STRATEGIC MANANGEMENT- UNIT 1

Syllabus- Unit 1
ORGANISATIONAL STRATEGY
A. MISSION Mission Statement Elements and its importance B. OBJECTIVES Necessity of formal objectives Objective Vs Goal C. STRATEGY DEVELOPING STRATEGIES - Adaptive Search - Intuition search - Strategic factors - Picking Niches - Entrepreneurial Approach

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MISSION STATEMENT
A mission statement is a formal, short, written statement of the purpose of a company or organization. The mission statement should guide the actions of the organization, spell out its overall goal, provide a sense of direction, and guide decision-making. It provides "the framework or context within which the company's strategies are formulated.

ELEMENTS: Mission statements often contain the following:

Purpose and aim of the organization The organization's primary stakeholders: clients, stockholders, congregation, etc. Responsibilities of the organization toward these stakeholders Products and services offered

Ideally a mission statement should answer the following questions. 1. Customers: Who are the enterprise's customers? 2. Products or services: What are the firm's major products or services? 3. Markets: Where does the firm compete? 4. Technology: What is the firm's basic technology? 5. Concern for survival, growth, and profitability: What is the firm's commitment towards economic objectives? 6. Philosophy: What are the basic beliefs, core values, aspirations and philosophical priorities of the firm? 7. Self-concept: What are the firm's major strengths and competitive advantages? 8. Concern for public image: What is the firm's public image? 9. Concern for employees: What is the firm's attitude/orientation towards employees?

Characteristics of a Mission Statement

A mission statement defines the basic reason for the existence of that organization. Such a statement reflects the corporate philosophy, identity, character, and image of an organization. It may be defined explicitly or could be deduced from the management's actions, decisions, or the chief executive's press statements. When explicitly defined it provides enlightenment to the insiders and outsiders on what the organization stands for. In order to be effective, a mission statement should possess the following seven characteristics. 1. It should be feasible. A mission should always aim high but it should not be an impossible statement. It should be realistic and achievable; its followers must find it to be credible. But feasibility depends on the resources available to work towards a mission. 2. It should be precise. A mission statement should not be so narrow as to restrict the organizations activities nor should it be too broad to make itself meaningless. For instance, 'Manufacturing bicycles' is a narrow mission statement since it severely limits the organizations activities, while mobility business' is too broad a term as it does not define the reasonable contour within which the organization could operate. 3. It should be clear. A mission should be clear enough to lead to action. It should not be a high sounding set of platitudes meant for publicity purposes. Many organizations do adopt such statements but probably they do so for emphasizing their identity and character. For example, Asian Paints stresses 'leadership through excellence', while 2

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India Today sees itself as 'the complete news magazine'. The Administrative Staff College of India considers itself as 'the college for practicing managers' and Bajaj Auto believes in 'Providing, value for money, for years'. To be useful, a mission statement should be clear enough to lead to action. 4. It should be motivating. A mission statement should be motivating for members of the organization and of society, and they should feel it worthwhile working for such an organization or being its customers. A bank, which lays great emphasis on customer service, is likely to motivate its employees to serve its customers well and to attract clients. Customer service, therefore is an important purpose for a banking institution. 5. It should be distinctive. A mission statement, which is indiscriminate, is likely to have little impact. If all scooter manufacturers defined their mission in a similar fashion, there would not be much of a difference among them. But if one defines it as providing scooters that would provide 'value for money, for years', like Bajaj, it will create an important distinction in the public mind. 6. It should indicate major components of strategy. A mission statement along with the organizational purpose should indicate the major components of the strategy to be adopted. The chief executive of Indal expressed his intentions by saying that his company "begins its fifth decade of committed entrepreneurship with the promise of a highly diversified company retaining aluminium as its mainline business, but with an active presence in the chemical, electronics and industrial equipment business". This statement indicates that the company is likely to follow a combination of stability, growth and diversification strategies in the future. 7. It should indicate how objectives are to be accomplished. Besides indicating the broad strategies to be adopted a mission statement should also provide clues regarding the manner in which the objectives are to be accomplished.

IMPORTANCE MISSION STATEMENT

Mission statements usually provide a lighthouse that the company culture can look back to when the company loses track of itself. When there is a mission statement to refer to, generally companies can maintain their track and avoid losing sight of what their core competencies actually are. Mission statements have been directly linked through research to greater returns on investment in companies. Measures such as return on equity have been found to be more than double in companies that have a written mission statement. Although it is difficult to determine what makes one mission statement better than another, the mere presence has a positive effect.

VISION STATEMENT

A Vision Statement defines the desired or intended future state of an organization or enterprise in terms of its fundamental objective and/or strategic direction. Vision is a long term view, sometimes describing how the

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organization would like the world in which it operates to be. For example a charity working with the poor might have a vision statement which read "A world without poverty"

Features of an effective vision statement include:

Clarity and lack of ambiguity Vivid and clear picture Description of a bright future Memorable and engaging wording Realistic aspirations Alignment with organizational values and culture

GOALS AND OBJECTIVES

Goals denote what an organization hopes to accomplish in a future period of time. They represent a future state or
an outcome of the effort put in now. A broad category of financial and non-financial issues are addressed by the goals that a firm sets for itself. However these goals commonly deal with profitability, growth, and survival; are stated without specific targets or time frames. They have a general sense of direction but are not intended to provide specific benchmarks for evaluating firms progress in achieving its aims. Providing such benchmarks is the function of objectives.

Objectives are the ends that state specifically how the goals shall be achieved. They are concrete and specific in
contrast to goals which are generalized. In this manner, objectives make the goals operational. While goals may be qualitative, objectives tend to be mainly quantitative in specification. In this way they are measurable and comparable. In other words, objectives are concrete (generally quantified) formulations of achievements, that the organization aims for within set periods of time.

NECESSITY OF FORMAL OBJECTIVES:

1. Objectives define the organizations relationship with its environment: By stating its objectives, an organization commits itself to what it has to achieve for its employees, customers and society at large. 2. Objectives help an organization to pursue its vision and mission: By defining the long-term position that an organization wishes to attain and the short-term targets to be achieved, objectives help an organization in pursuing its vision and mission. 3. Objectives provide the basis for strategic decision making: By directing the attention of strategists to those areas where strategic decisions need to be taken, objectives lead to desirable standards of behavior and, in this manner, help to coordinate strategic decision-making. 4. Objectives provide the standards for performance appraisal: By stating the targets to be achieved in a given time period, the measures to be adopted to achieve them, objectives lay down the standards against which organizational as well as individual performance can be judged. In absence of objectives, an organization would have no clear and definite basis for evaluating its performance.

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CHARACTERISTICS OF OBJECTIVES: Refer Pg 78, Business Policy and Strategic Management by Azhar Kazmi

Goal
Plan: Action: Type: Broad plan Generic action Intangible

Objective
Narrow plan
Specific action

Tangible

Example: I want to achieve success in the field of I want to give you the thesis on genetic research within genetic research and do what no one this month has ever done Measure: Cannot be measured Time frame: Long term Can be measured Short term

Meaning: The purpose toward endeavor is directed

which

an Something that one's efforts or actions are intended to attain or accomplish; purpose; target.

STRATEGY
Strategy is the determination of the basic long term goals and objectives of an enterprise and the adoption of courses of action and the allocation of resources necessary for carrying out these goals. Strategic Management is the dynamic process of formulation, implementation, evaluation and control of strategies to realize the organizations strategic intent.

Levels of Strategy
1. Corporate Level Strategy: is an overarching plan of action covering the various functions that are performed by different SBUs. The plan deals with the objectives of the company, allocation of resources and coordination of the SBUs for optimal performance. 2. SBU or Business Level Strategy: is a comprehensive plan providing objectives for SBUs, allocation of resources among functional areas and coordination between them for making optimal contribution to the achievement of the corporate level objectives. 3. Functional Strategy: deals with a relatively restricted plan, providing objectives for a specific function, allocation of resources among different operations within that functional area and coordination between them for optimal contribution to the achievement of the SBU and corporate level strategy. Sample hierarchy of Objectives for a medium sized hotel

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Corporate level objectives: 1. To place emphasis on delivering all services with superior performance and efficiency to strengthen our image of excellence. 2. To increase sales volume by 8% this year while maintaining a 16% net profit after taxes. SBU Level (Hotel) Objectives: 1. To increase room sales volume by 20% this year (600 room nights). 2. To increase banquet food sales by 9%. 3. To attain an average labor cost of 22% for the hotel. Functional Level Objectives: 1. Front Office: a. To develop a corporate rate program. b. To develop a sales program for informing guests of varying room rates and the advantages of higherpriced rooms. 2. Marketing training meetings: Build up July and August business by concentrating on securing training meetings business. Increase number of room nights from this market from 4500 to 6000. 3. Financial: To increase gross food sales by ____% in ___Qtr with prime costs (labor and food) to remain the same. 4. Personnel: To complete job descriptions of all operation departments by _____. 5. Community Relations: To attend three fourths of all chamber of commerce meeting during the year ____. 6. Operational: To improve the quality of service in the banquet department this year as witnessed by a __% reduction in customer complaints. 7. Research and Development: To complete a study of the causes of turnover, with recommendations to reduce it by _____.

Developing Organizational Strategy

Strategies may be based upon an executives intuition, trail and error philosophy and innovation. On the other hand, they may be based on rigorous pragmatic analysis of the variables of the problem. Each approach or a combination of approaches is applicable to a given type of situation, depending upon a mix of factors. They are: 1. Adaptive Search: It is an approach to strategy in which, by initially formulating a set of rules in a large overview, the approach moves towards closer and closer approximation of an appropriator solution, moving by successive steps to the solution, each step builds upon the previous step. For example, a first step could be a decision by a chief executive officer to utilize a programme planning and budgeting system in the company. A second step might be the decision whether to implement the system on a trial basis in one particular division or throughout the company at the same time. A third step might be the approach taken to implement the system in the particular division. A fourth step might be the determination of the type of programme planning and budget system to the company. 6

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2. Intuition Approach: In this type of approach executives use little or no inference. They move by instinct. They move on the basis of prior experience in a similar setting. Of course the more facts available, the better the intuitive decisions will be. 3. Determining Strategic Factors: Another approach to strategy is to determine the strategic factors that will make an organization successful. In this type of strategy the executive should look for the critical elements in the organization, in the divisions of the organization, and in subunits of the organization that is for the strengths and weaknesses that would determine the success or failure of the organization. 4. Picking Niches: A Niche can be referred to as a need in the market place that is currently not satisfied. In providing and marketing a service or product, the enterprise which is intent upon success tries to find the place or places among its target audiences where it has clear and evident competitive advantage. It seeks the opportunity to capture, or at least strongly influence, these identifiable publics. Finding the right niche or niches becomes a crucial part of planning. Formerly the special domain of marketing specialists, it increasingly has become part of overall strategic planning. In other words, by clearly defining customer or client needs, an organization is able to make services or produces available that uniquely fill those needs. 5. Entrepreneurial Approach: The entrepreneur is defined as a creative thinker or an individual who combines in himself the role of innovator and risk bearer. He is realistic in disposition and is motivated by a powerful need for achievement and independence. In this approach, the strategy is pushed ahead in the face of environmental odds. The vision and direction are typically provided by the young executives and head of the family owned (HUF) enterprises. This approach has following characteristics: a. It is dominated by an active search for opportunities. The focus is on opportunities rather than problem solving. b. The power rests with one man, the chief executive who is capable of taking bold decisions. c. The most dominant goals in this approach consist of growth and expansion in terms of assets, market share and turnover. 6. Following the leader: Some organizations follow the leader in terms of what other organizations are doing. In many instances an organization will follow the leader because it really has no other option.