Introduction To Business Strategy

Strategic Management
Lesson 1
Introduction to Business Strategy
Origin of the word Strategy
Derived from the ancient Athenian compound word strategos (startos meaning army ;
aegin meaning to lead).
Definition
Strategy is the determination of basic long-term goals and objectives of an enterprise and the
adoption of courses of action and the allocation of resources for carrying out these goals
-Chandler
Strategic Management is defined as the process of identifying choosing and implementing
activities that will enhance the long-term performance of the company by setting directions
and by creating ongoing compatibility between the internal skills and resources of the company
and the changing external environment within which it operates.
General Management Functions:
To develop an organizational strategy involving four main elements:1. Strategic Analysis defines the existing business of the company and states as to what
it wishes to be. Includes laying of vision and mission of the company and conducting an
external and internal environmental analysis following the SWOT procedure
(Strength, Weakness, Opportunity, and Threats)
2. Strategic Choice defines what the organization could do given the vision, mission, and
capabilities. It reflects the values of managers and other stakeholders w.r.t their
feasibility, suitability and acceptability before finally choosing a particular strategy
3. Strategy Implementation depends on the organizations operational factors like its
structure, culture, resources, competencies, technology, leadership etc.
4. Strategy Evaluation provides regular monitoring and control system to support the
continual feature of strategic management.
Concept of Corporate Strategy:

Growth and competition based on the ability to corner industrial licenses and letters of intent
from the government through any of the following options:
1. Active pre-emption: grabbing a disproportionately larger share of licenses either
directly or indirectly through proxy.
2. Passive pre-emption: by maintaining a large number of dormant companies on whose
names they grab licenses.
3. Creation of shortage: gaining monopoly above, they hoarded the excess produce,
supplying only at the previous level, thereby creating artificial shortage in the market
leading to price rise.
4. Joint Ventures: entering into joint ventures through foreign collaborations to access
new technologies.
Levels of strategy:
There are four levels of strategies moving top to down viz,
1. Corporate Level Strategy Corporate headquarters play the crucial role here. This is
mainly concerned with overall scope of the organization including issues like
geographical diversity of products, resource allocation between different units,
structuring of the organization, setting of overall yearly targets, value-adding tools etc.
2. Business Level Strategy it focuses its concern to the particulars of a specific market.
Involves issues like gaining competitive advantage, new opportunities, customer
satisfaction market share growth etc.
3. Functional Level Strategy includes detailed action plans for various functional areas
like HR, Finance, Operation, Marketing etc to achieve short-term objectives. These are
also known as functional tactics.
4. Operational Level Strategy these are concerned with how the component parts of an
organization deliver effectively the corporate and business-level strategies in terms of
resources, processes and people.
Corporate Goals and Objectives Formulation Strategy:

Corporate Goals and Objectives include:-Profitability (Net Profit), Growth (Increase in total
Assets), Utilization of resources (ROE or ROI) and Market Leadership (Market Share)
Objectives state what an organization wants to achieve. These function as yardsticks for
tracking an organizations performance. Objectives should be:
Specific
Quantifiable
Measurable
Reasonable
Clear
Consistent
Challenging
Contain a deadline
Communicated throughout the organization.
Objective setting is generally top-down process. Managers at different levels work on different
kinds of objectives.
At the top the Board of Directors are involved in determining Vision, Mission and the Strategic
objective of the firm
The Middle Level Managers are involved in setting up objectives for the Key Result Areas,
divisional levels, departmental and individual levels.
Lower Level Managers set up objectives of units as well as their subordinates
Roles of Objectives:
They provide legitimacy

State direction
Aid in evaluation
Create synergy
Focus co-ordination
Provide basis for resource allocation
Act as benchmark for monitoring progress
Provide motivation
Hierarchy of Objectives:
In multi-divisional firms objectives are established for overall company as well as for each
division. Objectives are generally established at corporate, divisional and functional levels
(discussed earlier). The zenith of the hierarchy is the mission of the organization.
Long-range and short-range objectives:
Short-range objectives spell out the near term results (within a 12 month period) to be
achieved whereas long-range objective relate to those objective that need to be accomplished
in any time beyond a 12 month period. Short-range objectives specify the speed and level of
performance. At times these can be similar to the long-range objectives. For eg an objective can
be to achieve a 20% growth rate every year over a period of next five years.
Multiplicity of Objectives:
For a big organization it is important to make objectives and diversify them into various smaller
but connected objectives making it a set of multiple objectives within one functional or
divisional objective. For example, marketing department may have the objective of sales and
distribution which can be broken down into group of objective for the product , distribution,
research and promotion activities.
Care should be taken that a company should not set too many objectives as they may dilute the
drive for accomplishment.
Network of objectives:
Despite having hierarchy and multiplicity of objectives, it is important that these should be
inter-related and inter-dependant. There should be a consistency within these as
implementation of one may affect the implementation of other.
Types of Objectives:
Financial Objectives relating to monetary aspects like present worth, future financial position
Strategic Objectives relating to companys market position and competitiveness.

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Strategic Management

Concept of Corporate Strategy:

Corporate Goals and Objectives Formulation Strategy:

They provide legitimacy

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