· Web viewFigure 1.1 Hierarchy of strategy Responsibility of corporate-level managers Responsibility of business –level general managers Responsibility of heads of major functional

Wh at is st rat egy?

Strategy”, narrowly defined, means “the art of the general” (the Greek stratos, meaning ‘field, spread out as in ‘structure’; and agos, meaning ‘leader’).The term first gained currency at the end of the 18th century, and had to do with stratagems by which a general sought to deceive an enemy, with plans the general made for a campaign, and with the way the general moved and disposed his forces in war. Also was the first to focus on the fact that strategy of war was a means to enforce policy and not an end in itself. Strategy is a set of key decisions made to meet objectives. A strategy of a business organization is a comprehensive master plan stating how the organization will achieve its mission and objectives.

Here are some definitions of strategy.

Chandler(1962)Strategy is the determinator of the basic long-term goals of an enterprise, and the adoption of courses of action and the allocation of resources necessary for carrying out these goals;

Mintzberg (1979) Strategy is a mediating force between the organization and its environment: consistent patterns in streams of organizational decisions to deal with the environment.

Prahlad (1993) Strategy is more then just fit and allocation of resources. It is stretch and leveraging of resources

Porter (1996) Strategy is about being different. It means deliberately choosing a different set of activities to deliver a unique mix of value

Purpose of strategy

The plan of action that prescribes resource allocation and other activities for dealing with the environment, achieving a competitive advantage, that help the organization to attain its goals

Mintzberg has identified the 5 P’s of strategy. Strategy could be a plan, a pattern, a position, a ploy, or a perspective.

1. A plan, a “how do I get there”2. A pattern, in consistent actions over time3. A position that is, it reflects the decision of the firm to offer particular

products or services in particular markets.4. A ploy, a maneuver intended to outwit a competitor

5. A perspective that is, a vision and direction, a view of what the company

Levels of strategy

Corporate strategy – Which describes a company’s overall direction towards growth

by managing business and product lines? These include stability, growth and

retrenchment.

For example, Coco cola, Inc., has followed the growth strategy by acquisition. It has

acquired local bottling units to emerge as the market leader.

Business strategy - Usually occurs at business unit or product level emphasizing the

improvement of competitive position of a firm’s products or services in an industry or

market segment served by that business unit. Business strategy falls in the in the realm of

corporate strategy.For example, Apple Computers uses a differentiation competitive

strategy that emphasizes innovative product with creative design. In contrast, ANZ

Grindlays merged with Standard Chartered Bank to emerge competitively.

Functional strategy – It is the approach taken by a functional area to achieve corporate and

business unit objectives and strategies by maximizing resource productivity. It is concerned

with developing and nurturing a distinctive competence to provide the firm with a

competitive advantage. For example, Procter and Gamble spends huge amounts on advertising

to create customer demand.

Operating strategy - These are concerned with how the component parts of an organization

deliver effectively the corporate, business and functional -level strategies in terms of

resources, processes and people. They are at departmental level and set periodic short-term

targets for accomplishment.

Crafting a strateg

Companies and strategists craft strategies in different ways. In extreme

Figure 1.1 Hierarchy of strategy

Responsibility of corporate-level managers

Responsibility of business –level general managers

Responsibility of heads of major functional activities within a business unit or division

Responsibility of plant managers, geographicunit managers, andlower-level supervisors

P r o c e s s of S t r a t e gic M a n ag e m e n t

1. Determining the mission of the organisation which consists of broad statements about its purpose, philosophy and goals.

2. Developing a company profile which reflects internal environment conditions and capabilities of the organisation.

3. Assessment and appraisal of the external environments of the organisation in terms of growth, competitive and general contextual factors.

4. Analysis of strength, weakness, opportunity and threatens of the organisation.

5. Identifying the desired options of the organisation like uncovered possibilities are considered in the light of the company mission.

6. Set of strategic choice for the achievement of long term objectives and grand strategies.

7. Development of annual/short term objectives with out affecting of long-term objectives and grand objectives of the organisation.

8. Implementing strategic choice decisions which are based on budget resource allocations and emphasizing the matching of tasks, people, structure, technologies and reward system of the organisation.

9. Strategic control, monitoring, review and evaluation represent the accomplishment of the strategic objectives and goals of the organisation.

All these factors indicate that strategic management involves the planning, directing, actuating, leading, communication, staffing, coordination, motivation, budgeting and controlling of the strategy related decisions and actions of business.

Strategic management consists of four basic elements. Environmental scanning Strategy formulation Strategy implementation Evaluation and control

Environmental scanning is the monitoring, evaluating, and disseminating of information from the external and internal environments to key people within the corporation. Its purpose is to identity strategic factors – those external and internal elements that will determine the future of the corporation. The external environment consists of variables (Opportunities and Threats) that are outside the organization and not typically within the short-run control of top management. These variables form the context within which the corporation exists.

The internal environment of a corporation consist of variables (Strengths and Weakness) that are within the organization itself and are not usually within the short run control of top management. These variables form the context in which work is done.They include the corporation’s structure, culture, and resources.The simplest way to conduct environmental scanning is through SWOT analysis . SWOT is an acronym used to describe those particular Strengths, Weakness, Opportunities, and Threats that are strategic factors for a specific company.

Strategy formulation is the development of long-range plans for theeffective management of environmental opportunities and threats, in light of corporate strengths and weaknesses.It includes defining the corporate mission, specifying achievable objectives, developing strategies and setting policy guidelines.

Strategy implementation is the process by which strategies and polices are put into action through the development of programs, budgets and procedures. This process might involve changes within the overall culture, structure, and/or management system of the entire organization. Most of the times strategy implementation is carried out by middle and lower level managers with top management’s review. Some times refereed to as operational planning, strategy implementation often involves day-to-day decisions in resource allocation.It includes programs, budgets and procedures.

Evaluation and control is the process in which corporate activities and

performance results are monitored so that actual performance can be compared with desired performance. Managers at all levels use the resulting information to take corrective action and resolve problems. Although evaluation and control is the final major element of strategic management, it also can pinpoint weaknesses in previously implemented strategic plans and thus stimulate the entire process to begin again.

Benefits of strategic management Financial Benefits

More profitable and successful Improvements in sales, profitability, and productivity High-Performing Firms

Systematic planning Fluctuations in external and internal environment

Nonfinancial Benefits Enhanced awareness of external threats Understanding of competitors’ strategies Increased employee productivity Reduced resistance to change Clear performance-reward relationships Order and discipline to the firm View change as opportunity

STRATEGIC DECISIONS

Decision making is a managerial process and important function of selecting a particular course of action out of several alternatives courses for the purpose of achievement of the organisational goals. Decisions are programmed and non Strategic decisions dimensions are listed below:

-Top Management Decisions are based on the strategic issuesprogrammed decisions. -Strategic Issues Involve the Allocation of Huge Amount of Organisation Resource-Strategic Issues are Likely to Make a Significant Role on the Long Term Prosperity, Survival and Growth of the Organisation Strategic Issues are Future Oriented-Strategic decisions usually have Major Multifunctional or Multi busines Consequence.

Characteristic of Strategic Management Decisions at Functional Level

• Functional level decisions principally involve action–oriented operational issues.• These decisions are made periodically and lead directly implementation of some part of the overall strategy formulated at the corporate and business levels• Functional level decisions are relating short range and involve low risk and modest costs because they are dependent an available resources.• Functional decisions usually determined actions requiring minimal organisation wide co-operations.Characteristic of Strategic Management Decisions at Business Level

• Bridging corporate and functional level decisions are those made at the business level• Business level decisions are less costly risky, and potentially profitable than corporate level decisions, but they are more costly, risky, and potentially profitable than functional level decisions.• Business level decisions involve plant location, marketing segmentation and geographic coverage and distribution channels.

STRAGIST

Strategists are individuals who are most responsible for the success or failure of an organization. Strategists are individuals who form strategies. Strategists have various job titles, such as chief executive officer, president, and owner, chair of the board, executive director, chancellor, dean, or entrepreneur.

Role of Stagiest

Strategists are individuals or groups who are primarily involved in the

ormulation, implementation, and evaluation of strategy. In a limited sense, all managers are s trategists.There are persons outside the organization who are also involved in various aspects of strategic management. They too are referred to as strategists. We can identify nine strategists who, as individuals or in groups, are concerned with and play a role in strategic management.

1. Consultants2. Entrepreneurs3. Board of Directors4. Chief Executive Officer5. Senior management6. Corporate planning staff7. Strategic business unit (SBU) level executives8. Middle level managers9. Executive Assistant

Strategic Intent

CK Prahald and Hamel coined the term ‘strategic intent’ to indicate an obsession of an organization, sometimes having ambitions that may even be out of proportion to their resources and capabilities. They explain the term ‘strategic intent’ like this.

“On the one hand, strategic intent envisions a desired leadership position and establishes the criterion the organization will use to chart its progress…. At the same time, strategic intent is more than simply unfettered ambition. The concept also encompasses an active management process that includes:

o focusing the organization’s attention on the essence of winning,o motivating people by communicating the value of the target,o leaving room for individual and team contributions,o sustaining enthusiasm by providing new operational definitions as

circumstances change ando using intent consistently to guide resource allocations”.

Indian examples of companies with strategic internet are late Dhirubai Ambani’s Reliance group with the strategic intent of being a global leader of being the lowest cost producer of polyster products a status achieved with vertical integration and operational effectiveness.

What is our Business?A company should define its business in terms of three dimensions Namely,

Who is being satisfied? What is being satisfied? How are customers need being satisfied?

Mission:

Defines the fundamental purpose of an organization or an enterprise, in a few words describing why it exists and what it does to achieve its Vision. It is sometimes used to set out a 'picture' of the organization in the future. A mission statement provides details of what is done and

answers the question: "What do we do?" • According to Mr john Pearce, Mission is an enduring statement of

purpose that distinguishes one from other firms.

Fundamental Elements of Mission

Fundamental elements are as follows:

• A general belief that the product or service which can provide benefits at least equal to its price.

• A general belief that the product or service which can satisfy a customer needs.

• Using of the technology for production which will provide a product or service at a quality and cost competitive to customer.

• Hard work and the better interaction of the organisation employees that help for survival, growth and profitable also to the organisation.

• Business philosophy of the management will also create in a favorable public image and will provide financial and psychological rewards from those willing to invest their labor, money and helping organisation towards success

• The organization's promoters self –concept in the business that can be communicated to and adopted by employees and stockholders.

Characteristics of Mission statement

Realistic and achievable(To encourage saving and investment habits among common man-UTI )

Clear(connecting India – BSNL)

Motivating(Exceed the expectation of the customer with dedication ,devotion and enthusiasm –BSNL)

Distinctive (unique)(To be a world class leader-HCL)

Because a mission statement is often the most visible and public part of the strategic-management process, it is important that it includes all of these essential components:

1. Customers: Who are the firm’s customers?2. Product or services: What are the firm’s major products or services?3. Markets: Geographically, where does the firm compete?4. Technology: Is the firm technologically current?5. Concern for survival, growth and profitability: Is the firm

committed to growth and financial soundness?6. Philosophy: What are the basic beliefs, values, aspirations, and

ethical priorities of the firm?7. Self-concept: What is the firm’s distinctive competence or major

competitive advantage?8. Concern for public: Is the firm responsive to social,

community, and environmental concerns?

Establishing an organizational mission is an important part of management’s job, because the existence of a formally expressed organizational mission generally makes it more likely that the organizational will succeed. Having an established and documented organizational mission accomplishes several important things. A mission statement once established serves an organization for many years. But a mission may become unclear as the organization grows and adds new product, markets and technologies to its activities. So a mission statement should be broad enough to accommodate any new changes to avoid reformulation.

VISION STATEMENTDefines the desired or intended future state of an organization or enterprise.It is a corporate dream which will have to be achieved over a period of time

horizon.

Elements of a Strategy Vision

Important strategy vision elements are as outlined:• The mission statement defines one of the roles the organisation that specialidentify the business interest and path for growth and development Strategy vision defines the organisations strategies path, technologies, customer groups and competitive scenario and the activities it performs in terms of well.

• Nature of technology, productivity, innovative is an important to define an organisation business.• Mission and vision statements are crisply to be defined by organisation.• Organisation should prepare future for its survival, growth and profitability.• Vision and mission statement prepared and responsible by chief executive of the organisation.

• Vision and mission statements are clearly direction of the organisation future.

How mission and vision contributes to strategic management?

It provides direction to corporate planning It clarifies the firms aspirations It communicates to employees at various levels the direction in which they

should move It focuses on business purpose and long term objectives of the firm

SYNERGY

Derived form the Greek word “synergos,” which means “working together” exceeds the value those units could create working independently. Another way of saying this is that synergy exists when assets” are worth more when used in conjunction with each other than separately. Synergies can involve physical and non-physical assets” such as human capital.For shareholders, synergy generates gains in their wealth that they

could not duplicate or exceed through their own portfolio diversification decisions.

OBJECTIVES

Objectives are the important ends toward which organizational and individual activities are directed.

An organization’s mission gives a framework or direction to a firm. The next step in planning is focusing on establishing specific organizational direction by setting objectives. An organizational objective is a target toward which the organization directs its efforts.

Hierarchy of objectives

Brief history of corporate governance

Unlike South-East and East Asia, the corporate governance initiative in India was not triggered by any serious nationwide financial, banking and economic collapse

Also, unlike most OECD countries, the initiative in India was initially driven by an industry association, the Confederation of Indian Industry

◦ In December 1995, CII set up a task force to design a voluntary code of corporate governance

◦ The final draft of this code was widely circulated in 1997◦ In April 1998, the code was released. It was called Desirable

Corporate Governance: A Code◦ Between 1998 and 2000, over 25 leading companies

voluntarily followed the code: Bajaj Auto, Hindalco, Infosys, Dr. Reddy’s Laboratories, Nicholas Piramal, Bharat Forge, BSES, HDFC, ICICI and many others

Following CII’s initiative, the Securities and Exchange Board of India (SEBI) set up a committee under Kumar Mangalam Birla to design a

mandatory-cum-recommendatory code for listed companies The Birla Committee Report was approved by SEBI in December

2000 Became mandatory for listed companies through the listing

agreement, and implemented according to a rollout plan:◦ 2000-01: All Group A companies of the BSE or those in the

S&P CNX Nifty index… 80% of market cap◦ 2001-02: All companies with paid-up capital of Rs.100 million

or more or net worth of Rs.250 million or more2002-03: All companies with paid-up capital of Rs.30 million

Following CII and SEBI, the Department of Company Affairs (DCA) modified the Companies Act, 1956 to incorporate specific corporate governance provisions regarding independent directors and audit committees

In 2001-02, certain accounting standards were modified to further improve financial disclosures. These were:

◦ Disclosure of related party transactions◦ Disclosure of segment income: revenues, profits and

capital employed ◦ Deferred tax liabilities or assets ◦ Consolidation of accounts

Initiatives are being taken to (i) account for ESOPs, (ii) further increase disclosures, and (iii) put in place systems that can further strengthen auditors’ independence

“CORPORATE GOVERNANCE is the system by which companies are directed and controlled by the management in the best interest of the shareholders and others ensuring greater transparency and better and timely financial reporting. The Board of Directors are responsible for governance of their companies.”

“CORPORATE GOVERNANCE is needed to create a corporate culture of consciousness, transparency and openness. It refers to combination of

laws, rules, regulations, procedures and voluntary practices to enable the companies to maximize the shareholders long-term value. It should lead to increasing customer satisfaction, shareholder value and wealth.”

The basic objective of Corporate Governance would be "enhancement of the long-term shareholders value while at the same time protecting the interests of other stakeholders." 3 key constituents of Corporate Governance are :

1. the Shareholders, 2. the Board of Directors and the Management.

Key aspects of Good Corporate Governance Transparency of corporate structures and operations Corporate responsibility towards employees, creditors,

suppliers and local communities where the corporation operates.

Corporate Governance Mechanisms: Ownership concentration Board of Directors Top management compensation Threat of takeover

Relating corporate Governance to strategic management: Corporate Governance and strategic intent Corporate Governance and strategy formulation Corporate Governance and strategy implementation Corporate governance and strategy Evaluation

Social Responsibility of Business:Meaning:

Social Responsibility of business refers to all such duties and obligations of business directed towards the welfare of society. The obligation of any business to protect and serve public interest is known as social responsibility of business.

Why should business be socially responsible? Public image Government Regulation Survival and growth Employee satisfaction Consumer Awareness

Social Responsibility towards different Interest groups: 1. Responsibility towards owners:

Owners are the persons who own the business. They contribute capital and bear the business.

Run the business efficiently Proper utilization of capital and other resources. Regular and fair return on capital invested.

Responsibility towards Investors:Investors are those who provide finance by way of

investment in shares, bonds, etc. Banks, financial institutions and investing public are all included in this category.

Ensuring safety of their investment Regular payment of interest.

Responsibility towards employees:Business needs employees or workers to work for

it. If the employees are satisfied and efficient, then the business can be successful.

Timely and regular payment of wages and salaries. Opportunity for better career prospects. Proper working conditions Timely training and development Better living conditions like housing, transport, canteen and

crèches. Responsibility towards customers:

No business can survive without the support of customers.

Products and services must be able to take care of the needs of the customers.

There must be regularity in supply of goods and services. Price of the goods and services should be reasonable and

affordable There must be proper after sales-service Grievances of the consumers if any must be settled quickly.

Responsibility towards competitors:Competitors are the other businessmen or

organization involved in a similar type of business. Not to offer to customers heavy/discounts and or free products in

every sale. Not to defame competitors through false advertisements.

Responsibility towards suppliers:Suppliers are businessmen who supply raw

materials and other items required by manufacturers and traders. Giving regular orders for purchase of goods Availing reasonable credit period Timely payment of dues.

8.Responsibility towards Government: Business activities are governed by the

rules and regulations framed by the government.Payment of fees, duties and taxes regularly as well as honestly Conforming to pollution control norms set up

by government Not to indulge in restrictive trade practices.

9. Responsibility towards society:A society consists of individuals, groups, organizations, families etc. They all are the members of the society.

To help the weaker and backward sections of the society. To generate employment. To protect the environment . To provide assistance in the field of research on education,

medical science, technology etc.

Corporate social responsibility is “seriously considering the impact of the company's actions on society”.

Social responsiveness is "the ability of a corporation to relate its operations and policies to the social environment in ways that are mutually beneficial to the company and to society”.