Strategic Management

Unit I
Unit I

INTRODUCTION
 Introduction
• The word ‘strategy’ is derived from the Greek
word ‘strategos’ which means “the art of the
generals.”
• ‘Strategy,’ therefore, has a military origin.
• In business, as during war, competitive
situations arise.
• One man’s (or party’s) gain signifies another’s
loss.
 Introduction
• The success or failure of competing organisations
depends as much on external threats and
opportunities as on the organisation’s own
strengths and weaknesses.
• These factors make the environment in which
modern organisations exist and function similar
to a war-like situation.
• This has led to the adaptation of military
terminology like ‘strategy’ and ‘tactics’ in today’s
business vocabulary.
 Introduction
• In the corporate context, strategy may be
defined as the pattern of an organisation’s
responses to its environment overtime, in the
light of its own strengths and weaknesses.
 Strategy Defined
• Strategy relates to the determination of the
long-term goals of an enterprise and the
adoption of courses of action and the
allocation of resources necessary for carrying
out these goals. (A. Chandler)
• Strategy represents a fundamental
congruence between external opportunity
and internal capability. (Mintzberg)
 Strategy: Features
• Strategy offers broad guidelines.
• Strategy is a dynamic and flexible programme
of action.
• Strategy is forward looking.
• Strategy is a product of top management
thinking.
• Strategy is an inherently creative process.
Unit I

STRATEGIC MANAGEMENT, BUSINESS

POLICY, CORPORATE STRATEGY
 Strategic Management
• Strategic Management is that set of
managerial decisions and actions that
determine the long-run performance of a
corporation.
• Originally called business policy, strategic
management incorporates such topics as long-
range planning and strategy.
 Strategic Management
• Includes
– environmental scanning (both external and
internal),
– strategy formulation (strategic or long-range
planning),
– strategy implementation, and
– evaluation and control.
 Strategic Management
• The study of strategic management,
therefore, emphasises the monitoring and
evaluation of external opportunities and
threats in light of a corporation’s strengths
and weaknesses.
 Business Policy
• Business Policy, as opposed to strategic
management, has a general management
orientation
• Tends primarily to look inward with its
concern for properly integrating the
corporation’s many functional activities.
 Corporate Strategy
• Corporate Strategy describes a company’s
overall direction in terms of its general
attitude toward growth and the management
of its various businesses and product lines.
• Corporate strategies typically fit within the
three main categories of stability, growth, and
retrenchment.
Unit I

BASIC CONCEPT OF STRATEGIC

MANAGEMENT
 Basic Concept of Strategic
Management
• Strategy is the overall plan of a firm deploying
its resources to establish a favourable position
and compare successfully against its rivals.
• Strategy describes a framework for charting a
course of action.
• It spells out an approach for the company that
builds on its strengths and is a good fit with
the firm’s external environment.
 Basic Concept of Strategic
Management
• It is basically intended to help firms achieve
competitive advantage which, in turn, allows a
firm to gain an edge over rivals when
competing.
• Competitive advantage comes from a firm’s
unique ability to perform activities more
distinctively and more effectively than rivals.
 Basic Concept of Strategic
Management
• A firm’s distinctive competence or unique
ability implies those special capabilities, skills,
technologies or resources that enable a firm
to distinguish itself from its rivals and create
competitive advantage.
 Basic Concept of Strategic
Management
• The basic premise of strategy is that an adversary
can defeat a rival – even a larger, more powerful
one – if it can manoeuvre a battle or encounter
onto a terrain favourable to its own capabilities.
• The essence of strategy is to match strengths and
distinctive competence with the terrain in such a
way that one’s own business enjoys a
competitive advantage over rivals operating in
the same terrain.
Unit I

STRATEGIC DECISION MAKING

 Strategic Decision Making
• Based on a systematic, comprehensive analysis of
internal attributes and factors internal as well as
external to the organisation.
• It is long-term and future-oriented, but built on
knowledge about the past.
• It is distinctively opportunistic, always seeking to
take advantage of favourable situations that
occur outside the organisation.
• Involves choices.
Unit I

IMPACT OF GLOBALISATION
 Impact of Globalisation
• Earlier a business corporation could be
successful by focussing only on making and
selling goods and services within its national
boundaries – international considerations
were minimal.
• Profits earned from export markets were
considered desirable but not essential.
 Impact of Globalisation
• However, globalisation has changed the way
business is done.
• Globalisation has not only led to companies
seeking newer markets in newer geographical
locations, they are even expanding their
manufacturing bases to newer locations so as
to be able to achieve the economies of scale.
 Impact of Globalisation
• Instead of using one international division to
manage everything outside the home country
large corporations are now forced to use matrix
structures in which product units are interwoven
with country or regional units.
• As more industries become global, it is becoming
important for organisations to keep track of
international developments and position
themselves for long-term competitive advantage.
Unit I

IMPACT OF INTERNET AND E-

COMMERCE
 Impact of Internet and E-Commerce
• Until the mid 1990s, a business firm could be very
successful without using the internet for anything
more than creating a presence on the World
Wide Web.
• Most business was done (and is still done, in
most of the cases) through a sales force and a
network of distributors, with the eventual sale to
the consumer being made through retail outlets.
• Until quite recently, the internet was not
seriously viewed as a means to conduct normal
business transactions.
 Impact of Internet and E-Commerce
• Electronic commerce (e-commerce) refers to
the use of the internet to conduct business
transactions.
• A survey conducted in 1999 revealed that the
internet is reshaping the global marketplace.
• Internet is transforming modern
organisations’ corporate strategies.
 Impact of Internet and E-Commerce
• Not only is the internet changing the way customers,
suppliers, and companies interact, it is changing the
way the companies work internally.
• Instead of the traditional focus of organisations on
product features and costs to face and overcome
competition, the internet is shifting the spotlight to a
more strategic level where the conventional value
chain of an industry is drastically altered.
• Organisations are in the process of shifting more than
50% of their B2B transactions to the internet.
 Impact of Internet and E-Commerce
• In brief:
– The internet is forcing companies to transform
themselves.
– New channels are changing market access and branding.
– The balance of power is shifting to the customer.
– Companies are exploiting the internet to become more
innovative and efficient.
– The pace at which business is conducted is increasing
drastically.
– The internet is pushing organisations out of their
traditional boundaries.
– Internet has resulted in knowledge becoming a source of
competitive advantage.
Unit I

ROLE OF STRATEGIC MANAGEMENT IN

MARKETING, FINANCE, HR AND
GLOBAL COMPETITIVENESS
 Role of Strategic Management in
Marketing
Strategies need to be formulated relating to
• product,
• pricing,
• distribution and
• promotion
of a company’s offerings.
 Role of Strategic Management in
Marketing
• Important issues here cover
– what type of products to manufacture,
– at what prices to sell them,
– which distribution channel and promotional tool
to use,
– the skills required in the sales force, etc.
 Role of Strategic Management in
Finance
• Strategies need to be formulated relating to
– financial planning,
– evaluating investment proposals,
– securing funds for various investments and
– controlling financial resources.
• Thus, raising funds, acquiring assets, allocating
funds to operations, using funds efficiently,
etc., are all parts of financial strategy.
 Role of Strategic Management in HR
• HR strategy deals with
– hiring,
– training,
– assessing,
– developing,
– rewarding,
– motivating and
– retaining the number and types of employees
required to run the business effectively.
 Role of Strategic Management in HR
• Internal factors affecting strategic HRM:
– union contracts,
– productivity indices,
– labour turnover,
– absenteeism,
– accidents, etc.
 Role of Strategic Management in HR
• External factors affecting strategic HRM:
– labour laws,
– sons of the soil,
– reservation,
– equal employment opportunity,
– employment of children and women, etc.
Role of Strategic Management in
Global Competitiveness
Unit I

BASIC MODEL OF STRATEGIC

MANAGEMENT
 Strategic
Vision Societal Str.
I Societal Environment
Activation
Strategic
M StructureEvaluation
Strategic
Mission F
Ext. Environ P
Structure
E
O
Strategic L V
Values
R
Int. Environ
Task Environment
Culture
I E A
M Resource
N M L
Feedback
U
T Defn.
Business SWOT E U&
L Resources
Control
E N
Behaviour A
A Corporate Level T
N
Goals Policies T Corporate Level
T
T A I
I Function Business Level
T O
Objectives O Strs.
Generate
I Analysis N
Reformulation
Functional
N
O
Operationalise
CSFs Analysis Choice
N Operational
Business Level
Plan
 INTENT FORMULATION IMPLEMENTATION EVALUATION

Vision Societal Str.

ActivationSocietal Environment
StructureEvaluation
Mission Ext. Environ
Structure
Task Environment
Values Int. Environ Culture
Resource
Feedback
Business Defn. SWOT &
Resources
Behaviour Control
Corporate Level
Goals Policies Corporate Level
Function Business Level
Objectives Generate Strs.
Analysis
Reformulation
Functional
Operationalise
CSFs Analysis Choice
Operational
Business Level
Plan
Unit I

VISION, MISSION, GOALS AND

OBJECTIVES
• Example: building a cathedral.
 Vision Statement: Basic Elements
Vision is:
• An organisation’s fundamental reason for
existence (beyond just making money).
• The organisation’s timeless, unchanging core
values.
• Aspiration for the organisation’s future.
• Answers the question: What do we want to
become?
 Vision Statement: Some Examples
• BHEL: A world class innovative, competitive
and profitable engineering enterprise
providing total business solutions.
• Colgate-Palmolive: To be the company of first
choice in oral and perosnal hygiene by
continuously caring for consumers and
partners.
 Vision Statement: Some Examples
• NTPC: To make available reliable and quality
power in increasingly large quantities.
• Tata Steel: To strengthen India’s industrial
base through the effective utilisation of men
and mateirals. The means envisaged to
achieve this are high technology and
productivity, consistent with modern
management practices.
 Vision Statement: Some Examples
• Thermax: We aspire to become a leading
technology company with a global business
outlook, delivering world-class products and
services to our customers. We exist to fulfil
the needs of our customers – best understood
through an enlightened partnership with
them.
 Vision Statement: Some Examples
• Voltas: We will be among the 10 most admired industrial
corporations in the country with leadership foucs on
delivery of products and services which are globally
competitive; continuous improvement of our products,
processes and people; a learning organisation of
committed and contributing employees who share the
competitive agenda; continuing satisfaction of our
customers and all our stakeholders; sensitive concern for
society, environment and our values of justice, fair play
and integrity; expansion in our areas of core competence
and development of competencies for new product-
market growth opportunities.
 Vision Statement: Some Examples
• Whirlpool: Grow with new opportunities and be
the leader in an ever-changing global market. We
will be driven by our commitment to continuous
quality improvement and to exceeding all our
customers’ expectations. We will gain
competitive advantage through this and by
buildinh on existing strengths and developing
new competencies. We will be market-driven,
efficient and profitable. Our success will make
Whirpool a company that worldwide customers,
employees and other stakeholders can depend
on.
 Vision Statement: Some Examples
• Wipro: Be among the 10 most admired Indian
companies. Excellence in quality, customer
focus, and service deliverables. Be in the top 25
among Indian groups in profit after tax of Rs.
3,000 million to ensure competitive financial
power. By 2000, have international
operations/exports contribute more than 50
percent of corporation profit after tax. To
determine our own destiny, at least 85 percent
of our profit after tax would come from Wipro
controlled business units.
 Vision Statement: Some Examples
• Arvind Mills: To achieve global dominance in
select businesses built around our core
competencies, through continuous product
and technical innovation, customer
orientation, and a focus on cost-effectiveness.
Mission
Features of a Good Mission Statement
• Answers the question: What is our business?
• Defines the business that the company wants
to be in and serves as its guiding principle.
• Differentiates the company from its
competitors.
• Is relevant to all the stakeholders.
Features of a Good Mission Statement
• Is exciting and inspiring; adds zeal to the firm
and its people.
• Is not time-bound.
• Represents the whole thrust of the firm and
its core values and beliefs.
 Mission Statements: Examples
• BHEL: To achieve and maintain a leading
position as suppliers of quality equipment,
systems and service to serve the national and
international market in the field of energy.
The areas of interest would be the
conservation of energy for applications in the
power, industrial and transportation fields, to
strive for technological excellence and market
leadership in these areas.
 Mission Statements: Examples
• ONGC: To stimulate, continue and accelerate
efforts to develop and maximise the
contribution of the energy sector to the
economy of the country.
• Cadbury India: To attain leadership position in
the confectionery market and achieve a strong
national presence in the food drinks sector.
 Mission Statements: Examples
• ONGC: To stimulate, continue and accelerate
efforts to develop and maximise the contribution
of the energy sector to the economy of the
country.
• Cadbury India: To attain leadership position in the
confectionery market and achieve a strong
national presence in the food drinks sector.
• Ranbaxy Laboratories: To become a research-
based international pharmaceutical company.
 How Mission helps the Firm
• Provides a reference point.
• Has educative value.
• Is a motivating force.
• Ensures productive use of resources.
 Purpose of Mission
• Ensures unanimity of purpose.
• Provides a basis for allocating organisational
resources.
• Shapes the organisational climate.
• Serves as a focal point for individuals to
identify with the organisation’s purpose and
direction.
• Specifies organisational purpose and
translates these purposes into objectives.
 Mission Statement: Components
• Customers.
• Products or services.
• Markets.
• Technology.
• Concern for survival.
• Philosophy.
• Self-concept.
• Concern for public image.
• Concern for employees.