Strategic Management

Unit-1
Basic Concept of Strategic Management.
The concept of strategy is central to understanding the process of strategic management. The term
strategy is derived from a Greek word strategos, which means generalship- the actual direction of
military force.
Strategic management is a set of managerial decisions and actions that determines the long run
performance of a corporation and it is continuous task. It includes environmental scanning both
external and internal and strategy formulation, strategy implementation and evaluation and control. So,
it starts with environmental analysis then moves to strategic control. Its Purpose for matches its ever
changing environment.
Therefore, it emphasizes the monitoring and evaluating of external opportunities and threat in light of
corporations strengths and weaknesses. It originally called Business policy.
Strategic Management Definition The set of managerial decisions and actions that result in the
formulation, implantation and control of plans designed to achieve a companys objectives

Nine critical task of Strategic Management: 1. Formulate the companys mission, including broad statements about its purpose, philosophy and
goals
2. Conduct an analysis that reflects the companys internal conditions and capabilities
3. Assess the companys external environment, including both the competitive and the general
4. Analyse the companys options by matching its resources with the external environment
5. Identify the most desirable options by evaluating each option in light of the companys mission
6. Select a set of long-term objectives and grand strategies that will achieve the most desirable options
7. Develop annual objectives and short term strategies that compatible with the objectives and grand
strategies
8. Implement the strategic choice by means of budgeted resources allocations
9 Evaluation -the success of the strategic process is-as an input for the future decision making.

Need for Strategic Management

1. Due to Change: -Strategic management encourages the top executives to forecast change and
provides direction and control. The firm may pro-act to the change rather than just react to it. It also
allows the firm to take advantage of the opportunities provided by the changes in the environment and
avoid threats or reduce the risk
2. To provide guidelines: - Strategic management provide guidelines to the employee about the
organizations expectations from them. This would- minimize conflict between job performance and
job demands.

3.Developed field of study by Research: - Recently there are methodological problem researches in
this field of study. More systematic knowledge in this area is available at present.
4.Probability for better performance: - there is no clear evidence that strategic management leads to
higher performance. But majority of studies suggest that there is a relationship between better
performance and formal planning
5. Systematise Business Decisions: - Strategic management provides data and information about
different transactions to managers and helps them to make decisions systematically.
6. Improves Communication: - Strategic management provides effective communication of
information from lower level managers to middle level managers and to top level managers.
7. Improve Coordination: - Strategic management improves coordination not only among the
functional areas of management, but also among individual projects.
8. Improves allocation of Resources: - It helps in deciding upon most feasible and viable projects and
thereby improve the allocation of resources.
9. Helps the Managers to have a Holistic approach: - strategic management helps the managers to
have complete understanding of the company and to have a holistic approach towards business
problems proportions

Phases of Strategic Management

Phase -1- Basic Financial Planning: -Managers initiate serious planning when they requested to propose
the following years budget. Managers try to fill-up ideas into the proposed budget. The sales force
usually proves the small amount of environmental information. The time horizon is usually one year
Phase -2- Forecast Based Planning: - As annual budgets become less useful at stimulating long-term
planning, managers attempt to propose five year plans. At this point they consider projects that may
take more than one year. In addition to internal information, managers gather any available
environmental data- usually on an ad hoc basis and extrapolate current trends.
Phase-3 Externally Oriented (Strategic) Planning: - The company seeks to increase its responsiveness
to changing markets and competition by thinking strategically. Planning is taken out of the hands of
lower- level managers and concentrated in planning staff whose task is to develop strategic plan for
corporation. Consultants often provide sophisticated and innovative technique to planning staff to
gather information and forecast future trends. Such top-down planning emphasizes formal strategy
formulation and leaves the implementation issues to lower management levels.
Phase-4 Strategic management: - Realizing that even the best strategic plans are worthless without the
input and commitment of lower-level managers, top management from planning groups of managers,
employees. etc. They develop and integrate a series of strategic plans aimed at achieving the companys
primary objectives. Strategic plans this point- detail the implementation, evaluation and control issues
e.g. GE, one of the pioneers of strategic planning (by the 1980s and 1990s)
E.g.: - Indian banking sector- public sector banks- serving masses rather than quality
Indias financial reforms case Private & Foreign banks in India
Then Intense competition
But Private & Foreign banks total assets increased 27.6% in 2006

 So, to help public sector banks, in 2005 Indian finance minister introduced certain changes like
Operational flexibility and some autonomy.
Benefits of Strategic Management.
Pro-active rather than reactive in shaping future
Helps to respond to its environment-also initiate & influence its
Helps strategies more systematic, logical and rational
Understanding commitment from Mgrs. and employers
Encourage to decentralize the Mgt process
Well-designed strategic Mgt: can boost profits
Systematic long-run planning resulted in high performance of business
It strengthens the employee commitment & participation to attain goal
Reduce the cause of environmental changes
Increased employee productivity- reduced resistance to change
Enhance problem- prevention capabilities
It often brings order and discipline to a firm
It allows identification, prioritization and exploitation of opportunities
It provides an objective view of management problems
It represents a framework for improved control of activities
It allows major decisions and supports established objectives
It allows fewer resources and less time to be devoted
It helps to integrate the behaviour of individuals into a total effort
It provides a basis for the clarification of individual responsibilities
It gives encouragement to forward thinking
It provides cooperative, integrated and enthusiastic approach

Strategic Intent: -By Strategic intent we refer to the purposes the organization. Broadly stated, these
could be in the form of a vision mission statement for the organization as a corporate whole.
Leaders clear sense of where they want to lead the company and what result they and what result they
expect to achieve

Environmental
Scanning
Gathering information
External Opportunities
and threats
*Natural
Environment(Resources and
climate)

Strategy Formulation

Strategy Implementation

Developing-long-range Plans

Putting Strategy into action

Mission

Budgets

Evaluation
& Control
Measuring
Performance

Reasons for
existence

Objectives
What
result to
accomplis
h by when

*Societal
Environment
(General
Forces)

Strategies
Plan to
achieve
the
mission &
Objectives

*Task
Environment
(Industry
InternalAnalysis)
Strengths and
Weaknesses

Polices
Broad
guidelin
es for
decisio
n
Making

Programs
Activities
need to
accompli
sh a plan

*Structure :- chain of
command
*Culture:- Belief,
Expectations, values
*Resources:-Assets,
Skills, competencies,
knowledges

Dimensions of Strategic Decisions

Strategic issues have following dimension
1.Strategic issues require Top-management Decisions.
Because strategic decisions affect several areas of firms operation, they require top-management
involvement. Usually only top management has the perspective need to understand the implication of
such decisions and the power to authorize the necessary resource allocation
2.Strategic issues require large amount of the firms resources

Strategic decision involves substantial allocation of people, physical assets or money. That either must
redirected from internal sources or secured from outside source.
3.Strategic issues often affect the Firms long-term prosperity
Once a firm has committed itself to a particular strategy, its image and competitive advantage usually
tried for that strategy

e.g. SAP e-marketplace(B2B)

e.g. for years Toyota had a successful strategy of marketing its sedan in Japan
4.Strategic issues are future oriented.
Strategic decisions are based on what managers forecast rather than on what they know
5. Strategic issues usually have Multifunctional or Multi business consequences.
Strategic decision has complex implications for most areas of the firm. Decisions about customer mix,
competitive emphasis or organizational structure necessarily involves a number of the firms SBUs,
divisions, or program units.
6. Strategic issues require considering the firms external environment
All business firms exist in an open system. They affect and are affected by external conditions that are
largely beyond the control
Strategic Alternatives
and Choices

The Strategic Management Process.

External Environment Analysis

Opportunities

Threats
Corporate Level
Strategy

Corporate

Vision

Revise Mission,
Objectives and
Goals, If
necessary

Current
Global Strategy

Mission

Objectives

Business unit
Strategies

Goals

Functional Strategies

SWOT

Internal Environmental
Analysis

Strength

Weaknesses

Strategy Implementation

Strategy Review, Evaluation

And Control

Four Phases in Strategic Management Process

Environmental Scanning

Formulation of
Strategies

Implementation of
Strategies

Strategic Evaluation
& Control

Vision and Mission Statement

Vision Visualize the future of the company
An organization Vision statement answers the question
What do we want to become?
Mission statement are defined based on vision statements
e.g.: Vision state of a life insurance co: is- Take care, your lifes Primary goal
Mission statement defines the scope of business operations of a firm distinguishes it from similar firms.

An organization's Mission statement is the purpose or reason for the organizations existence.

It tells what the company is providing to society-

Either a service such as house cleaning or a product such as automobiles.

The mission statement of Ford Motor Company is

we are a global family with a proud heritage passionately committed to providing personal mobility
for people around the world
External Environment Analysis (or Opportunity and Threats Analysis

Analyse external environment in order to find

opportunity and threats

External environment consists of

Social, technical, economic, political, legal and governmental factors

Opportunities or threats depend upon perceptions

One co: opportunities other co: threat.

e.g. Coca Cola introduced small bottle called Coca cola

Internal Environment Analysis (or Strengths and Weaknesses Analysis

Internal environment consists of: -

Structures, resources, values, competencies, culture and systems of co:

Internal environmental factors include: -

Organization structure, finance, marketing, production/operations, human resources, information

management and R&D capabilities

The same environmental factors

Strength in one kind of market and

Weaknesses in other kind of markets

Co: identifies their strength and weaknesses in each functional areas- as well as its competitors
SWOT Analysis and Strategy Formulation.

The next logical step is to bring the alliance between opportunities and appropriate strength.

Taking stock of weaknesses in relation to opportunities

This enables the company to formulate appropriate corporate strategies.

The Co: also strive to modify its products and/or correct their weaknesses.
Strategic Fit vs. Strategic Intent.

Traditionally companies used to bring the fit between

Their current strengths and opportunities

and formulate strategies

C.K. Prahlad and Hamel criticize the strategic fit model

They argue that global leading Co: like Toyota, Canon and Komatsu acquired resources and
capabilities necessary for

Future environmental opportunities ahead the change in Environ:

Co: under strategic intent process formulate challenging/ambitious goals

All resources on winning & acquiring additional competencies.

Elements in Strategic Management Process
1. Establishing the hierarchy of Strategic intent

Creating and communicating a vision

Designing a mission statement
Defining the business
Adopting the business model
Setting objectives
2. Formulation of strategies

Performing environmental appraisal

Doing organizational appraisal
Formulating corporate level strategies
Formulating business level strategies
Undertaking strategic analysis
Exercising strategic choice

 Preparing strategic plan

3. Implementation of strategies

Activating strategies
Designing the structure, system and processes
Managing behavioural implementation
Managing functional implementation
Operationalising strategies
4. Performing Strategic evaluation and control

Performing strategic evaluation

Exercising strategic control
Reformulating strategies.

The decision-making hierarchy of a firm typically contains three levels.

Strategic Management Process at different levels

Corporate

Strategy Formulation

Strategy

Evaluation and Control

Implementation

Level

Business level

Strategy

Strategy Formulation

Evaluation and Control

Implementation

Functional level

Strategy Formulation

Strategy

Evaluation and
Control

Implementation

Different level of Strategy

Levels of Strategy

Corporate Office

Corporate

Business

SBU-A

SBU-B

Corporate-level

SBU-C

Functional
Finance

Business-level

Functional-level
Marketing

Operations

HRM

Information

1. Corporate Level Strategies

At the top of this hierarchy is the corporate level, composed principally of a board of directors and the
chief executives and administrative officers. Corporate level strategies link the opportunities, strengths
competencies to the companys overall objectives and goal. These strategies include expansion,
diversification, mergers, joint-ventures etc. In a multi business firm, corporate-level executives
determine the business in which the firm should be involved.
e.g.- Saudi Arabian Oil spend $1.4 billion to build and operate an oil refinery in Korea with its partner
SsangYong, to implement their program- cut-out-the middleman strategy
Global Strategies: - include a decision to enter foreign markets. This strategy includes which country to
enter and the mode of entry. Global strategy is based on the corporate strategy
Corporate-level strategies are basically about decision related to

Allocating resources among different business of the firm

Transferring resources from one set of business to the others and
Managing and encouragement a portfolio of business
2. Business Level Strategies
Business level strategy usually occurs at the business unit or product level and it emphasizes important
of the competitive position of a corporations products or services in the specific industry or a market
segment served by that business unit. In essence business-level strategic managers determine how the
firm will compete in the selected product-market arena.
e.g.:-In, India Pantaloons and Big Bazaar used competitive strategy to differentiate its hypermarkets
from is competitors. It sells wide range and line of products.
Kingfisher Airlines introduced Indians to a new way to book flight tickets: FlyBuySmsTM
3. Functional level Strategies
Functional strategy is the approach taken by a functional area to achieve corporate and business unit
objectives and strategies by maximizing resources productivity. These strategies ate more or less
related to each function like finance, marketingetc. It concerned with developing and encouragement
of a distinctive competence.
e.g. P&G is a master of marketing pull the process of spending huge amounts on advertising in
order to create customer demand.
The corporate and business level managers centre their attention on doing the right things, managers
at the functional level centre their attention on doing things right.
Corporate strategy = overall direction of company and management or its business
Business strategy = competitive and cooperative strategies
Functional strategy=maximize resources and productivity.
-ooStrategic Decision Making Process : Aid to better Decisions
1. Evaluate current performance results in terms of (a) return on investment, profitability and so forth
and (b) the current mission, objectives, strategies and policies

2. Review corporate governance that is, the performance of the firms board of directors and top
management
3. Scan and assess the external environment
4. Scan and assess the internal corporate environment
5. Analyze strategic (SWOT) factors
6. Generate, evaluate and select the best alternative strategy
7. Implement selected strategies
8. Evaluate implemented strategies
The Strategic Audit: -A strategic audit provides a checklist of questions, by area of issues, that
enables a systematic analysis. A strategic audit is not an all-inclusive list, but it presents many of the
critical questions needed for a detailed strategic analysis of any business corporation.
--oo-Constitution of Board Role and functions of Corporate Board and Top Management in
Strategic Management.
Strategists are individuals or groups who are primarily involved in the formulation, implementation and
evaluation of strategy. In a limited sense all managers are strategists. There are persons outside the
organization, who are also involved in various aspects of strategic management. They too are referred
to as strategists.
1. ROLE OF BOARD OF DIRECTORS: - The owners of the organization shareholders,
controlling agencies, government, financial institutions, holding company or the parent company elect
and appoint the directors of the board.
The role of the board of in strategic management is to guide the senior management in setting and
accomplishing objectives, reviewing and evaluating organizational performance and appointing senior
executives. The board of directors therefore has an obligation to approve all decision that might affect
the long-term performance of the corporation.
Board of Directors Responsibly
1. Determination of board functions- that is premises within the board is to work annually
2. Setting values, mission, and vision statement
3. Hiring and firing the CEO and top management
4. Responsibility to prepare strategic plan, next years operating plan and budget
5. Responsibility to ensure that company has adequate resources to meet its objectives.
6. Responsibility to monitor and progress towards achieving the agreed objectives
7. Responsibility to prepare work plan for the year with monthly benchmarks and time lines
8. Responsibility to mentor, monitor and evaluate the chief executive office
9. Responsibility to ensure compliance and disclosure to various acts- like Co. act, SEBI etc.
10. Responsibility Caring for shareholders interests &to commutate with them
11. Other responsibility includes
a. Setting performance objectives
b. Monitoring corporate performance
c. Overseeing mergers and acquisitions and
d. Other capital expenditure.
Role of the board in strategic management

1. Monitor: by acting through its committees

2. Evaluate and influence: examine managements proposals, decisions and actions, agree or disagree
with them, give advice and offer suggestions
3. Initiate and determine: a board can delineate a corporations mission and specify strategic options to its
management.
Over the past decade, Shareholders and various interest groups have seriously questioned the role of the
board of directors in corporations. They are concerned that inside board members may use their
position to feather their own nests and that outside board members often lack sufficient knowledge.
Members of a Board of Directors: - The boards of most publically owned corporations are composed
of both inside and outside directors
Inside Directors: - sometime called management directors are typically officers or executives
employed by the corporation
Outside Directors: -sometime called as non-management directorsmay be executive of other
firm but are not employees of the boards corporation.
Stewardship Theory: -Those who prefer inside over outside directors contend that outside
directors less effective than are insiders because the outsiders are less likely to have the necessary
interest, availability and competency. Stewardship theory proposes that because of their long tenure
with the corporation, senior executives tend to identify with the corporation and its success. Rather than
use the firm for- their own ends.
Interlocking Directorates: - occurs when two firms share a director or when an executive of
one firm sits on the board of the second firm
Tends in Corporate Governance
The role of the board of directors in the strategic management of a corporation is likely to be more
active in the future. A McKinsey survey reveals that investors are willing to pay 16% more for a
corporations stock if it is known to have good corporate governance.
Some of today tends in governance
1. Boards are getting more involved not only in reviewing and evaluating company strategy but also in
shaping it
2. Institutional investors, such as pension funds, mutual funds and insurance companies- are putting
increasing pressure on top management to improve corporate performance
3. Shareholders are demanding that directors and top managers own more than token amount of stock
in the corporation
4. Non-affiliated outside directors are increasing their numbers
5. Women and minorities are being increasingly represented on boards
6. boards are establishing mandatory retirement ages for board members- typically around age 70
7. Boards are evaluating not only their own overall performance, but also that of individual directors
8. New board directors to have specialized knowledge and expertise instead of general experience
9. Boards continue to take more control of board functions by either splitting the combined into two
separate positions or so

10. As corporations become more global, they are increasingly looking for board members with
international experience
11. Society, in the form of special interest groups, increasingly expects boards of directors to balance
the economic goal of profitability with the social needs of society.

2. THE ROLE OF TOP MANAGEMENT

The top management function is usually conducted by the CEO of the corporation in in co-ordination
with the COO (Chief Operating Officer) or president, executive vice president and vice president of
division and functional areas.
Responsibility of Top Management
Top management task vary from firm to firm and are developed from an analysis of mission,
objectives, strategies and key activities of the corporation.
Role of CEO
1. The CEO involve getting things accomplished through and with others to meet the corporate
objectives
2. Oriented toward the welfare of the total organization
3. The CEO plays a major role in strategic decision-making
4. the most crucial role in determining whether an organization is successful or not
5. Successful CEOs are having a clear strategic vision, a strong passion for their company and an
ability to communicate with others
6. The CEO articulates a strategic vision for the corporation. e.g.: IBM-Louis Gerstner proposed a new
vision
7. The CEO presents a role for others to identify with and to follow. The CEOs attitude and values
concerning the corporations purpose and activities are clear cut and constantly communicated in words
and deeds.
8. The CEO communicates high performance standards and also shows confidence in the followers
abilities to meet these standards. He empowers followers by raising their beliefs in them on capabilities
and motivates them.
9. The role modelling approach attempt to describe -CEO may be considered as

Chief architect of organizational purpose, strategist or planner

Organization leader, organizer or organization builder
Chief administrator, implementer or coordinator and
Communicator of organizational purpose, motivator, personal leader and mentor
10.The Other approaches- describes the role of CEOs in terms of different parameters like

How time is spent

Qualities and responsibilities
Communication Styles
Demographic characteristics-such as age, intelligence, education, functional background, experience
etc.

Managerial values
Managerial styles and
Environment.
11. Managing the Strategic Planning Process: - In most corporation, top management must initiate and
manage strategic planning process. It may do by first asking business units and functional areas to
propose strategic plans for themselves, or it may begin by drafting an overall corporate plan within
which the units can then build their own plans. Research suggests that bottom-up strategic planning
may be most appropriate in multinational corporations operating in relatively stable environment.
Role of Entrepreneurs
The entrepreneur has been usually considered as the person who starts a new business, is a venture
capitalist, has a high level of achievement-motivation.

They play a proactive role in strategic management.

Provide a sense of direction to the organization
Set objectives and formulate strategies to achieve them
They are major implementers of strategies and also evaluators
Strategic-decision making is quick and the he generate a sense of purpose among their subordinates
Role of Senior Management
The senior management consists of managers at the highest level of the managerial hierarchy.

They are responsible for implementing strategies and plans, and for a periodic evaluation of
performance
When assigned specific responsibilities, they look after
o Modernization, technology up gradation, diversification and expansion
o Plan implementation and new product development
Senior managements perform variety of job assigning the board. Some of the members of the senior
management may act as directors on the board usually on a rational basis.
Eg: MRF ltd uses the senior management expertise by dividing them into five groups
1.
2.
3.
4.
5.

Products and Markets

Environment
Technology
Resources and
Manpower
Role of SBU-level Executives
They also knew as either Profit Centre Heads or Divisional Heads. With regard to strategic
management, the SBU-level strategy formulation and implementation are the primary responsibilities.
Many public and private sector companies have adopted the SBU concept in some or other form.
Role of Corporate Planning Staff
The corporate planning staff plays a supporting role in strategic management. They assist the
management in all aspects of strategy formulation, implementation and evaluation. Besides, they are
responsible for the preparation and communication of strategic plans and conducting special studies
and research pertaining to strategic management.

Eg: Essar Steel has a corporate planning cell for planning projects and developing expansion and
diversification plans
Role of Consultants
Many organizations do not have a corporate planning department so take the help of external
consultants in strategic management. These consultants may be individuals, academicians or
consultancy companies. The main advantage in hiring consultants are getting an unbiased opinion- for
many functions, formulation of corporate strategy. etc.
e.g.: ABC consultants offer corporate consultancy in SWOT analysis- Socio economic studies,
preparation of project reports, business negotiations and technology transfer.
Apart role of Middle-level Managers and executive assistants are there, but they rarely play an active
role in strategic management.
--oo--