Semester- IV

Sub: STRATEGIC MANAGEMENT (LB 229)

Unit- 1 Introduction
Strategic Management

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

Strategy is an action that managers take to attain one or more of the organization’s goals. Strategy can also be
defined as “A general direction set for the company and its various components to achieve a desired state in the
future. Strategy results from the detailed strategic planning process”. Strategy can also be defined as knowledge
of the goals, the uncertainty of events and the need to take into consideration the likely or actual behaviour of
others. Strategy is the blueprint of decisions in an organization that shows its objectives and goals, reduces the
key policies, and plans for achieving these goals, and defines the business the company is to carry on, the type
of economic and human organization it wants to be, and the contribution it plans to make to its shareholders,
customers and society at large.

Strategic management is the process of setting goals, procedures, and objectives to make a company or
organization more competitive. Typically, strategic management looks at effectively deploying staff and
resources to achieve these goals. Often, strategic management includes strategy evaluation, internal
organization analysis, and strategy execution throughout the company. The Strategic Management process is the
way in which strategists determine objectives and make strategic decisions. Strategic Management can be found
in various types of organizations, business, service, cooperative, government, and the like.

In business, strategic management is important because it allows a company to analyze areas for operational
improvement. They can often follow an analytical process that identifies potential threats and opportunities or
simply follow general guidelines. Given the structure of the organization, a company may choose to follow
either a prescriptive or descriptive approach to strategic management. Under a prescriptive model, strategies are
outlined for development and execution. By contrast, a descriptive approach describes how a company can
develop these strategies.

Strategic Management can be defined as “the art and science of formulating, implementing and evaluating
cross-functional decisions that enable an organization to achieve its objectives”. In fact, Strategic Management
focuses on integrating management, marketing, finance/accounting, production/operations, research and
development, and computer information systems to achieve organizational success.

The term Strategic Management is used synonymously with the term Strategic Planning. The later term is more
often used in the business world, whereas the former is often used in academia.

Lamb Robert (1984) – Strategic management is an on-going process that evaluates and controls the business
and the industries in which the company is involved; assesses its competitors and sets goals and strategies to
meet all existing and potential competitors; and then reassesses each strategy annually or quarterly [i.e.,
regularly] to determine how it has been implemented and whether it has succeeded or needs replacement by a
new strategy to meet changed circumstances, new technology, new competitors, a new economic environment,
or a new social, financial, or political environment.

Learned (1965) – It is the study of the functions and responsibilities of general management and the problems
which affect the character and success of the total enterprise.

Schendel and Hofer (1979) – Strategic management is a process that deals with the entrepreneurial work of the
organisation, with organisational renewal and growth, and, more particularly, with developing and utilizing the
strategy which is to guide the organisation’s operations.

Bracker (1980) – Strategic management entails the analysis of internal and external environments of firms to
maximize the utilization of resources in relation to objectives.

Jemison (1981) – Strategic management is the process by which general managers of complex organisations
develop and use a strategy to co-align their organisation’s competence and the opportunities and constraints in
the environment.

Van Cauwenbergh and Cool (1982) – Strategic management deals with the formulation aspects (policy) and the
implementation aspects (organisation) of calculated behaviour in new situations and is the basis for future
administration when repetition of circumstances occurs.

Schendel and Cool (1988) – Strategic management is essentially work associated with the term entrepreneur
and his function of starting (and given the infinite life of corporations) renewing organisations.

Fredrickson (1990) – Strategic management is concerned with those issues faced by managers who run entire
organisations, or their multifunctional units.

Teece (1990) – Strategic management can be defined as the formulation, implementation, and evaluation of
managerial actions that enhance the value of a business enterprise.

Rumelt, Schendel, and Teece (1994) – Strategic management is about the direction of organisations, most often,
business firms. It includes those subjects of primary concern to senior management, or to anyone seeking
reasons for success and failure among organisations.

Bowman, Singh, and Thomas (2002) – The strategic management field can be conceptualized as one centred on
problems relating to the creation and sustainability of competitive advantage, or the pursuit of rents.

Strategic Planning

Strategic planning helps in knowing what we are and where we want to go so that environmental threats and
opportunities can be exploited, given the strengths and weaknesses of the organisation. Strategic planning is “a
thorough self-examination regarding the goals and means of their accomplishment so that the enterprise is given
both direction and cohesion.”

It is “a process through which managers formulate and implement strategies geared to optimising strategic goal
achievement, given available environmental and internal conditions.” Strategic planning is formalisation of
planning where plans are made for long periods of time for effective and efficient attainment of organisational
goals. Strategic planning is based on extensive environmental scanning. It is a projection into environmental
threats and opportunities and an effort to match them with organisation’s strengths and weaknesses.
Strategic planning can be defined as a managerial process of developing and maintaining a viable fit between
organization’s objectives, skills and resources and its changing environment.

The company’s strategic plan is the starting point for planning. It serves as a guide to the development of sound
sub-plans to accomplish the organizational objectives. The aim of strategic planning is to help a company select
and organize its businesses in a way that would keep the company healthy in spite of unexpected changes in the
environment. It purports to shape or reshape the company’s businesses and products so that they yield target
profits and growth.

Strategic planning is the process of determining a company’s long-term goals and then identifying the best
approach for achieving those goals.

Strategic planning is an organization’s process of defining its strategy or direction and making decisions on
allocating its resources to pursue this strategy, including its capital and people.

Strategic planning is a process to determine or re-assess the vision, mission and goals of an organization and
then map out objective (measurable) ways to accomplish the identified goals.

Strategic planning is systematic, formally documented process for deciding what are the handfuls of key
decisions that an organisation, viewed as a corporate whole must get right in order to thrive over the next few
years.

Strategic planning is a continuous and systematic process where people make decisions about intended future
outcomes, how outcomes are to be accomplished, and how success is measured and evaluated.

Strategic planning is the method by which a community continuously creates arti-factual systems to serve
extraordinary purpose.

Strategic planning is systematic process of determining goals to be achieved in the foreseeable future. It consists
of – (i) Management’s fundamental assumptions about the future economic, technological, and competitive
environments. (ii) Setting of goals to be achieved within a specified timeframe. (iii) Performance of SWOT
analysis. (iv) Selecting main and alternative strategies to achieve the goals. (v) Formulating, implementing, and
monitoring the operational or tactical plans to achieve interim objectives.

Strategic planning is a business process that many companies employ to identify critical success factors that set
the course for future growth and profits.

Difference between Strategic planning vs. Strategic management

Strategic Planning

Unlike the conventional way of long-term planning, the strategic planning works its way backward i.e., first
defining the end result and then chalking the strategic planning steps to be undertaken in order to achieve the
end result. For example, at the time of long-term planning, the planner plans out the steps to reach the next level
but in case of strategic planning, the planner reaches the stage and then thinks what must be done to reach here.
In other words, long-term planning is a prospective planning and strategic planning is a retrospective planning
process.
The five steps of Strategic Planning

1. Determine where you are

Understand the position of your company, understand the market that you work in and the environment of the
market. Do not get stuck in the maze of the way you see the company and the actual position where the
company stands. Conduct an internal and external audit to best understand your company’s footing and
understand how competitive your company can be.

2. Identify what’s important

Once the analysis of your company’s footing is undertaken, the next step is to define as to what is important for
your company’s growth, to set the direction for your company and define the missions and the vision that you
want your company to fulfil. A strategic plan should focus on the issues that are recognized as the more
important issues than the other in the in-depth analysis of the company’s position.

3. Define what you must achieve

Set the objectives for your company as to what should the company achieve in order to properly address the
grave issues. This is to make sure that the company is moving in the right direction and has some objective set
for themselves.

4. Determine who is accountable

By determining who is accountable for what, you are indirectly allocating the human resource, the time resource
and the money resource that you have and make sure that all the plans, strategies and budgets are properly
fulfilled and all the priority issues are properly addressed so that the company can fulfill the objectives set.

5. Review the work done

Once all the plans have been made and implemented and all the resources have been allocated and the ball has
been set rolling, the next step is to ensure that the plans are properly followed and the tasks are being performed
as planned. For this, you need to review the process and make necessary changes in the plan. And this should be
done at least every quarter just so to ensure that there are no discrepancies.

Strategic Management

In the planning phase, you chalk out all the plans for the company but in the management phase, the strategies
so formulated are identified and are described so that the managers are able to do their job in the best possible
manner and so as to achieve a competitive edge over their competitors.

Strategic management can also be defined as the decisions undertaken by the manager which drives the whole
company towards the desired results. The manager should undertake a timely SWOT analysis so as to be
thorough about the strengths of the company and use them to their advantage and to work on the weaknesses of
the company and minimize them. And also so that they can grab all the opportunities that come their way and
combat the threats properly.

The kind of planning would be applicable for both the small-scale firms and the large-scale firms because
irrespective of the size of the firm, it important for the firm to be ready for the competition that they face in
order to keep themselves afloat and gain a competitive edge. Strategic management helps in defining the course
the company is going to follow by deciding upon the goals that the company wants to attain,

Strategic management is not a one-time process but instead, it is a continuous process. It requires a constant
evaluation of the company and its competitive edge and reevaluates the strategies panned out in order to
compensate for the changing environment.

In strategic planning vs. strategic management, it also has another aspect in which the process helps the
employees in understanding their job profile and how their job helps in the accomplishment of the overall
objective of the company. The employees work better if they know their exact role in the organization and
know what they have to do in order to be able to reach that goal. Strategic management can also be seen as a
means to manage the employees of the organization so that the employees are able to work to their maximum
potential. The management technique also helps the employees to understand the various changes brought about
in the organization and understand how these changes are going to affect their job, hence are able to better face
the changes being brought about in the organization. They help the employees to be effective as well as efficient
as both qualities are equally valued in an organization.

Hence the strategic management has to play a dual role in strategic planning vs. strategic management, one is to
incorporate all the functional areas of the organization into one thing and to make sure that functional area so
incorporated work well with each other. And the second role is to keep checking if the goals and objectives of
the organization are properly followed and fulfilled.

One of the main functions of strategic management in strategic planning vs. strategic management is to properly
analyze the various cross-functional business decisions before implementing them. Strategic management also
involves various other functions:

 Proper analysis of the various internal and external strengths and weaknesses of the company.

 Formulation of the action plans to be implemented.

 After formulation, the execution of action plans is also included.

 Reviewing the success of the action plans that are executed and making the changes as and when
necessary.

Strategic management enables strategic planning which tells about the organizational ability to take the
necessary action plan so as to be able to fulfill the goal set by the planners.

The strategic management can only be successfully implemented when the upper management is able to think
strategically and is able to apply that strategic thought to the goal-setting process. Also, the people of the
organization should understand the strategy properly in order to be able to reap maximum benefits.

There are five stages in the process of strategic management

They are as follows:

1. Goal setting

Goal setting, as the name suggests is the process of setting a vision for the company as to where they want the
company to reach. This process can be further divided into three-point process; first is to define the short term
and long term goals for the organization, second is to identify the process and the action plan that needs to be
undertaken in order to fulfill the objectives set and third is to customize the process according to the capabilities
of the staff so that they are able to better work towards the goal fulfillment process.

But during the process of goal setting in strategic planning and strategic management, you should keep in mind
that the goal should be detailed, realistic and it should be in sync with the vision set for the organization. In the
end, your plan should be detailed enough to communicate your goals and vision to the shareholders and the
employees of the organization properly.

2. Analysis

This stage involves in-depth analysis of the strength and weaknesses of the company. Proper analysis of the
company is of utmost importance as it helps in the next steps of strategic management. In strategic planning and
strategic management the sustainability of the business, the direction in which organization wants to go and the
opportunities towards which the organization should be working are the key elements and areas that the analysis
should focus on. The external and internal factors affecting the working of the organization are also included in
the analysis. A proper detailed SWOT analysis should be undertaken by the business organization.

3. Strategy formation

For formulating the strategy of strategic planning and strategic management in the organization, the planners
should take into account the information gathered from the analysis. They should identify the goals and the
objectives to be achieved and should also know which problems need to be prioritized according to their
importance towards goal achieving. Also, the external help needed by the company in any area should also be
identified. Also, the planners should also have a backup plan for each step.

4. Strategy implementation

In strategic planning and strategic management, a successful implementation of the strategy is very important to
any business organization as it will define if the organization will be able to achieve the goals set. It is important
to understand if the strategy implemented is in sync with the business structure. The roles and responsibility of
the people in the organization should be clearly spelled out so that there is no confusion on the part of the
employees and they are work with a concentrated approach towards the fulfillment of the goals. Also if there is
a need for any financial help, then that help should also be secured at this stage.

5. Evaluation and control

The proper evaluation of the strategy implemented in strategic planning and strategic management should be
undertaken and should be made sure that the strategies are followed properly and there is no discrepancy in the
implementation. Also if there is any discrepancy then corrective steps should be taken in order to be able to
achieve maximum results. Evaluate your actual results to the standards set by you. Internal and external issues
affecting the organization should also be taken into consideration and should also keep in mind when
formulating the future strategies.

Strategic planning and strategic management are both important for the organization as they help in formulating
the goals to be achieved and help in a more concentrated approach towards the fulfillment of that goal.
Basis for Strategic Planning Strategic Management
Comparison
Meaning Strategic Planning is a future oriented Strategic Management implies a bundle of
activity which tends to determine the decisions or moves taken in relation to the
organizational strategy and used to set formulation and execution of strategies to achieve
priorities. organizational goals.
Stresses on It stresses on making optimal strategic It stresses on producing strategic results, new
decisions. markets, new products, new technologies etc.
Management Strategic planning is a management by Strategic management is a management by
plans. results.
Process Analytical process Action-oriented process
Function Identifying actions to be taken. Identifying actions to be taken, the individuals
who will perform the actions, the right time to
perform the action, the way to perform the action.

Evolution of Strategic Management

In the initial days, typically in early 1920s till the 1930s, managers used to do day-to-day planning methods.
However, after that, managers have tried to anticipate the future. They have tools like preparation of the budgets
and by using control systems like capital budgeting and management by objectives, and various other tools.
However, as these techniques and tools were unable to emphasize the role of the future adequately. The next
step was to try and use long-range planning, which was soon replaced by strategic planning, and later by
strategic management, a term that is currently being used to describe the process of strategic decision-making.

The first phase, which can be traced back to the mid-1930s mainly due to the nature of the business of that
period, the way planning was done was on the premise of ad hoc policy making. The need for policy making
arose as many of the businesses had just about started operations and were mostly in a single product line. The
ranges of operations were in a limited area. Most of them were catering to a small and identifiable set of
customers. As companies grew, they expanded their products, catered to more customers and also increased
their geographical coverage.

The method of using informal control and coordination was not enough and became somewhat irrelevant as
these companies expanded. This expansion brought in complexity and a lot of changes in the external
environment. Thus, there was then a need to integrate functional areas. This integration was brought about by
framing policies to guide managerial action.

Policies helped to have predefined set of actions, which helped people to make the decisions. Policy-making
became the way owners managed their business and it was considered their prime responsibility. They later
assumed the role of senior management. Thus, with the increasing environment changes in the 1930s and
1940s, planned policy formulation replaced ad hoc policy making, which shifted the emphasis to the
integration of functional areas in a rapidly changing environment.

As the years progressed, there was more complexity and significant changes in the environment, especially
after the Second World War. This made the management lead through planned policy, as a way of
management, increasingly difficult. Businesses had grown much larger and were targeting larger markets
geographically, serving more number and types of customers and also were manufacturing and selling more
types of products.

Competition had also increased with many companies entering the markets. Policy making and functional area
integration only did not suffice for the complex needs of a business. By the 1960s, there was a demand for a
critical look at the basic concept of business, due to increasing competition.

The environment had a crucial role on the business. The effect and relationship of the business with the
environment led to the concept of strategy. This helped the management of managing both the business and
the environment, thus leading to the third phase, based on a strategy paradigm, in the early sixties.

In the earlier eighties, the patterns again changed, with many companies going global and also facing
competition from rivals across the world. Japanese companies unleashed a force across the world along with
other Asian companies and posed threats for the US and European companies. This led to the current thinking,
which emerged in the eighties. It is on the premise of strategic management.

Vision

A Vision serves the purpose of stating what an organization wishes to achieve in the long run.

According to Kotler “It is a description of something (an organization, corporate culture, business,
technology, and act) in the future.

According to Miller and Dress “Vision is category of intentions that are broad, all inclusive and forward
thinking.”

There are two components of vision:

Core ideology – It rests on core values and core purpose. It defines the enduring character of an organization
that remains unchanged.

Envisioned future – It is a long term audacious goal and a vivid description of achievement i.e. what an
organization will be in the future

Advantages of a good vision:

1. A good vision is inspiring and exhilarating

2. It helps in creation of common identity and shared sense of purpose

3. Vision is competitive, original and unique

4. It fosters risk taking and experimentation

5. It fosters long term thinking

6. It represents integrity

Vision is used to convey what they stand for and what principles guide them to make strategic dictions.
Mission

According to David F. Harvey “A mission provides the basis of awareness of a sense of purpose, the
competitive environment, degree to which the firm’s mission fits its capabilities and the opportunity which the
government offers.”

According to Hynger “It is the purpose or reason for organization’s existence”

A mission states the role an organization plays in the society.

Nature of a Mission:

1. It gives social reasoning i.e. specifies the role an organization plays in the society

2. It is philosophical and visionary i.e. it relates to top management values and has a long term perspective.

3. It legitimizes social existence

4. It is stylistic objectives i.e. it reflects corporate philosophy, identity, character and image of an
organization

Characteristics of a Mission:

 It should be feasible

 It should be precise

 It should be clear

 It should be motivating

 It should be distinctive

 It should have a societal linkage.

 It should indicate major components of strategy

 It should indicate how objectives are to be accomplished

 It must be dynamic

Example of a good mission statement

India Today “the complete new magazine”

Ranbaxy Industries “to become a research based international pharmaceuticals company”

Formulation and communication of mission statements:

It is formulated from the following sources:

 National priorities projected in plan documents and industrial policy statements

 Corporate philosophy as developed over the years

  Major strategists have a vision to develop mission statements

 The services of a consultant may be hired

 It is communicated through annual reports, posters, employee manuals, company information kits, word
of mouth publicity, seminars and workshops, newsletters and advertisements.

Goals

A goal is a desired future state that the organization attempts to realize (Amitai Etzioni). A goal, in business,
describes what a company expects or hopes to accomplish over a specific period. In other words, where it hopes
to be at a future date. People commonly use the term ‘business goal’ with the same meaning. On a personal
level, a goal is an idea of a desirable or future result that people envision, plan, and commit to achieving. We
commonly endeavor to reach goals over specific periods by setting deadlines.

Goals have been defined by organization theorists like V.H. Vroom in 1960 and A. Etzioni in 1964 as “desired
future state of affairs”. Generally speaking, goals are the objectives, aims or purposes which are to be achieved
by an organization over varying periods of time. Goals are the result of planning which is related to future as
described by Vroom and Etzioni. Planning is required both for choosing the goals and attaining the goals.

The words aim, goal, mission, objective or purposes are used interchangeably in general practice. Bertram M.
Gross has tried to draw a line of distinction in the use of these terms. According to him Mission is a general
term which denotes the fundamental reason for the organization’s existence.

A Goal is even more specific and fine than the objective. An increase in production may be the objective but
when its objective is expressed in relation to particular norms or standard such as increase in production by 10
units per man per week, it becomes a goal. These distinctions become imperative when the organization follows
the policy of Management by objectives.

Importance of Organizational Goals:

Organizational goals are essential to regulate and control the functioning of individuals and groups inter se and
also individuals and group in relation to organization.

1. Focus Attention of Individuals and Groups to Specific Activities and Efforts of Organizations
2. Provide a Source of Legitimacy to Action by Members
3. Serve as a Standard of Performance
4. Affect the Structure of Organization
5. Provide Clues about the Nature and Character of Organization

Objectives

The term objective is often used interchangeably with goal but usually refers to specific targets for which
measurable results can be obtained. Organizational objectives are the end points of an organization's mission.
Objectives refer to the specific kinds of results the organizations seek to achieve through its existence and
operations (William F. Glueck, and Lawrence R. Jauch) Objective define what it is the organization hopes to
accomplish, both over the long and short term.

Objectives are the ends for the achievement of which managerial activities are directed. Effective management
is possible only through the setting up of objectives and all managerial efforts should be directed to achieve
these objectives. Objectives constitute the purpose, the attainment of which is necessary for the business. An
organization can grow in an orderly way if well defined goals have been set. Objectives are a pre-requisite for
planning. No planning is possible without setting up of objectives.

Objectives are not only helpful in planning but also in other managerial functions like organizing, directing and
controlling. Clear cut objectives help in proper decision-making and in achieving better results. The objectives
of the organization should be supported by sub-objectives. The objectives have hierarchy and a network. The
organizations and managers may have multiple goals and at times they may be incompatible and may lead to
conflicts within the organization and within the groups too.

Personal interests may have to be subordinated to organizational goals. The words objectives and goals are
generally used interchangeably and various authors and practitioners have not made any distinction between the
two, so these words will be used for the same meaning here.

Mc. Farland defines objectives, “Objectives are the goals, aims, or purposes that organizations wish to achieve
over varying periods of time.”

In the words of Terry, “A managerial objective is the intended goal which prescribes definite scope and
suggests direction to efforts of a manager.”

Mc. Farland suggests that objectives are the goals which an organization wants to achieve whereas Terry
describes objectives as the parameters within which an organization has to work and make efforts to achieve
them.

Features of Objectives:

1. Every organization has objectives rather it is started to achieve certain objectives. All the members of an
organization channelize their energies to achieve the stated goals.

2. The objectives of a business organization may be broad as well specific. These may be set for the whole
organization or different segments of it. The objectives may be for long term or short periods. The overall
objectives of the organization are supported by the sub objectives. For example, the objective of earning a
certain percentage of profit in a particular year will be achievable only if objectives of manufacturing,
marketing, finance departments support it.

3. Objectives have hierarchy. At organizational level broad objectives are fixed by the top level management.
The broad objectives are specified at departmental level and then they are derived for different sections. Various
objectives at different levels try to achieve organizational objectives.

4. An organization tries to fulfill the needs and aspirations of society. The organizational objectives should have
social sanctions since these are social units. The aspirations of society should be reflected from the business
objectives.

5. Business objectives may change as per the environmental changes or change in social needs. The present
objectives may have to be changed as per the new situations. The objective of earning profits has of late been
associated with the social responsibility of business. Similarly, new objectives may be added or old objectives
may be modified or changed.
6. All organizational objectives are inter-related. The achievement of main objectives will require the
achievement of subordinate objectives also. The non- achievement of small objectives will also mean the non-
achievement of main objective. So all the objectives are inter-related and they cannot be taken up
independently.

7. Another important characteristic of objectives is their multiplicity. There may be a number of objectives for
which a concern may strive to achieve at the same time. The major objectives may also be more. At every
hierarchical level too, the objectives may be many. Different areas of business have their own objectives.

Management should try to achieve all the objectives efficiently and effectively.

8. The objectives should be based on practical situations. They should also take into account the philosophy and
thinking of the management. The objectives should be realistic so that they may be converted into actual
performance. Unrealistic objectives do more harm than good because they discourage the employees rather than
encouraging them.

Classification of Objectives:

Management objectives can be classified as follows:

1. Primary Objectives:

These are the objectives for which a company has been started. Every business aims to earn more and more
profits out of its working. Primary objectives are related to the company and not to individuals. Earning of
profits out of providing goods and services to the customers is the primary objective of a company. The goods
and services are provided as per the requirements of customers. Earning profits through customer satisfaction
helps in earning goodwill and regular clientele. The production of goods and services as per determined targets
will be achieved through individual goals of employees in the organization.

2. Secondary Objectives:

These objectives help in achieving primary objectives. The targets are identified and efforts are made to
increase efficiency and economy in the performance of work. The goals dealing with analysis, advice and
interpretation provide support to goals directed by primary objectives. Secondary objectives, like primary
objectives, are impersonal in nature. The primary goal of earning profits through providing goods and services
will be achieved if there is a plan to add new products in the market at regular intervals. The goal of adding new
products will be a secondary goal which will help in achieving the primary objective.

3. Individual Objectives:

These are the goals which individual members in an organization try to achieve on daily, weekly, monthly or
yearly basis. These objectives are achievable as subordinate to primary and secondary goals. Most of the
individual objects are economic, psychological or non-financial rewards which an individual tries to achieve by
using resources of time, skill and effort. An individual tries to satisfy his needs and desires by working in an
organization. In order to motivate individuals for raising their performance, organizations offer varied
incentives.

4. Social Objectives:
These are the goals of an organization towards society. These include the obligations required by the
community, government agencies etc. These also include goals intended to further social, physical and cultural
improvement of the society. Social obligations of business have become essential these days. Business has to
produce goods and services by taking into consideration health requirements of people. There are expectations
that business should also spent a part of its profits for the welfare of community.

Strategic objectives

Strategic objectives are the big-picture goals for the company: they describe what the company will do to try to
fulfill its mission. Strategic objectives are usually some sort of performance goal—for example, to launch a new
product, increase profitability, or grow market share for the company’s product.

Environmental Scanning

The environmental scanning (appraisal) is the process by which promo0ters of the companies tries to monitor
the economic changes, Governmental changes, suppliers’ attitude and market changes to determine new
opportunities and threats if any.

In simple words environmental analysis relates to identification and analyzing environmental influences
individually and collectively to face the future effects upon the society and business. Here the main stress is on
tracing the sources of new opportunities or threats. No one can deny that it is not useful for evaluating the
present strategy, new norms for future strategic decisions.

Organizations operate in a given and fast changing environment. Business strategy is formulated in response to
the environment it operates in. Some organizations do not adapt to the environmental changes, and come to
grief. Organizations have learnt that keeping pace with the environment provides them commercial advantages.
The faster we adapt, the more competitive we become.

Plans remain effective if they are linked to business opportunities and overcome business threats. Opportunities
and threat emerge from the changing environment. Sometimes, these changes are too rapid. Organizations must
have suitable warning systems, marketing research and contingency plans in place to operate successfully in the
fast changing environment. The changes encountered every 5-10 years are awesome. Environment must
therefore, be scanned continuously.

Environment scanning is that exercise that involves continuous process of monitoring the dynamic- interplay of
all those forces namely, economic, competitive, technological, socio-cultural, demographic and political forces
to determine the opportunities.

In the words of L.R. Jauch and W.F. Glueck, “environmental analysis is the process by which strategists
monitor the environmental factors to determine opportunities for and threats to their firms”.

Environmental diagnosis consists of managerial decisions made by assessing the significance of the data of the
environmental decisions made by assessing the significance of the data of the environmental analysis. Thus,
environmental scanning is both a mental task of analyzing and synthesizing.

It is that process through which an organization monitors and understands various environmental factors and
determines the opportunities and the threats that are provided by these factors.
That means, it is the process which is made up of two sub-processes of monitoring the environment which
better called as environmental search and identifying opportunities and, threats based on environmental
monitoring which is precisely called as “environmental diagnosis.”

Organizational environment consists of both external and internal factors. Environment must be scanned so as
to determine development and forecasts of factors that will influence organizational success. Environmental
scanning refers to possession and utilization of information about occasions, patterns, trends, and
relationships within an organization’s internal and external environment. It helps the managers to decide
the future path of the organization. Scanning must identify the threats and opportunities existing in the
environment. While strategy formulation, an organization must take advantage of the opportunities and
minimize the threats. A threat for one organization may be an opportunity for another.

Internal analysis of the environment is the first step of environment scanning. Organizations should observe
the internal organizational environment. This includes employee interaction with other employees, employee
interaction with management, manager interaction with other managers, and management interaction with
shareholders, access to natural resources, brand awareness, organizational structure, main staff, operational
potential, etc. Also, discussions, interviews, and surveys can be used to assess the internal environment.
Analysis of internal environment helps in identifying strengths and weaknesses of an organization.

As business becomes more competitive, and there are rapid changes in the external environment, information
from external environment adds crucial elements to the effectiveness of long-term plans. As environment is
dynamic, it becomes essential to identify competitors’ moves and actions. Organizations have also to update the
core competencies and internal environment as per external environment. Environmental factors are infinite,
hence, organization should be agile and vigile to accept and adjust to the environmental changes. For instance -
Monitoring might indicate that an original forecast of the prices of the raw materials that are involved in the
product are no more credible, which could imply the requirement for more focused scanning, forecasting and
analysis to create a more trustworthy prediction about the input costs. In a similar manner, there can be changes
in factors such as competitor’s activities, technology, market tastes and preferences.

While in external analysis, three correlated environment should be studied and analyzed:

 immediate / industry environment

 national environment

 broader socio-economic environment / macro-environment

Examining the industry environment needs an appraisal of the competitive structure of the organization’s
industry, including the competitive position of a particular organization and it’s main rivals. Also, an
assessment of the nature, stage, dynamics and history of the industry is essential. It also implies evaluating the
effect of globalization on competition within the industry. Analyzing the national environment needs an
appraisal of whether the national framework helps in achieving competitive advantage in the globalized
environment. Analysis of macro-environment includes exploring macro-economic, social, government, legal,
technological and international factors that may influence the environment. The analysis of organization’s
external environment reveals opportunities and threats for an organization.

Strategic managers must not only recognize the present state of the environment and their industry but also be
able to predict its future positions.
The process by which organizations monitor their relevant environment to identify opportunities and threats
affecting their business is known as environmental scanning. By monitoring the environment through scanning,
an organization can consider the impact of the different events, trends, issues, and expectations on its process.

Since the environment facing any organization is complex and its scanning is absolutely essential, manager has
to deal cautiously with the process of scanning. The environment in which an organization exists can, therefore,
be described in terms of the opportunities and threats operating in the external environment apart from the
strengths and weaknesses existing in the internal environment

Each Organization faces an individual and specific environment which calls for a distinct strategic plan. As part
of the development of strategies and plans to enable the organization to achieve its objectives, the organization
will use a systematic/rigorous process known as corporate planning which uses a SWOT analysis (SWOT is an
acronym for Strengths, Weaknesses, Opportunities, and Threats), ETOP (Environmental Threat and
Opportunity Profiling), Porter’s Five Forces Model, and PEST/PESTLE (PEST stands for Political, Economic,
Socio-cultural and Technological) as a basis for the analysis of business and environmental factors. Porter’s
Five Forces Model:

The five forces are:

1. Threats of new entrants to the industry

2. Threats of substitute products

3. Power of buyers or customers

4. Power of suppliers (to businesses in the industry)

5. Rivalry among businesses in the industry