Chapter - 01

OVERVIEW OF STRATEGIC MANAGEMENT

Strategy

The term Strategy is derived from the Greek word Strategos which means generalship = the art of the general = a carefully formulated military style plan of campaign .

Definitions of Strategy
Alfred D. Chandler strategy is the determination of the basic long term goals & objectives of an enterprise and the adoption of the courses of action and the allocation of resources necessary for carrying out these goals. Glueck A strategy is a unified, comprehensive and integrated plan relating the strategic advantages of the firm to challenges of the environment. It is designed to assure that the basic objectives of the enterprise are achieved. Arthur Sharplin a plan or course of action which is of vital pervasive, or continuing importance to the organisation as a whole. James Brain Quinn the pattern of plan that integrates an organisations major goals, policies and action sequences into a cohesive whole.

Analysis of the definitions of Strategy

Strategy is a central understanding of the strategic management process. Strategy is the determination of basic long- term goals and objectives of an organisation. Determining the courses of action to attain the predetermined goals and objectives. Allocating the necessary resources for implementing the course of action. Developing the company from its present position to the desired future position. Set of decision- making rules making a common thread.

 The common thread pulls the policies, plans, goals, objectives of the different functional areas of business such as finance, marketing, production/ operations and human resource together and interweaves them as a unified comprehensive and integrated plan, action and evaluation. Set a clear direction. Enterprise knows its strengths and weaknesses compared with those of its competitors. Enterprise devotes its hard- won resources to projects that employ its set of core competencies, the primary skills within the organisation. Identify factors in the political and social environment that requires careful monitoring.

 Recognise which competitors actions need critical attention. The competitive firm should have a rational, clear- headed notion, purged of wishful thinking of - its mission - its external competitive environment - its internal capabilities

Dimensions of strategy 1. Effective formal strategy contains three essential elements - most important objectives to be achieved. - the most significant policies guiding or limiting action - major action sequences that are to accomplish the defined goals within the limits set. 2. Effective strategies develop around a few key concepts and thrusts, which give them cohesion, balance and focus. 3. Strategy deals not just with the unpredictable but also with the unknowable. 4. Complex business organisations have a number of hierarchically related and mutually supporting strategies.

Criteria for effective strategy

1. Clear, decisive objectives 2. Maintaining the initiative 3. Concentration 4. Flexibility 5. Coordinated and committed leadership 6. Surprise 7. Security

Forms and kinds of strategies

Forms and kinds of strategies

Intended strategy

Realised Strategy Unrealised Strategy Emergent Strategy

Intended / Emergent Strategy

 A strategy is something thought out in advance by a chief executive and his or her top management team, and passed down the organisation for carefully planned implementation. This is deliberate, planned or intentional strategies.

There has been increasing recognition that strategic direction of the whole organisation can be shaped by opportunistic decisions that can happen at any level in the organisation. These have been termed emergent strategies.

 Strategies that are decided on in advance by the leadership of the organisation are intended strategies. Those that are put into operation are deliberate strategies. Those intended or deliberate strategies that do not happen become unrealised strategies. Strategies which are not intentionally planned, and which can come about from lower levels in an organisation are emergent strategies. Those that are imposed on an organisation are strategies about which the members of an organisation have little effective choice. The common types of imposed strategy are those forced upon an organsiation by government policies. The imposed strategies + some emergent strategies + those intended strategies that are, in the end, deliberately adopted, together constitute the realised strategies.

Deliberate strategy: A strategy conceived by senior managers as a planned response to the challenges confronting an organisation. Often the result of a systematic analysis is of the organisations environment and resources. Emergent Strategy: A strategy that emerges from lower down the organisation without direct senior management intervention. Imposed Strategy: A strategy that an organisations managers would not otherwise have chosen, but is forces on them. Realised Strategy: The strategy the organisation actually ends up implementing. It may be deliberate, emergent or imposed.

Various kinds of strategies, from rather deliberate to mostly emergent

Planned Strategy: Precise intentions are formulated and articulated by a central leadership, and backed up by formal controls to ensure their surprise- free implementation in an environment that is benign, controllable, or predictable ( to ensure no distortion of intentions); these strategies are highly deliberate. Entrepreneurial Strategy: Intentions exist as the personal, unarticulated visions of a single leader, and are so adaptable to new opportunities; the organisation is under the personal control of the leader and located in a protected niche in its environment; these strategies are relatively deliberate but can emerge too.

Ideological Strategy: Intentions exist as the collective vision of all the members of the organisation, controlled through strong shared norms; the organsiation is often pro- active vis- a- vis its environment; these strategies are rather deliberate. Umbrella Strategy: A leadership in partial control of organisational actions defines strategic targets or boundaries within which others must act; as a result, strategies are partly deliberate (the boundaries) and partly emergent (the patterns within them); this strategy can also be called deliberately emergent, in that the leadership purposefully allows others the flexibility to manoeuvre and form patterns within the boundaries.

Process Strategy: The leadership controls the process aspects of strategy (who gets hired and so gets a chance to influence strategy, what structures they work within, etc.), leaving the actual content of strategy to others; strategies are again partly deliberate ( concerning process) and partly emergent ( concerning content), and deliberately emergent. Disconnected Strategy: Members or subunits loosely coupled to the rest of the organsiation produce patterns in the streams of their own actions in the absence of, or in direct contradiction to the central or common intentions of the organisation at large; the strategies can be deliberate for those who make them.

Consensus Strategy: Through mutual adjustment, various members converge on patterns that pervade the organisation in the absence of central or common intentions; these strategies are rather emergent in nature. Imposed Strategy: The external environment dictates patterns in actions, either through direct imposition ( say by an outside owner or by a strong customer) or through implicitly pre- empting or bounding organisational choice; these strategies are organisationally emergent, although they may be internalised and made deliberate.

Need for strategy 1. To have rules to guide the search for new opportunities both inside and outside the firm. 2. To take high quality project decisions. 3. To develop measures to judge whether a particular opportunity is a rare one or whether much better ones are likely to develop in the future. 4. To have an assurance that the firms overall resource allocation pattern is efficient. 5. To have an develop internal ability to anticipate change. 6. To save time, money and executive talent. 7. To identify, develop and exploit potential opportunities. 8. To utilise the delay principle i.e., delay the commitment until an opportunity is on hand.

Key areas in developing a strategy 1. The type of goods and/or services that the firm will produce and will set. 2. The mode of producing goods and rendering services. 3. Who are and will be the firms customers. 4. The methods of financing the various operations of the firm. 5. The amount of risk that the firm will take. 6. Method of implementing the strategy.

Strategic Management Pearce and Robinson strategic management is defined as the set of decisions and actions in formulation and implementation of strategies designed to achieve the objectives of an organisation. Ansoff Strategic management is a systematic approach to a major and increasingly important responsibility of general management to position and relate the firm to its environment in a way which will assure its continued success and make it secure from surprises. Schellenberger and Bosenan the continuous process of effectively relating the organisations objectives and resources to the opportunities in the environment.

Thus, strategic management can be defined as

the process of identifying,

choosing and implementing activities that will enhance the long term performance of a company by setting direction and by creating ongoing compatibility between the internal skills and resources of a company and the changing external environment within which it operates.

Analysis/ key parts of the definitions: 1. Strategic management involves decisions and actions. 2. Strategic management is a continuous process. It is not a single, simple action but a series of related decisions and actions. 3. Strategic management consists of a series of steps repeated cyclically performing an environmental analysis strategic control environmental analysis. 4. Various activities of strategic management draws the inputs from various functional areas of management. 5. Strategic management identifies its purpose as ensuring that an organisation as a whole appropriately matches its ever changing environment. 6. The strategic management should match the organisational strengths and weaknesses with the environmental opportunities and threats. 7. It is basically a top management function.

Need for strategic management 1. Due to change 2. To provide guidelines 3. Developed field of study by research 4. Probability for better performance 5. Systematise business decisions 6. Improves communication 7. Improves co-ordination 8. Improves allocation of resources 9. Helps the managers to have a holistic approach Formal v/s Informal Process Differentiated v/s Integrated Tasks

Benefits of Strategic Management 1. Financial benefits 2. Offsetting uncertainty 3. Clarity in objectives and direction 4. Increased organisational effectiveness 5. Personnel satisfaction 6. Helps an organisation to be proactive rather than reactive 7. Helps to initiate and influence its environment and thereby exert control over its destiny. 8. Helps the organisations to achieve understanding and commitment from all managers and employers and results in employee empowerment. 9. Encourages the organisations to decentralise the management process involving lower level managers and employees. 10. A well designed strategic management can boost profits.

11. Systematic long- run planning results in high performance of the businesses. 12. It strengthens the employee commitment to and participation in formulating long- term goals. 13. Reduce the chance of being affected by the changes in the environment, market place and actions of competitors since they can foresee the environmental changes. 14. It helps for increased employee productivity, reduced resistance to change, clear understanding of performance- reward relationship. 15. It enhances problem- prevention capabilities of organisations as it promotes interaction among managers at all levels. 16. It often brings order and discipline to a firm. 17. It allows for identification, prioritisation opportunities. and exploitation of

18. It provides an objective view of management problems. 19. It represents a framework for improved control of activities.

20. It minimises the effects of adverse conditions and changes. 21. It allows major decisions and supports established objectives. 22. It allows fewer resources and less time to be devoted for correcting erroneous or ad hoc decisions. 23. It helps to integrate the behaviour of individuals into a total effort. 24. It provides a basis for the clarification of individual responsibilities. 25. It gives encouragement to forward thinking. 26. It provides cooperative, integrated and enthusiastic approach to tackling problems and opportunities. 27. It encourages favourable attitude towards change. 28. It gives a degree of discipline and formality to the management of business.

Limitations of Strategic Management 1. Complex and dynamic environment 2. Rigidity 3. Inadequate appreciation of strategic management 4. Limitations in implementation

Historical development of Strategic Management

Increasing Effectiveness Of formal Business Planning Phase 1: Basic Financial Planning Phase 2: Forecast Based Planning Phase 3: Externally Oriented Planning Phase 4: Strategic Management

Operational Control Annual Budgets Functional focus Meet Budget

More effective planning for growth Environmental Analysis Multi- year plans Gap analysis Static allocation of resources Plan for the future

Increasing response to markets and competition Thorough situation and competitive assessment Evaluation of strategic alternatives Dynamic allocation of resources Think abstractly

Orchestration of all resources to create competitive advantage Strategically chosen planning framework Creatives., flexible Review of progress Incentives Supportive value system

Create the future

Different levels of Strategy

CORPORATE STRATEGY

Operations strategies

Marketing strategies

Financial strategies

Personnel strategies

FIGURE 1.1 :Corporate and Functional strategies in single SBU firm

CORPORATE STRATEGY

SBU 1 strategy

SBU 2 strategy

SBU 3 strategy

Operations strategies

Marketing strategies

Financial strategies

Personnel strategies

FIGURE 1.2:Corporate, SBU and Functional strategies in multiple - SBU firm

Corporate - level strategy/ Corporate strategy: Occupies the highest level of strategic decision making and covers actions dealing with the objectives of the firm, acquisition and allocation of resources and coordination of strategies of various SBUs for optimal performance. Such decisions are made by top management. The nature of strategic decisions tends to be value- oriented, conceptual and less concrete than decisions at the business or functional level. Business level strategy/ Business strategy: Operates at business level and each SBU sets its own strategy to make the best use of its resources in the environment it faces. Strategy is a comprehensive plan providing objectives for SBUs, allocation of resources among functional areas and coordination between them for making optimal contribution to the achievement of corporatelevel objectives. Such strategies operate within the overall strategies of the organisation.

Functional - level strategy/ Functional strategy: Relates to a single functional operation and the activities involved therein. Decisions at this level within the organisation are often described as tactical. Such decisions are guided and constrained by some overall strategic considerations. It deals with relatively restricted plan providing objectives for specific function, allocation of resources among different operations within that functional area and coordination between them for optimal contribution to the achievement of the SBU and corporate level objectives. Besides these three levels of strategies, strategy is also used at operating level, known as operating- level strategy. Operating level strategy comes below functional level strategy and involves actions relating to various sub- functions of a major function.

Characteristics of strategies at different levels:

Organisational Level Strategic Business Unit Level Purpose Implement Mission Achieve organisation strategies Functional Level Support business unit and organisational strategies. Manage daily operating problems

Internal activities

Control contribution of divisions, business units to mission

Coordinate with other units developing distinctive competence

Key questions

What business are we Are changes threatening Are we on schedule? or creating opportunities in? what business for our products or should we be in? markets? Monitor genre and Focus on an industry, specific environment. product, market. Anticipate changes required from new business unit and organisational strategies.

External activities

Organisational Level

Strategic Business Unit Level Intermediate (1-3 years)

Functional Level

Time frame

Long term (3 years plus)

Daily (below 1 year)

Performance measures

Vague, flexible

Measurable, moderately Detailed and specific flexible

Architecture of Strategy

FINANCIAL PERFORMANCE - Economic Value Added - Growth - Profitability - Financial risks

COMPETITIVE ADVANTAGE - Differentiation - Quick response - Low cost

STRUCTURAL POSITION -Rivalry - Customers - Entrants - Suppliers - Substitutes

PROJECT EXECUTION -Product Development - Order fulfillment - Demand Management

ENTERPRISE SYNERGIES -Core competencies - Balanced cash flows - Market power - Transnational advantages - Shared infrastructure

ORGANISATIONAL CAPACITY -Leadership - Levers - Learning

Major steps in Strategic Management Process Step 1 : Identifying/ defining business mission, purpose and objectives Step 2 : Environmental analysis Step 3 : Revise Organisational direction Step 4 : Alternative strategic choice Step 5 : Strategy implementation Step 6 : Strategic evaluation and control

Strategic Management Process

Working model of Strategic Management process

Strategic Intent

SWOT Analysis

Strategic Alternatives

Strategic Analysis and choice

Strategy Implementation

Strategic Evaluation

Strategic Control

Responsibilities towards stakeholders

Gaining Competitive Advantage

Two approaches to deriving competitive advantage using strategic management process: 1. The Industrial Company Model ( I/O Model) suggests that the external environment should be considered as the primary determinant of a companys strategic actions also known as externally focused model.

2. The Resource Based Model perceives the companys resources and capabilities (the internal environment) as critical links to strategic competitiveness also known as internally focused model.

The Industrial Company Model ( I/O Model)

The I/O model is based on the following assumptions: 1. The external environment imposes pressures and constraints on companies and determines strategies that will result in superior returns. 2. Most companies competing in an industry or in an industry segment control similar sets of strategically relevant resources and thus pursue similar strategies. 3. Resources used to implement strategies are highly mobile across firms.

Five step process of the I/O Model

External Environment General environment Industry environment Competitive environment Attractive Industry An industry whose structural characteristics suggest above- average returns are possible Strategy Formulation Selection of a strategy linked with aboveaverage returns in a particular industry

Assets and Skills Assets and skills required to implement a chosen strategy

Strategy Implementation Selection of strategic actions linked with effective implementation of the chosen strategy

The Resource - Based Model

1. Companies should identify their internal resources and assess their strengths and weaknesses. 2. Companies should identify the set of resources that provide the company with capabilities that are unique to the firm, relative to its competitors. 3. Companies should assess or determine the potential for their unique sets of resources and capabilities to outperform their competitors in terms of returns. 4. Locate and compete in an attractive industry. 5. To attain a sustainable competitive advantage and earn above- average returns, companies should formulate and implement strategies that enable them to better exploit their resources and capabilities to take advantage of opportunities in the external environment than can their competitors.

Five step process of the Resource- Based Model

Resources Inputs to a firms production process Capability Capacity for an integrated set of resources to integratively perform a task or activity Competitive Advantage Ability of a firm to outperform its rivals

An Attractive Industry Location of an industry with opportunities that can be exploited by the firms resources and capabilities

Strategy Formulation and Implementation Strategic actions taken to earn above- average returns

Comparison of I/O and Resource Based views of Competitive Advantage

I/O Model Competitive Advantage Positioning in industry Resource Based View Possessing unique organisational assets or capabilities Type, amount and nature of firms resources Internal

Determinants of profitability Focus analysis

Characteristics of industry; firms position within industry External

Major concern

Competition

Competencies- resources

Strategic choices

Choosing attractive industry; appropriate position

Developing unique resources and capabilities