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Unit 1
Unit 1
Structure
1.1 Introduction 1.2 Caselet Objectives 1.3 What is Strategy? 1.4 Strategic Window 1.5 Corporate Strategy in Different Types of Organizations 1.6 Lack of Strategic Management in Some Companies 1.7 Ten Principles of Strategy 1.8 Case Study 1.9 Summary 1.10 Glossary 1.11 Terminal Questions 1.12 Answers 1.13 References
1.1 Introduction
Any discussion on business and management today is incomplete without discussing two major forces: one is competition, and the other is strategy. Both these forces coexist or are correlated; in simple words, we can say that it is competition that drives strategy. For an organization to survive and grow, it is important to have a strategy. You must have seen or read about the well-known Fortune 500 list, an annual list compiled and published by Fortune magazine that ranks the top 500 US companies. Every year, some new names are added and some others are deleted from this prestigious list. One common reason, which explains both the inclusions and the deletions, is the strategy of the respective companies. So, strategy plays a vital role in organizations. Let us try to understand what strategy is. Strategy is a concept that is used universally but understood differently, and, therefore, defined differently. In fact, strategy as a concept is better described and more easily put into practice than defined. Most companies recognize that strategy is central to business and management. It is also recognized that it is strategy that makes the difference between success and failure of many companies and businesses. Yet, there is always a lack of conceptual clarity about what strategy is. In this unit define and explain strategy
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to make the understanding of the concept and its application clear and meaningful. In this unit, we will discuss corporate strategy, its definition and nature, as well as its levels in an organization. You will be able to understand corporate strategy in different types of organizations, why some organizations do not practice strategic management and the principles of strategic management.
1.2 Caselet
Every organization, big or small, follows a certain strategy to achieve its goals, which are specific to its market. For example, for a long time, the oil company Shell had focused on selling oil only. Thus, selling oil was its corporate strategy. For the past few years, the company, like other major oil producers, has found itself at the heart of the debate over climate change. The companys operations alone led to carbon emissions that account for some 3.6 per cent of global fossil-fuel CO2 emissions in any yeara total greater than that of the entire United Kingdom. In response to this situation, Shell took an early position on the issue and started adopting strategies to address climate change. The company engaged in actions that began to manage its carbon footprint. These actions have earned the company credibility and a powerful voice within policy, advocacy and market circles.
Objectives
After studying this unit, you should be able to: Explain strategy, its nature and levels of strategy Discuss the concept of strategic window Describe corporate strategy in different types of organizations Explain why some organizations do not undertake strategic management List ten principles of strategy
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strategy and military strategy is the same, i.e., to secure competitive advantage over the rivals or opponents. We will discuss the similarity between business and military strategies in detail later.
Andrews (1962): The pattern of objectives, purpose, goals and the major policies and plans for achieving these goals stated in such a way so as to define what business the company is or is to be and the kind of company it is or is to be.
Source: K R Andrews, The Concept of Corporate Strategy (Homewood: Jones Irwin, 1995)
Ansoff (1965): The common thread among the organizations activities and product-markets ... that defines the essential nature of business that the organization was or planned to be in future.
Source: H I Ansoff, Corporate Strategy (New York: McGraw-Hill, 1965).
Glueck (1972): A unified, comprehensive and integrated plan designed to assure that the basic objectives of the enterprise are achieved.
Source: W F Glueck, Business PolicyStrategy Formation and Management Action (New York: McGraw-Hill, 1976).
Mintzberg (1987): A pattern in a stream of decisions and action. (Mintzberg distinguishes between intended strategies and emergent strategies. These are discussed in Unit 2).
Source: H Mintzberg, Crafting Strategy, Harvard Business Review (SeptemberOctober, 1987).
Ansoff (1984): Basically, a strategy is a set of decision-making rules for the guidance of organizational behaviour.
Source: H I Ansoff, Implementing Strategic Management (London: Prentice Hall International, 1984). Sikkim Manipal University Page No. 3
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Porter (1996): Developing and communicating the companys unique position, making trade-offs, and, forging fit among activities.
Source: M E Porter, What is Strategy. Harvard Business Review (NovDec, 1996), 6178.
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Corporate-level strategies are concerned with overall purpose or objective of the organization; for example, diversification through joint venture, merger or acquisition. Business unit-level strategies address themselves to issues of a particular business unit or product group of an organizationstrategies for product development and/or identification and exploitation of new market opportunities. Functional strategies (sometimes, called operational strategies) concentrate on particular functional or operational areas like manufacturing, marketing, logistics, etc. For single-business companies, corporate-level strategies and business unit-level strategies may not be much different. But for multi-business companies like Unilever (or its subsidiary Hindustan Unilever), business unit-level strategies would be quite distinct from corporate-level strategies. Functional-level strategies, however, would be common in both single-business and multiple-business companies. The three levels of strategy are not isolated: these strategies support, complement or reinforce each other for the achievement of organizational objectives. We will be discussing these strategies in more detail in the next unit. Activity 1 The Indian car market is becoming increasingly competitive with the entry of foreign players like Hyundai, Ford, General Motors and Honda. Do a field or online survey/ research on any of the companies and highlight the steps taken by the company to establish and increase its market share. Focus on strategic planning and implementation. For information you may visit the company website and consult the annual reports.
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Self-Assessment Questions
1. The key or common objective of both business strategy and military strategy is to secure competitive advantage over the rivals or the opponents. (True/False) 2. A unified, comprehensive and integrated plan designed to assure that the basic objectives of the enterprise are achieved. This definition of strategy was given by________. 3. Business strategy is formulated, implemented and evaluated with an assumption of__________ , but military strategy is based on the assumption of_________. 4. For single-business companies, corporate-level strategies and business unit-level strategies would be quite distinct. (True/False)
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the market. (There was also Ambassador, but that was used more as an official car). Even after Marutis entry, the strategic windows for cars remained open, and other car companiesGeneral Motors, Tata Motors, Ford, Honda, Hyundai all entered the Indian car market. Maruti, however, was the first mover and continues to be the market leader. Strategic windows are also important for timing the exit from a product or a market. There are times when it is advisable, and also possible, to divert a business which a company cannot operate profitably any longer. This means that the strategic window for exit is open, that is, there are buyers or companies, who are willing to acquire the business, and, the company should act on it. This is what Hindustan Unilever did. They hived off their vanaspati (Dalda) business to the US-based Bunge Ltd, who had plans to relaunch the product. If a company does not exit in time, the strategic window may get closed; there may not be any buyer, and the business may have to be closed down at considerable losses.
Self-Assessment Questions
5. The opportunities that companies should always look for and seize or exploit at the right time are called _________. 6. Strategic windows arise as a result of _________. 7. Businesses and markets may evolve because of (a) Development of new product (new demand) (b) Emergence of new competing technologies (c) Market redefinition or changes (d) All of these 8. Strategic windows are not so important for timing the exit from a product or a market. (True/False)
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Small businesses, for example, generally operate in a single market or a limited number of markets with a single product or a limited range of products. The nature and scope of operations are likely to be less of a strategic issue than in larger organizations. Not much of strategic planning may also be required or involved; and, the company may be content with making and selling existing product(s) and generating some profit. In many cases, the founder or the owner himself forms the senior/top management and his (her) wisdom gives direction to the company. In large businesses or companieswhether in the private sector, public sector or multinationalsthe situation is entirely different. Both the internal and the external environment and the organizational objectives and priorities are different. For all large private sector enterprises, there is a clear growth perspective, because the stakeholders want the companies to grow, increase market share and generate more revenue and profit. For all such companies, both strategic planning and strategic management play dominant roles. Multinationals have a greater focus on growth and development, and also diversification in terms of both products and markets. This is necessary to remain internationally competitive and sustain their global presence. For example, multinational companies like General Motors, Honda and Toyota may have to decide about the most strategic locations or configurations of plants for manufacturing the cars. They are already operating multi location (country) strategies, and, in such companies, roles of strategic planning and management become more critical in optimizing manufacturing facilities, resource allocation and control. In public sector companies, objectives and priorities can be quite different from those in the private sector. Generation of employment and maximizing output may be more important objectives than maximizing profit. Stability rather than growth may be the priority many times. Accountability system is also very different in public sector from that in private sector. There is also greater focus on corporate social responsibility. The corporate planning system and management have to take into account all these factors and evolve more balancing strategies. In non-profit organizations, the focus on social responsibilities is even greater than in the public sector. In these organizations, ideology and underlying values are of central strategic significance. Many of these organizations have multiple service objectives, and the beneficiaries of service are not necessarily the contributors to revenue or resource. All these make strategic planning and
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management in these organizations quite different from all other organizations. The evaluation criteria also become different. Johnson and Scholes (2005) have given a good and detailed exposition of strategic management in various types of organizations mentioned above. Activity 2 The print media, that is, newspapers and magazines, have long served the information needs of people all over the world. The rise of radio and television offered some competition. But, with the advent of the Internet and availability of news and information online, the service offered by the print media is no longer as valuable as before. Imagine that you are the managing editor of a leading daily. Suggest some major strategic changes that you feel are needed at this stage to sustain and grow your company. Visit the websites of some leading newspapers and see how they are adapting new strategies to survive and grow.
Self-Assessment Questions
9. The nature and focus of corporate strategy in different types of organizations are different primarily because of the nature of their operations and organizational objectives and priorities. (True/False) 10. As they are operating multi location (country) strategies, roles of strategic planning and management become more critical in _______ companies for optimizing manufacturing facilities, resource allocation and control.
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better for individual managers to do nothing than to risk trying to achieve something, fail and be punished. 2. Content with success: If an organization is generally successful, the top management or individual managers may feel that there is no need to plan and strategize because everything is fine. However, they forget that success today does not guarantee success tomorrow. 3. Overconfidence: As managers gain experience, they may rely less on formalized planning and more on individual initiative and decisions. But, this is not appropriate. Overconfidence or overestimating experience leads to complacency and ultimately can bring downfall. Forethought and planning are the right virtues and are signs of professionalism. 4. Fire-fighting: An organization may be so deeply engrossed in crisis management and fire fighting that it may not have time to plan and strategize. This happens with many companies and is a clear sign of nonprofessionalization. 5. Waste of time: Some organizations view planning as a waste of time because no tangible marketable products are produced through planning. But they forget that time spent on planning is an investment, and there would be returns, both tangible and intangible, in due course. 6. Too expensive: Some organizations are culturally opposed to spending resources on matters like planning which do not produce instant or immediate results. They feel that spending on planning is a wasteful expenditure. 7. Previous bad experience: Managers may have had previous bad experience with planning, that is, cases in which plans have been cumbersome, impractical or inflexible. There could be experience of failures also. They would like to avoid recurrence of this. 8. Honest difference of opinion: Some managers may sincerely think that a plan is not correct. They may see the situation from a different viewpoint, or, they may have aspirations for themselves or the organization, which are different from those envisaged in the plan. Different people in different jobs in the same organization may have different perceptions of the same situation, and this may lead to difference of opinions among them and eventually to lack of planning due to lack of consensus. 9. Self-interest: When management has achieved status, privilege or selfesteem through effectively using an old system, it often sees a new plan or a new system as unnecessary or a threat.
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10. Fear of the unknown: Managers may not be sure of their abilities to learn new skills or take on new roles or adapt to new system. This is basically inertia against change or fear for change. 11. Fear of failure: Whenever something new or different is attempted, there is a chance of success, but, there is also some risk of failure. Many companies and managers may like to avoid strategic planning and management for fear of failure. 12. Suspicion: Employees may not trust management, or, the management may not have enough confidence in the managers. This gives rise to mutual suspicion.2
Self-Assessment Questions
11. All companies undertake strategic planning and management. (True/False) 12. Both overconfidence and fear of failure are among the reasons for not adopting strategic planning and management. (True/False)
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OveLiljedahl4 has discussed the relevance and applications of the aforementioned principles to business strategy and has given examples from the Scandinavian Airline Systems (SAS) as pronounced by their MD. 1. Set a goal and stick to it SAS: We will be the best airline in Europe. 2. Maintain good morale SAS: The personality of the leader; motivation courses 3. Accumulate forces SAS: Concentration on profitable European routes 4. Act aggressively SAS: Investing its way out of the crisis in a stagnating market 5. Aim for surprise SAS: While competitors pay 100 million kroners for a new DC9a, SAS repaints and changes interiors of all its 80 planes for 50 million kroners 6. Make sure your own forces are secure SAS: Delegate responsibility for results; each unit ensures its own security 7. Use your forces economically SAS: Personnel and fleet tailored to suit the need for resources 8. Coordination SAS: The aim is known and understood by all employees 9. Try to be adaptable SAS: Adaptation to new threats from outside; adapting to deteriorating sales opportunities in the airline industry advising aircraft manufacturers on how to build modern fleet aircraft. 10. Simplicity SAS: Single strategy; instead of getting 100 per cent better on one point, get 1 per cent better on 100 points. All concerned with strategyplanners and managers at different levels would do well to learn and remember the 10 principles. The SAS example shows how they can be real life business strategies.
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Self-Assessment Questions
13. For strategy building, one should set a goal and stick to it. (True/ False) 14. Good leadership is a precondition for maintaining good morale of a strategy. (True/ False)
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1. Return on assets 2. Customer satisfaction 3. Employees motivation and satisfaction 4. Market share
Costumers are divided into segments and respective accounts are handled by specialized account managers, global accountant, local accountant and general and mass market managers. The rest of the customers are handled by sales promotion agents (dealers and partners). The company also has telemarketing and telesales programmes. Telemarketing plays a support role, marketing mostly to small organizations with around 20 employees. The telesales team is able to access the target customer in different locations through its computer network. Modi Xerox is a quality company. Quality is its basic business principle or philosophy. Quality means providing customers innovative products and services which fully satisfy their requirements. Quality improvement is the job of every Modi Xerox employee, whether a staff or a manager. Leadership through quality is both a strategy (continuous pursuit of quality improvement) and a process (a fundamental business principle on which all work processes are based). Leadership through quality is fostered by the management at all levels and is pursued as a proactive approach rather than are active approach. This reflects positiveness in the companys strategy.
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1.9 Summary
Let us recapitulate the important concepts discussed in this unit: Strategy or corporate strategy is better described, and more easily put into practice than defined. However, strategy, as mostly used or understood, is an action plan or, a scheme of action or design of execution of a plan. Business strategy is similar to military strategy. Both business and military organizations try to use their strengths to exploit the weaknesses of their competitors or opponents to win or succeed. There is, however, a significant difference between the two. Business strategy is formulated based on the assumption of competition, military strategy is based on the assumption of conflict. Like strategy, strategic management has also been defined differently by different authors and strategy analysts. However, the common elements in most of the definitions are organizational objectives, the environment, formulation of strategy, implementation and control. In any organization, strategy can exist or operate at three levelscorporate level, business unit level and functional level. In single business companies, corporate-level strategies and business unit-level strategies may not be much different. But, for multi-business companies (like Unilever or ITC), strategies at two levels would be quite distinct. Functional-level strategies, however, would be common to both types of companies. Companies should always look for opportunities, and seize or exploit opportunities at the right time. In other words, they should be constantly aware of strategic windows. This is what Maruti (Suzuki) did. They entered the Indian car market at the right time, i.e., when the strategic window was open because of the obsolescence of Premier Padmini (earlier Fiat). Some companies do not undertake strategic planning and management. Some of the common reasons for this are poor reward structure, previous bad experience, contentment with success, too expensive, overconfidence, honest difference of opinion, fire fighting, self-interest or self-esteem, waste of time, fear of the unknown, fear of failure, and suspicion. Duro and Standstrom have mentioned 10 principles of strategy, which are drawn from the military rule or warfare, but are equally applicable to business. These are: 1. Set a goal and stick to it; 2. Maintain good morale
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(good leadership is a precondition for this); 3. Accumulate forces; 4. Act aggressively; 5. Aim for surprise; 6. Make sure your own forces are secure; 7. Use your forces economically; 8. Coordination (either through chain of command or through cooperation); 9. Try to be adaptable; 10. Simplicity (clear and simple plans and concise orders/instructions).
1.10 Glossary
Competitive advantage: Advantage over competitors gained by offering consumers greater value, either by means of lower prices or by providing greater benefits and service that justifies higher prices. Fortune 500: A list of top companies around the world compiled annually by Fortune magazine, which ranks publicly listed corporations according to their revenues. Multilocation: The state of being in more than two places at the same time Strategic window: Short time period between specific events during which there is an opportunity to capitalize on a market Strategy: A plan, method, or series of maneuvers or stratagems for obtaining a specific goal or result.
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4. Companies should always look for opportunities, and seize or exploit opportunities at the right time. These opportunities, during which there is a chance to capitalize on a market, are called strategic windows. Refer to Section 1.4 for further details. 5. The nature and focus of corporate strategy in different types of organizations will be different primarily because of the nature of their operations and organizational objectives and priorities. Refer to Section 1.5 for further details. 6. Some companies do not undertake strategic planning and management. A number of reasons explain why certain companies do not take to strategic planning and management. Refer to Section 1.6 for further details.
1.13 References
1. Abell, D F. 1978. Strategic Windows. Journal of Marketing 42(2). 2. Alkhafaji, A F. 2003. Strategic Management. New York: Harworth Press. 3. David, F R. 2003. Strategic Management: Concepts and Cases. 9th ed., Indian Reprint. New Delhi: Pearson Education. 4. Glueck, W F. 1980. Business Policy and Strategic Management. New York: McGraw-Hill. 5. Porter, M E. What is Strategy. Harvard Business Review 72(6), 1996. 6. Thompson, AA, Jr, and A J Strickland. 2001. Strategic Management: Concepts and Cases. New Delhi: Tata McGraw-Hill. E-references http://www.shell.com/home/content/aboutshell/our_strategy/ http://www.source2update.com/Company-History/Modi-XeroxMODXER.html Endnotes
1 2 3
F Glueck, Taking the mystique out of planning, Across the Board (July August, 1985). F R David, Strategic Management , 9th ed. (Pearson Education, 2003), 17 18. International Management Institute (IMI), Supplementary Readings in Competitive Analysis and Marketing Strategy , in R-CAMS ,S.No. 9 (New Delhi, 2000). International Management Institute (IMl).
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