SM Module 1

Meaning of Strategy
Strategy means the determination and evaluation of alternative paths to an
already established mission or objective and eventually, choice of the
alternative to be adopted for the achievement of goal or solution to a problem.
A strategy is also called as roadmap, which is the path chosen to plough
towards the end vision. Strategy, integrating organisational activities and
utilising and allocating the scarce resources within the organisational
environment in order to meet the present objectives. It outlines how
management decides and plans to achieve its goals and objectives. It includes
the determination and evaluation of alternative paths to an already established
mission or objective and eventually choosing the right alternative.

Definitions
Johnson and Scholes define strategy as follows: "Strategy is the direction and
scope of an organisation over the long-term: which achieves advantage for the
organisation through its configuration of resources within a challenging
environment, to meet the needs of markets and to fulfil stakeholder
expectations".
According to Glueck, "Strategy is the unified, comprehensive and integrated
plan that relates the strategic advantage of the firm to the challenges of the
environment and is designed to ensure that the basic objectives of the
enterprise are achieved through proper implementation process."
After considering the above definitions, strategy can simply be put as
management's plan for achieving its objectives. It basically includes
determination and evaluation of alternative paths to an already established
mission or objective and eventually, choice of best alternative to be adopted.

Attributes of a Sound Strategy

Strategy is the means to achieve organisational goal. It is a plan of action which
facilitates an organisation to interact with the environment so as to achieve
predetermined goals. A sound strategy should have the following attributes:

1. Strategy links firms to their environment.

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 2. Strategy combines both internal and external factors affecting the
achievement of preset goals.

3. Strategy is forward looking.

4. Strategy is action oriented.

5. Strategies are dynamic and flexible.

6. Strategies are capable of translating goals and objectives into realities.

Nature of Strategy
Strategy is concerned with a unified direction and efficient allocation of an
organisation's resources. A well designed strategy guides managerial action
and thought. It provides an integrated approach for the organisation to interact
with the environment and achieve its basic objectives.

Meaning of Strategic Management

Some popular definitions of strategic management are given below:
Strategic management is defined as the set of decisions and actions resulting
in formulation and implementation of strategies designed to achieve the
objectives of an organisation.

–
Pearce and Robins

Strategic management is primarily concerned with relating the organisation to

its environment, formulating strategies to adapt to that environment, and
assuring that implementation of strategies takes place.

— Steiner, Miner and Grey

Strategic management is that set of decisions and actions which leads to the
development of an effective strategy, or strategies to help achieve corporate
objectives.
– Glueck and Jauch

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 Strategic management is a systematic approach to a major and increasingly
important responsibility of general management to position and relate the firm
to its environment in a way which will assure its continued success and make it
secure from surprises.
– H. Igor Ansoff

Strategic management is 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 organisation.

– A. Sharplin

Strategic management is the process which deals with fundamental

organisational renewal and growth with the development of the strategies,
structures and systems necessary to achieve such renewal and growth and
with the organisational systems needed to effectively manage the strategy
formulation and implementation processes.

– CA Hofer and others

Strategic management is the process through which organisations analyse and

learn from their internal and external environments, establish strategic
direction, create strategies that are intended to help achieve established goals,
and execute these strategies, all in an effort to satisfy key organisational
stakeholders.
– Harrison and St. John

Strategic management is concerned with making decisions about

organisation's future direction and implementing those decisions.

– Lloyd L. Byars

According to Christensen, business policy is "the study of the functions and

responsibilities of top management, the crucial problems that affect success in
the total enterprise and the decisions that determine the direction of the
organisation and shape its future".

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 Nature of Strategic Management
The main features of strategic management are as follows:

1. A Process: Strategic management is basically a process consisting of

several activities which are performed in a systematic and sequential
manner. This process is complex due to close interrelationships between
different stages.

2. Dynamic Rather than Static: Strategic management is dynamic,

continuous, and flexible. It must be considered as a whole. It is adaptive in
nature, as one keeps asking, "Are we doing the right thing?" Strategic
management is a continual and evolving process, not a one-time, static, or
mechanistic activity.

3. External Focus: The focus of strategic management is on relating the

organisation to its external environment. It involves determining the
organisation’s future position.

4. Open Systems Approach: Strategic management emphasizes continuous

interaction between an organisation and its environment. The organisation
must adapt to its ever-changing environment.

5. Top Management Function: Strategy formulation and evaluation are

primarily the responsibility of top management. Top managers focus on
strategic issues, leaving operational management to middle and lower
levels.

6. Iterative Process: Strategic management is not a rigid sequence of steps. It

is iterative, as steps may be performed in any order depending on the
situation. Stages may be repeated over time as needed.

7. Holistic: Strategic management takes a totalistic view of the organisation. It

is multidimensional, multifunctional, and integrates inputs from various
functional areas.

8. Futuristic: Strategic decisions are made for the future, based on forecasts
of future events. These decisions aim to improve the organisation’s future
position in the industry and society.

9. Continuous: Strategic management is an ongoing process of aligning the

organisation’s objectives and resources with environmental opportunities.
Strategies must be modified in response to changes in the internal and
external environment.

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 10. Analytical: Strategic management follows a sequential model detailing
steps involved in the process.

11. Evolutionary: The strategic management process evolves over time.

Benefits of Strategic Management

Strategic management offers the following benefits:

Financial Benefits: Effective strategic management leads to better financial

performance in terms of profits and growth. Research studies reveal that
companies adopting strategic management outperform those that do not.
Firms using strategic management can realign strategies to environmental
needs and capitalize on emerging opportunities.

Clarity in Objectives: Strategic management focuses attention on

organizational objectives and directs actions toward those objectives. Once
the objectives are clearly spelled out, people at all levels can move in the
right direction. Employees perform better when they know where the
organization is going and what they are expected to do. Strategies guide
and direct action toward the goal and act as a roadmap.

Offsetting Uncertainty: Strategic management involves forecasting the

future and deciding the future course of action in light of predictions.
During this process, an organization acquires the capability to cope with
future uncertainties. The organization can successfully face likely threats
and reduce risks by anticipating the future. Strategic management helps an
organization be proactive in shaping its future.

Minimum Resistance to Change: Involvement of people at all levels in the

process of strategy-making increases the acceptability of change. There is
better awareness of the need for change and the reasons behind altering
specific courses of action. This proactive approach facilitates innovation
and changes.

Improved Quality of Strategic Decisions: Group interaction during the

strategic management process facilitates the generation and screening of
strategic options. The best options are likely to be selected and acted upon.

Prevention of Problems: Environmental forecasting and strategic planning,

which are integral parts of strategic management, enable an organization to
anticipate problems and take timely action, thereby preventing issues.

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 Higher Employee Motivation: The strategic management process helps
clarify roles, avoiding role ambiguity and conflict. There is better
understanding of priorities and the operation of the reward system.
Employee morale improves, and goal-directed behavior is likely to follow.

Competitive Advantage: Strategic management helps improve the

competitive position of the organization. It enables the organization to make
optimum use of its competencies and resources and keeps it on the right
track.

Unifying Force: Strategic management helps unite and coordinate different

parts of an organization both horizontally and vertically.

Resource Optimization: Strategic management ensures a rational allocation

and use of resources.

Criteria for Evaluation: Strategic management clearly defines the desired

level of performance. Actual performance can be judged in terms of critical
success factors that are strategically important for the organization.

Public Image: Companies that clearly know what they want to become and
how to achieve it enjoy the trust and confidence of their stakeholders.

Conclusion: Strategic management helps increase organizational

effectiveness, ensuring the survival and growth of the organization.

Limitations Of Strategic Management

Strategic management suffers from the following limitations.

1. Lack of Appreciation: Managers often lack the mindset required for effective
strategic management. They fail to isolate strategic issues. Their thinking about
strategy is ambiguous and confused. Some executives focus attention on
operating problems and short term achievements. A future oriented thinking
can be developed only when managers properly understand the concept and
role of strategic management.
2. Complex and Dynamic Environment: It is becoming more and more difficult
to forecast due to increasing complexity and accelerating rate of change. In the
absence of reasonably accurate forecasts, strategy formulation becomes
difficult. However, the practical problem in the way of strategic management
makes it all the more significant. Strategic management is as good as the
information on which it is based.

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 3. Rigidity: Strategies are chosen and implemented in a given set of internal
and external environment. Over-time people become accustomed to strategic
plans. When changes in the environment require a change in strategy, internal
inflexibilities relating to people and procedures serve as constraints.
An open systems approach to strategic management can build flexibility in the
system and thereby overcome this problem. This approach involves continuous
adjustment in strategies on the basis of changes in the external and internal
environment. A dynamic equilibrium is suggested between strategic direction
on the one hand and the organisation’s environment and capabilities on the
other hand.
4. Lack of Accuracy: Strategic management is based on forecasts of future
environment. It is very difficult to forecast distant future accurately. Greater is
the error in forecasting, greater are the shortcomings in strategy formulation.
5. Time Consuming: Strategic management is lengthy and time consuming
process. Comprehensive strategic planning requires considerable time, effort
and cost.

6. Problems in Implementation: Strategy implementation is a complex process

wherein several internal and external problems arise. The meaning and scope
of the corporate strategy is not the same throughout the organisation. These
are conflicts among different groups, divisions and departments of an
organisation over goals, values and courses of action to be pursued. Strategic
management is not a substitute-for-action.

Thus, strategic management is not the pannacea for all problems of an

organisation. But just as medicine is necessary to cure a patient despite its side
effects, similarly strategic management is useful in spite of its limitations.

Levels of Strategy

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 1. Corporate Level Strategy: Corporate or grand strategy is an overall plan of
action concerned with the objectives of the organisation, acquisition and
allocation of resources and coordination of strategic business units (SBUs)
for optimal performance. Decisions relating to corporate strategy tend to be
conceptual and value-oriented. These are taken at the top level of
management. Diversification into new areas of business is an example of
corporate strategy. Corporate level strategy is concerned with an
organisation’s reach (scope of activities), competition areas, management
practices, synergy between activities and stakeholder value.

2. Business Level Strategy: In a single product company, the corporate level

strategy serves the whole business and this strategy is implemented
through functional strategies. Hero Motor Corp is a manufacture and seller
of motorcycles and is, therefore, a single product company. A single
strategy is neither adequate nor appropriate for multi-product line
companies. ITC is a diversified company that operates in several
businesses like tobacco products, hotels, paper, food, readymade
garments, etc. These different businesses are organised as different
divisions known as strategic business units or profit centres.
A SBU is “any part of a business organisation which is treated separately
for strategic management purpose”. Each SBU has a clearly defined
product/market segment and has its own strategy. Physical and human
resources are allocated to each SBU according to its needs and
contribution to the achievement of overall objectives of the organisation.
At the heart of business-level strategy is the objective of developing a firm-
specific business model that will allow a company to gain a competitive
advantage over its rivals in a market or industry. A business-level strategy
determines where and how a company seeks to compete in a business or
industry or how a company proposes to create value for customers.
Business level strategy is a comprehensive plan that defines the SBU's
objectives allocation of resources among functional areas and coordination
between them so as to make optimal contribution to the achievement of
corporate objectives. Business level strategies operate within the
framework of corporate strategy. The business strategy of each SBU is
designed to make the best use of its resources within the environment
faced by it.

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 3. Functional Level Strategy: A functional strategy relates to a single
functional area and the activities involved therein. It is a restricted plan
providing objectives for a specific function, allocation of resources among
different activities within that functional area and coordination between
them for optimal contribution to the achievement of the SBU and corporate
level objectives.

In addition to the three levels of strategy given above, companies may have
strategies at social and operating levels. A societal strategy is above the
corporate level and provides a broad view of how the company relates itself to
the society. It serves as the basis for corporate level strategy. For example, the
societal strategy of a corporation may decide to provide alternative sources of
energy to the society at reasonable cost. On the basis of this societal strategy,
the corporation may choose between nuclear every, solar energy and windmill
energy. Societal strategies are reflected in the vision and mission statements.
Strategy is also used at operating level which is below the functional level. Each
functional area may require a number of operational strategies. For example,
the marketing strategy may be subdivided into product, pricing, distribution and
promotion strategies. Functional and operating level strategies are concerned
with the implementation of corporate and business level strategies.

Process and Model Of Strategic Management

Each phase consists of several elements or sub-phases which are as follows:

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 1. Establishing the Strategic Intent: Strategic management aims to help the
organisation realise its strategic intent. Strategic intent, represents what the
organisation stands for and lays the foundation for the organisations
strategic management. The main elements of strategic intent are as follows:
(i) Creating and communicating the vision

(ii) Designing a mission statement

(iii) Defining the business
(iv) Choosing the business model

(v) Setting objectives

Vision represents what the organisation wants to be in future. Mission is the

fundamental unique purpose that sets the organisation apart from other
organisations and identifies its product market scope. It also prescribes how
the organisation will deal with its various stakeholders. It relates the
organisation to the society. Business definition is a statement of the
business(es) the organisation engages or wishes to engage in future. Business
model describes how the organisation creates value. Objectives are the end
results which the organisation strives to achieve in future.

2. Formulation of Strategies: This phase of strategic management process

involves the following activities:
(a) Analysis of external environment to identify the opportunities and
threats for the organisation.

(b) Analysis of internal environment (organisational analysis) to identify the

organisation’s strengths and weaknesses.
(c) Identification of strategic alternatives in terms of corporate level
strategies, and business level strategies.
(d) Strategic analysis and choice of strategy

3. Implementation of Strategies: The main activities involved in strategy

implementation are as follows:

(a) Activating strategies

(b) Designing the structure, systems and process
(c) Behavioural implementation

(d) Formulating functional strategies

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 (e) Operationalising strategies
These activities constitute the action phase of the strategic management
process.

4. Evaluation and Control of Strategies: The last phase of the strategic

management process consists of the following activities:
(a) Evaluation of strategies

(b) Exercising strategic control

(c) Reformulating strategies

The various elements of the strategic management process are interrelated and
interdependent. A simple model of strategic management process is given in
Fig. 2.2

The feedback from strategic evaluation helps in exercising strategic control

which may involve reformulation of strategies and/or improving implementation
of strategies. In this way, strategic management becomes an iterative process.

Participants in Strategic Management

Strategy formulation is largely the responsibility of top management because
this level can take care of the total organisation and relate it to its environment.
Top management consists primarily of the board of directors and the chief
executive officer. However, corporate planning staff, consultants and senior

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 managers provide valuable inputs for strategy formulation. In strategy
implementation managers at all levels are involved

Role of Board of Directors

Board of Directors has the authority to manage a company within the
framework of the Companies Act, the Memorandum of Association and the
Articles of Association. The main functions of the board of directors are as
follows:

1. Strategy Formulation: The board of directors establishes the company’s

strategic intent and formulates corporate level strategies. It defines the
broad direction in which the company will move and the long-term
objectives which it will pursue.

2. Designing Organisation Structure: The board of directors designs the

company’s organisation structure in terms of SBUs, divisions and
departments. It also appoints the chief executive and selects
divisional/departmental heads.

3. Financial Approvals: The board of directors approves the company’s

master budget and distribution of its earnings. Through such approvals the
board maintains control over the company’s management

4. Exercising Controls: Board of directors is responsible to the shareholders

for the management and performance of the company. Therefore, it has to
keep effective checks and control over the company’s functioning. The
board of directors reviews the company’s performance at periodic intervals
(usually every quarter) and suggests suitable actions to improve
performance.

5. Trusteeship: The board of directors has a fiduciary relationship with the

company. Shareholders entrust the company’s assets to the board of
directors which must discharge its duties with honesty and sincerely for the
benefit of shareholders. It must fulfil the trust and confidence shown by the
shareholders.

6. Legal Duties: The Companies Act defines the legal functions and
responsibilities of the board of directors. The directors face civil and
criminal liabilities if they fail to comply with their legal duties.

Role of Chief Executive

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 Chief executive is the strategist and the chief architect of the organisation's
purpose. He acts as the organisation builder and leader of the management
team.

Thomas J. Wheelan and J. Daniel Hunger, Strategic Management and

Business Policy, Addison Wesley. Reading MA, 1983,

The main functions of the chief executive are as follows:

1. Strategic Planning: The chief executive identifies business opportunities

and makes strategic decisions. He lays down corporate goals and
formulates long-term plans.

2. Guidance and Direction: The chief executive guides and directs all the
functional heads of the organisation by (a) explaining and interpreting the
strategies and policies formulated by the board of directors, (b) issuing
orders and instructions to departmental heads.

3. Coordination: The chief executive ensures cooperation and coordination

among all the departments of the company. He ensures that various
departmental/divisional heads work together as a team towards the
achievement of organisational purpose.

4. Staffing: The chief executive selects heads of divisions/departments, fixes

their pay structure and decides their promotions/transfers.

5. Review and Control: The chief executive appraises the performance of

different divisions/departments and suggests appropriate remedial
measures. He prepares progress and control reports for the board of
directors

6. Public Relations: The chief executive is the spokesman and

representative/public face of his company. He works to maintain cordial
relations with shareholders, banks, financial institutions, trade unions, trade
associations, government and other stakeholders.

Thus, the chief executive performs general management functions rather than
looking after functional aspects of the company. He assists the board of
directors in the strategic management of the organisation.
Chief executive is the executive head of a company Traditionally, one person
acts as the chief executive and is responsible for overall functioning of the

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 company. He may be assisted by staff specialists such as legal adviser,
personal secretary, executive assistant, etc. In big companies a small group
rather than a single person serves as the chief executive.
This group is called plural executive. This is done because one person cannot
effectively perform different roles of the chief executive.

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