INTRODUCTION TO STRATEGIC MANAGEMENT

Management By Objectives
Management by objectives (MBO) is a systematic and organized approach that allows management to focus on achievable goals and to attain the best possible results from available resources.  It aims to increase organizational performance by aligning goals and subordinate objectives throughout the organization. Ideally, employees get strong input to identify their objectives, time lines for completion, etc. MBO includes ongoing tracking and feedback in the process to

Popularized by Peter Drucker in 1954.  “Management by objectives works if you know the objectives. Ninety percent of the time you don‟t.”-Peter F. Drucker.  MBO relies on the defining of objectives for each employee and then to compare and to direct their performance against the objectives which have been set.  It aims to increase the performance of the organization by matching goals with the objectives.  It focuses attention on individual achievement, motivates individual to accomplishment, and measures

Principles of MBO
Cascading

of goals and objectives Specific objectives for each member Participative decision making Explicit time period Performance evaluation and feedback

Advantages of MBO to Managers
It

includes a reservoir of personnel data and performance information for updating their files An indicator of personnel development needs within the organization A basis for promotion and compensation Better managerial planning and use of employee

Advantages of MBO to Employees
The

standard of evaluation is based in the characteristic of the person and the job He has as input and some control over his future He knows the standards by which he will be judged The employee has knowledge of the manager‟s goals, priorities and deadline He has a greater understanding of where he stands with the manager in

There

is a basis for better evaluation than personality It stimulates higher individual performance and morale

Disadvantages of MBO
Development

of objectives can be time consuming, leaving both the managers and the employees less time in which to do their actual work The elaborate written goals, careful communication of goals, and detailed performance evaluation required in an MBO program increase the volume of paperwork in an organization.

Difficulty

in setting agreed, harmonized

goals Danger of inflexibility Individual over collective effort It underemphasizes the importance of the environment in which the goals are set It did not address the importance of successfully responding to obstacles and constraints as essential to reaching the goal

How Strategic and Operational Plans Differ
Strategic Planning is a process of a mission and long range objectives and determining in advance how they will be accomplished whereas operational planning is a process of setting short range objectives and determining is advance how they will be accomplished.  Strategic plans are prepared at the top level management and the operational plans are prepared at the middle level management.

Strategic planning is the process through which an organization defines its strategy, direction as well as make decisions to allocate its resources.  On the other hand, Operational planning is a subset of strategic work plan. It defines the short term methods of achieving the strategic objectives set while strategic planning is done.

Strategic planning is proactive in nature and spans over a long time periods usually 10 years or so. On the other hand, operational planning is also proactive but changes are made to it depending on the current requirements. They are relative short term in nature, spanning a time period of 1-3 years.  Strategic decisions are fundamental and directional, and over-arching. Operational decisions, on the other hand, primarily affect the day-to-day implementation of strategic decisions.

Strategic planning is the formal planning for the future course and defines the following: - What do we do? - For whom we do it? - How do we succeed? On the other hand, operational planning defines the following: - Where are we now? - Where do we want to be? - How do we get there? - How do we measure our progress?

The Evolution of the Concept of Strategy
The concept of strategy is ancient. The word itself comes from the Greek strategeia, which means the art or science of being a General.  Effective Greek generals needed to lead an army, win and hold territory, protect cities from invasion wipe out the enemy and so forth.  The Greeks knew that strategy was more than fighting battles.

Effective Generals had to determine the right liens of supply decade when to fight and when not to fight, and manage the army‟s relationship with citizens, politicians and diplomats.  Effective Generals not only had to plan but had to act as well. As far back as the ancient Greeks, then, the concept of strategy had both a planning component and a decision making or action component. Taken together these two concepts form the basis of the „grand‟ strategy plan.

The Concept of Strategy
A strategy is a plan of action designed to achieve a vision.  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.

A strategy is all about integrating organizational activities and utilizing and allocating the scarce resources within the organizational environment so as to meet the present objectives.  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.

Levels of Strategy
Enterprise strategy can be formulated and implemented at three different levels: 1. Corporate level Strategy 2. Business unit level Strategy 3. Functional or operational level Strategy

Corporate Level Strategy
It is concerned with the overall purpose and scope of the business to meet stakeholder expectations.  This is a crucial level since it is heavily influenced by investors in the business and acts to guide strategic decisionmaking throughout the business.  Corporate strategy is often stated explicitly in a "mission statement".

It deals with the allocation of resources among the various business‟s or divisions of an enterprise.  At the corporate level, the decisions made are concerned principally with the corporate strategic plan and how best to develop the long-term profile of the business.

Business unit level Strategy
It is concerned more with how a business competes successfully in a particular market.  It exists at the level of the individual business or division that addresses primarily with the question of competitive position.  Following on from this, each business unit should, within the resources allocated by corporate headquarters then develop their own strategic plan.

It concerns strategic decisions about choice of products, meeting needs of customers, gaining advantage over competitors, exploiting or creating new opportunities etc.

Functional or operational level Strategy
It is limited to the actions of specific functions within specific businesses.  It is concerned with how each part of the business is organized to deliver the corporate and business-unit level strategic direction.  Operational strategy therefore focuses on issues of resources, processes, people etc.

Functional level strategies in R&D, operations, manufacturing, marketing, finance, and human resources involve the development and coordination of resources through which business unit level strategies can be executed effectively and efficiently.

Contents of a Corporate Strategy
Vision  Mission  Policies  Procedures  Goals and Objectives  Strategies and Tactics  Auditing  Strategic Intent  Structures