STRATEGIC MANAGEMENT

CHAPTER-1

Topics

Concept of Strategy
Concept of Strategic Management
Characteristics of Strategic Management
Strategic Management Model
Formality in Strategic Management

Strategy
The word “strategy” is derived from the Greek word “stratçgos”; stratus (meaning army) and “ago” (meaning
leading/moving).

“A general direction set for the company and its various components to achieve a desired state in the future.

Strategy is the blueprint of decisions in an organization.

A strategy is all about integrating organizational activities and utilizing and allocating the limited resources within the
organizational environment so as to meet the desired state in the future.

Strategies are the means by which long term objectives will be achieved.

Strategy is a well defined roadmap of an organization. It defines the overall mission, vision and direction of an
organization. The objective of a strategy is to maximize an organization’s strengths and to minimize the strengths of
the competitors.

Strategies are concerned with the following issues;

-Current & Future business

-Target market
-Business environment & adaptation
-resource allocation
-Organizational structure
-Gain Competitive advantage
-Market expansion & diversification

Need of strategy

-To understand the competitive business environment

-To utilize the resources economically
-To retain the customers
-To expand and diversify the business
-To fulfill the stakeholder’s expectation
-To make the business sustainable
To gain the competitive advantage
Strategic Management

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.

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.

Strategic management is nothing but planning for both predictable as well as unpredictable 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 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 is concerned with making decisions about organization future direction and implementing
those decisions".

Characteristics of Strategic Management

1. Facilitates Strategy Implementation -

Strategic management makes sure that strategies are effectively executed and implemented with the help of action
oriented plans.

2. Long - Term Implications -

The concepts of strategic management are concerned with mission, vision and objectives of the organization. The
implication of strategic management are long-term and do not affect the routine operations of the organization.

3. Long - Term Issues -

The issues which strategic management handles are usually of long-term in nature. These issues do not necessarily
affect the organization immediately but will benefit the organization in the future.

4. Uncertain and Future Oriented -

Managers are ignorant about the after effect of their decision because of the dynamic and uncertain business
environment. Strategic management makes decisions regarding situation that would occur in the future and are not a
part of the day to day activities.

5. Organization-Wide effect-
The implementation of strategic management affects the entire organization and not merely the operation on which
strategic management principles are applied. It involves strategic choices and is a systematic approach that helps the
whole organization.

6. Complex -
Manager come across situations related to the business environment that is not easy to understand. There is a need
for analyzing internal and external environment. Strategic management is uncertain it becomes complex as well
however it is there to resolve the complexity and challenges of business environment.
7. Impact on Operations -
An effective strategic management process affect the operation positively. For example, if increase in salary and
performance are correlated then this will increase the operation productivity as the employees will be motivated to put
more efforts in their work. Decision concerned with operational issues is made by lower level managers.

8. Competitive Advantage -
Strategic management principles are applied regularly in the proceeding of the organization, managers can increase
the number of satisfied customers provide goods and services at economical prices and can develop a highly
satisfied workforce. Strategic management assists the manager in looking for fresh revenues for achieving
sustainable competitive advantage.
A firm can develop competitive advantage when it implements a strategy which the competitors are unable to imitate
or find too costly to imitate.

Strategic Management Model

1. Environmental Scanning -
The purpose of environmental scanning is to identify strategic factors, those internal and external elements that will
determine the future of the corporation. Environmental scanning is the monitoring, evaluating and disseminating of
information from the external and internal environment to key people within the corporation. The simplest way to
conduct environmental scanning is through SWOT analysis. SWOT is an acronym used to describe those particular
strengths, weaknesses, opportunities and threats that at strategic factors for a specific company.
i) Internal Environment -
Strength and Weaknesses variables form the context in which work is done. They include the corporation structure,
culture and resources. Internal environment of a corporate consist of variable (strength and weaknesses) that are
within the organization itself and are not usually within the short run control of top level management. Key strengths
form a set of core competencies that the corporation can use to gain competitive advantage.

ii) External Environment -

Opportunity and Threats variables form to context within which the corporation exists. External environment consists
of variable (opportunity and threats) that are outside the organization and not typically within the short run control of
top management.

2. Strategy Formulation -
Strategy formulation is essential for optimum functioning of the organization. In this stage strategies are framed by
envisioning the future of the organization in the long run. Strategy formulation means formulation of long-term
organization plans that would assist in carrying out or organization activities in the best possible way.
Strategies define the course of action an organization would choose to reach its goals. An organization strategy
should be formulated in a way that the analysis of the environment can be studied, vision of the organization can be
accomplished and the set objective can be attained. Once the current and future situation of the organization have
been determined by the strategies, SWOT analysis is used to identify the core competencies and strategic
capabilities and also to set objectives in the order in which they have to be achieved. These objectives are further
used in developing the strategy.
Strategy formulation involves administering the external opportunities and threats effectively while keeping in mind
the strength and weaknesses of the organization by formulating long term plans. This involves developing the
corporation vision, identifying corporate mission, setting realistic objective, formulating strategies and establishing
policy guideline which are as follows :

i) Mission of the Organization -

A mission statement specifies the organizational culture and values and also set the guideline points for carrying out
the activities of the business organization.
A mission statement describe the reason for existing of the organization. A mission is a unique statement that defines
the product market and geographical scope of the business market price etc. At the business level this statement
becomes exclusive and focuses solely on the details. Strategy of the organization is formulated on the basis of the
mission statement. The factets of the mission statement denote the vision of the organization towards strategy
formulation aims of the organization and the perfection required in order to attain market leadership.

ii) Vision of the Organization -

A vision statement is developed by the top level Management which may include President, Managing Director,
chairman etc. An organization vision statement can be explained as a position that the organization aspires to
achieve in the future. A vision statement conveys the future state of being the respect to objectives scope and
competitive leadership to the individual was that are in some way or the other associated with organization. It helps in
formulating general objectives related to performance of the organization and its expansion in different industries and
essential for the development of the organization. It creates an outline for facilitating the growth of mutual leadership
between the organization and stakeholders and other entities directly or indirectly associated with your organization.
This statement provides employees with a common goal and stimulates them for conducting their routine operations
effectively. It encourages the employees to perform ethically and morally in line with the organization expectations.
The basic idea behind formulating a vision statement is to provide a concerted view of the organization. It is a
combination statement and also a challenging tasks for the entire organization and all the diverse sectors that work
on achieving their respective objectives.

iii) Strategies -
Strategies are formulated for achieving competitive advantage and minimizing the factor that result in lowering the
position of the organization. Strategy of an organization is a detailed plan which helps the organization in realizing its
mission and objectives. For example, when Tata Group of Companies comparehended that it is not able to meet its
objectives with its current strategy to diversify, it sold its subsidiary companies like Tempo, Lakme etc. to Hindustan
Lever Limited. It decided to carry on with its more basic businesses like automobiles and steel where it had better
prospects for growth and development.

iv) Objectives -
The objectives of an organization symbolise that the management is committed to what achieving the desired result
under a specific time period. They also help in setting performance standards on the basis of which the performance
is evaluated. These objectives help in developing strategies by creating harmony between the decision and decision
makers.
The objectives of the organization should be challenging yet realistic. Objectives are the result that one expect out of
the business activities. These objectives envelope area like organization profitability, competitive position, public
image, return on investment, productivity growth of employees etc. These objective should not be vague and should
be clearly defined and in quantifiable terms. Organizational plans are usually long term and their craft long term
objectives.

v) Policies -
Policies are formulated by companies so that an organization mission, objective and strategies are kept in mind while
making decisions. Policies are a set of comprehensive instructions that are used for making decisions and for relating
strategy formulation with strategic implementation. Policies also focus on achieving corporate goals by ensuring
optimum allocation of resources. A business policy is related to duties and responsibilities of corporate level
managers, long-term strategic decisions and factor influencing the success of the organization.

3. Strategy Implementation -
Once strategies are formulated and a sound strategic plan has been developed the next step in the process of
strategic management is to ensure effective implementation of formulated strategies.
without successful implementation well-deserved strategy is of no use. Strategists need to take into account various
facets of implementation as the selected strategy must be effectively put into action for realising corporate objective
of the organization. Strategic implementation is the process that facilitates in successful execution of the selected
strategy.
The process of strategy implementation is generally conducted by the middle and lower management after being
assessed by the top level management.
Strategies are implemented with the help of programmes, budgets and procedures. This process may also result in
modifying organization culture, structure and management system.
Following plans help in successful implementation of this strategy :

i) Procedures -
A procedure is a step by step explanation of the order in which it is to be carried out. Procedures generally provide an
explanation regarding number of operation that are necessary for completion of programmes.

ii) Programmes -
Programs helps in putting the strategies into action. Activities like corporate restructuring, changing organizational
culture or initiating a new research project etc. are a new example of programmes. The action or step needed to
implement a single use plan is called programmes.

iii) Budgets -
A budget represents in details the cost entailed in each programme. Declaration of organization program is monetary
terms is called a budget. Budgets are generally used in the purpose of planning and control. A budget along with
providing a comprehensive plan of the selected strategy to be implemented also illustrates the anticipated impact on
the organization financial future with the help of financial statements.

4. Evaluation and Control -

Evaluation must be incorporated in the process of strategic management as an essential element of strategy
implementation as it helps in monitoring the whole procedure. After a strategy is implemented successfully it is
important that it is evaluated on a regular basis. Strategic objectives and performance measures are used as a base
for evaluating the effectiveness of the implemented strategy. It is the managers duty to monitor at the expected
responses from the different organizational sectors and business units where the strategies are put into action. It is
an important step for attending a impartial assessment between expected and actual results. Analysing the market
response is also a significant part of strategic evaluation and control.
Strategic management process has become widely accepted as it enhances the performance of the organizations.
Performance is the final outcome of all the activities involved in the process of strategic management. Managers
need comprehensible timely and impartial information from their subordinates in order to successfully carry out their
activities related to strategic evaluation and control. This information enable the managers to compare the actual
outcome with the expected result laid down while formulating the strategy.
The effectiveness of strategy evaluation depend on the information provided by the subordinates. It plays a significant
role in monitoring the soundness of the chosen strategy. Successful evaluation of strategy is based on suitable and
promote feedback. If evaluation is done continuously it would provide a regular feedback on the performance of the
strategy that was initially formulated.
The process of strategic management also has a feedback activity which enable the management to attain feedback
essential for evaluation of results and for taking the required remedial actions. When an organization devises
strategies, programmes etc. it should analyse its decision and take corrective actions regarding any wrong decision
made in the past.
We can use three forms of control
1. pre control
2. concurrent control
3. post control

Formality in Strategic Management

In particular, formality is often highly associated with two factors: size and stage of development of the company.
The mode selected is likely to influence the degree of innovation that occurs within the organization. Innovation is
particularly important in the context of strategic management, because organizations that do not continually
incorporate new ideas are likely to fail behind competitively, particularly when the environment is changing rapidly. A
number of forces determine how much formality is needed in strategic management. Some of the factors are as follows:

a) Size of the organization

b) Management styles/Philosophies & styles
c) Complexity of environment
d) Production Process
e) Nature of Problem in the firm
f) Purpose of planning system

There are three modes of formality in strategic management;

1. Entrepreneurial Mode

Entrepreneurial mode is an approach in which strategy is formulated mainly by a strong visionary chief executive who
actively searches for new opportunities, is heavily oriented toward growth, and is willing to make bold strategies
rapidly.

The entrepreneurial searches for new mode are most likely to be found in organizations that are young or
small, have a strong leader, or are in such serious trouble that bold are their only hope. Not surprisingly, in the
entrepreneurial mode, the extent to which the strategic management process encourages innovation depends
largely on the orientation of top leaders. Their personalities, power, and information enable them to overcome
obstacles and push for change. Conversely, strong leaders also are in a position to threat innovative activities, should
they be so inclined.

The dominant goal here is innovation & organizational growth.

2. Adaptive Mode

Adaptive mode is an approach to strategy formulation that emphasizes taking small incremental steps, reacting to
problems rather than seeking opportunities, and attempting to satisfy a number of organizational power
groups.

The adaptive mode is most likely to be used by managers in established organizations that face a rapidly changing
environment and yet have several coalitions, or power blocks, that make it difficult to obtain agreement on clear
strategic goals and associated long-term plans. For example, before London-based Grand Metropolitan PLC
purchased Pillsbury, including the Burger King Chain, the chain was plagued by constant turnover,
marketing problems, inconsistent service, and angry franchisees who frequently told Pillsbury what to do.
Grand Metropolitan is now working to put the chain back on track through a strategy that emphasizes, doing
“whatever it takes to create a positive, memorable experience.” Concrete measures include increasing the
number of field representatives who visit Burger King stores, highlighting cleanliness, and rewarding
employees who take the initiative in improving service by doing things differently.

With the adaptive approach, the degree of innovation fostered by the strategic management process is likely to
depend on the ability of managers to agree on at least some major goals and basic strategies that set essential
directions.

In addition, lower-level managers must have some flexibility in carrying out the basic strategy rather than being given
extremely detailed plans to follow; this approach might be effective in a more stable environment or one in which
agreement among coalitions is easy to obtain. Without at least some agreement among high-level managers on
major goals and directions, however the adaptive mode may be ineffective in moving the organization in viable
strategic directions.

3. Planning Mode

Planning mode is an approach to strategy formulation that involves systematic, comprehensive analysis, along with
integration of various decisions and strategies.

With the planning mode, executives often utilize planning specialists to help with the strategic management process.
The ultimate aim of the planning mode is to understand the environment well enough to influence it. The planning
mode is most likely to be used in large organizations that have enough resources to conduct comprehensive analysis,
have an internal situation in which agreement is possible on major goals, and face an environment that has enough
stability to enable the formulation and implementation of carefully conceived strategies.

For example, Disney’s plans include entry into the convention hotel business with its Dolphin Hotel,
operated by the Sheraton Corporation, and Swan Hotel, run by the Westin Hotel Company. Combined, the
two hotels offer 2350 rooms and more than 200,000 square feet of convention space inside Disney World.
The hotels were heavily booked well in advance of their opening in 1990.

With the planning mode, innovation is most likely to occur when strategies explicitly articulate needs for product and
service innovation and when top-level managers, such as those at Disney, help integrate efforts in the direction of
encouraging innovation.

Entrepreneurial Mode

Strategy is made by one powerful individual who has entrepreneurial competencies like innovation and risk taking.
The focus is on opportunities. Problems are secondary. Generally the founder is the entrepreneur and the strategy is
guided by his or her own vision of direction and is exemplified by bold decisions.

The success of Biocon India founded by Kiran Mazumdur shaw is an example of this mode of strategic decision
making.

Adaptive Mode

Sometimes referred to as “muddling through,” this decision-making mode is characterized by reactive solutions to
existing problems, rather than a proactive search for new opportunities. Much bargaining goes on concerning
priorities of objectives. Strategy is fragmented and is developed to move the corporation forward incrementally. This
mode is typical of most universities, many large hospitals and a large number of governmental agencies

1) The focus is on solving problems of immediate concern, rather than developing long term strategies.
2) Instead of meeting problems head-on in a bold way, the executive try to follow a reactive approach.
3) This approach is used by managers in established organizations that face a rapidly changing environment and yet
several coalitions or power blocks, that make it difficult to obtain agreement on clear strategic goals and associated
long term plans (Mintzberg)
4) The emphasis is on taking small, incremental steps aimed at appraising powerful coalitions within the organization.
Since power is distributed it is not always possible to develop major goals, take bold initiatives and get ahead in a
unified way.

Planning Mode

This decision making mode involves the systematic gathering of appropriate information for situation analysis, the
generation of feasible alternative strategies, and the rational selection of the most appropriate strategy. It includes
both the proactive search for new opportunities and the reactive solution of existing problems.

The aim of the planning mode is to understand the environment well enough to influence it. It is most commonly used
in large organizations that have enough resources to conduct detailed analysis, have an internal situation where
agreement can be reached on major goals, and operate in an environment that has enough stability to enable the
formulation and implementation of carefully conceived strategies.

Hewlett-Packard (HP) is an example of the planning mode. After a careful study of trends in the computer and
communications industries, management noted that the company needed to stop thinking of itself as a collection of
stand-alone products with a primary focus on instrumentation and computer hardware. Led by its new CEO, Carly
Florina, top management felt that the company needed to become a customer-focused and integrated provider of
information appliances, highly reliable information technology infrastructure and electronic commerce service.

A fourth mode of ‘logical incrementalism’ was later added by Quinn.

Assessing the Strategic Management Modes

Each mode can be relatively successful as long as it is matched to an appropriate situation. In fact, it may be possible
to use different modes within the same organization. For example, a top-level manager may adopt an
entrepreneurial mode for a new business that is just starting and use the planning mode for strategic
management of the rest of the organization.

Each of these modes of strategic management can either promote organizational innovation or strangle it, depending
on how the mode is used. Still, operating effectively in any of the three modes requires knowledge of the strategic
management process. In carrying out the process, once the mission and strategic goals are determined, managers
engage in competitive analysis.