KMBN 301

Strategic Management
Unit-1
Strategy Meaning:- The word ‘strategy’ comes from the ancient Greek word ‘Strategos’, meaning ‘the
art of the General’. In ancient Greece, the term Strategos was used in military science and implied the
plan to win a battle. However, in business, strategies are more about understanding the competition and
preparing a plan to match/surpass the potential of the rivals.

A strategy is a general plan or set of plans intended to achieve something, especially over a long period.
Strategy is the art of planning the best way to gain an advantage or achieve success.

Strategic management is a decision making process that involves the analysis of internal capabilities and
external environment of a firm in order to efficiently and effectively use resources to meet organizational
objectives.

Strategic Management provides overall direction to the enterprise and involves specifying the
organization’s objectives, developing policy, and plans designed to achieve these objectives, and then
allocating resources to implement the plans.

Strategy typically involves two major processes: formulation and implementation. Formulation involves
analyzing the environment or situation, making a diagnosis, and developing guiding policies. It includes
such activities as strategic planning and strategic thinking. Implementation refers to the action plans taken
to achieve the goals established by the guiding policy.

Nature of Strategy:-

1. Strategy is a major course of action through which an organization relates itself to its
environment particularly the external factors to facilitate all actions involved in meeting
the objectives of the organization.

2. Strategy is the blend of internal and external factors. To meet the opportunities and threats
provided by the external factors, internal factors are matched with them.

3. Strategy is the combination of actions aimed to meet a particular condition, to solve certain
problems or to achieve a desirable end. The actions are different for different situations.

4. Due to its dependence on environmental variables, strategy may involve a contradictory

action. An organization may take contradictory actions either simultaneously or with a gap of
time. For example, a firm is engaged in closing down of some of its business and at the same
time expanding some.

5. Strategy is future oriented. Strategic actions are required for new situations which have not
arisen before in the past.

6. Strategy requires some systems and norms for its efficient adoption in any organization.
Scope of Strategy:-

a. Management process. Management process as relate to how strategies are created and
changed.
b. Management decisions. The decisions must relate clearly to a solution of perceived
problems (how to avoid a threat; how to capitalize on an opportunity).
c. Time scales. The strategic time horizon is long. However, it for company in real trouble
can be very short.
d. Structure of the organization. An organization is managed by people within a structure.
The decisions which result from the way that managers work together within the structure
can result in strategic change.
e. Activities of the organization. This is a potentially limitless area of study and we
normally shall centre upon all activities which affect the organization.

Importance of Strategy:-

1. Provide Direction and Action Plans: A strategy provides an organization with right direction
which need to be followed for attaining the targets. It given clear cut and detailed plan of action
for reaching the desired position in future. Business gets a complete guide on how things will be
done and goals will be accomplished.

2. Identify Trends and Opportunities: It identifies various market trends and future opportunities
available to a business organization. Strategy examines the variations in market such as social,
political and technological changes as well as the customer changes. Once the market changes are
identified, it develops tactics accordingly so that a business can adjust itself to the future
changes.

3. Define Accountabilities: Strategy clearly defines the line of accountability within the business
enterprise. It also set the timelines for attaining desired results on agreed strategic initiatives.

4. Improve Communication and Commitment: It enhances the overall level of communication

and commitment within the organization by clarifying the vision and accountabilities. Proper
strategic plan aligns all activities of business and fosters commitment at each level.

5. Allocation of Resources: Resources are limited and strategy decides what all products, services
or market will be the part of company’s future and what will not be. This way it ensures that
resources are deployed efficiently providing maximum output for the organization.

6. Provide Framework for Decision Making: It gives a reference point for decisions as each of
them need to support the strategy. Business needs to plan on daily basis for its routine activities
on a regular basis. In presence of right framework by strategies, these plans are made in a timely
manner ensuring business growth.

7. Competitive Advantage: Companies are able to achieve competitive advantage over the
competitors by forming strategies. Business is able to understand more about themselves and
clearly know where they are going. This way resources are utilized efficiently and everything
goes in right way thereby providing maximum output to business.
 Model of Strategic Management:- https://www.learn-management.com/wp-
content/uploads/2023/03/645755b17598f1d23fc3d8938a966b2c-1.jpg

VISION-

Vision statement indicates what the company wants to create in the future. The corporate vision has the
potential power to focus the collective energy of insider and to give outsiders a better idea of ‘what an
organization is in fact, vision is the first step of strategic management process in an organization.

Characteristics of vision-
1. Vision is developed though sharing across an organization
2. Method of convincing the other about vision
 3. Change agenda
MISSION-

Mission is defined as, “an enduring statement of purpose that disintigushes one organization from similar
organization”

Mission is - “What is our business?”

“What should it be?”

Mission statement provides direction and significance to all member of the organization, regardless of
their level. The mission statement is where a company starts to show how this dream is going to become a
reality.

Characteristics of mission -

Market rather than product focus

1. Achievable
2. Motivational
3. Specific
4. Clear
5. Distinctive
6. Indicate major component of strategy and objective
7. Achievement of policies

OBJECTIVE-

The purpose or a mission of an organization required the formulation of a number of objective, long-rang
objective specify the result that are desired in pursuing the organization mission.

Overall organization objective-long range and short range

overall organization
objective (long-rang
and short-range)

Departmental objective

Unit level objective

Types of objective-

1. Profitability
2. Markets
3. Productivity
4. Innovation
5. Product
6. Financial Resources
7. Physical facilities
8. Organization structure and activities
9. Manager performance and development
10. Employee performance and attitude
11. Customer service
12. Social responsibility

Characteristics of objective-

• Specific objective

• Level of effort

• Changing objective

• Measurable objective

• Consistent long rang and short rang objective

Importance of objective-

• Objective help to define the organization in its environment

• Objective helps in coordinating decision and decision-makers

• Objective helps in formulating strategy

• Objective provide standards for assessing organization performance

• Objective helps to reflect the changes in the environment

 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 your shorter term plans with this deeper, broader mission — giving your operations clarity
and consistency.

Strategic decision making involves the following 3 things:

1. The long term way forward for the company

2. Selection of proper markets for the company
3. The products and tactics needed to succeed in the targeted market.

Strategic Decision Making Process:-

https://lh3.googleusercontent.com/-eHel0HhBo-
I/TfA9bba1tII/AAAAAAAAE24/r65aQGNUQis/Steps-In-Decision-Making-Process.png

1. Defining and Analysing the real problem

The manager should first find out what is the real problem. The problem may be due to bad
relations between management and employees, decrease in sales, increase in cost, etc. After
finding out the true problem manager must analyse it carefully. He should find out the cause and
effect of the problem.

2. Developing Alternative Solutions

After defining and analysing the real problem, the manager should develop (make) alternative
(different) solutions for solving the problem. Only realistic solutions should be considered.
Group participation and computers should be used for developing alternative solutions.

3. Evaluating the Alternative Solutions

The manager should carefully evaluate the merits and demerits of each alternative solution. He
should compare the cost of each solution. He should compare the risks involved. He should also
compare the feasibility of each solution. He should find out which solution will be accepted by
the employees.

4. Selecting the best Solution

After evaluating all the solutions, the manager should select the best solution. He should select a
solution which is less costly and less risky. He should select a solution which is most feasible
and which is accepted by the employees. In short, the manager should select a solution which has
the most merits and least demerits. The best solution is called the "Decision".

5. Implementing the Decision

After making the decision, the manager should implement it. That is, he should put the decision
into action. He should communicate the decision to the employees. He should persuade the
employees to accept the decision. This can be done by involving them in the decision making
process. Then the manager should provide the employees with all the resources, which are
required for implementing the decision. He should also motivate them to implement the decision.

6. Follow Up

After implementing the decision, the manager must do follow up. That is, he must get the
feedback about the decision. He should find out whether the decision was effective or not. This is
done by comparing the decision with the action, finding out the deviations (differences) and
taking essential steps to remove these deviations. So, follow-up is just like the control function. It
helps to improve the quality of future decisions.
 Corporate Governance
Corporate governance is a central and dynamic aspect of business. The term ‘governance’ is derived from
the Latin word gubernare, meaning ‘to steer’, usually applying to the steering of a ship, which implies that
corporate governance involves the function of direction rather than control.

“Corporate Governance is the system by which business corporations are directed and controlled. The
corporate governance structure specifies the distribution of rights and responsibilities among different
participants in the corporation, such as the board, managers, shareholders and other stakeholders, and
spells out the rules and procedures for making decisions on corporate affairs. By doing this, it also
provides the structure through which the company objectives are set, and the means of attaining those
objectives and monitoring performance.”

Corporate governance is concerned with the governing or regulatory body (e.g. the SEBI), the CEO, the
board of directors and management. Other stakeholders who take part include suppliers, employees,
creditors, customers, and the community at large.

The board of directors plays a key role in corporate governance. It is their responsibility to endorse the
organisation’s strategy, develop directional policy, appoint, supervise and remunerate senior executives
and to ensure accountability of the organisation to its owners and authorities.

Board of Directors -Composition

The board of directors are can be called the brain of the company. They are responsible for taking all the
big decisions and making policy changes. These decisions are taken in special meetings members of the
board hold together, called ‘Board Meetings’.

Section 149 of the Companies Act states that every company’s board of directors must necessarily have a
minimum of three directors if it is a public company. two directors if it is a private company and one
director in a one person company.

The maximum number of members a company can assign as directors is fifteen. However, the company
can pass a special resolution in a general meeting to allow for assigning more than fifteen members to the
board of directors.

The maximum number of companies that an individual can become a director of, is 20 companies.

At least one director, who has lived in India for a minimum of 182 calendar days of the previous year,
shall be appointed by every company’s board. It is a mandatory rule.

At least, one woman director must be appointed by the company.

All listed companies must have at least one-third proportion of their board of directors as independent
directors.

The members of the board shall have an optimum combination of executive and non-executive directors
and at least one woman director. At least 50% of the board of directors must be non-executive directors.
When the board chairman is a non-executive director, a minimum of one-third directors shall be made up
of independent directors. In case of the board chairman being an executive director, a minimum of half of
the board of directors shall comprise of independent directors.

However, in case a non-executive chairman is a promoter of the said listed company or directly related to
a promoter or a high-level manager, at least half of all directors will comprise of independent directors.

Committees Under the Board of Directors

1. Audit Committee

The audit committee should have a minimum of 3 members.

A total of two-thirds of the committee comprises of independent directors.

At least one member should have expertise in the field of account and finance and all audit members must
be well in finance.

An independent director will be the chairman of the audit committee.

The company secretary shall be the appointed secretary.

2. Nomination and Remuneration Committee.

The committee shall comprise of at least three directors.

All members must be non-executive directors.

At least 50% of the directors shall be non-executive members.

Director of the committee will be an independent director.

3. Stakeholders Relationship Committee

The Stakeholders Relationship Committee takes care of all issues related to problems such as grievances
of shareholders, debenture holders and other parties of importance. This committee looks into such
matters and resolve issues while maintaining a good relationship with shareholders and other parties.

Thus, the chairman of this committee has to be a non-executive member director from among the board of
directors.

4. Risk management Committee

The members of the board will form the risk management committee.

A major portion of the Risk Management Committee shall consist of members of the board.

The chairman of the Risk Management Committee shall be a member of the board.
Appointment of Directors
According to the Companies Act, only an individual can be appointed as a member of the board of
directors. Usually, the appointment of directors is done by shareholders. A company, association, a legal
firm with an artificial legal personality cannot be appointed as a director. It has to be a real person.

In public or a private company, a total of two-thirds of directors are appointed by the shareholders. The
rest of the one-third remaining members are appointed with regard to guidelines prescribed in the Article
of Association.

In the case of a private company, their Article of Association can prescribe the method to appoint any and
all directors. In case the Articles are silent, the directors must be appointed by the shareholders.

The Companies Act also has a clause that permits a company to appoint two-thirds of the company
directors to be appointed according to the principle of proportional representation. This happens if the
company has adopted this policy.

Board officers / members

✓ Chairman: Sometimes referred to as a “chairperson” or “president,” the chairman is the acting

head of the board of directors. While the chairman sets the direction for the board, all board
members are considered peers. For many boards, the CEO serves as chairman.

✓ Vice chairman: Sometimes referred to as “vice president,” the vice chairman serves in the
absence of the president or chairman. They also may be referred to as “chairman-elect” if plans
call for the member to serve as the next chairman or president.

✓ Treasurer: The treasurer is responsible for the company’s financial health but does not take
responsibility for day-to-day operations. They typically manage the annual budget, financial
policies, investments and financial audits.

✓ Secretary: This person has the overall responsibility to create and maintain corporate records and
other important corporate documents.

✓ Executive director: The executive director is an inside director that holds an executive position
within the organization.

Legal Functions/ Duties/ of Board of Directors

I. Duty of Loyalty

• Avoiding conflicts of Interest

• Fairness
• Corporate Opportunity (Ahead of Personal)
• Confidentiality
II. Duty of Care

▪ A director performs his duties in good faith and in a manner that he serves for the best interest of
the corporation, and as an ordinary person in a like position under certain circumstances.

▪ Attention at meetings, Reliance on management and professional information and Delegation (to
management to operate the business)

▪ Decision Making – exercise reasonable business judgement.

Role and Responsibilities of Board of Directors:-

1. Establish the organization’s vision, mission, and purpose.

The organization’s vision is the founding members’ view of what they want the organization to be and
what purpose it serves. The board is also responsible for writing a mission statement, which is what the
organization intends to do to fulfill the vision. The board should consider the vision while doing its
strategic planning to ensure that their planning continually aligns with the vision. Everyone who is
directly or indirectly connected with the organization should be aware of the vision and the board plays a
large role in that.

2. Hire, monitor, and evaluate the chief executive.

Boards have the task of identifying, recruiting, and appointing the most qualified individual they can find
to serve as the chief executive. In addition, the board writes the chief executive’s job description. Before
conducting an executive search, the board needs to consider the organization’s needs, strengths, and
weaknesses in considering the skills and abilities that a leader can bring to help the organization move
forward. The new leader should be clear on what the board expects for his or her first year of service.

3. Provide proper financial oversight.

Board directors work together to establish a budget and ensure that there are proper internal controls in
place for incoming and outgoing funds. Even small companies and startups should have an audit
committee and do an internal audit every year.

4. Ensure the organization has adequate resources.

Every organization needs resources and it’s the board’s responsibility to ensure that every part of the
organization has adequate resources for the organization to meet its obligations and fulfill its mission.
Boards need to carefully consider the best way to allocate money and other resources for the benefit of the
organization and its stakeholders. Nonprofit board directors should expect to make regular donations to
the organization and use their personal and professional network to advance the mission of the
organization.
 5. Create a strategic plan and ensure that it’s followed.

Boards set goals and objectives according to a strategic plan so that they have a guide for how to meet the
organization’s goals and needs applicable to nonprofit board positions. A SWOT (strengths, weaknesses,
opportunities, and threats) analysis is usually part of the strategic planning process. The strategic
plan may be done every year or every few years. Strategic planning should account for short and long-
term goals. Boards monitor progress on the goals based on reports received from management.

6. Ensure legal compliance and ethical integrity.

All organizations have to abide by rules and laws. Board directors have a fiduciary duty to ensure that
their organization is in full compliance with its legal obligations. Board directors should behave in a
truthful, ethical manner and thus, set an example for others. Legal compliance also entails setting up
policies to establish acceptable behavior such as the Whistleblower policy, Code of Conduct, and Code of
Ethics.

7. Manage resources responsibly.

Board directors are accountable to many individuals and groups. For this reason, boards need to ensure
that they’re protecting the organization’s assets and managing them responsibly. Board directors have a
legal duty to be transparent and accountable for their actions and inactions. Board directors are generally
protected from liability for judgment errors as long as they act responsibly and in good faith and do
proper due diligence when making decisions.

8. Recruit and orient new board members and assess board performance.

The board is responsible for recruiting, nominating and appointing new board directors that have the right
mix of skills and abilities to help the organizations fulfill and advance its mission. Boards need to be as
objective as they can be about their own performances. Most boards do a self-evaluation every year with
the goal of identifying their weaknesses and forming a plan to improve the board’s performance.

9. Enhance the organization’s public standing.

Reputation is an important factor in an organization’s functioning. The board serves as a link between the
company and its stakeholders. Every interaction with stakeholders presents opportunities to share the
organization’s culture, mission, accomplishments, and goals. Stakeholders expect boards to be transparent
and accountable. Organizations that operate openly and honestly enjoy the benefit of having a trusting
relationship with their stakeholders. It’s important for boards to have a designated spokesperson who can
effectively articulate the organization’s good work or answer to stakeholders in times of crisis.

10. Strengthen the organization’s programs and services.

Boards decide which programs most exemplify the organization’s mission. By factoring the
organization’s resources and demands, boards can make decisions about whether their current and
proposed programs and services align with the organization’s mission and purpose. When programs
compete for funds and other support, boards have to make tough decisions about priorities.
 Corporate Social Responsibility
Corporate social responsibility (CSR) is a type of business self-regulation with the aim of being socially
accountable. There is no one "right" way companies can practice CSR; many corporate CSR initiatives
strive to positively contribute to the public, the economy or the environment. In today's socially conscious
environment, employees and customers place a premium on working for and spending their money with
businesses that prioritize CSR.

Katie Schmidt, the founder and lead designer of Passion Lilie, said that companies that implement CSR
stand to benefit in multiple ways.

"What the public thinks of your company is critical to its success," Schmidt told Business News Daily.
"By building a positive image that you believe in, you can make a name for your company as being
socially conscious."

4 types of corporate responsibility in business can practice easily:-

Recognizing how important socially responsible efforts are to their customers, employees and
stakeholders, many companies focus on a few broad CSR categories, including:

1. Environmental efforts: One primary focus of CSR is the environment. Businesses, regardless of
size, have large carbon footprints. Any steps a company can take to reduce its footprint is
considered good for both the company and society.

2. Philanthropy: Businesses can practice social responsibility by donating money, products or

services to social causes and nonprofits. Larger companies tend to have plentiful resources that
can benefit charities and local community programs; however, as a small business, your efforts
can make a big difference. If there is a specific charity or program you have in mind, reach out to
the organization and ask them about their specific needs and whether a donation of money, time
or perhaps your company's products would best help them.

3. Ethical labor practices: By treating employees fairly and ethically, companies can demonstrate
CSR. This is especially true of businesses that operate in international locations with labor laws
that differ from those in the United States.

4. Volunteering: Participating in local causes or volunteering your time (and your staff's time) in
community events says a lot about a company's sincerity. By doing good deeds without expecting
anything in return, companies can express their concern (and support) for specific issues and
social causes.