Introduction to Strategic Management

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The Genesis of Strategic Management

The origins of strategic management can be retraced to 1911, when Harvard

Business School introduced an integrative course in management called
‘business policy’ aimed at the creation of general management capability.
In 1969, the Association to Advance Collegiate Schools of Business a
regulatory body for business schools, made the course of business policy a
mandatory requirement for the purpose of recognition.
In 1977, a research symposium at the University of Pittsburgh helped to move
from business policy through strategic planning to strategic management.
The term 'Business Policy' had been traditionally used though titles such as
Strategic Management, Corporate Strategy, Corporate Strategy and Policy,
Competitive Strategy, etc. are now used extensively for the course.

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EVOLUTION OF STRATEGIC MANAGEMENT

Starting from day-to-day planning in earlier times, managers tried to

anticipate the future through preparation of budgets and using control
systems.
With time these techniques failed to adequately emphasise the role of
future long-range planning. Later long-range planning was replaced by
strategic planning, and later by strategic management: a term that is
currently used to describe the process of strategic decision making.
The first phase of evolution of strategic management, which can be traced
back to the mid-1930s, rested on the paradigm of ad hoc policy-making.
Due to the increasing environmental changes in 1930s and 40s in the
U.S. planned policy formulation replaced ad hoc policy-making.

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Ten schools of thought by Mintzberg and his
associates
The Prescriptive Schools
• Design school where strategy formation is a process of conception
• Planning school where strategy formation is a formal process
• Positioning school where strategy formation is an analytical process

The Descriptive Schools

• Entrepreneurial school where strategy formation is a visionary process
• Cognitive school where strategy formation is a mental process
• Learning school where the strategy formation is an emergent process
• Power school where the strategy formation is a negotiation process
• Cultural school where the strategy formation is a collective process
• Environmental process where the strategy formation is a reactive process

The Integrative School

• Configuration school where the strategy formation is a process of transformation
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Rumelt et al. pose Four Fundamental questions in
the field of Strategic Management
How do firms behave? Or do firms really behave like rational actors, and,
if not, what models of their behaviour should be used by researchers and
policy makers?

Why are firms different? Or, what sustains the heterogeneity in resources
and performance among close competitors despite competition and
imitative attempts?

What is the function of or value added by the headquarters unit in a

diversified firm? Or, what limits the scope of the firm?

What determines success or failure in international competition? Or, what

are the origins of success and what are their particular manifestations in
international settings or global competition?

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The Indian Scenario

Formal management education started in India in the late fifties and

gained an impetus with the setting up of the Indian Institutes of
Management (IIMs) and the Administrative Staff College of India in the
early sixties.

The All India Council of Technical Education (AICTE), the prescribed

strategic management, first in 1990 and again in 1995.

Strategic Management Forum of India is an actively functioning,

professional association exclusively devoted to the development and
propagation of the theory and practice of strategic management in India.

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Concept of Strategy

A strategy could be:

• a plan or course of action or a set of decision rules making a pattern or
creating a common thread;
• the pattern or common thread related to the organisation's activities which are
derived from the policies, objectives and goals;
• related to pursuing those activities which move an organisation from its current
position to a desired future state;
• concerned with the resources necessary for implementing a plan or following a
course of action; and
• connected to the strategic positioning of a firm, making trade-offs between its
different activities, and creating a fit among these activities.
• the planned or actual coordination of the firm's major goals and actions, in
time and space that continuously co-align the firm with its environment.

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Levels at which Strategy operates

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Definition of Strategic Management

Strategic management is defined as the dynamic process of formulation,

implementation, evaluation and control of strategies to realise the
organisation’s strategic intent.
The first phase consists of establishing the strategic intent for the
organisation.
The second phase of the formulation of strategies is concerned with the
devising of a strategy or a few strategies.
The third phase of implementation is the ‘putting into action’ phase.
The fourth, and the last, phase of evaluation and control involves
assessing how appropriately the strategies were formulated and how
effectively they are being implemented.

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Elements in Strategic Management
Process
A. Establishing the hierarchy of
strategic intent:
•Creating and communicating a vision
•Designing a mission statement
•Adopting the business model
•Setting objectives
B. Formulation of strategies:
•Performing environmental appraisal
•Doing organisational appraisal
•Formulating corporate - level strategies
•Formulating international strategies
•Formulating business-level strategies
•Undertaking strategic analysis
•Exercising strategic choice
•Preparing strategic plan
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C. Implementation of strategies:
Activating strategies
Designing structure, systems and
processes
Managing behavioural implementation
Managing functional implementation
Putting strategies into operation
D. Performing strategic evaluation and
control:
Performing strategic evaluation
Exercising strategic control
Reformulating strategies
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Model of Strategic Management Process

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Strategic Intent

Hamel and Prahalad coined the term "strategic intent" which they believe
is an obsession with an organisation: of having ambitions that may even
be out of proportion to their resources and capabilities.
Strategic intent envisions a desired leadership position and establishes
the criterion the organisation will use to chart its progress.
The concept also encompasses an active management process that
includes:
• Focusing the organization's attention on the essence of winning
• Motivating people by communicating the value of the target
• Leaving room for individual and team contributions
• Sustaining enthusiasm by providing new operational definitions.

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Vision

Kotter (1990) defines it as a "description of something (an organization, a

corporate culture, a business, a technology, an activity) in the future".

El-Namaki (1992) considers it as a "mental perception of the kind of

environment an individual, or an organization, aspires to create within a
broad time horizon and the underlying conditions for the actualization of
this perception”.

Miller and Dess (1996) view it simply as the "category of intentions that
are broad, all-inclusive, and forward thinking".

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The Benefits a Vision
• Good visions are inspiring and exhilarating.
• Visions represent a discontinuity, a step function and a jump ahead so
that the company knows what it is to be.
• Good visions help in the creation of a common identity and a shared
sense of purpose.
• Good visions are competitive, original and unique. They make sense in
the marketplace as they are practical.
• Good vision foster risk taking and experimentation.
• Good vision fosters long-term thinking.
• Good visions represent integrity: they are truly genuine and can be
used to the benefit of people.

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Process of Envisioning

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Mission
A mission was earlier considered as the scope of the business
activities a firm pursues. The definition of mission has gradually
expanded to represent a concept that embodies the purpose of
existence of an organisation.
According to Thompson (1997) mission is the "essential purpose
of the organization, concerning particularly why it is in existence,
the nature of the business(es) it is in, and the customers it seeks
to serve and satisfy".
According to Hunger and Wheelen (1999) mission is the "purpose
or reason for the organization's existence".

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How are Mission Statements Formulated and
Communicated?
Most organisations derive their mission statements from a particular set of
tasks they are called upon to perform in the light of their individual,
national or global priorities.

Entrepreneurs lay down the corporate philosophy which the organisation

follows in its strategic and operational activities. Such a philosophy may
not be consciously and formally stated but may gradually evolve due to
the entrepreneur's actions.

Major strategists informally lend a hand in the creation of a particular

corporate identity or formally through discussions and the writing down of
a mission statement.

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Business Model

A business model could be defined as “the logic of the firm, the

way it operates and how it creates value for its stakeholders.”

Another view is of business models referring to “a representation

of a firm's underlying core logic and strategic choices for creating
and capturing value within a value network”.

The business model is the basic logic of a company that can help
to understand the benefits provided to the stakeholders. Those
benefits return to the company in the form of revenue.

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Dimensions of a Business Model

1. Customer dimension consists of customer segments,

customer channels, and customer relationships.
2. Benefit dimension includes products, services, and values.
3. Value-added dimension comprises the resources, skills, and
processes.
4. Partner dimension contains the partner, partner channels, and
partner relations
5. Financial dimension incorporates the revenues and expenses.

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Goals and Objectives

Goals denote what an organisation hopes to accomplish in a

future period of time. They represent the future state or outcome
of effort put in now.
Objectives are the ends that state specifically how the goals shall
be achieved. They are concrete and specific in contrast to goals
that are generalised.
Any organisation always has a potential set of goals. It has to
exercise a choice from among these goals. This choice must be
further elaborated and expressed as operational and measurable
objectives.

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Role of Objectives

Objectives define the organisation's relationship with its

environment.
Objectives help an organisation pursue its vision and mission.
Objectives provide the basis for strategic decision-making.
Objectives provide the standards for performance appraisal.

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Characteristics of Objectives

According to Drucker, objectives need to be set in the eight vital areas of

market standing, innovation, productivity, physical and financial resources,
profitability, manager performance and development, worker performance
and attitude, and public responsibility.

• Objectives should be understandable

• Objectives should be concrete and specific
• Objectives should be related to a time frame
• Objectives should be measurable and controllable
• Objectives should be challenging
• Different objectives should correlate with each other
• Objectives should be set within constraints

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Critical Success Factors

Critical success factors (CSFs), sometimes referred to a

strategic factors or key factors for success, are those
which are crucial for organisational success.

When strategists consciously look for such factors and

take them into consideration for strategic management,
they are likely to be more successful, putting in relatively
less efforts.

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Key Performance Indicators

Performance indicators are well understood as being metrics or measures

in terms of which performance is measured, evaluated or compared.
Key performance indicators (KPIs) are the metrics or measures in terms
of which the critical success factors are evaluated.
What makes the KPIs ‘key’ is their relationship to the CSFs and ultimately
to the mission and vision of the organization. Identification of which KPIs
to use is important. Selecting the right measures is vital for effectiveness
The major benefit in using KPIs is to help an organization define and
measure progress toward its objectives.

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Balanced Scorecard Approach to Objective Setting
It is a Performance Management System developed by Robert S Kaplan
and David Norton of Harvard Business School
The development of the scorecard begins with the establishment of the
organization's strategic intent including the vision and mission.
Next, the design of the balanced scorecard is done identifying the specific
measures related to the four perspectives.
The next step involves mapping the strategy through the identification of
organizational activities that are derived from the strategies.
In the final stage, metrics that can be used to accurately measure the
performance of the organization in specific areas are established.

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Balanced Scorecard : Perspectives
Financial perspective: Examples of such measures are revenues,
earnings, return on capital, and cash flow.
Customers’ perspective: Examples of such measures are market share,
customer satisfaction measures, and customer loyalty.
Internal businesses perspective: Examples of such measures are
productivity indices, quality measures, and efficiency.
Learning and growth perspective: Examples of such measures are
morale, knowledge, employee turnover, usage of best practices, share of
revenue from new products, and employee suggestions.

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Balanced Scorecard

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A Typical Strategic Map

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