Business Strategy

Unit 3

Unit 3

Introduction to Strategic Management

Structure: 3.1 Introduction Objectives 3.2 Strategic Management Definition, Meaning and Role 3.3 Objectives of Strategic Management 3.4 Benefits of Strategic Management 3.5 Importance of Strategic Management 3.6 Causes for failure of Strategic Management 3.7 Summary 3.8 Glossary 3.9 Terminal Questions 3.10 Answers

3.1 Introduction
In the previous unit, we studied business strategy definitions, its features, purposes and objectives of an effective strategy. We looked into the necessity for strategies in the case of business organisations and listed out the essentials of an effective strategy. We have also acquainted ourselves with the various aspects relating to Business Policy and listed the differences between Business Policy and Strategy and the impact of policy decisions on business strategies. In Unit 1, we had seen definition & meaning of strategy, the importance of strategy and need for strategy. While strategy is the direction and scope of an organisation over the long term, strategic management, on the other hand, refers to the managerial process of forming a strategic vision, setting objectives, crafting a strategy, implementing the strategy and then over time initiating such corrective adjustments in the vision, objectives, strategy and execution, as are deemed appropriate. In this Unit, we will learn about Strategic Management concepts and its relevance in the present day world.

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Objectives: After studying this unit, you should be able to: define strategic management state the objectives of Strategic Management assess the benefits of Strategic Management identify the causes for failure of Strategic Management

3.2 Strategic Management Definition, Meaning and Role

We have studied the meaning of strategy in Unit 1. However, let us have a quick recapitulation of the features of strategy and the importance of strategy in the present day world and then learn the meaning of Strategic Management. 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. Strategic Management as a discipline originated in the 1950s and 60s. Although there were numerous early contributors to the literature, the most influential pioneers were Alfred D. Chandler, Philip Selznick, Igor Ansoff, and Peter Drucker. Let us now attempt to go through some of the definitions provided by some of the eminent authorities on the subject: According to Gluek W F Strategic management is a stream of decisions and actions which lead to the development of an effective strategy or strategies to help achieve corporate objectives. Mr. Ansoff H L defines strategic management as a systematic approach to a major and increasingly important responsibility of general management to position and relate the firm to the environment in a way which will assure its continued success and make it secure from surprises. Chandler tries to define strategic management as determination of the basic long-term goals and objectives of an enterprise and adoption of course of action and allocation of resources necessary to carry out these goals.

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Arthur Sharpline is of the view that strategic management is the formulation and implementation of plans and carrying out of the activities relating to the matters which are of vital or pervasive or continuing importance to the total organization. According to Paine and Naumes, strategic management involves the decision making and the activities in an organization which (1) have wider ramifications (2) have a long time perspective and (3) use critical resources towards perceived opportunities or threats in a changing environment. In a competitive world, it is very difficult to sustain oneself and also grow at a desired pace. Strategic management allows an organization to be more proactive than reactive in shaping its own future. It allows an organization to initiate and influence activities and thus to exert control over its own destiny. Small business owners, chief executive officers, presidents and managers of many profit and non-profit organizations, have recognized and realized the benefits of strategic management. In the past, adopting the principles of strategic management has helped business organizations to formulate better strategies through the use of the more systematic, logical and rational approach to strategic choice. 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 re-evaluates strategies on a regular basis to determine how it has been implemented and whether it was successful or does it need replacement. Strategic management helps to integrate various functional areas of the organization completely, as well as, to ensure that 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.

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Let us try to find out how strategic management is superior to the normal style of management in a typical case with the help of the following table: Strategic Management Vs. Operational Management
Strategic Management Strategic management requires the total involvement of the Top Management Strategic management is covering the entire organization Strategic management has a long range view of everything Strategic management demands foresight on the part of the management and involves risk Requires taking decisions which are of vital importance in areas like capital investment, mergers etc. Operational management Involvement of Top Management is not found Is concerned with a section or a department of the firm only Is mostly situational, i.e., aims to address current problems only No risk or mental tension is involved in managing No important decisions need to be taken.

What strategic management is not about? To understand clearly the idea behind strategic management let us try to find out what is not really relevant in case of Strategic management. This helps us better in developing a clear picture about what strategic management really stands for. It should not be forgotten that strategic planning is useful only when it acts as a supporting tool for strategic thinking and then leads to strategic management. This is so because strategic management is the basis for an organisation to be effective. Dr. Jagdish Sheth, a respected authority on marketing and strategic planning, suggests adopting the technique of continually asking the question, "Are we doing the right thing?" during the course of our activity. This means we are giving adequate attention to the "big picture" and the willingness to adapt to changing circumstances and consists of the following three elements: formulation of the organization's future mission in light of changing external factors such as regulation, competition, technology and
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customers development of a competitive strategy to achieve the mission, creation of an organizational structure which will deploy resources to successfully carry out its competitive strategy. Strategic management is adaptive and keeps an organization relevant. In these dynamic times it is more likely to succeed than the traditional approach of "if it ain't broke, don't fix it."

What Strategic Planning Is Not! The description given above can also provide an understanding of what it is not. For example, it is about fundamental decisions and actions, but it does not attempt to make future decisions (Steiner, 1979). Strategic planning involves anticipating the future environment, but the decisions are made in the present. This means that over a period of time, the organization must stay abreast of changes in order to make the best decisions it can at any given point - it must manage, as well as plan, strategically. Strategic planning has also been described as a tool - but it is not a substitute for the exercise of judgment by leadership. Last but not the least, leaders of any enterprise need to sit back and ask and answer, "What are the most important issues to respond to?" and "How shall we respond?" Just as the hammer does not create the bookshelf, so the data analysis and decision-making tools of strategic planning do not make the organization work - they can only support the intuition, reasoning skills, and judgment that people bring to their organization. Finally, strategic planning, even though is described as disciplined, we should remember that it does not typically flow smoothly from one step to the next. It is a highly creative process and the fresh insight arrived at today might very well change the decision made yesterday. Definitely, the process moves forward and backward many times before arriving at the final set of decisions. Therefore, one should not be surprised if the process does not feel like a comfortable trip on a commuter train, definitely, it is like a ride on a roller coaster. But then even roller coaster cars reach their destination, as long as they stay on track!

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A very vital but often overlooked aspect of strategic management is the need for the people concerned to be both planned and unplanned. Company leaders should definitely take the initiative in setting out how the company should function and operate. Further, they must also be dynamic in responding to needs and requirements as and when they arise. Strategic management is not a static process that can be limited to a linear process. Often, unforeseen results ensue (which can be both positive and negative) and strategic managers must be able to respond to occurrences that cannot be predicted. Effective strategic management is highly soft and flexible and should be enabling companies to move quickly in response to new challenges, and replace out-dated ideas and practices with processes that can help meet new needs as they present themselves. Strategic management is not a bundle of tricks and magic. It involves systematic and analytical thinking and action. Although, the success or failure of a strategy is dependent on several extraneous factors, it cannot be stated that a strategy is a trick or magic. Formation of strategy requires careful planning and requires strong conceptual, analytical, and visionary skills. Strategy is not a substitute for sound, alert and responsible management. Strategy can never be perfect, flawless and optimal. Strategies are goaldirected decision and actions in which capabilities and resources are matched with the opportunities and threats in the environment. A good management at the top can steer the organizations by adjusting its path on the basis of the changes in the environment. Strategic management applies equally to profit as well as non-profit organizations. Though non-profit organizations are not working for the profit, they must have a purpose, vision and mission. They also work within the environmental forces and need to manage strategically to stay afloat to accomplish their objectives. Self Assessment Questions State True or False: 1. Strategy allows an organization to exert control over its own destiny. 2. Strategy is an action that managers take to attain one or more of the organizations goals.
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3.3 Objectives of Strategic Management

In this section, we will study about the different objectives a) To keep pace with the changing business environment The present day world is often called as a flat world because of revolution in transport, communication and technological advancement. The present day environment in which the business enterprises operate is so dynamic and fast-changing that the business enterprises are finding it extremely difficult to operate. There are high level of uncertainties, threats and constraints from different quarters and due to this business corporations are finding it extremely difficult to survive. Strategic Management principles and practices, if used, can help those business firms in exploring the possible opportunities and also achieve an optimum level of efficiency by minimizing the effect of expected threats. b) To motivate Employees We are aware of the fact that managing men and women, is the most challenging task for any business unit. Human resources can turn out to be highly productive and useful to a firm provided necessary motivation and guidance are provided to them which, in turn, increase their confidence level. Adopting Strategic management techniques helps as a morale booster and ultimately rewards the organization in terms of efficiency and loyalty to the organization. Strategic Management, if followed, 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 co-related to other organizational members. 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. Both the managers and employees must work effectively as well as efficiently. Japan, for example, introduced the concept of Quality Circles for involving the workers across the industry for improving the performance of employees towards the corporate goal and met it with tremendous success.
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c) To strengthen the decision making process Strategic management aims at effective decision making process by taking into consideration the objectives of the business concern as a whole in a transparent manner. Hence, any decision taken should find wide acceptance among the rank and the file as there will be no resistance to change within the business enterprise.

3.4 Benefits of Strategic Management

The advantages to be enjoyed by a business which has adopted the principle of strategic management may be broadly classified as: Financial Benefits: a. Improvement in sales. b. Improvement in profitability. c. Improvement in productivity. Non-Financial Benefits: a. Improved understanding of competitors strategies. b. Enhanced awareness of threats. c. Reduced resistance to change. d. Enhanced problem-prevention capabilities. A business organization that has implemented strategic management principles is likely to reap the following advantages: a) All decisions taken and policies implemented are constantly evaluated to see their effects. b) If a particular strategic policy is found inappropriate or ineffective, alternative policies are immediately introduced without wasting any time. c) As the management is always vigilant in all the areas, chances for problems to crop up are reduced to the barest minimum. d) Any decision taken by such a business organization would have evaluated the effects on the organization as a whole, keeping in mind the interest of the organization. e) As the business policies implemented are totally transparent, there will be least resistance from the employees and industrial peace will be always ensured

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f) All types of resources (material, money, machinery and men) are allocated to different departments on an equitable basis taking into account the common interest of the organization as a whole. g) Different managerial functions like planning, co-ordination, communication, control can be practiced effectively to derive optimum benefits from all the factors of production. In view of the above advantages being enjoyed by such a business organization it will be a star performer in different areas compared to another unit in the same industry which has not bothered to adopt principles of strategic management. Self Assessment Questions 3. The advantages derived by implementing Strategic management principles are broadly classified as _________ and _________ benefits. 4. The decisions taken and policies implemented are __________ to see their effects.

3.5 Importance of Strategic Management

Strategic management gains importance because of the following reasons: Today, global considerations impact almost all strategic decisions! Today our imaginations cannot be confined to the boundaries of our nation only. To see and appreciate the world from the perspective of others has become an imperative for the survival of businesses. Strategic management practices, if adopted, help managers in getting an understanding of competitors, markets, prices, suppliers, distributors, governments, creditors, shareholders, and customers worldwide. In todays international market, the price and quality of a firm's products and services should be competitive on a global basis, not just a local basis. The distance between the business sectors are getting reduced due to the provisions of certain facilities. As a matter of fact, today, political boundaries are more of theoretical importance and in order to become successful in business it is pertinent to lay adequate stress on globalization in respect of all business decisions. Secondly, electronic commerce (e-commerce) has come to stay in todays business world. Day by day more and more number of companies are gaining competitive edge over their competitors by using the Internet as an outlet for direct selling and for communicating with suppliers, customers,
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creditors, partners, shareholders, clients, and competitors who may be spread all over the globe. E-commerce enables firms to sell products, advertise, purchase supplies, bypass intermediaries, track inventory, eliminate paperwork, and share information. Overall, electronic commerce is instrumental in minimizing the cost and saves a lot of time, distance and space in carrying out business. This, in turn, gets reflected through better customer service, greater efficiency, improved products and higher profitability. The Internet and personal computers are changing the way we think, live, arrange our homes, relate to and interact with the members of family, our friends and neighbours. The Internet supports endless comparison shopping which helps consumers worldwide to come together to demand discounts. The Internet has drastically shifted the power from businesses to consumers so swiftly that in a few years from now, we may have to live with "regulations" imposed on groups of consumers. Politicians may be compelled one day to debate on the need for "regulation on consumers" rather than "regulation on big business" because of the empowerment of individuals by the Net. Earlier, buyers used to encounter obstacles in getting the best price and service, on account of limited time and data to compare, but today, consumers can quickly scan hundreds of vendors offerings within a few minutes. They can visit Web sites such as CompareNet.com which offers detailed information on more than 100,000 consumer products. The Internet has brought about a transformation in the sphere of buying and selling in nearly all industries. It has fundamentally affected the economics of business in every single industry worldwide. Today, the environment in which we live has become an important strategic issue. With the gradual demise of communism and the end of the Cold War, perhaps there is now no other major threat to business and society than the exploitation and decimation of our natural environment. The fact that the resources are scarce but the wants are unlimited is known to everyone. However, it is very much necessary to ensure that the resources are efficiently utilized. For example, the use of nuclear power or non-renewable sources of energy calls for strategic decisions on the part of the State and also the industries will be forced to manage their environment with much more care and caution.
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3.6 Causes for failure of Strategic Management

No doubt, Strategic management yields highly favourable results for any organization which has implemented it. There are, however, certain cases where despite adopting the techniques of Strategic management, firms have not met with the desired success. Let us always remember that Strategic Management is not like a magic wand which can always ensure success to everyone. So, let us try to list out the different causes responsible for such a failure: a) Strategic management is always based on certain fundamental premises. If these premises do not hold good, the strategy or the plans based on them would be unrealistic or ineffective. b) Strategic management is only a means to achieve the corporate goals. So, if there is lack of realism it will be reflected in the strategy. In other words, we should always remember to be realistic while framing our mission statement or declaring our objectives and not highly optimistic. c) Many a time, the young Managers try to be over-ambitious and start dreaming of success overnight by adopting Strategic management techniques. This results in failure to reach the goals set and causes frustration. d) Sometimes, the management may be always chanting the mantra of strategic management and overlook or ignore several lucrative opportunities and thereby fail. e) Failure in implementing the strategy effectively will end up in producing poor result. Let us remember the plight of a patient who has not taken the best medicine prescribed for his illness grumbling about the sickness. f) Strategic planning requires high level of calibre, experience and knowledge with the best vision. If people do not have adequate experience, expertise and commitment, the business organization may not succeed. g) Often people complain about the cost associated with planning and implementation, ignoring the benefits derived in the medium and long term.

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3.7 Summary
Let us review the important concepts that have been discussed in this unit In this unit, we have made an attempt to recapitulate the definition of strategy. Then we went through the definitions given by some of the eminent thinkers on Strategic Management. We forged ahead with the task of understanding the features of Strategic Management and also the importance of strategic management in today's fast changing business environment. We also traced the importance of strategic management in comparison with the day-to-day general management and concluded that strategic management calls for high calibre and ability to take risk on the part of top management. We also tried to describe the objectives to be achieved by any business organisation embracing the philosophy of strategic management. We also made an attempt to list out the benefits of strategic management to the institutions which are adopting them. The fact that strategic management is not a panacea to all, the ills faced by any management was explained after listing out the factors responsible for the failure of strategic management.

3.8 Glossary
Proactive The concept of being in readiness to anticipate the future now and then keep oneself ready to meet the challenges arising from the uncertainties associated with the future well in advance. Reactive The concept of not attempting to do anything presently even when one is aware that changes are going to surface in the days to come.

3.9 Terminal Questions

1. Define strategic management and its features. 2. List the important objectives of strategic management. 3. What are the benefits available to an enterprise which tries to practise strategic management? 4. What are the reasons contributing to the failure of strategic management?
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3.10 Answers
Self Assessment Questions 1. True 2. True 3. Financial & non-financial 4. constantly evaluated Terminal Questions 1. Strategic management is a continuous process that evaluates and controls the business and industries in which an organisation is involved. It evaluates competition and competitors and then sets goals and strategies to meet the existing and potential competitors. Re-evaluation of the strategy evolved and implemented and ensuring to take midcourse corrective action to ensure achievement of targets is very essential. (for more details refer 3.2) 2. Following are the important objectives:a) Change management to keep pace with the changes continuously happening in the environment. b) Employee motivation Human resources are the most important assets for any business organization and so motivation of employee should be the foremost objective of strategic management. c) Effective decision making A decision can be effective if and only if the interest of the organization as a whole is kept in mind at the time of taking any decision. (for more details refer 3.3) 3. The benefits derived by implementing Strategic Management are broadly classified as a) Financial and b) Non-Financial benefits. Financial benefits are derived in the form of improvements in sales, productivity and profitability. The non-financial benefits enjoyed by the business organization are by way of improved understanding of competitors strategies, enhanced awareness of threats, reduced resistance to change and enhanced problem-prevention capabilities. (for more details refer 3.4) 4. The reasons for the failure of strategic management - Strategic management is not a magical wand which always can produce magical results. If the fundamental premises on which strategies or plans are
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based do not hold good or when the targets are fixed without taking into consideration the ground realities strategic management may not be effective. Failure in implementing the strategy and being over-ambitious also are causes for the failure of strategic management. (for more details refer 3.6) References: Charles Hill & Gareth Jones, Strategic Management Theory, Houghton Mifflin Company &AIPD publications E-References: http://www.managementstudyguide.com/strategic-management.htm http://www.7managementstudyguide.com/strategic-management.htm

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