Strategic Management

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STRATEGIC MANAGEMENT

Meaning and Nature of Strategic Management

CONTENTS

01. Importance and Relevance

02. Characteristics of Strategic Management

03. The Strategic Management Process

04. Relationship between Corporate Strategy and Business Model

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DEFINITION:

Strategy

- is a blueprint indicating an organization’s courses of action to

achieve the desired objectives.

- a plan for achieving a major goal, planning & directing the whole

operation of an event.

- an integrated approach to reach a goal.

- top management’s long term plans to attain outcomes consistent

with the organization’s mission and goals.


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DEFINITION:

Strategic Management (managing or competing for future)

is also known as Business Policy or Corporate Strategy or

Corporate Planning. It refers to those set of management

measures taken with a view to ensuring the survival and success

of an enterprise in a competitive environment.

It is that set of decisions and actions which leads to the

development of an effective strategy or strategies to help

achieve corporate objectives. It is designed to ensure that the

basic objectives of the enterprise are achieved.


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Determination of the basic long-term goals and objectives of an

enterprise and adoption of course of action and allocation of

resources necessary to carry out these goals.

It is a continuous process of determining the mission and goals

of an organization within the context of its external environment

and it’s internal strengths and weaknesses, formulating and

implementing strategies, and exerting strategic control to

ensure that the organization’s strategies are successful in

attaining its goals.


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is a continuous, iterative, and cross-functional process of

matching an organization’s goals and resources with the

opportunities presented by its environment to gain competitive

advantage.

Since it involves long term, future-oriented, complex decision

making, and requires considerable resources, top management’s

active participation is absolutely essential.


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Level of Management Management Function Nature of Function

Top broad and creative

Middle somewhat detailed

Supervisor specific,

detailed


Strategic

Operational

somewhat creative

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Strategic Management involves effective decision-making and

activities in an organization that:

(1) have wide ramifications,

(2) have a long time perspective, and

(3) use critical resources towards perceived opportunities

or threats in a changing environment.


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• As the environment changes, companies may change their

vision and objectives, structure, portfolio of business, markets

and competitive strategies. The economic liberalization and the

simultaneous wide opening up of business opportunities and

increase in competition have made SM a buzz word in the Indian

corporate world.

• The task of Strategic Management is to identify new and

different businesses, technologies and markets which the

company should try to create in the long term.


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• Without competitors, there would be no need for strategy, for

the sole purpose of strategic planning is to enable the company

to gain, as efficiently as possible, a sustainable edge over its

competitors.

• Changes in one stage of the strategic management process will

inevitably affect other. After a planned strategy is implemented,

it could require modification as environmental or organizational

conditions change, or as top management’s ability to interpret

these changes improve. Hence, these steps are interrelated;

they should be treated as an integrated, ongoing process.


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• SM provides clear objectives and direction for employees.

• It helps systemize business decision and improves

communication, coordination, and allocation of resources and

helps managers to have complete understanding of the

organization and to have a holistic approach to business

problems/issues.

• SM allows organizations to anticipate changing environmental

conditions.

• Businesses that perform SM are found to be more effective.


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Intended Strategy

Un-realized Strategy

Divergent Strategy

Emergent Strategy

Realized Strategy


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Benefits and Relevance of SM

1. Strategic management helps to envision an organization’s

future, formulate mission and make objectives clear. This is

clear from the fact that determination of mission and objectives

is the first step in the strategic management process.

2. It may be noted that the new growth and competitive

environment created by liberalization prompted many Indian

companies to evaluate and modify their mission and objectives

or to ponder over a mission for the company where one did not

exist.


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3. The articulation of the mission and objectives and the

formulation of a strategy for their accomplishment help people

in the organization understand what the organization stands for,

what is the development path charted out, what are the planned

results over a period of time, etc.

4. It makes people realize what are they working for, what is

expected of each SBU, division, functional department and

the employees.


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5. Strategic Management facilitates better delegation, co-

ordination, monitoring, performance evaluation, and control.

6. The identification of the strengths and weaknesses may help an

organization to take measures to overcome/minimize the

weaknesses and reinforce the strengths.

7. The SWOT analysis, which is a part of the strategic

management, helps a company to adopt suitable strategies for

exploiting opportunities and combating threats. It also helps

the company to drop those businesses where it would not be

successful or which do not meet the objectives.


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8. It constantly monitors the environment and makes modifications

of the strategy as and when required so that the plans are made

more realistic and effective.

9. It enables a company to be proactive rather than reactive in order

to meet its competition more effectively and efficiently.

10. It makes the management dynamic, appropriate to the

environment and result- and future-oriented.

11. Studies show that companies with SM are effective than

others, generally.


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12. It enhances problem-preventing capabilities as it promotes

interaction between at all levels.

13. It leads to increased employee productivity, reduced resistance

to change, and a clear understanding of performance-reward

relationship.

14. It allows for identification, prioritization, and exploitation of

opportunities.


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Risks of SM

1. Conditions may vary so fast that managers are unable to do any

planning, especially long term planning.

2. The time spent by managers on the SM process may have a

negative impact on their operational responsibilities.

3. If the formulators of strategy are not involved in its

implementation, they may shirk their responsibility for the

decisions reached.

4. Strategic managers must be trained to anticipate and respond to

the disappointment of participating subordinates over unattained

expectations.


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Challenges of SM

1. Technological Advances and Obsolescence

2. Product/Service Innovation and Development

3. Global Issues (due to economic liberation/expansion/contraction)

4. Quality Issues (TQM)

5. Social Issues


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Hierarchy of Objectives

Mission

Corporate

Objectives

SBU Objectives

Departmental

ObjectivesDivisional Objectives

Individual Objectives

Promoters’ Vision and Value

Stock Holders’

Expectations

Environmental

Factors

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Corporate Strategy

SBU 1

Strategy

SBU 1

Strategy

SBU 1

Strategy

Operation

Strategies

Marketing

Strategies

Financial

Strategies

Personnel

Strategies

Corporate, Business, and Functional Level Strategies

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Corporate Strategy

Operation

Strategies

Marketing

Strategies

Financial

Strategies

Personnel

Strategies

Corporate and Functional Level Strategies in a single business

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Corporate-level Strategy

- framed by BoD, CxOs

- responsible for the firm’s financial performance, enhancing brand

image, and fulfilling of CSRs

- develops strategies for the entire organization

- enhances the organization’s image and fulfills its overall social

responsibilities

- defines the vision, mission, and goals of the organization;

determines what business it should be in; allocates resources

among different businesses; and promotes leadership for the

organization.

- provides a link between strategic managers and share holders.


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Corporate-level Strategy (contd…)

- exploits the firm’s distinctive competencies by adopting a

portfolio approach to the management of its business.

- are more value oriented, more conceptual, and less concrete

than decisions at business/functional levels.

- characterized by greater risk, cost, and profit potential; greater

need for flexibility; and longer time horizons.

Examples: choice of businesses, dividend policies, sources of LT

financing, priorities for growth, etc.


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Business-level Strategy

- framed by business and corporate managers

- translates the directions generated at the corporate level into

concrete objectives and strategies for the SBU or individual

business divisions

- determines how the organization will compete in the selected

product-market arena; and, identifies and secures the most

promising market segment within that arena


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Business-level Strategy (contd…)

- bridges decisions at the corporate and functional levels

- less costly, risky, and profitable than corporate-level decisions

but are more costly, risky, and profitable than functional-level

decisions

Examples: plant location decisions, market segmentation,

geographic coverage, distribution channels, etc.


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Functional-level Strategy

- framed by finance, production, HR, product development, etc.

- directed at improving the effectiveness of operations within the

organization

- develops annual objectives and ST strategies in related functions

- implements and executes the organization’s strategic plans

- addresses issues such as the efficiency and effectiveness of

production, product development, manufacturing, HR, marketing

systems, quality of customer service, etc.


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Functional-level Strategy (contd…)

- ensures the success of products and services in increasing the

organization’s market share and share holders’ wealth

- implements the overall strategy of the organization taken at the

corporate and business levels

- involve action-oriented operational issues and are relatively

short term and low risk

- incur moderate costs (being dependent on available resources),

are adaptable to ongoing activities, and can be implemented

with minimal cooperation


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Functional-level Strategy (contd…)

- decisions are relatively concrete and quantifiable; therefore,

they receive critical attention and analysis even though their

comparative profit potential is low

Examples: decisions on generic vs brand name labelling, basic vs

applied R&D, high vs low inventory levels, close or open or loose

supervision

Global-level Strategy: addresses how the organization can expand

its operations outside the home country to grow and prosper in a

world where competitive advantage is determined at global levels.


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Dimensions of Strategic Decisions

1. Strategic issues require top management decisions.

2. Require considerable amounts of the organization’s resources.

3. Affects the organization’s LT prosperity.

4. Are future oriented

5. Usually have multi-functional or multi-business consequences.

6. Require considering the organization’s environment.


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1. Formulation of the organization’s vision, mission, goals,

objectives, and targets.

2. Analysis of its internal conditions and capabilities (strengths and

weaknesses).

3. Assessment of its external environment, including competitive

and general contextual factors (opportunities and threats).

4. Analysis of its options by matching its goals and resources with

the external environment.


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5. Determination of its LT objectives and grand strategies.

6. Identification of the most desirable/alternative strategies and

their evaluation in the light of the LT objectives and grand

strategy.

7. Choice of the strategy.

8. Development of annual objectives and ST strategies that are

compatible with the selected strategy.


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9. Implementation of the strategic choices by means of budgeted

resource allocation.

10. Evaluation of the success of the strategic process as an input for

further decision making.


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Characteristics of a Winning Strategy

1. A thorough understanding of the organization’s competitive

environment in which it competes.

2. Simple vision, mission, and goals consistent with the

organization’s strategy.

3. Complete understanding of the organization’s resources and how

they translate into strengths and weaknesses.

4. Good planning for implementing the chosen strategy with

complete specifications.

5. Proper evaluation and control of possible future changes in the

proposed strategy.


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Strategic Leaders:

1. Use their knowledge, enthusiasm, and energy in proving strategic

leadership for their team members in order to develop a high-

performing organization.

2. Strategic leadership represents the ability of a manager to

articulate a strategic vision and motivate people to buy into that

vision.


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Good Strategic Leaders:

1. possess vision, eloquence, and consistency

2. actively participate and are continuously committed

3. use power astutely

4. are well-informed

5. have willingness to delegate and empower

6. possess high levels of EI.


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Techniques for improving decision making

1. Devil’s Advocacy

2. Dialectic Enquiry


Generate an

Expert Plan

Devil’s Advocate

criticizesFinal Plan

Expert Plan 1

(thesis)

Expert Plan 2

(anti-thesis)

Debate

(synthesis)Final Plan

- Definitions- Recommended courses of action- Assumptions

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Developing a winning strategy requires:

1. keeping track of the latest developments in the field and

disseminating this information to the strategists.

2. supplying data inputs and analytical support needed for SM.

3. environmental analysis

4. identifying new business opportunities

5. helping to establish an efficient and effective planning system.

6. coordinating divisional plans.

7. assisting to evaluate and control strategies.


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3. The SM Process


Defining Organizational Vision, Mission, Goals, Objectives, & Targets

External Environment Analysis (OT) Internal Environment Analysis (SW)SWOT

Setting LT Objectives

Identifying Alternate Strategies

Choice of Strategy

Implementation of Strategy

Strategy Evaluation and Control

Feedback

Strategy Formulation

Strategy Implementation

and Control

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Business Model

- is the basic profit-generating idea of an organization.

- is the economic mechanism by which a business hopes to sell its

goods and services and generate profit.

- is evolved through consultations and brain storming and covers

all intricate details of the business. It is implemented by the

operational group.

- is the translation of strategies into an operational procedure to

achieve organizational goals and objectives.

- can change due to time, technology, and perceptions of the

future.

- some business models may prove successful at first but with

minor changes can become successful in future.


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4. Relationship between company’s strategy & its business model


Connect the Corporate Strategy to the Business Model

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Definitions

Competitive Advantage – The firm’s ability to enjoy strategy benefits

as compared to its competitors in the market due to a match

between its distinctive competencies and CSFs within its industry

(that enables it to outperform its competitors).

Sustained Competitive Advantage – The firm’s ability to enjoy

continuous strategic benefits over an extended period of time.

Comparative Advantage – The idea that certain products can be

produced more cheaply or at a higher quality in particular countries

due to advantages in labour costs and/or technology.


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Definitions (contd…)

Core Competence

- The firm’s key capabilities and collective learning skills that

are fundamental to its strategy, performance, and LT profitability.

- Unique and enduring strength of a firm for generating

competitive advantage; this strength cannot be easily emulated

by its competitors.

- It represents accumulated knowledge and skills that are difficult

to imitate and by which it outperforms its competitors.

- It can lead to competitive advantage only if the constituent

knowledge, skills, and technologies are creatively harmonized and

quickly reconfigured to respond to new opportunities.


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Questions

1. What are the strengths & weaknesses of formal strategic planning?

2. Discuss the accuracy of the statement: “Formal strategic planning

systems are irrelevant for firms competing in high-technology

industries where the pace of change is so rapid that plans are

routinely made obsolete by unforeseen events.”

3. What is the difference between intended strategy and realized

strategy? Why is this distinction important?

4. Does the CEO alone make strategic decisions for a firm? Explain.

5. What are the pitfalls in the strategic management process?

6. What is strategic management? Explain.

7. Explain the (six) identifiable dimensions in strategic decisions?


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Questions (contd…)

8. The decision making hierarchy of business firms typically contains

3 levels. What are they? Discuss.

9. What are the major limitations of a strategic model?

10.With the help of a strategic model, briefly explain the steps in

strategic management planning.

11.What is meant by competitive advantage?

12.Distinguish between business strategy and business model.

13.Write a note on the techniques of improving the strategic

management process.

14.How do you explain the success of a firm that does not use a

formal strategic planning process?


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Questions (contd…)

15. What are the components of a strategic management model?

16. Discuss the statement, ”Businesses that perform strategic

management are found to be more effective.”


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