MANAGEMENT SCIENCE

UNIT -4
STRATEGIC MANAGEMENT
Strategy is important because the resources available to achieve these goals are usually limited.
Strategy 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).

Strategic management involves the formulation and implementation of the major goals and
initiatives taken by a company's top management on behalf of owners, based on consideration
of resources and an assessment of the internal and external environments in which the
organization competes.

Key Concepts for Strategic Management:

 Vision
 Mission
 Core values
 Setting objectives
 Corporate planning
 Environmental scanning

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A Mission Statement defines the company’s business, its objectives and its approach to reach
those objectives.
A Vision Statement describes the desired future position of the company. Elements of Mission
and Vision Statements are often combined to provide a statement of the company’s purposes,
goals and values. However, sometimes the two terms are used interchangeably .

Core values
Core values are the basis upon which the members of a company make decisions, plan
strategies, and interact with each other and their stakeholders. A stakeholder is any person or
organization that is impacted in some way by the company. Core values reflect what is
important to the organization and its members.
The core values of a company are intrinsic - they come from leaders inside of the company.
Core values work the same way for a company as they do for a family. For example, one family
may value hard work and saving money, and another family may value travel and exploration.

Corporate planning:
It is a strategic tool used by companies to set long-term plans to meet certain objectives,
such as business growth and sales volumes. Corporate plans are similar to strategic plans,
but place greater emphasis on using internal resources and streamlining operations to
achieve certain end goals.

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Types of corporate planning:

Initiation Plans
 These are also known as "Start-up Plans" and are drawn by the entrepreneur whenever
he is about to venture into the business. He makes a synopsis of what he intends to do, what
are his goals and aspirations for the company. This plan helps him evaluate the viability of
the intended business. Once he decides to go ahead with the business, he details out what
the products he would manufacture, his finances and his team of employees. He details his
intended sales and profit projections for the next year.
Strategic Plans
 Once the business has commenced, the management makes strategic plans. These plans
help the company apportion their resources most optimally. The plans evaluate the pros and
cons of choosing one method of allocation over another.The company sets attainable goals
and targets for itself. Later, its performance is gauged on the basis of these targets.
Growth Plans
 These plans are made whenever the organization has an idea of diversifying into newer
territories of trade. These plans help the organization evaluate its strategies, finances and
resources and targets before the start of the new venture.
Financial Plans
 As the name suggests, these plans are made to analyze how best the organization must
utilize its money. These plans help the organization decide on whether they must procure
loans from the market or issue additional equity to raise money. Also, the company is able to
evaluate what all investments it must make today for maximum profitability.
Human Resource Plans
 These plans help the company allocate its manpower in the most ideal manner. The
company contrasts the skills required for the job and the proficiencies of its employees. It is
then able to distribute the manpower most perfectly.
 Internal Plans
These plans are specific to each department in the organization. These are also called
departmental plans. The departmental sets targets and timelines for each of her subordinates.
Environmental scanning:
Environmental scanning is a v ital p a r t o f t he corporate planning process. Effective
planners try to anticipate what is likely to happen or attempt to influence the environment in
favorable directions. This requires long-term strategic vision and commitments to corporate
planning.

Environmental analysis: Refers to the process of analyzing the environment, component-

wise or sector-wise to provide a basis for further diagnosis.It interrelates the formation
of objectives, generation of alternative strategies, and other related issues.
Environmental diagnosis: Comprises the managerial decisions based on the perceived
opportunities and threats of the firm. In effect, it helps to determine the nature of the
impending tasks to take advantage of opportunity or to effectively manage threat.
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External Environment Analysis (Opportunity and Threat): The external

environment has a profound impact on the business operations irrespective of the nature
of the business. The business has to monitor the key forces both in to micro and macro
environment. The forces in the micro-environment may be customer competitors, and
other The forces in the macro environment may be demographic, economic, technological
socio-cultural, political or legal. All these factors and parties affect the business operations
both in the short and long run.
These factors can be grouped under three parts of the environment.
1) General environment

2) Industry environment

3) International environment
1) General environment: A firm is said to be more effective when its strategy caters to
the needs effective when its strategy caters to the needs of the environment. The
additional features added to the main product at times could provide a new life to the
main product. The corporate units, which realize this, will survive in the long-run.
Thus, the major causes of growth, decline, and other large scale changes in firms are
the factor in the external environment, not internal development.
Socio-economic sector

The technological sector

The government sector

2) Industry environment: It is an important component of the overall environmental

analysis as input for corporate planning. Industry refers to the group of firms carrying on
similar activity. It has three sectors, customers, suppliers and competitors.
Customers: The strategist must identify and analyze the customers for the
organization locates the potential customers and the emerging changes in their buying
pattern. It is necessary to identify the profile of buyers in terms of their needs and
preferences based on the basic demographic factors such as age, income size of household
and consumption pattern. These factors create the primary
demand for products or service and help to scan the geographical environment for
potential market and customers.
Suppliers: Strategist also must determine the availability and costs of supply condition
including raw materials, energy, prevailing technology, money and labor. The supplier
can influence a firm and its strategy, particularly when the firm is outsourcing its logistic
requirements.
Competition: The strategist moulds his strategy in the light of the competitor’s strategy,
the exit or entry of competitors to be analyzed and diagnosed.

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3) International Environment: The strategy of globalization implies a great source of

opportunities and also threats to business firms. Such firms, which an make use of the
opportunities, would flourish and those, which cannot gear up, would demise.

Conducting internal analysis and diagnosis: Identify first the internal strength and
weaknesses. The strength and weaknesses may include the following.
Marketing factors

Research and development

Engineering design and management

Production management

Managerial personnel

Accounting and financial policies and procedures.

SWOT Analysis: SWOT analysis is defined as the rational and overall evaluation of a
company’s strength, weakness, opportunities, and threats which are likely to affect the
strategic choice significantly.
External environment analysis (Opportunities and Threats):
The external environment has a profound impact on the business operations
irrespective of the nature and s iz e of t he business. The bus ine ss has t o monit or its
k ey macro- environment forces and micro economic parties.
Opportunities:
It necessary should identify what opportunities are available to it to focus upon.
The latest technology, deregulated or free markets, liberalized rules and
regulations and other may make a lot of difference for a business organization provided it can
envision how to avail these visionary identify opportunities from treats.
Threats:
Some development in the external environment represents threats. A threat is a
challenge posed by an unfavorable trend or a development that results in the loss of sales or
profit till a defensive marketing action is initiated. A few example of threat could be outlined
as change in government policy such as liberalization privatization and globalization,
changing technology changing value systems environmental constraints law and order.
Internal environment analysis (Strength and Weakness):
It is necessary to analyze one’s own strength and weakness periodically to
sustain the degree of its competitive strength. Generally top management or an outside
consultant reviews competencies pertaining to marketing, financial, manufacturing and
organizational system and rates each factor as a major strength, minor strength, mental,

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factor, minor weakness, or major weakness.

Strength:
It is not necessary that a business organization has to correct all its
weakness nor that its propagate its strength. The big question is whether the business should
limit itself to those opportunities, where its possesses the required strength or should it
consider better opportunities where it might have to develop certain strength.
Weakness:
Sometimes the company may not do well not because its departments lack the
required motivation but because they do not work together as a team for example consider
the case of an electronics company which employees engineers, sales and service staff for
its operations. It is not adequate if they keep on doing their work. The organization becomes
more effective only when they work as a team.

Strength: Weakness:

1) Value for money programme 1) Not aggressive in selling

2) Pool of trained faculty 2) Course differentials not sharp

3) Wide choice of offering 3) Counselor enthusiasm in adequate

Opportunities: Threats:
4) National network of well equipped 4)Customers service not focused enough
training centre
1) Growing demand for computer 1) Rise in number of competitions
education
2) Computer library becoming a 2) High rate of technological obsolescence
necessity 3) Commoditization of training under
3) Growth of rich training needs cutting of fees.

4) Need for customized training

modules

Strategy Formulation

Strategy formulation refers to the process of choosing the most appropriate course of action for
the realization of organizational goals and objectives and thereby achieving the organizational
vision.

The process of strategy formulation basically involves six main steps:

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1. Setting Organizations’ objectives - The key component of any strategy statement is to

set the long-term objectives of the organization. It is known that strategy is generally a
medium for realization of organizational objectives.

While fixing the organizational objectives, it is essential that the factors which
influence the selection of objectives must be analyzed before the selection of objectives.
Once the objectives and the factors influencing strategic decisions have been determined, it
is easy to take strategic decisions.

2. Evaluating the Organizational Environment - The next step is to evaluate the general
economic and industrial environment in which the organization operates. This includes a
review of the organizations competitive position. After identifying its strengths and
weaknesses, an organization must keep a track of competitors’ moves and actions so as
to discover probable opportunities of threats to its market or supply sources.

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3. Setting Quantitative Targets - In this step, an organization must practically fix the
quantitative target values for some of the organizational objectives. The idea behind this
is to compare with long term customers, so as to evaluate the contribution that might
be made by various product zones or operating departments.
4. Aiming in context with the divisional plans - In this step, the contributions made by
each department or division or product category within the organization is identified
and accordingly strategic planning is done for each sub-unit. This requires a careful
analysis of macroeconomic trends.
5. Performance Analysis - Performance analysis includes discovering and analyzing the gap
between the planned or desired performance. A critical evaluation of the organizations
past performance, present condition and the desired future conditions must be done by
the organization. This critical evaluation identifies the degree of gap that persists
between the actual reality and the long-term aspirations of the organization. An attempt
is made by the organization to estimate its probable future condition if the current
trends persist.
6. Choice of Strategy - This is the ultimate step in Strategy Formulation. The best course of
action is actually chosen after considering organizational goals, organizational strengths,
potential and limitations as well as the external opportunities.

STRATEGY IMPLEMENTATION

The second stage of strategic management, after strategy formulation, is “strategy

implementation” or, what is more familiar to some as “strategy execution”. This is where the real
action takes place in the strategic management process, since this is where the tactics in the
strategic plan will be transformed into actions or actual performance.

The basic activities in strategy implementation involve the following:

 Establishment of annual objectives

 Formulation of policies for execution of strategies
 Allocation of resources
 Actual performance of tasks and activities
 Leading and controlling the performance of activities or tactics in various levels of the
organization

Strategy Evaluation

Strategy Evaluation is as significant as strategy formulation because it throws light on the

efficiency and effectiveness of the comprehensive plans in achieving the desired results. The
managers can also assess the appropriateness of the current strategy in todays dynamic world
with socio-economic, political and technological innovations. Strategic Evaluation is the final
phase of strategic management.

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The process of Strategy Evaluation consists of following steps-

1. Fixing benchmark of performance

2. Measurement of performance
3. Analyzing Variance
4. Taking Corrective Action

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