Strategic Management - An Introduction

Strategic Management is all about identification and description of the strategies that managers can carry so as to achieve better performance and a competitive advantage for their organization. An organization is said to have competitive advantage if its profitability is higher than the average profitability for all companies in its industry. Strategic management can also be defined as a bundle of decisions and acts which a manager undertakes and which decides the result of the firms performance. The manager must have a thorough knowledge and analysis of the general and competitive organizational environment so as to take right decisions. They should conduct a SWOT Analysis (Strengths, Weaknesses, Opportunities, and Threats), i.e., they should make best possible utilization of strengths, minimize the organizational weaknesses, make use of arising opportunities from the business environment and shouldnt ignore the threats. Strategic management is nothing but planning for both predictable as well as unfeasible contingencies. It is applicable to both small as well as large organizations as even the smallest organization face competition and, by formulating and implementing appropriate strategies, they can attain sustainable competitive advantage. Strategic Management is a way in which strategists set the objectives and proceed about attaining them. It deals with making and implementing decisions about future direction of an organization. It helps us to identify the direction in which an organization is moving. Strategic management is a continuous process that evaluates and controls the business and the industries in which an organization is involved; evaluates its competitors and sets goals and strategies to meet all existing and potential competitors; and then reevaluates strategies on a regular basis to determine how it has been implemented and whether it was successful or does it needs replacement. Strategic Management gives a broader perspective to the employees of an organization and they can better understand how their job fits into the entire organizational plan and how it is corelated to other organizational members. It is nothing but the art of managing employees in a manner which maximizes the ability of achieving business objectives. The employees become more trustworthy, more committed and more satisfied as they can co-relate themselves very well with each organizational task. They can understand the reaction of environmental changes on the organization and the probable response of the organization with the help of strategic management. Thus the employees can judge the impact of such changes on their own job and can effectively face the changes. The managers and employees must do appropriate things in appropriate manner. They need to be both effective as well as efficient. One of the major role of strategic management is to incorporate various functional areas of the organization completely, as well as, to ensure these functional areas harmonize and get together well. Another role of strategic management is to keep a continuous eye on the goals and objectives of the organization. The word strategy is derived from the Greek word stratgos; stratus (meaning army) and

ago (meaning leading/moving). Strategy is an action that managers take to attain one or more of the organizations goals. Strategy can also be defined as A general direction set for the company and its various components to achieve a desired state in the future. Strategy results from the detailed strategic planning process. A strategy is all about integrating organizational activities and utilizing and allocating the scarce resources within the organizational environment so as to meet the present objectives. While planning a strategy it is essential to consider that decisions are not taken in a vaccum and that any act taken by a firm is likely to be met by a reaction from those affected, competitors, customers, employees or suppliers.
Strategy can also be defined as knowledge of the goals, the uncertainty of events and the need to take into consideration the likely or actual behavior of others. Strategy is the blueprint of decisions in an organization that shows its objectives and goals, reduces the key policies, and plans for achieving these goals, and defines the business the company is to carry on, the type of economic and human organization it wants to be, and the contribution it plans to make to its shareholders, customers and society at large.

Features of Strategy

1. Strategy is Significant because it is not possible to foresee the future. Without a perfect foresight, the firms must be ready to deal with the uncertain events which constitute the business environment. 2. Strategy deals with long term developments rather than routine operations, i.e. it deals with probability of innovations or new products, new methods of productions, or new markets to be developed in future. 3. Strategy is created to take into account the probable behavior of customers and competitors. Strategies dealing with employees will predict the employee behavior.

Strategy is a well defined roadmap of an organization. It defines the overall mission, vision and direction of an organization. The objective of a strategy is to maximize an organizations strengths and to minimize the strengths of the competitors. Strategy, in short, bridges the gap between where we are and where we want to be. The strategy statement of a firm sets the firms long-term strategic direction and broad policy directions. It gives the firm a clear sense of direction and a blueprint for the firms activities for the upcoming years. The main constituents of a strategic statement are as follows:
1. Strategic Intent

An organizations strategic intent is the purpose that it exists and why it will continue to

exist, providing it maintains a competitive advantage. Strategic intent gives a picture about what an organization must get into immediately in order to achieve the companys vision. It motivates the people. It clarifies the vision of the vision of the company. Strategic intent helps management to emphasize and concentrate on the priorities. Strategic intent is, nothing but, the influencing of an organizations resource potential and core competencies to achieve what at first may seem to be unachievable goals in the competitive environment. A well expressed strategic intent should guide/steer the development of strategic intent or the setting of goals and objectives that require that all of organizations competencies be controlled to maximum value. Strategic intent includes directing organizations attention on the need of winning; inspiring people by telling them that the targets are valuable; encouraging individual and team participation as well as contribution; and utilizing intent to direct allocation of resources. Strategic intent differs from strategic fit in a way that while strategic fit deals with harmonizing available resources and potentials to the external environment, strategic intent emphasizes on building new resources and potentials so as to create and exploit future opportunities.
2. Mission Statement

Mission statement is the statement of the role by which an organization intends to serve its stakeholders. It describes why an organization is operating and thus provides a framework within which strategies are formulated. It describes what the organization does (i.e., present capabilities), who all it serves (i.e., stakeholders) and what makes an organization unique (i.e., reason for existence). A mission statement differentiates an organization from others by explaining its broad scope of activities, its products, and technologies it uses to achieve its goals and objectives. It talks about an organizations present (i.e., about where we are). For instance, Microsofts mission is to help people and businesses throughout the world to realize their full potential. Wal-Marts mission is To give ordinary folk the chance to buy the same thing as rich people. Mission statements always exist at top level of an organization, but may also be made for various organizational levels. Chief executive plays a significant role in formulation of mission statement. Once the mission statement is formulated, it serves the organization in long run, but it may become ambiguous with organizational growth and innovations. In todays dynamic and competitive environment, mission may need to be redefined. However, care must be taken that the redefined mission statement should have original fundamentals/components. Mission statement has three main components-a statement of mission or vision of the company, a statement of the core values that shape the acts and behaviour of the employees, and a statement of the goals and objectives.
Features of a Mission

a. b. c. d. e.

Mission must be feasible and attainable. It should be possible to achieve it. Mission should be clear enough so that any action can be taken. It should be inspiring for the management, staff and society at large. It should be precise enough, i.e., it should be neither too broad nor too narrow. It should be unique and distinctive to leave an impact in everyones mind.

f. It should be analytical,i.e., it should analyze the key components of the strategy. g. It should be credible, i.e., all stakeholders should be able to believe it.
3. Vision

A vision statement identifies where the organization wants or intends to be in future or where it should be to best meet the needs of the stakeholders. It describes dreams and aspirations for future. For instance, Microsofts vision is to empower people through great software, any time, any place, or any device. Wal-Marts vision is to become worldwide leader in retailing. A vision is the potential to view things ahead of themselves. It answers the question where we want to be. It gives us a reminder about what we attempt to develop. A vision statement is for the organization and its members, unlike the mission statement which is for the customers/clients. It contributes in effective decision making as well as effective business planning. It incorporates a shared understanding about the nature and aim of the organization and utilizes this understanding to direct and guide the organization towards a better purpose. It describes that on achieving the mission, how the organizational future would appear to be. An effective vision statement must have following featuresa. b. c. d. e. It must be unambiguous. It must be clear. It must harmonize with organizations culture and values. The dreams and aspirations must be rational/realistic. Vision statements should be shorter so that they are easier to memorize.

In order to realize the vision, it must be deeply instilled in the organization, being owned and shared by everyone involved in the organization.
4. Goals and objectives

A goal is a desired future state or objective that an organization tries to achieve. Goals specify in particular what must be done if an organization is to attain mission or vision. Goals make mission more prominent and concrete. They co-ordinate and integrate various functional and departmental areas in an organization. Well made goals have following featuresa. b. c. d. e. These are precise and measurable. These look after critical and significant issues. These are realistic and challenging. These must be achieved within a specific time frame. These include both financial as well as non-financial components.

Objectives are defined as goals that organization wants to achieve over a period of time. These are the foundation of planning. Policies are developed in an organization so as to

achieve these objectives. Formulation of objectives is the task of top level management. Effective objectives have following featuresf. These are not single for an organization, but multiple. g. Objectives should be both short-term as well as long-term. h. Objectives must respond and react to changes in environment, i.e., they must be flexible. i. These must be feasible, realistic and operational. 5. The strategic management process means defining the organizations strategy. It is also defined as the process by which managers make a choice of a set of strategies for the organization that will enable it to achieve better performance. Strategic management is a continuous process that appraises the business and industries in which the organization is involved; appraises its competitors; and fixes goals to meet all the present and future competitors and then reassesses each strategy. 6. Strategic management process has following four steps: 1. Environmental Scanning- Environmental scanning refers to a process of collecting, scrutinizing and providing information for strategic purposes. It helps in analyzing the internal and external factors influencing an organization. After executing the environmental analysis process, management should evaluate it on a continuous basis and strive to improve it. 2. Strategy Formulation- Strategy formulation is the process of deciding best course of action for accomplishing organizational objectives and hence achieving organizational purpose. After conducting environment scanning, managers formulate corporate, business and functional strategies. 3. Strategy Implementation- Strategy implementation implies making the strategy work as intended or putting the organizations chosen strategy into action. Strategy implementation includes designing the organizations structure, distributing resources, developing decision making process, and managing human resources. 4. Strategy Evaluation- Strategy evaluation is the final step of strategy management process. The key strategy evaluation activities are: appraising internal and external factors that are the root of present strategies, measuring performance, and taking remedial / corrective actions. Evaluation makes sure that the organizational strategy as well as its implementation meets the organizational objectives. 7. These components are steps that are carried, in chronological order, when creating a new strategic management plan. Present businesses that have already created a strategic management plan will revert to these steps as per the situations requirement, so as to make essential changes.

8. Components of Strategic Management Process 9. Strategic management is an ongoing process. Therefore, it must be realized that each component interacts with the other components and that this interaction often happens in chorus. Organizational environment consists of both external and internal factors. Environment must be scanned so as to determine development and forecasts of factors that will influence organizational success. Environmental scanning refers to possession and utilization of information about occasions, patterns, trends, and relationships within an organizations internal and external environment. It helps the managers to decide the future path of the organization. Scanning must identify the threats and opportunities existing in the environment. While strategy formulation, an organization must take advantage of the opportunities and minimize the threats. A threat for one organization may be an opportunity for another. Internal analysis of the environment is the first step of environment scanning. Organizations should observe the internal organizational environment. This includes employee interaction with other employees, employee interaction with management, manager interaction with other managers, and management interaction with shareholders, access to natural resources, brand awareness, organizational structure, main staff, operational potential, etc. Also, discussions, interviews, and surveys can be used to assess the internal environment. Analysis of internal environment helps in identifying strengths and weaknesses of an organization. As business becomes more competitive, and there are rapid changes in the external environment, information from external environment adds crucial elements to the effectiveness of long-term plans. As environment is dynamic, it becomes essential to identify competitors moves and actions. Organizations have also to update the core competencies and internal environment as per external environment. Environmental factors are infinite, hence, organization should be agile and vigile to accept and adjust to the environmental changes. For instance - Monitoring might indicate that an original forecast of the prices of the raw materials that are involved in the product are no more credible, which could imply the requirement for more focused scanning, forecasting and analysis to create a more trustworthy prediction about the input costs. In a similar manner, there can be changes in factors such as competitors activities, technology, market tastes and preferences. While in external analysis, three correlated environment should be studied and analyzed

immediate / industry environment national environment

broader socio-economic environment / macro-environment

Examining the industry environment needs an appraisal of the competitive structure of the organizations industry, including the competitive position of a particular organization and its main rivals. Also, an assessment of the nature, stage, dynamics and history of the industry is essential. It also implies evaluating the effect of globalization on competition within the industry. Analyzing the national environment needs an appraisal of whether the national framework helps in achieving competitive advantage in the globalized environment. Analysis of macroenvironment includes exploring macro-economic, social, government, legal, technological and international factors that may influence the environment. The analysis of organizations external environment reveals opportunities and threats for an organization. Strategic managers must not only recognize the present state of the environment and their industry but also be able to predict its future positions.

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Copyright 2008 - 2012 managementstudyguide.com. All rights reserved. Strategy formulation refers to the process of choosing the most appropriate course of action for the realization of organizational goals and objectives and thereby achieving the organizational vision. The process of strategy formulation basically involves six main steps. Though these steps do not follow a rigid chronological order, however they are very rational and can be easily followed in this order. 1. Setting Organizations objectives - The key component of any strategy statement is to set the long-term objectives of the organization. It is known that strategy is generally a medium for realization of organizational objectives. Objectives stress the state of being there whereas Strategy stresses upon the process of reaching there. Strategy includes both the fixation of objectives as well the medium to be used to realize those objectives. Thus, strategy is a wider term which believes in the manner of deployment of resources so as to achieve the objectives.

While fixing the organizational objectives, it is essential that the factors which influence the selection of objectives must be analyzed before the selection of objectives. Once the objectives and the factors influencing strategic decisions have been determined, it is easy to take strategic decisions. 2. Evaluating the Organizational Environment - The next step is to evaluate the general economic and industrial environment in which the organization operates. This includes a review of the organizations competitive position. It is essential to conduct a qualitative and quantitative review of an organizations existing product line. The purpose of such a review is to make sure that the factors important for competitive success in the market can be discovered so that the management can identify their own strengths and weaknesses as well as their competitors strengths and weaknesses. After identifying its strengths and weaknesses, an organization must keep a track of competitors moves and actions so as to discover probable opportunities of threats to its market or supply sources. 3. Setting Quantitative Targets - In this step, an organization must practically fix the quantitative target values for some of the organizational objectives. The idea behind this is to compare with long term customers, so as to evaluate the contribution that might be made by various product zones or operating departments. 4. Aiming in context with the divisional plans - In this step, the contributions made by each department or division or product category within the organization is identified and accordingly strategic planning is done for each sub-unit. This requires a careful analysis of macroeconomic trends. 5. Performance Analysis - Performance analysis includes discovering and analyzing the gap between the planned or desired performance. A critical evaluation of the organizations past performance, present condition and the desired future conditions must be done by the organization. This critical evaluation identifies the degree of gap that persists between the actual reality and the long-term aspirations of the organization. An attempt is made by the organization to estimate its probable future condition if the current trends persist. 6. Choice of Strategy - This is the ultimate step in Strategy Formulation. The best course of action is actually chosen after considering organizational goals, organizational strengths, potential and limitations as well as the external opportunities. 7. Strategy implementation is the translation of chosen strategy into organizational action so as to achieve strategic goals and objectives. Strategy implementation is also defined as the manner in which an organization should develop, utilize, and amalgamate organizational structure, control systems, and culture to follow strategies that lead to competitive advantage and a better performance. Organizational structure allocates special value developing tasks and roles to the employees and states how these tasks and roles can be correlated so as maximize efficiency, quality, and customer satisfaction-the pillars of competitive advantage. But, organizational structure is not sufficient in itself to motivate the employees. 8. An organizational control system is also required. This control system equips managers

with motivational incentives for employees as well as feedback on employees and organizational performance. Organizational culture refers to the specialized collection of values, attitudes, norms and beliefs shared by organizational members and groups.

Follwoing are the main steps in implementing a strategy: Developing an organization having potential of carrying out strategy successfully. Disbursement of abundant resources to strategy-essential activities. Creating strategy-encouraging policies. Employing best policies and programs for constant improvement. Linking reward structure to accomplishment of results. Making use of strategic leadership. Excellently formulated strategies will fail if they are not properly implemented. Also, it is essential to note that strategy implementation is not possible unless there is stability between strategy and each organizational dimension such as organizational structure, reward structure, resource-allocation process, etc. Strategy implementation poses a threat to many managers and employees in an organization. New power relationships are predicted and achieved. New groups (formal as well as informal) are formed whose values, attitudes, beliefs and concerns may not be known. With the change in power and status roles, the managers and employees may employ confrontation behaviour Following are the main differences between Strategy Formulation and Strategy ImplementationStrategy Formulation Strategy Formulation includes planning and decision-making involved in developing organizations strategic goals and plans. In short, Strategy Formulation is placing the Forces before the action. Strategy Formulation is an Entrepreneurial Activity based on strategic decision-making. Strategy Formulation emphasizes on effectiveness. Strategy Formulation is a rational process. Strategy Implementation Strategy Implementation involves all those means related to executing the strategic plans. In short, Strategy Implementation is managing forces during the action. Strategic Implementation is mainly an Administrative Task based on strategic and operational decisions. Strategy Implementation emphasizes on efficiency. Strategy Implementation is basically an operational process.

Strategy Formulation requires co-ordination among few individuals. Strategy Formulation requires a great deal of initiative and logical skills. Strategic Formulation precedes Strategy Implementation.

Strategy Implementation requires co-ordination among many individuals. Strategy Implementation requires specific motivational and leadership traits. STrategy Implementation follows Strategy Formulation.

Strategy Evaluation is as significant as strategy formulation because it throws light on the efficiency and effectiveness of the comprehensiv e plans in achieving the desired results. The managers can also assess the appropriatenes s of the current strategy in todays dynamic world with socioeconomic, political and technological innovations. Strategic Evaluation is the final phase of strategic management. The significance of strategy

evaluation lies in its capacity to co-ordinate the task performed by managers, groups, departments etc, through control of performance. Strategic Evaluation is significant because of various factors such as developing inputs for new strategic planning, the urge for feedback, appraisal and reward, development of the strategic management process, judging the validity of strategic choice etc. The process of Strategy Evaluation consists of following steps1. Fixing benchmark of performance - While fixing the benchmark, strategists encounter questions such as - what benchmarks to set, how to set them and how to express them. In order to determine the benchmark performance to be set, it is essential to discover the special requirements for performing the main task. The performance indicator that best identify and express the special requirements might then be determined to be used for evaluation. The organization can use both quantitative and qualitative criteria for comprehensive assessment of performance. Quantitative criteria includes determination of net profit, ROI, earning per share, cost of production, rate of employee turnover etc.

Among the Qualitative factors are subjective evaluation of factors such as - skills and competencies, risk taking potential, flexibility etc. 2. Measurement of performance - The standard performance is a bench mark with which the actual performance is to be compared. The reporting and communication system help in measuring the performance. If appropriate means are available for measuring the performance and if the standards are set in the right manner, strategy evaluation becomes easier. But various factors such as managers contribution are difficult to measure. Similarly divisional performance is sometimes difficult to measure as compared to individual performance. Thus, variable objectives must be created against which measurement of performance can be done. The measurement must be done at right time else evaluation will not meet its purpose. For measuring the performance, financial statements like - balance sheet, profit and loss account must be prepared on an annual basis. 3. Analyzing Variance - While measuring the actual performance and comparing it with standard performance there may be variances which must be analyzed. The strategists must mention the degree of tolerance limits between which the variance between actual and standard performance may be accepted. The positive deviation indicates a better performance but it is quite unusual exceeding the target always. The negative deviation is an issue of concern because it indicates a shortfall in performance. Thus in this case the strategists must discover the causes of deviation and must take corrective action to overcome it. 4. Taking Corrective Action - Once the deviation in performance is identified, it is essential to plan for a corrective action. If the performance is consistently less than the desired performance, the strategists must carry a detailed analysis of the factors responsible for such performance. If the strategists discover that the organizational potential does not match with the performance requirements, then the standards must be lowered. Another rare and drastic corrective action is reformulating the strategy which requires going back to the process of strategic management, reframing of plans according to new resource allocation trend and consequent means going to the beginning point of strategic management process. Strategic decisions are the decisions that are concerned with whole environment in which the firm operates, the entire resources and the people who form the company and the interface between the two.
Characteristics/Features of Strategic Decisions

a. Strategic decisions have major resource propositions for an organization. These decisions may be concerned with possessing new resources, organizing others or reallocating others. b. Strategic decisions deal with harmonizing organizational resource capabilities with the threats and opportunities. c. Strategic decisions deal with the range of organizational activities. It is all about what they want the organization to be like and to be about. d. Strategic decisions involve a change of major kind since an organization operates in ever-changing environment.

e. Strategic decisions are complex in nature.

f. Strategic decisions are at the top most level, are uncertain as they deal with the future, and involve a lot of risk. g. Strategic decisions are different from administrative and operational decisions. Administrative decisions are routine decisions which help or rather facilitate strategic decisions or operational decisions. Operational decisions are technical decisions which help execution of strategic decisions. To reduce cost is a strategic decision which is achieved through operational decision of reducing the number of employees and how we carry out these reductions will be administrative decision. The differences between Strategic, Administrative and Operational decisions can be summarized as followsStrategic Decisions Administrative Decisions Operational Decisions Operational decisions are not frequently taken. These are mediumperiod based decisions. These are taken in accordance with strategic and administrative decision. These are related to production.

Strategic decisions are longterm decisions.

Administrative decisions are taken daily.

These are considered where The future planning is concerned. Strategic decisions are taken in Accordance with organizational mission and vision.

These are short-term based Decisions.

These are taken according to strategic and operational Decisions.

These are related to overall Counter planning of all Organization. These deal with organizational Growth.

These are related to working of employees in an Organization.

These are in welfare of employees working in an organization.

These are related to production and factory growth.

Definition of Business Policy

Business Policy defines the scope or spheres within which decisions can be taken by the subordinates in an

organization. It permits the lower level management to deal with the problems and issues without consulting top level management every time for decisions. Business policies are the guidelines developed by an organization to govern its actions. They define the limits within which decisions must be made. Business policy also deals with acquisition of resources with which organizational goals can be achieved. Business policy is the study of the roles and responsibilities of top level management, the significant issues affecting organizational success and the decisions affecting organization in long-run.

Features of Business Policy

An effective business policy must have following features1. Specific- Policy should be specific/definite. If it is uncertain, then the implementation will become difficult. 2. Clear- Policy must be unambiguous. It should avoid use of jargons and connotations. There should be no misunderstandings in following the policy. 3. Reliable/Uniform- Policy must be uniform enough so that it can be efficiently followed by the subordinates. 4. Appropriate- Policy should be appropriate to the present organizational goal. 5. Simple- A policy should be simple and easily understood by all in the organization. 6. Inclusive/Comprehensive- In order to have a wide scope, a policy must be comprehensive. 7. Flexible- Policy should be flexible in operation/application. This does not imply that a policy should be altered always, but it should be wide in scope so as to ensure that the line managers use them in repetitive/routine scenarios. 8. Stable- Policy should be stable else it will lead to indecisiveness and uncertainty in minds of those who look into it for guidance.
Difference between Policy and Strategy

The term policy should not be considered as synonymous to the term strategy. The difference between policy and strategy can be summarized as follows1. Policy is a blueprint of the organizational activities which are repetitive/routine in nature. While strategy is concerned with those organizational decisions which have not been dealt/faced before in same form. 2. Policy formulation is responsibility of top level management. While strategy formulation is basically done by middle level management. 3. Policy deals with routine/daily activities essential for effective and efficient running of an organization. While strategy deals with strategic decisions.

4. Policy is concerned with both thought and actions. While strategy is concerned mostly with action. 5. A policy is what is, or what is not done. While a strategy is the methodology used to achieve a target as prescribed by a policy

Business policy- Evolution, meaning, concept and definition 7. Business Policy defines the scope or spheres within which decisions can be taken by the subordinates in an organization. It permits the lower level management to deal with the problems and issues without consulting top level management every time for decisions. 8. Business policies are the guidelines developed by an organization to govern its actions. 9. They define the limits within which decisions must be made. Business policy also deals with acquisition of resources with which organizational goals can be achieved. 10. It is the study of the roles and responsibilities of top level management, the significant issues affecting
6.

organizational success and the decisions affecting organization in long-run.

11.

An effective business policy must have following featureso

Specific- Policy should be specific/definite. If it is uncertain, then the implementation will become difficult. Clear- Policy must be unambiguous. It should avoid use of jargons and connotations. There should be no misunderstandings in following the policy. Reliable/Uniform- Policy must be uniform enough so that it can be efficiently followed by the subordinates. Appropriate- Policy should be appropriate to the present organizational goal. Simple- A policy should be simple and easily understood by all in the organization. Inclusive/Comprehensive- In order to have a wide scope, a policy must be comprehensive. Flexible- Policy should be flexible in operation/application. This does not imply that a policy should be altered always, but it should be wide in scope so as to ensure that the line managers use them in repetitive/routine scenarios.

Stable- Policy should be stable else it will lead to indecisiveness and uncertainty in minds of those who look into it for guidance.

MBA III SEMESTER : Business policy and strategic management

Course No 301 Paper No. XVIII

Difference between Policy and Strategy

o

The term policy should not be considered as synonymous to the term strategy. Policy is a blueprint of the organizational activities which are repetitive/routine in nature. While strategy is concerned with those organizational decisions which have not been dealt/faced before in same form. Policy formulation is responsibility of top level management. While strategy

formulation is basically done by middle level management. Policy deals with routine/daily activities essential for effective and efficient running of an organization. While strategy deals with strategic decisions. Policy is concerned with both thought and actions. While strategy is concerned mostly with action. A policy is what is, or what is not done. While a strategy is the methodology used to achieve a target as prescribed by a policy.

Concept of Corporate Strategy

o

The word strategy is derived from the Greek word stratgos; stratus (meaning army) and ago (meaning leading/moving). Strategy is an action that managers take to attain one or more of the organizations goals. Strategy can also

be defined as A general direction set for the company and its various components to achieve a desired state in the future. Strategy results from the detailed strategic planning process. A strategy is all about integrating organizational activities and utilizing and allocating the scarce resources within the organizational environment so as to meet the present objectives. While planning a strategy it is essential to consider that decisions are not taken in a vacuum and that any act taken by a firm is likely to be met by a reaction from those affected, competitors, customers, employees or suppliers. Strategy can also be defined as knowledge of the goals, the uncertainty of events and the need to take into consideration the likely or actual behavior of others. Strategy is the blueprint of decisions in an organization that shows its objectives and goals, reduces the key policies, and plans for achieving these goals, and defines the business the company is to carry on, the type of economic and human organization it wants to be, and the contribution it plans to make to its shareholders, customers and society at large.

MBA III SEMESTER : Business policy and strategic management

Course No 301 Paper No. XVIII MBA III SEMESTER : Business policy and strategic management
Course No 301 Paper No. XVIII

Features of Strategy
o

Strategy is Significant because it is not possible to foresee the future. Without a perfect foresight, the firms must be ready to deal with the uncertain events which constitute the business environment. Strategy deals with long term developments rather than routine operations, i.e. it deals with probability of innovations or new products, new methods of productions, or new markets to be developed in future. Strategy is created to take into account the probable behavior of customers and competitors. Strategies dealing with

employees will predict the employee behavior. Strategy is a well defined roadmap of an organization. It defines the overall mission, vision and direction of an organization. The objective of a strategy is to maximize an organizations strengths and to minimize the strengths of the competitors. Strategy, in short, bridges the gap between where we are and where we want to be.

7
o

Strategy as the determinant of the longterm goals of the enterprise. - Chandler Strategy as the pattern of objectives, purposes, or goals and plans for achieving these goals. - Andrews

Strategy as the common thread among a firms activities. Ansoff Strategy is a pattern in a stream of actions over time. Mintzberg. Strategies contain goals, policies, and action sequences. Strategies develop around a few key concepts. Strategies deal with the unpredictable and the unknowable. Strategies require hierarchies of mutual support strategies.

MBA III SEMESTER : Business policy and strategic management

Course No 301 Paper No. XVIII

MBA III SEMESTER : Business policy and strategic management

Course No 301 Paper No. XVIII

Ploy Plan Pattern Perspective Position

10

5 P of strategy

MBA III SEMESTER : Business policy and strategic management

Course No 301 Paper No. XVIII

Intended Strategy Unrealized Strategy Emergent Strategy Deliberate Realized Strategy

Different Kinds of Strategy

11

MBA III SEMESTER : Business policy and strategic management

Course No 301 Paper No. XVIII

Military Axioms on Effective Strategy

o o o o o

o o

Have clear, decisive objectives. Maintain the initiative. Concentrate resources. Be flexible. Have coordinated and committed leadership. Achieve surprise. Have an element of security.
13

The beliefs and values shared by people who work in an organisation

How people behave with each other How people behave with customers/clients How people view their relationship with stakeholders Peoples responses to energy use, community involvement, absence, work ethic, etc. How the organisation behaves to its employees training, professional development, etc.

12

MBA III SEMESTER : Business policy and strategic management

Course No 301 Paper No. XVIII
o

Vision where the organisation wants to go in the future Mission Statement summary of the beliefs of the organisation and where it is now

The Vision Communicating to all staff where the organisation is going and where it intends to be in the future Allows the firm to set goals Aims and Objectives: Aims long term target Objectives the way in which you are going to achieve the aim

13

MBA III SEMESTER : Business policy and strategic management

Course No 301 Paper No. XVIII

Strategic Planning
o

Once the direction is identified: Analyse position

Develop and introduce strategy Evaluate:

Evaluation is constant and the results of the evaluation feed back into the vision

14

MBA III SEMESTER : Business policy and strategic management

Course No 301 Paper No. XVIII

Strategic Planning
o o

First Stage of Strategic Planning may involve: Futures Thinking

Thinking about what the business might need to do 1020 years ahead

Strategic Intents

Thinking about key strategic themes that will inform decision making The thicker the planning document, the more useless it will be

(Brent Davies: 1999)

Taking time to think and reflect may be more important than many businesses allow time for!
Copyright: Intuitives, http://www.sxc.hu

MBA III SEMESTER : Business policy and strategic management

Course No 301 Paper No. XVIII

Analysis: SWOT
o

Strengths identifying existing organisational strengths

Weaknesses identifying existing organisational weaknesses Opportunities what market opportunities might there be for the organisation to exploit? Threats where might the threats to the future success come from?
16

MBA III SEMESTER : Business policy and strategic management

Course No 301 Paper No. XVIII

Analysis: PEST
o

Political: local, national and international political developments how will they affect the organisation and in what way/s? Economic: what are the main economic issues both nationally and internationally that might affect the organisation? Social: what are the developing social trends that may impact on how the organisation operates and what will they mean for future planning? Technological: changing technology can impact on competitive advantage very quickly!

17

MBA III SEMESTER : Business policy and strategic management

Course No 301 Paper No. XVIII

o o

Examples:
Growth of China and India as manufacturing centres Concern over treatment of workers and the environment in less developed countries who may be suppliers The future direction of the interest rate, consumer spending, etc. The changing age structure of the population The popularity of fads like the Atkins Diet The move towards greater political regulation of business The effect of more bureaucracy in the labour market Political instability, social unrest ( TATA NANO)

Enviromental concerns over Mining VEDANT? Jaitapur atomic plant Maharashtra, Mumbai Airport?
18

MBA III SEMESTER : Business policy and strategic management

Course No 301 Paper No. XVIII

5 Forces
o

Developed by Michael Porter: forces that shape and influence the industry or market the organisation operates in. Strength of Barriers to Entry - how easy is it for new rivals to enter the industry? Extent of rivalry between firms how competitive is the existing market? Supplier power the greater the power, the less control the

organisation has on the supply of its inputs. Buyer power how much power do customers in the industry have? Threat from substitutes what alternative products and services are there and what is the extent of the threat they pose?

Strategic management model refers to the pattern or mode of strategic management. According to the strategic management model, a number of steps are taken to achieve the objectives of a company. Different strategic management models are chosen by various companies according to their conveniences.

About Strategic Management Model

Strategic management model is also known as strategic planning model. A strategic planning model is selected for the purpose of formulating and implementing the strategic management plan of a particular organization.

Nevertheless, it has been proved that no strategic planning model is perfect. Every company designs its own strategic planning model frequently by choosing a model and transforming it as the company advances into formulating its strategic management plan procedures. A number of strategic planning model options are available for the companies from which they can choose.

The Components of a Strategic Management Model

In the decade of 1970s, a large number of corporations followed a recognized strategic planning model, which is top down in nature. According to this model, strategic planning was a calculated procedure where the top management would design the strategy of the company and after that it was passed on downward in the company for application. The steps involved in this strategic planning model were the following:

Mission Objectives Situation Analysis Formulation of Strategies Application Control

The situation analysis is basically a blend of PEST Analysis (Political, Economic, Social and Technological Analysis) and SWOT Analysis (Strengths, Weaknesses, Opportunities and Threats Analysis). Internal analysis is an important component of situation analysis, which studies the condition within the company taking into account the following factors:

Image of the company Culture of the company Key personnel Structure of the company Location on the experience curve Availability of natural resources Operational capability Operational effectiveness Market share Brand consciousness

Exclusive agreements Financial resources Trade secrets and patents

A strategic planning model is applied in functional domains like the following:

Research and development Marketing Production Procurement Information systems Human resources

Forms of Strategic Management Models

The different types of strategic management models can be categorized into the following types:

Basic strategic planning model Alignment strategic planning model Goal-based or issue-based strategic planning model Self-organizing or organic strategic planning model Scenario strategic planning model

Organizations, like all living systems, can survive only to the extent that they maintain harmony with their external environment. This includes being sensitive to the evolving needs and perceptions of customers, understanding changes occurring in technologies, knowing what the competition is doing and knowing the legal, social and political climates. Most organizations eventually die because they fail to maintain a responsive attitude towards their environment.

http://www.centerod.com/

Contents

1. Strategic and Business Planning 2. Three Key Strategic Questions 3. Composition of Strategic Management 4. Basic Elements of the Strategic Management Process 5. Strategic Management Model 6. Environmental Variables 7. Definition of Strategy Formulation 8. Definition of Vision 9. Definition of Mission 10. What Should be in a Mission Statement? 11. Definition of Objectives 12. Making Goal Setting Effective 13. Strategic Decision-Making Process 14. Definition of Strategy Implementation 15. Main Elements of Strategic Audit 1. Strategic and Business Planning

Strategic planning
Strategic planning looks outward to establish the context in which the organization or business unit will operate with respect to its defined mission, and to set the vision for a desired future state.

Business planning
Business planning looks inward to organize available resources in pursuit of the vision. Both levels of planning rely on definitive objectives and quantitative measures of performance to guide and monitor progress.

2. Three Key Strategic Questions

Where is the organization now? If no changes are made, where will the organization be in one, two, five or ten years? Are the answers acceptable? If the answers are not acceptable, what specific actions should management undertake? What are the risks and payoffs involved?

3. Composition of Strategic Management

Strategic Management is Composed of

o o o Environmental scanning Strategy formulation Strategy implementation

Evaluation and control

4. Basic Elements of the Strategic Management Process

5. Strategic Management Model

6. Environmental Variables

Societal Environment PEST

o Composed of general Economical forces in environment (Political - Social Technological Groups in environment that directly affect or are affected by the organizations operations (Often called industry) The way an Organization is organized in terms of communication, authority, and workflow Collection of beliefs, expectations, and values learned and shared by members and transmitted from one generation of employees to another An asset, competency, process, skill, or knowledge controlled by the corporation

Task Environment
o

Structure
o

Organization Culture
o

Resources
o

7. Definition of Strategy Formulation

Strategy Formulation
o The process of developing long-range plans to deal effectively with environmental opportunities and threats in light of the organization strengths and weaknesses Vision/ Mission Objectives Strategies Policies

Composed of
o o o o

8. Definition of Vision
The vision provides a description of what the organization will evolve into in the future. It states what the organization wants to become & where it wants to go. There is one universal rule of planning: You will never be greater than the vision that guides you.

9. Definition of Mission
The purpose or reason for the organizations existence and What it must do to justify its existence o o o o Products & Service offered & Areas of specialization Nature & location of business's marketing territory Clientele served & Stakeholders & How we will satisfy them Core Values: Ethical, Professional, Social

It may be narrow or broad in scope

Narrow Railroad Insurance Broad Transportation Financial Services

10. What Should be in a Mission Statement? 10.1 The Purpose Statement

o o o o The purpose statement clearly states what your organization seeks to accomplish: Why does your organization exist? What is the ultimate result of your work? Purpose statements usually include two phrases: an infinitive that indicates a change in status, such as to increase, to decrease, to prevent, to eliminate an identification of the problem or condition to be changed

10.2 The Business Statement

o o o o

This statement outlines the business your organization chooses in order to pursue its purpose. Specifically, you must answer, "What activity are we going to do to accomplish our purpose?" Business statements often include the verb "to provide" or link a purpose statement with the words "by" or "through." A cautionary note: If the word "and" is in your purpose or business statement, ask yourselves, "Are we really committed to both ideas connected by the word" and, "or have we simply not been able to accept that one idea is more important?" Organization's Core Values, Believes & Behavioral Standards. There are three groups of values: ethical values, Professional values, Public & society values Ethical values: Integrity, Honesty & Impartiality etc.

10.3 Statement of Values

o o

Professional values: Maximizing stakeholders value added, Innovation, Quality, Flexibility & Responsiveness, Partnership, Continuous Improvement etc.

Public & Society Values: responsibilities towards our society, environment, Social & Legal Responsibilities

11. Definition of Objectives

The end results of planned activity. They state WHAT is to be accomplished by WHEN. They should be quantified, if possible.

11.1 Areas in Which to Set Objectives

o o o o o o o o o o o o o o o o Profitability Contributions to employees Efficiency Contributions to society Shareholder wealth Market leadership Growth Technological leadership Utilization of resources Survival Reputation Personal needs of management Relevant Able to provide balance Practical Able to provide contingency

11.2 Objectives should be

o o o o o o o o o o o o

Challenging Ranked in order of importance Measurable Clearly stated Schedulable Realistically stated Flexible Innovative Timely Limited in number Show growth Cost effective

12. Making Goal Setting Effective

i. Managers should understand the purposes of goals. ii. Goals should be properly stated. a. They should be specific. b. They should be concise. c. They should be time-related. iii. Goals should be horizontally and vertically consistent. iv. Managers must accept and be committed to the goals. v. The goal-setting process should be integrated with the reward system, but it should also have
a diagnostic component.

13. Strategic Decision-Making Process

14. Definition of Strategy Implementation

The process of putting strategies and policies into action through the development of o o o Programs Budgets Procedures

15. Main Elements of Strategic Audit

i. Current Situation a. Performance b. Strategic Posture ii. Corporate Governance a. Board of Directors b. Top Management

iii. External Environment a. Societal b. Task (Industry) c. Opportunities and Threats (EFAS) iv. Internal Environment a. Structureb. Culture b. Resources (Mkt, Fin, R&D, Etc.) c. Strengths and Weaknesses (IFAS) v. Analysis of Strategic Factors a. SWOT Analysis (SFAS) b. Review Mission and Objectives vi. Strategic Alternatives and Recommendations a. Alternatives b. Recommended Strategy vii. Implementation a. Programs b. Budgets c. Procedures viii. Evaluation and Control a. Adequate Information System b. Adequate Control Measures

ix. Environmental Scanning, Industry Analysis, Competitive Intelligence and ETOP Study
ENVIRONMENTAL ANALYSIS INTRODUCTION Strategic analysis is basically concerned with the structuring of the relationship between a business and its environment. The environment in which business operates has a greater influence on their successes or failures. There is a strong linkage between the changing environment, the strategic response of the business to

such changes and the performance. It is therefore important to understand the forces of external environment the way they influence this linkage. The external environment which is dynamic and changing holds both opportunities and threats for the organisations. The organisations while attempting at strategic realignments, try to capture these opportunities and avoid the emerging threats. At the same time the changes in the environment affect the attractiveness or risk levels of various investments of the organizations or the investors.

BROAD DIMENSIONS OF EXTERNAL ENVIRONMENT The macro environment in which all organizations operate broadly consist of the economic environment, the political and legal environment, the socio cultural aspects and the environment related issues like pollution, sustainability etc. The technological temper and its progress has been the key driver behind the major changes witnessed in the external environment making it increasingly complex. Strategic Analysis These factors often overlap and the developments in one area may influence developments in other. For example, the opening up of economy integrated the markets globally and increased the competition between private and public firms. This forced the Indian government to revisit its economic policies. Under its new liberalization policy and economic reforms of 1991, regulations like MRTP, which restricted the size of the business and therefore inhibited their efficiency and competitive levels, were removed with a positive impact on the indigenous industries. However, the delay in addressing to the policies like Indian companies act or Exim policies, organisations

both from domestic and abroad still find the Indian business environment not so conducive for business. The current political developments are sure to have more uncertainties in the minds of business people regarding the future policy direction in certain sectors. The social considerations in the context of a developing country like India also plays a critical role in deciding the broad dynamics of the business environment. The clash of ideologies between preserving the Indian ethos and culture and giving a freedom of choice to people often create problems and confusion for business. PESTEL FRAMEWORK Careful analysis of the above factors will help in identifying major trends for different industries. Exhibit-1 shows the PESTEL framework which is most popularly used for such analysis. The external forces can be classified into six broad categories: Political, Economic, Social, Technological, Environmental and Legal Forces. Changes in these external forces affect the changes in consumer demand for both industrial and consumer products and services. These external forces affect the types of products produced, the nature of positioning them and market segmentation strategies, the types of services offered, and choice of business. Therefore, it becomes important for the organizations to identify and evaluate external opportunities and threats so as to develop a clear mission, designing strategies to achieve longterm objectives and develop policies to achieve short-term goals. Here, we will discuss all the six forces individually and then try to come to the conclusion regarding environmental analysis. Few indicative points are listed to guide you to find the key forces at work in

the general environment. While the framework may be used to understand the most important factors at the present time, it should be primarily used to look into the future impact which may be different from their present or past impact. The PESTEL Framework Macro-environmental influences. The framework primarily involves the following two areas: 1. The environmental factors affecting the organization; 2. The important factors relevant in the present context and in the years to come. Political 1. Government stability 2. Political values and beliefs shaping policies 3. Regulations towards trade and global business 4. Taxation policies 5. Priorities in social sector Environmental Analysis Economic Factors 1. GNP trends 2. Interest rates/savings rate 3. Money supply 4. Inflation rate 5. Unemployment 6. Disposable income 7. Business cycles 8. Trade deficit/surplus Socio-cultural Factors 1. Population demographics l ethnic composition l aging of population l regional changes in population growth and decline 2. Social mobility 3. Lifestyle changes 4. Attitudes to work and leisure 5. Education spread or erosion of educational standards 6. Health and fitness awareness 7. Multiple income families Technological

1. Biotechnology 2. Process innovation 3. Digital revolution 4. Government spending on research 5. Government and industry focus on technological effort 6. New discoveries/development 7. Speed of technology transfer 8. Rates of obsolescence Legal 1. Monopolies legislation/Antitrust regulation 2. Employment law 3. Health and safety 4. Product safety Political: Politics has a serious impact on the economic environment of a country. Political ideology and political stability or instability strongly influence the pace and direction of the economic growth. Also it contribuies to the economic environment which is conducive for some businesses to grow or remains indifferent for some businesses and at times is a hurdle. Subsequent to general elections of 2004 in the country, there has been a change in the government at the centre. A new coalition United Progressive Alliance (UPA) led by the Congress party and supported by Left is ruling at the centre and the implications on business can be seen through few of the policy statements announced by the government. Even though the broad policy direction is in line with the policy of an open economy and private sector initiative, the Strategic Analysis Common Minimum Programme has identified few priority areas which is going to have an impact different than before. Particularly when there are certain ideologies which view differently the issues like FDI and privatization, the future of different

sectors like insurance and banking, aviation and telecommunication have become uncertain. Looking back into the history due to certain ideological beliefs prevalent in some section of politics, foreign companies like Coca Cola and IBM had to move out of India in the late 70s. Entry barriers, protectionist policies, high tariffs, nationalist pursuits all worked towards a closed economy which continued till the time liberlization policies were introduced in 1991. This situation had a cumulative effect on making the economy weak and the businesses were hardly competitive as compared to the international standards. However in subsequent years, the political consensus developed on issues such as labour reforms, power sector reforms, importance of infrastructure sector is doing a lot good for business. Nevertheless, the deteriorating standards in politics, increasing corruption and the criminal nexus are creating hurdles for business in certain areas. Common Economic Indicators A. National Income B. Policy Initiatives GNP Monetary policy Personal disposable Income Fiscal policy Personal consumption Labour and employment policy C. Savings D. Foreign Sector Personal savings Exchange rates Corporate savings Exports/Imports Balance of Payments E. Industry F. Sectoral Growth Industry Investment Agriculture FDI flows Industry Services

Infrastructure G. Capital Market H. Prices, Wages, Productivity Equity market Inflation Bond market Labour productivity Economic factors throw light on the nature and direction of the economy in which a Environmental Analysis firm operates. The firms must focus on economic trends in segments that affect their industry. For example the present trend of low interest rates on personal savings may compel individuals to move towards equity and bond markets leading to a boom in the capital market activity and the mutual fund industry. Consumption patterns are usually governed by the relative affluence of market segments and firms must understand them through the level of disposable income and the tendency of people to spend. Interest rates, inflation rates, unemployment rates and trends in the gross national product, government policies and sectoral growth rates are other economic influences it must consider. The services sectors contribution to national income is increasing year after year and the family incomes are rising faster than individual incomes, job opportunities are more diverse and therefore these speak for different types of opportunities and challenges which are emerging before the business. With the opening up of the economy, trends in global market needs a careful look. The above needs to be analyzed and incorporated in your inferences for the general environment and its other forces and how all these together may influence business. Social Demographic Factors: Demographic characteristics such as population, age distribution, literacy levels, inter-state migration, rural-urban mobility, income distribution etc. are the key indicators for understanding the demographic impact on

environment. The shifts in age distribution caused by improved birth control methods have created opportunities for youth centric products ranging from clothes to entertainment to media. The growing number of senior citizens and their livelihood needs have been highlighted and the government is being forced to pay more attention in the form of social security benefits etc. Considering Literacy and the composition of literates in the country creates opportunities for particular type of industries and type of jobs. For example on one hand, the presence of a large number of English speaking engineers encouraged many software giants to set up shops in India and on the other, the availability of cheap labour, India becomes a destination for labour intensive projects. Moreover, large labour mobility across different occupations and regions, in recent times, has cut down wage differentials greatly and this has an impact for business which needs to be understood. Cultural Factors: Social attitudes, values, customs, beliefs, rituals and practices also influence business practices in a major way. Festivals in India offer great business opportunity for certain industries like clothes and garments, jewellery, gift items, sweetmeats and many others, the list could be endless. Social values and beliefs are important as they affect our buying behaviour. For example, Mc Donalds does not serve the beef burgers in India because Indians do not Strategic Analysis have cow meat since the animal is considered holy and sacred. A related example of Walt Disney also brings out clearly, the impact different cultures may bring to business. Walt Disney which has been so suffcessful in US market could not be so similarly successful in European countries because of the difference in the

way in which people entertain themselves there. Walt Disney had to customize its offerings in order to be successful in these markets. The spread of consumerism, the rise of the middle class with high disposable income, the flashy lifestyles of people working in software, telecom, media and multinational companies seem to have changed the socio-cultural scenario and this needs to be understood deeply. Values in society also determines the work culture, approach towards stakeholders and the various responsibilites the organization thinks of owing to its stockholders and the society. Technology: Technological factors represent major opportunities and threats which must be taken into account while formulating strategies. Technological breakthroughs can dramatically influence the organisations products, services markets, suppliers, distributors, competitorss, customers, manufacturing processes, marketing practices and competitive position. Technological advancements can open up new markets, change the relative position of an industry and render existing products and services obsolete. Technological changes can reduce or elimiate cost barriers between businesses, create shorter production runs, create shortages in technical skills and result in changing values and expectations of customers and employees. The impact of information technology (IT) which combines fruits of both telecommunications and computers has been revolutionary in every field. Not only has it opened up new vistas of business but also has changed the way the businesses are done. IT has specifically brought in another dimension Speed which organizations recognize as the additional source of competitive advantage beyond low cost and

differentiation. Manufacturers, bankers and retailers have used IT to carry out their traditional tasks at lower costs and deliver higher value added products and services. Environment: Environment conservation and protection is an issue, which Environmental Analysis has gained prominence because of deteriorating environmental balance which is threatening the sustainability of life and nature. Largely, business is also held responsible for such situations as emissions from industries poluting the air, excessive chemical affluents drained out in water making it poisonous and unfit for use, usage of bio non-degradable resources affecting the bio-chain adversely and exposure of employees to hazardous radiations bring their life in danger. All these have been taken very seriously by different stakeholders in the society including the government and legislations and movements are creating pressure for an environment friendly business. These have far reaching implications for business ranging from the kind of business, the product being manufactured, how it is manufactured and how friendly it is for mankind and nature. Big companies like Coca Cola and Pepsi have also come under the purview of the society regarding the environmental hazards. If the charges on them of using chemicals beyond accepted levels for manufacturing soft drinks are confirmed, they will have a black spot on their names and business. So, it is important for the organisations to take care of the environment as well. Legal: Licensing policies, quota restrictions, import duties, Forex regulations, restrictions on FDI flows, controls on distribution and pricing of commodities together made business difficult during license permit raj before the liberalization policy of 1991. However, with economic reforms things have changed and legal formalities have eased. Nevertheless with globalization, the rules of

competition, trade mark rights and patents, WTO rules and implications, price controls and product quality laws and a number of other legal issues in individual countries have become important and therefore they need to be included while understanding the general environment. GENERAL ENVIRONMENT AND ORGANIZATIONS STRATEGY As a next important step the manager needs to analyze the kind of impact the change may bring in their own industry as the impacts are never same for all industries. For example, the emerging younger demographic profile of India will have very different consequences for businesses say in health care or entertainment. While the former will face an adverse effect, the latter will have a positive effect and this needs to be analyzed and integrated into strategic decision making. In response to these assessments of differential impacts, managers will be able to take advantages of the opportunities or guard themselves of the threats. Exhibit 4 shows in how different ways various industries get affected by the different environmental trends. Responding to these various impacts with new strategic initiatives the managers must take notice of the fact that if the changes are significant, it may have the potential of changing the competitive rules of the game in the industry. For example, in India the Strategic Analysis competitive rules of the game for sectors like telecom, banking and insurance etc. in the post liberalization period changed specially in last two years. With the easing of FDI and particiption of major global players, norms have changed dramatically which is reflected in the strategies of most of the firms in the sector. These changes can be

seen in the area of technology and pricing, intensity of advertising and promotions, their business alliances and network in the country. Managers need to be cautious of the fact that there may be developments, which are not so easy to be predicted and therefore need further attention so that they can be incorporated in their strategy. In the global context, the managers must see the kind of impact any single change will have in different markets. It is quite possible that they are very different both in degree and their nature. Exhibit 4 Environmental Potentially positive Probably neutral Probably negative Trends effects effects effects 1. Aging population medical services minerals colleges and schools 2. Multiple income fast food machine tools grocers supplies families 3. Deregulation shipping financial sector 4. Increased waste management software leather environmental lelgislation 5. Growing global telecommunication competition mining small scale/handicrafts Structural Drivers to Change The PESTEL analysis gives a number of factors and their likely influences. However it is important to identify the specific factors which may influence an industry and force them towards competitive adjustments. These factors are termed as structural drivers of change which have the likely effect on the structure of an industry or on the competitive environment. As a first step based on PESTEL analysis, the key driving forces need to be identified and then impact of the combined effect of these forces should also be made. Increasing globalization of the industry and the E enabled era could be such driving

forces capable of affecting the structure of an industry or its environment. ENVIRONMENTAL SCANNING The factors or the forces understood under PESTEL framework put together, present a highly complex and uncertain environment which are difficult to predict or foresee. From a long term view of strategy however, reaching somewhat closer to such forces are important in understanding the key factors influencing the success of such strategies. Environmental scanning is one of the few ways to detect future driving forces early and this involves studying and interpreting the developments of social, political, economic, ecological and technical events that could become driving forces. It attempts to figure out few radical happendings or path breaking developments which may be catching on and see their possible implications 5 to 20 years into the future. The purpose of the environmental scanning is to raise the consciousness of managers about potential developments that could have an impact on industry conditions and bring in new threats or opportunities. Environmental scanning is normally accomplished by systematically monitoring and Environmental Analysis studying current events, constructing scenarios and employing the Delphi method (a technique for finding consensus among a group of knowledgeable experts). Constructing scenarios involves a detailed plausible view of how the business environment of an organization might develop in the future based on the groupings of key environmental influences and drivers of change about which there is high level of uncertainty. For example in industries like energy, transportation, defence equipment etc. there is a need for views of the business environment of more than 1015 years

and factors like raw materials, substitutes, consumption patterns, geo politics etc. would be of crucial importance. Foreseeing precisely for such a longer duration may be very difficult but drawing up possible futures may be possible. It is not unnatural to believe that several scenarios could unfold overtime and these need to be understood. Scenario Planning technique is briefly discussed in Unit 5 under the competitive environment. SUMMARY Understanding of the general environment in which an organization operates is the foremost pre-requisite towards strategy formulation. The six broad dimensions which the PESTEL framework provides of the environment-political, economic, sociocultural, technological, environmental and legal are capaable of giving a comprehensive overview of how things may be unfolding. The objective of the analysis out of this framework however should not only restrict to the present and past but the real focus should be on projecting the trends into future in order to get the real feel of the environment then. This shall enable the firm to proactively strategize for future considering the general environment, it is going to face and the issues which will be of importance. REFERENCES AND FURTHER READINGS Johnson, Gerrry & Scholes, Kevan. (2004). Exploring Corporate Strategy. Sixth edition, Prentice-Hall of India, New Delhi. Thompson, A. Arthur, Jr. and Strickland, A.J. III. (2003). Strategic Management, Concepts and Cases, Thirteenth edition. Tata McGraw Hill Publishing, New Delhi. Miller, Alex. Strategic Management, Third edition. Irwin McGraw Hill. Peters, Thomas J. and Robert, H. Waterman, Jr. (1982). In Search of

Excellence: Lessons from Americas Best-Run Companies, New York: Harper and Row. David, R. Fred. (1997). Concepts of Strategic Management. Prentice Hall International Inc. Source: www.ignou.edu Process of Business Environment Analysis Background Environmental analysis is a systematic process that starts from identification of environmental factors, assessing their nature and impact, auditing them to find their impact to the business, and making various profiles for positioning. A common process of environmental analysis or scanning is discussed in the following section. Environmental Analysis Process A business manager should be able to analyze the environment to grasp opportunities or face the threats. Organizations need to build strength and repair their weakness available in the business environment. Therefore, this process consists not only a single steps but a process of various steps. Environmental analysis comprises scanning, monitoring, analyzing, and forecasting the business situation. Scanning is to get the relevant information from the information overload. It is to focus on the most relevant information. Monitoring is to check the nature of the environmental factors. Analyzing requires data collection and use of different required tools and techniques. Forecasting is to find the future possibilities based on the past results and present scenario. Environmental analysis process is not static but a dynamic process. It may differ depending on the situation. However, a general process with few common steps can be identified as the process of environmental analysis these are a) Monitoring or identifying environmental factors, b) Scanning and selecting the relevant factors and grouping them, c) Defining variables for analysis, d) Using different methods, tools, and techniques for analysis, e) Analyzing environmental factors and forecasting, f) Designing profiles, and g) Strategic positioning and writing a report. Brief discussion is made on each of the step of this environmental analysis process. Identifying environmental factors

First of all a strategist should identify all the relevant factors that might affect his or her business. In this process, one should first know what the internal areas of the business are. This includes all the systems, internal structure, strategies followed, and culture of the organization. All these areas can be covered into the five functional areas in classical approach. Similarly, a business daily interacts with the close environmental components outside the business such as customer, competitor, and supplier. It might cover all other stakeholders such as trade union, media, and pressure group. Furthermore, general such business environment factors as political-legal, economic, sociocultural, and technological factors are to be identified Scanning and selecting relevant and key factors Out of all the business environmental factors, a strategist should focus only on the relevant factors for further analysis. All the factors are not equally important and affecting to the business. In this context, a strategist has to scan the environmental trend to select only the most affecting environmental factors from the information overload. This step paves the way of environment analysis and forecasting. Defining Variables for Analysis Selected environmental factors are to be further specified into the variables. A concept can be interpreted into different variables. For example, political situation can be measured using few variables such as instability, reliability, and long-term effect. Economic environment might cover many variables such as Per Capita, GDP, and Economic policies that can be further classified into many other variables. Variables are the basis of measurement in environmental analysis process. Variables can be compared, grouped, correlated, and predicted to find the clearer picture of the broader concept. It is, therefore, necessary to define the variables first in any kind of analysis including the environmental analysis. Using Different Methods, Techniques, and Tools Different types of methods, tools, and techniques are used for analysis. Some of the major methods of analysis can be Scenario Building, Benchmarking, and Network methods. Scenario presents overall picture of its total system with affecting factors. Benchmarking is to find the best standard in an industry and to compare the ones strengths and weakness with the standard. Network method is to assess organizational systems and its outside environment to find

the strength and weakness, opportunity and threats of an organization. Some of the techniques of primary information collection can be Delphi, Brainstorming, Survey, and Historical enquiry. Delphi technique collects independent information from the experts without mixing them. Brainstorming is information collection technique being open minded without criticizing others. Survey is to design questions and to ask them to the participants whereas the historical enquiry is a kind of case analysis of past period. Analysis tools can be statistical such general descriptive tools as mean, median, mode, frequency. Tools can be inferential as ANOVA, correlation, regression, factor, cluster, and multiple regression analysis. There are many tools of analyzing functional areas. Finance and accounting use mostly profitability, leverage, fund flow and other similar accounting and financial tools for analysis. Human resources use employee turnover, training, satisfaction and many others as the basis of evaluating strength and weakness. Production area is assessed using quality control, productivity, breakdown, and many others. Similarly, marketing effectiveness is judged from the sales volume and market coverage. Research and development is perceived successful if it can really develop the strength in an organization. Forecasting Environmental Factors Collecting relevant information from the selected areas and to identify the variables in such areas are the basics of analysis. Analyzing the past information to predict the future is the main objective of this step. As discussed earlier, use of different methods, techniques, and tools comes under the analysis process. It is, therefore, a comprehensive process that analyzes collected information using different tools and techniques. Designing Profiles After analyzing the environmental factors they are recorded into the profiles. Such profiles record each component or variables into left side and their positive, negative, or neutral indicators including their statement in the right side. Internal areas are recorded in Strategic Advantages Profile (SAP) and external areas are recorded in Environmental Threat and Opportunity Profile (ETOP). Strength, Weakness, Opportunity, and Threat (SWOT) profile can be designed combining both of these two profiles into one. There are varieties of reporting formats or profiles used for external and internal business environment analysis. Environmental Threat and

Opportunity Profile (ETOP) is commonly used to report the external environmental situation whereas Strategic Advantages Profile (SAP) to report the internal environmental situation1. Both of these profiles can be merged into StrengthWeakness-Opportunity-Threat (SWOT) profile. David used External Factor Evaluation (EFE) Matrix to present weighted score of external environmental factors. Similarly, he used Internal Factor Evaluation (IFE) Matrix to make the reporting of internal environmental audit. Whellen & Hunger used External Factors Analysis Summary (EFAS) and Internal Factors Analysis Summary (IFAS) as described. Environmental threats and opportunities profile (ETOP) is a commonly used profile related to external business environment. Strategic advantages profile (SAP) is related to internal business environment. Nowadays, strength & weakness and opportunities & threats (SWOT) profile has become very popular. Present writing pursued the approach of reporting external and internal business environment using the same approach. Preparing ETOP Environmental threat and opportunity profile is referred as ETOP profile. It identifies the relevant environmental factors. Such factors might be general environmental factors and task environment factors. Thereafter, it is necessary to identify their nature. Some factors are positive to the organization whereas others are negative. Therefore, it is necessary to find out their impact to the organization. Positive, neutral, and negative sign in ETOP denotes the relevant impact of environmental factors. Preparing SAP Strategic advantage profile is known as SAP. It shows strength and weakness of an organization. Preparation of SAP is very similar process to the ETOP. There are generally five functional areas in most of the organizations. These areas are Production or Operation, Finance or Accounting, Marketing or Distribution, Human Resource & Corporate Planning, and Research & Development. These functional areas are listed to identify their relative strength and weakness in SAP. Very similar to the ETOP, positive, neutral, and negative signs are denoted and brief description is written in SAP profile. Each functional area is very broad having many components inside. All these above described profiles provide a clear picture to understand the strategic position of an organization.

Strategic Position and Report Writing After analysis of business environment a strategist knows the actual situation and can make some future forecasting based on the environmental analysis. After preparing the profiles strategists prepare formal report that describes the business environment. The report might present issues and best strengths of business environment in a systematic process. One can draw future strategies based on the strategic analysis followed. In conclusion, a strategist or a manager first identifies the relevant environmental factors then analyzes using different tools and techniques to find out the actual situation. This overall process is sometimes known as SWOT analysis, environmental scanning, environmental analysis, or monitoring-forecasting. This process is very important for a manager to make his or her organization success by choosing the best available alternative strategy.