing control systems prevail and strategy implementation suffers.

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