Chapter - 1

Nature and concept of Strategic Management

( Dr. Shyamal Gomes)

Introduction: Business Policy as a distinct field of study was introduced at Harvard Business School in 1911. This course aimed at improving the Business Management Capabilities of Management students/ professionals in terms of skills knowledge, ideas, plan and perspectives. Basically business process is considered a capstone integrative course offered to students who have already been through a set of core functional area of courses. The term Business Policy has been used traditionally in business environment but its new title as Strategic Management means these are often use interchangeably. According to Hofer the evolution of business policy to Strategic management in terms of four Paradigm shifts: Phase I Mid 1930s Paradigm of adhoc policy making, budgetary planning & financial control through annual budgets Basic Financial Planning. The integration of functional areas in a rapidly changing environment. Critical look at the basic concept of Business and relationship to the environment Fore cast based Planning. Concept of Strategies / strategic planning systems approach with focus on value chain analysis Externally oriented planning. The quest for competitive advantage, benchmarking and resource based approach Strategic Management Strategic Planning

Phase II 1960s

Phase III 1980s

Phase VI 1990s

What is Strategy? The term Strategy is derived from the ancient Greek word StratAgos which can noted the art & science of directing military General / Forces. Strategy is, thus, a well thought out systematic plan of action to defend one or to defeat rivals. Strategy is formulated in anticipation of the possible positions, move actions and reactions of the rivals. However, in business parlance, there is no definite meaning assigned to strategy but it is a space of knowledge, the attitude in the struggle for

existence and growth which is indeed very hard for firms, in a competitive environment. Moreover, strategy can be defined as a Set of decisions what business are we in, what products and services will we offer, to whom , at what prices, on what terms, against which competitors, on what basis will we compete. There are so many experts pointed out their views about the definitions of Strategy, here is some example: Mintzberg: Strategy is a mediating force between the organization and its environment: consistent patterns in streams of organizational decisions to deal with the environment; 1979. Norman: Strategy is the art of creating value; 1993. Porter: Strategy deliberately choosing a different set of activities to deliver a unique mix of value;1996 Strategy and Tactic: Strategy and Tactics are distinct in terms of their dimensions Strategy and tactics are both concerned with formulating and then carrying out courses of action intended to attain particular objectives. Aspects Scale of Objectives Scope of the Action Guidance Provided Degree of Flexibility Strategy Grand Broad and General General and ongoing Tactice Limited Narrowly focused Specific and Situational Adaptable but hastily Fulid, quick to adjust changed and adapt in minor or major ways During Action

Timing in Relation to Before Action Action Focus of Resource Deployment Utilization

Employment

Policy Vs. Strategy: Strategy: A Strategy of a corporation is a comprehensive master plan stating how the corporation will achieve its mission and long term Objectives. Deals with strategic decisions that decide the long term health of an enterprise. It maximizes competitive advantage and minimizes competitive disadvantages Policy: Broad Guideline for decision making that links the formulation of Strategy with its implementation. It is a general course of action with no defined time limits. Companies use policies to make sure that employees throughout the firm make decisions and take actions that support the corporations mission, its objectives, and its strategies. 1. Principle of Good Strategy: According to M Porter, there are three underlying principles that define a good strategy: 1. A good strategy is concerned with the structural evolution of the industry as well as with the firms own unique position within that industry. 2. A good strategy makes the company different, giving the company a unique position, involving the delivery of a particular mix of value to some array of customers, which represents a subset of the industry. 3. If a company wants to serve a particular target customer group with a particular definition of value, this must be inconsistent with delivering other types of value to other customers. Therefore a good strategy proves the value of the company in competitive environment.

The typical business firm usually considers three level of strategy: Corporate level strategy (CS): It is the long term Strategy encompassing the entire org. CS addresses fundamental questions such as what is the purpose of the org. and what business it wants to be in and

how to expand into such business. CS formulated by top level management Business or Competitive Or SBU (Strategic Busi-ness Unit) level Strategy: is concerned with decisions Pertaining to the product Mix, market segments and Competitive advantages. SBUS formulated by Top level SBU managers or top level single Business company manager Functional level strategies are strategies for different functional Areas like production, Personnel, Marketing etc. FS formulated by Functional level managers, section engineers, etc. However, the economic liberalization (1991) and the concomitant wide opening up of business opportunities and increase in competition have in fact made strategic management a buzz word among the Indian corporate. What is Strategic Management? Terms such as strategic management, business policy, corporate strategy and corporate planning are often used interchangeably. However, a distinction may be drawn between some of them for clear understanding. For instance a differentiation may be drawn between corporate planning and corporate strategy. Even in the absence of competition a company may have a corporate plan, a long-term development plan. For example, even in a monopoly environment companies like The Indian Telephone Industries and Cochin Refineries had corporate plans but they were not corporate strategy or strategic management. However, when the corporate plan is formulated in a competitive environment, it would amount to corporate strategy / strategic management / business policy. The management scholars contributed their thought and ideas on understands or definitions of Strategic management which are as follows: The early 1980s: Glueck (1984): Strategic Management as a stream of decisions and actions, which leads to the development of an effective strategy or strategies to help achieve corporate objectives. Hofer and others (1984): Strategic Management as the process which deals with the fundamental organizational renewal and growth with the development of strategies, structures, and systems necessary to achieve

such renewal and growth, and with the organizational systems needed to effectively manage the strategy formulation and implementation processes. Sharplin (1985) defines strategic Management as the formulation and implementation of plans and carrying out of activities relating to the matters which are of vital, pervasive or continuing importance to the total organization A recent origin 1998s: Harrison and St. John (1998) define Strategic Management as the process through which organizations analyze and learn from their internal and external environments, establish strategic direction, create strategies that area intended to help achieve established goals, and execute these strategies, all in an effort to satisfy key organizational stakeholders. Therefore, it has observed that different authors have defined Strategic Management (SM) differently, yet there are several common elements in the way it is defined and understood. SM is considered as either decision making and planning, or a set of activities related to the formulation and implementation of strategies to achieve Organizational Objectives. Strategic Management is that set of managerial decisions and actions that determines the long run performance of a corporation. It includes Strategic Intent, Environmental scanning (both internal and external), and strategy formulation (strategic planning), strategy implementation and evaluation and control. The study of strategic management therefore, emphasizes the monitoring and evaluating of external opportunities and threats in light of a corporations strengths and weaknesses in order to generate and implement a new strategic direction for an organization. Nature of Strategic Management: The nature of Strategic Management is different form other aspects of management as it demands attention to the "big picture" and a rational assessment of the future options. It provides: a strategic direction endorsed by the team and stakeholders a clear business strategy and vision for the future a mechanism for accountability a framework for governance at the various levels

a coherent framework for managing risk for ensuring business continuity. the ability to exploit opportunities and respond to external change by taking ongoing strategic decisions Therefore, the main questions asking by SM are: What is our Business? What kind of business should we become? Are we in the right fields? Should we reshape our business? What new competitors are entering our industry? How are our customers changing? What strategies should we pursue?

According to Peter Drucker, The primary tasks of Strategic Management are to understand the environment, define organizational goals, identify options, make and implement decisions, and evaluate actual performance. Therefore the primary steps in Strategic management are 1. Identify Organizations existing vision, Mission, Objectives and Strategies 2. Perform External Audit 2. Perform Internal Audit 3. Establish long-term objectives 4. Generate, evaluate, select new strategies 5. Implement strategies 6. Measure and evaluate performance Benefits and Relevance of Strategic Management: The important benefits of Strategic management mentioned below highlight its relevance: 1. SM helps to envision an organizations future, formulate mission and make objectives clear. 2. SM Process helps to understand each and every people of an organization what the present stands and what could be the development path charted out, what are the planned results over a period of time. 3. It makes people realize what are they working for, what is expected of each SBU, division, functional department even the individuals.

4. SM helps to facilitates the better delegation, coordination, monitoring, performance evaluation and control 5. The identification of Strengths and weaknesses may help an organization to take measures to overcome / minimize the weaknesses and reinforce the strength. 6. The SWOT analysis, which is a part of the SM, helps a company to adopt suitable strategies for exploiting opportunities and combating threats. It will also help the company to drop that business where it would not be successful or which do not meet the objectives. 7. SM helps company to develop Realistic and long-term plan by constant monitoring its objectives. 8. SM makes the management dynamic, appropriate to the environment and result oriented. 9. SM enables a company to meet competition more effectively. 10. SM leads the company in a Standard and competitive. Limitation and Misgivings: Strategic Management is not without limitations. The important limitations of Strategic management are the following: SM is based on certain premises and if the premises do not hold valid the strategy or plans based on them would not be realistic or effective. SWOT analysis is an important exercise in SM, which requires lot of exercise and information. When these two are lacking the utility of the SWOT analysis is questionable and it could even lead to formulation of wrong or effective strategies. In SM effective implementation is vital that demands many things resource allocation, leadership implementation, right structure and effective evaluation and control. The reason for the failure of many strategies is the implementation failure. A serious problem generally raising in a company if there is lack of involvement of the internal people in the strategy formulation and when they are not equally taken into confidence. Strategic Planning is a complex and difficult task which requires people with vision, expertise and commitment and an appropriate system SM is a costly exercise

 One of the most important criticisms against Strategic Management is that it some times makes the organization over ambitious and resultant failure to reach the goals cause frustration. Unrealistic strategies may land companies in severe problems. Finally it has observed that some of the risks/ limitations / problems / criticisms of SM arise from the misunderstanding as to what is strategic planning. In this context it is very important and relevant to recall the warning of Drucker as to what strategic planning is not: It is not a box of tricks, a bundle of techniques. It is analytical thinking and commitment of resources to action. Strategic planning is not forecasting. It is not masterminding the future. Strategic Planning does not deal with future decisions. It deals with the futurity of present decisions. Strategic planning is not an attempt to eliminate risk. It is not even an attempt to minimize risk References:

Fred R. David: Strategic Management (Concept and Cases) Upendra Kachru: Strategic Management concept and cases Azhar Kazmi Business Policy and Strategic Management David Hunger Strategic Management and Business Policy. V.S.P..Rao Strategic Management - concept and cases Porter M.E, What is Strategy, In Harvard Business Review. Nov. Dec. 1996, pp 61-78.

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