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BUSINESS POLICY AND STRATEGIC MANAGEMENT (BPSM)

UNIT I: INTRODUCTION: Nature, scope and importance of the course on business


policy, Evolution of this course Forecasting, Long range planning, Strategic Planning
and Strategic Management.
Evolution of Business Poli! "s " Disi#line (i$#)
!"har #a"mi $ %&'
(usiness policy is a mandatory course )hich is usually included in a typical management
studies curriculum. !lmost all management education programmes offered by the
universities and management institutes in *ndia include a business policy course.
+he ,enesis of (usiness Policy
+he origins of business policy can be traced bac- to %.%%, )hen the /arvard (usiness
School introduced an integrative course in management aimed at providing general
management capability. +he development in business policy can be traced bac- to the
time )hen there )as the use of planning techni0ues by managers. Starting from day to
day planning in earlier times, managers, till recently tried to anticipate the future
through the preparation of budgets and by using control systems li-e capital budgeting
and management by ob1ectives. /o)ever, as these techni0ues )ere unable to emphasi"e
on the role of the future ade0uately, long range planning came into use. (ut, soon, long
range planning )as replaced by strategic planning, and later by strategic management
)hich forms the theoretical frame)or- for business policy courses today.
+he evolution of business policy can be vie)ed in terms of four ma1or shifts2phases3
%. First Phase mid %.$&s'3 +he first phase )hich can be traced bac- to the mid
%.$&4s, rested on the model of ad hoc policy ma-ing. +he need for policy
ma-ing arose due to the nature of the !merican business firms of that period. +he
firms, )hich had originally commenced operations in a single product line
catering to a uni0ue set of customers in a limited geographical area, e5panding in
any one or all of the three dimensions. *nformal control and co ordination
became partially irrelevant as e5pansion too- place and the need to integrate
functional areas arose. +his integration )as achieved by framing policies to guide
managerial action. +hus, policy ma-ing became the prime responsibility of
senior2top management.
6. Second Phase %.$&s and %.7&s'3 8ue to the increasing environmental changes in
the %.$&s and %.7&s in the 9S, planned policy formulation replaced ad hoc policy
%
ma-ing. (ased on this second pattern, the emphasis shifted to the integration of
functional areas in a rapidly changing environment.
$. +hird Phase %.:&s'3 *ncreasing comple5ity and rapid changes in the environment
made the planned policy pattern2model irrelevant since the needs of a business
could no longer be served by policy ma-ing and functional area integration
only. (y the %.:&s, there )as a demand for a critical loo- at the basic concept of
business and its relationship at the environment. +he concept of strategy satisfied
this re0uirement and the third phase, based on a strategy paradigm 2 pattern,
emerged in the early si5ties.
7. Fourth Phase %.;&s'3 +he current thin-ing )hich emerged in the ;&s is based
on the fourth paradigm 2 pattern of strategic management. +he initial focus of
strategic management )as on the interaction of t)o broad areas of )or-3 the
strategic processes of business firms and the responsibilities of general
management.
T%e In&i"n Sen"'io
Formal management education system started in *ndia in the late fifties and gained
impetus )ith the setting up of the *ndian *nstitutes of Management and the
!dministrative Staff <ollege of *ndia in the early si5ties. *n the formative years of the
**Ms, the curriculum and philosophy of management education )ere borro)ed
substantially from the !merican business schools. **M !hmadabad based its teaching
methodology on the /arvard model of developing and using case studies as a ma1or
pedagogical tool. =ith the spread of the net)or- of the **Ms and the creation of several
university departments and private management institutes, management education has
e5perienced an unparalleled gro)th.
!s stated earlier, almost all management education institutions offer the business policy
course, usually in the latter part of the degree or diploma programme. +he !ll *ndia
<ouncil of +echnical Education !*<+E', the regulatory agency for management
education in *ndia, prescribed business policy first in %..& and again in %..> as an
integrative component in the management studies curriculum, in the form of a course in
corporate planning and strategic management.
Fe) desirable changes are ta-ing place in the *ndian conte5t3 the availability of literature
in business policy is increasing? a fe) researchers are occasionally submitting their )or-
in various publications, and organi"ations seem to be )illing to put business policy
concepts and techni0ues into practice. +here is no) a professional association Strategic
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Management Forum of *ndia )hich is e5clusively devoted to the development and
spread of the theory and practice of strategic management.
M(inse! )s *'"$e+o',
+he M(inse! )S *'"$e+o', is a management model developed by )ell@-no)n
business consultants Aobert /. =aterman and +om Peters in the %.;&s. +his )as a
strategic vision for groups, to include businesses, business units, and teams. +he BS are
structure, strategy, systems, s-ills, style, staff and shared values.
+he model is most often used as a tool to assess and monitor changes in the internal
situation of an organi"ation.
O-.etive
*mprove the performance of a company
E5amine the li-ely effects of future changes )ithin a company
!lign departments and processes during a merger or ac0uisition
8etermine ho) best to implement a proposed strategy
+he Seven *nterdependent Elements
+he basic premise of the model is that there are seven internal aspects of an
organi"ation that need to be aligned if it is to be successful
/!A8 ELEMEN+S SCF+ ELEMEN+S
Strategy Shared Dalues
Structure S-ills
Systems Style
Staff
E/ardE elements are easier to define or identify and management can directly influence
them3 +hese are strategy statements? organi"ation charts and reporting lines? and formal
processes and *+ systems.
ESoftE elements, on the other hand, can be more difficult to describe, and are less tangible
and more influenced by culture. /o)ever, these soft elements are as important as the
hard elements if the organi"ation is going to be successful.
$
LetFs loo- at each of the elements specifically3
/0 St'"te1!: the plan devised to maintain and build competitive advantage over the
competition. *t refers to the intended se0uence of actions ta-en by a company to achieve
its goals and ob1ectives. *t deals )ith resource allocation and includes competition,
customers and the environment.
6. St'utu'e: the )ay the organi"ation is structured and )ho reports to )hom. *t refers to
ho) the various business units are structured and ho) they communicate )ith each other.
! company4s structure may be centrali"ed or decentrali"ed or may ta-e any form
depending on the company4s culture and values.
$. S!ste$s: the daily activities and procedures that staff members engage in to get the 1ob
done. *t includes performance appraisal system, financial systems, *+ systems, etc.
20 S%"'e& 3"lues: +hese are the Gcore4 values of the company that connect all the :
factors. +hey are seen in the corporate culture and the general )or- environment. +hese
are the fundamental ideas or guiding principles that lay the foundation of businesses.
40 St!le: the style of leadership used.
50 St"ff: the employees and their general capabilities. *t refers to the number and type of
employees in the organi"ation. *t is very important for an organi"ation to manage its
human capital to create competitive advantage.
)0 S,ills: the actual s-ills and competencies of the employees )or-ing for the company.
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Placing Shared Dalues in the middle of the model emphasi"es that these values are central
to the development of all the other critical elements. +he companyFs structure, strategy,
systems, style, staff and s-ills all stem from )hy the organi"ation )as originally created,
and )hat it stands for. +he original vision of the company )as formed from the values of
the creators. !s the values change, so do all the other elements.
6o+ to Use t%e Mo&el
+he model is based on the theory that, for an organi"ation to perform )ell, these seven
elements need to be aligned and mutually reinforcing. So, the model can be used to help
identify )hat needs to be realigned to improve performance, or to maintain alignment
and performance' during other types of change.
=hatever the type of change restructuring, ne) processes, organi"ational merger, ne)
systems, change of leadership, and so on the model can be used to understand ho) the
organi"ational elements are interrelated, and so ensure that the )ider impact of changes
made in one area is ta-en into consideration.
Hou can use the BS model to help analy"e the current situation Point !', a proposed
future situation Point (' and to identify gaps and inconsistencies bet)een them. *tFs then
a 0uestion of ad1usting and tuning the elements of the BS model to ensure that your
organi"ation )or-s effectively and )ell once you reach the desired endpoint.
>
Mint7-e'18s 4P8s of St'"te1!
+he )ord IstrategyJ has been used implicitly in different )ays. Mint"berg provides >
definitions of strategy3
%. Pl"n: Strategy is a plan a consciously intended course of action, a
guideline or a set of guidelines' to deal )ith a situation. +his vie)
highlights t)o important characteristics of strategy? they are made in
advance of the actions to )hich they apply, and they are developed
consciously or purposefully.
6. Plo!: !s plan, a strategy can be a ploy too? a specific tric- intended to
out)it an opponent or competitor.
$. P"tte'n: Strategy is a pattern, a pattern in a stream of actions. Strategy is
consistency in behaviour, )hether or not attended. Plans are intended
strategy? )hereas patterns are reali"ed strategy.
7. Position: Strategy is a position specifically a means of locating an
organi"ation in an IenvironmentJ. (y this definition strategy becomes the
mediating force, or match, bet)een organi"ation and environment, that is,
bet)een the internal and the e5ternal conte5t.
>. Pe's#etive: Strategy is a perspective it4s a )ay of loo-ing at the )orld.
Strategy is a perspective shared by members of an organi"ation, through
their intentions and 2 or by their actions.
NATURE O* BUSINESS POLICY:
+he senior management in any organi"ation is primarily responsible for guiding the
future course of action and for providing a sense of direction. (usiness policy attempts to
strengthen the capability of senior management to)ard these ends. (usiness policy is
considered )ith the study of the functions and responsibilities of the senior management
related to those organi"ational problems )hich affect the success of the total enterprise.
Secondly, it deals )ith the determination of the future course of action that an
organi"ation has to adopt. (usiness policy also involves choosing the purpose and
defining )hat needs to be done in order to establish and improve upon the character and
identity of an organi"ation. Lastly, it is also concerned )ith the mobili"ation of resources,
)hich )ill help the organi"ation to achieve its goals.
O-.etives9I$#o't"ne9Pu'#ose of Business Poli!:
(usiness policy focuses on reducing2managing the ris- and uncertainty involved in the
future by laying do)n a long term plan, )hich the organi"ation then follo)s.
*. (usiness policy helps in understanding the business environment3
:
%. (usiness policy helps to create an understanding of ho) policies are formulated.
+his helps in creating an a)areness of the comple5ities of the environment )hich
the senior management faces )hile formulating the policies for the organi"ation.
6. (y gaining an understanding of the business environment, managers become
more receptive to the ideas and suggestions of the senior management. Such an
attitude on the part of the management ma-es the tas- of policy formulation
simpler.
**. (usiness policy helps in understanding the )or-ing of the organi"ation3
%. (usiness policy presents a basic frame)or- for understanding strategic decision
ma-ing )hile a person is the middle level of management. Such a frame)or-,
combined )ith the e5perience gained )hile )or-ing in a speciali"ed functional area,
enables a person to ma-e preparations for handling general management
responsibilities. (usiness policy ma-es the study and practice of management more
meaningful as one can vie) business decision ma-ing in its proper perspective. For
e5ample, in the conte5t of a business policy, a short term gain for a department or a
sub unit is )illingly sacrificed in the interest of the long term benefit that may
accrue to the organi"ation as a )hole.
6. !n understanding of business policy may also lead to an improvement in
1ob performance. ! person is able to understand the lin-age bet)een the different
subunits of an organi"ation and ho) a particular subunit fits into the overall picture.
+his has far reaching implications for managerial functions li-e coordination and
communication, and also for the avoidance of inter departmental conflicts.
Cn the basis of the above discussion, )e can say that the purpose of business policy is
stated as3
%. to integrate the -no)ledge gained in various functional areas of management,
6. to adopt a generalist approach to problem solving, and
$. to understand the comple5 inter @ lin-ages operating )ithin an organi"ation
through the use of a systems approach to decision ma-ing and relating these to
the changes ta-ing place in the e5ternal environment.
CONCEPT O* STRATEGY
+he concept of strategy is central to understanding the process of strategic management.
+he term Gstrategy4 is derived from the ,ree- )ord Gstrategos4 )hich means generalship
the actual direction of the military force. +herefore, the )ord strategy literally means the
art of the general. =hen the term strategy is used in the military sense, it refers to action
that can be ta-en in the light of action ta-en by the opposite party. *n management, the
B
concept of strategy is ta-en in slightly different form as compared to its usage in military
form, it is ta-en more broadly.
=hen an old established company )hich has been profitable in the past starts facing ne)
threats in the environment li-e the emergence of competitors it has to rethin- the
course of action it had been follo)ing. =ith such rethin-ing, ne) )ays are devised to
counter the threats. !lternatively, some ne) opportunities may emerge in the
environment )hich had not been there in the past. *n order to ta-e advantage of these
opportunities the company reassesses the approaches it had been follo)ing and changes
its course of action. +hese courses of action are )hat )e call Gstrategies.
Strategies are potential actions that re0uire top management decisions and large amount
of the firm4s resources. *n addition, strategies affect an organi"ation4s long @ term
prosperity, typically for at least >yrs, and these are future oriented. Strategies have multi
functional or multi divisional conse0uences and re0uire consideration of both the
internal and e5ternal factors facing the firm.
E5ample3 (oston Mar-et and #F< battle each other )ith similar strategies for selling fast
food chic-en. (oston Mar-er remodeled all of its :;& stores to provide booths, padded
chairs, and an e5tended menu. +he company also added 7& ne) restaurants in 6&&6. *n
late 6&&%, #F< launched a K6&& million +D advertising campaign, )ith a ne) tag line,
I+here4s fast food, then there4s #F<.J #F< also eliminated paper bo5es and it started
serving on blac- plastic plates, )hich is similar to )hat (oston Mar-et does. #F< also
renovated all of its >,$&& stores in the 9nited States by providing trac- lighting and cafL
style tables.
+hus, one can say that strategy has emerged as a critical input to organi"ational success
and it is an effective tool to deal )ith the uncertainties that an organi"ation4s face. *t has
helped to reduce ambiguity and provide a solid foundation as a theory to conduct
business by understanding the nature and interrelationship among the various variables
operating in the environment both internal as )ell as e5ternal'. +here have been several
such benefits, yet there are pitfalls too.
Cne of the earliest contributors to the concept of strategic management )as made by
!LFAE8 8. </!N8LEA.
!LFAE8 8. </!N8LEA %.:6'
I+he determination of the basic long term goals and ob1ectives of an enterprise and the
adoption of the courses of action and the allocation of resources necessary for carrying
out these goals.J
;
=*LL*!M F. ,L9E<# %.B6'
I! unified, comprehensive and integrated plan designed to assure that the basic long term
ob1ectives of the enterprise are achieved.J
- 9nified means that strategy 1oins all the parts of the enterprise.
- <omprehensive means it covers all the ma1or aspects of the enterprise, and
- *ntegrated means that all parts of strategy are compatible )ith each other.
DI**ERENCE B9; BUSINESS POLICY < STRATEGY
! policy is the statement or general understanding )hich provides guidance in decision
ma-ing to members of an organi"ation in respect to any course of action.
=here as a strategy is Ia unified, comprehensive and integrated plan designed to assure
that the basic long term ob1ectives of the enterprise are achieved.J
! distinction bet)een policy and strategy is made on the basis that the former i.e. policy'
is a guidance to the thin-ing and action of those )ho ma-e decisions, )hile strategy is
concerned )ith the direction in )hich the human and physical resources are deployed and
applied in order to ma5imi"e the chances of achieving the organi"ational ob1ectives in the
face of environmental variables.
!nsoff ma-es difference bet)een policy and strategy by stating that policy is a
contingent decision )hereas strategy is a rule for ma-ing decision. ! contingent event is
recogni"ed because it is repetitive but the time of its specific occurrence can4t be
specified. For such repetitive contingent events, it is not )orth)hile to decide every time
)hat to do )hen such contingency arises. *t is decided in advance )hat )ill be done in
such a contingent event, through policy guidelines. =hile formulating a strategy is forced
under conditions )hen alternatives can4t be arranged and analy"ed in advance. +he
strategic decision is ta-en under the conditions )here all the facts are not -no)n. +hus,
such a decision may be changed )hen more facts become available.
!nother distinction bet)een policy and strategy is made on the basis of delegation and
implementation. Since the policy provides guidelines for decisions, it can be delegated
do)n)ard in the organi"ation. *n fact, a policy is prescribed for the people )hat they are
e5pected to do in certain cases. +hus, its implementation is through subordinate
managers. Strategy can4t be delegated do)n)ard since it may re0uire last minute
e5ecutive decision. /ence, strategy is essentially a top management function.
.
LE3ELS O* STRATEGY
Strategy operates at different levels 3 corporate level, business level and functional level.
Let us ta-e e5amples of some of the companies and their fields of operations3@
%. Aeliance *ndustries Limited3 /ighly integrated company, produces te5tiles, yarns,
fibers and a variety of petro chemical products li-e P+!, L!( and other fiber
intermediaries. *t has also made its mar- in the field of telecommunication. !nd
no) )e have its presence in real estate, po)er, etc.
6. /industan 9niliver Limited3 ! prominent consumer product company, operates
in the field of soaps, synthetic detergents, personal product li-e cosmetics,
shampoo, toothpastes, etc., food and beverages li-e tea, coffee, dairy products,
staple foods, etc. and product for industrial and agricultural use li-e special
chemicals, fertili"ers, animal feeds, etc.
$. <entury +e5tiles Limited3 ! diversified company operates in the field of te5tiles,
cement, paper and pulp and rayon. +hese products do not have any relationship
among themselves, either technology )ise or mar-et )ise.
7. #oda- *ndia Limited3 manufactures and sells photographic materials.
>. ,illete *ndia Limited3 manufactures and sells shaving products.
:. !sho- Leyland Limited3 manufactures and sells heavy commercial vehicles.
First three companies Aeliance, /9L, and <entury +e5tiles' are multi product business
and second three companies #oda-, ,illete and !sho- Leyland Ltd.' are single
product companies. +he multi product companies have different business organi"ed as
different divisions2product groups. +hese are generally -no)n as Gprofit centres, or from
strategic management point of vie) as Gstrategic business units (SBUs). !n S(9 is Iany
part of a business organi"ation )hich is treated separately for strategic management
purpose.J
S(9 concept )as evolved by ,eneral Electric <ompany of 9S! to manage its multi
product business. +he fundamental concept in the S(9 is to identify the discrete
independent product2 mar-et segments served by an organi"ation. Since each independent
product2 mar-et segment has a distinct environment, a S(9 should be created for each
such segment.
*n contrast to an organi"ation )ith multi S(94s, a single product2 mar-et organi"ation
has single Strategic (usiness 9nit. +he )or-ing of the strategies in these types of
organi"ation )ould be different. *n a single product company, the corporate strategy
serves the )hole business. +his strategy is implemented at the ne5t lo)er level by
%&
functional strategies. *n a multi product company, the business level strategies are
inserted bet)een corporate strategy and functional strategies.
+hus, the various levels at )hich strategies operate are3
%. <orporate Level Strategy3 occupies the highest level of strategic decision
ma-ing. *t is an overarching umbrella' plan of action covering the various
functions performed by different S(94s. +he plan deals )ith the ob1ectives of the
organi"ation, allocation of resources and coordination of the strategies of S(9s
for optimal performance. Such decisions are made by top management of the
organi"ation.
6. (usiness Level Strategy2S(9 Level Strategy3 Each S(9 has its o)n strategies to
ma-e the best use of its resources given the environment it faces. S(9 level or
business level strategy is a comprehensive plan providing ob1ectives for S(9s,
allocation of resources among functional areas and coordination bet)een them
for ma-ing an optimal contribution to the achievement of corporate level
ob1ectives. Such strategies operate )ithin the overall strategies of the
organi"ation. +he corporate strategy sets the long term ob1ectives of the firm
and its broad constraints and policies )ithin )hich a S(9 operates. +he
corporate strategy, thus, defines the scope of operations for S(9 and assign
resources for its functioning.
$. Functional Level Strategy3 relates to a single functional operation and the
activities involved therein. Functional strategy deals )ith a relatively restricted
plan providing ob1ectives for a specific function, allocation of resources among
different operations )ithin the functional area and coordination bet)een them for
optimal contribution to the achievement of S(9 and corporate level ob1ectives.
8ecisions at this level )ithin the organi"ation are often described as Gtactical.
Such decisions are guided and constrained by some overall strategic
considerations.
(esides, these three levels of strategy, there is a strategy operating at operation level,
-no)n as Goperating Level Strategy. Cperating level strategy comes belo)
functional level strategy and involves actions relating to various sub functions of a
ma1or function. For e5ample, functional level strategy in mar-eting function may be
divided into various operating levels such as mar-eting research, sales promotion, sales
and distribution, etc.
%%
+able3J<haracteristics of strategic decisions at different levelsJ
LEDELS CF S+A!+E,H
8*MENS*CN <CAPCA!+E (9S*NESS F9N<+*CN!L
%. +ype of decision. <onceptual Mi5ed Cperational
6. *mpact <ritical Ma1or Minor
$. Ais- *nvolved Dery high Medium Lo)
7. Profit Potential /igh Medium Lo)
>. +ime /ori"on Long range Medium range Short range
:. Fle5ibility /igh Medium Lo)
B. !daptability Lo) Medium /igh
%6
E3OLUTION O* STRATEGIC PLANNING T6IN(ING
+he essence of planning is to organise in a disciplined manner, the tas-s of an
organisation that it has to perform and issues that it has to address and to maintain
operational efficiency in an e5isting business. +hus, )e see that planning is a comple5
process and cannot be simply structured empirically or by using 0uantitative techni0ues
alone. !n active planning system has to primarily deal )ith some important dimensions,
vi". being proactive to the changes in environment, responding to the changes in
environment and deploying all the internal resources to improve the survival of a
company in a highy competitive environment. +o be -no)ledgeable about the e5ternal
environment, )hich may be hostile or conducive, is very important for companies.
<ompanies )ho do not manage the changes in environment may eventually perish. +he
strategic thin-ing is a techni0ue that enables firms to adapt to environmental
changes.+his a)areness of being adaptive to the e5ternal environment is an active
process )ith high creativity and tough decisions for profitability of the company and can
be compared )ith the adaptive process of living beings )ith their environment. +he
response of a company, )hen strategic thiF%-ing is internalised, transforms into various
actions that the company has to ta-e for enhancing the e5isting and long term position
ofthe company in a competitive environment. +he action plans include totality of
programs for ma1or areas, hence it involves all the people of the organisation. +he
planning process must dovetail all the departments vi". mar-eting, sales, engineering,
manufacturing, research and development, 0uality assurance, technology, financeetc. !ll
functional departments of the organisation must respond to the challenges of the planning
process. *t should also be responsive to the individual talents and abilities of the
departments, and people of the organisation and should ta-e into account the
organisational culture that is very vital for the planning process to succeed. Planning for
the day does not apply to the present organisation. +he environment andthe comple5
business situations have made it mandatory for organisations to plan forthe future. +he
table belo) sho)s the difference in the nature of formal and opportunistic planning.
*o'$"l O##o'tunisti
Pu'#ose Proactive in nature and see-s to adopt as
per e5tenal environment, depending on
effectiveness and efficiency internal to
organi"ation
+his permits fle5ibility for
0uic- response to unplanned
activities based on e5isting
capabilties of the
organi"ation
So#e For <orporation <oncentrated at S(9 Level
Ti$e Systematic planning )hich is
chronological and date)ise
Aesponsive to emergencies,
opportunities and threats
*"to's Formal Strategic Planning and highly
structured
Cpportunistic planning
E$e'1ene of Lon1=R"n1e Pl"nnin1
%$
! lot of progress to)ards comprehensive planning )as done )ith introduction of long@
range planning LAP' in %.>&Fs. +he system of LAP consists of defining organi"ation@
)ide efforts to define various ob1ectives, programs, budgets etc. over a span of time,
usually a fe) years. +he basic idea of long@range planning is to ma-e an effort to)ards
pro1ecting the environmental trends over a period of time and establish stretched
ob1ectives and set guide lines for the people of an organi"ation to achieve them. +he LAP
)as born in response to the e5traordinary boom that occurred during the post =orld =ar
** period. +he gro)th of demand of goods )as unprecedented and it )as not enough for
companies to rely on the one@year pro1ection of re0uirements. +he organi"ation of
capacity e5pansions and arranging for corresponding financial resources became 0uite
difficult for companies, )hen long@range planning )as found to give managers a )ider
hori"on for doing business.
LAP commences )ith multi@year sales forecast around )hich manufacturing, mar-eting,
personnel, etc. are developed to meet the gro)ing challenge. +his sho)s commitment of
an organi"ation to)ards gro)th in future. +he plans of individual functions are then
aggregated to build total financial plan, including investment decisions and usual
budgeting and financial controls, but accounting for e5tended hori"on of a long period of
time.
+he historical data of a period of five to si5 years is usually covered. +he planning is
usually done to cover a little more than )hat is reflected by the data. *n long@range
planning, the capital budgeting is of great significance. <apital budgeting uses the
concept of pay bac- and discounted cash flo)s for evaluating the )orth of capital
e5penditures. Long@range planning has many limitations and it )as probably very useful
after =orld =ar ** due to steep gro)th of mar-ets. +he trends of mar-ets )ere also fairly
predictable as there )as comparatively less business rivalry amongst competitors.
9sually, a single firm )as there in a single business. *n the absence of these conditions,
long@range planning becomes 0uite a useless activity.
9sually the sales pro1ections and mar-et behaviours )ill not be as estimated. +he
changes in business are 0uic- and ma-ing pro1ections for long periods of time may prove
to be futile. !ny effort to analy"e the causes of deviations in sales pro1ections may )or-
out to be very comple5.
! more thorough understanding of the mar-ets rather than merely sales pro1ections is
re0uired, and for this, other underlying factors vi". economy, demography, attitudes,
polity, etc. and scores of other significant factors must be considered.
%7
+o define the position of an organi"ation in a business, more rigorous analysis is re0uired
rather than analysis of sales forecasts alone. +he future, off late, has become more
uncertain. Future is no more as smooth as pro1ected by sales forecasts. LAP may also act
as a trap for an organi"ation )hen it may thin- that it is ma-ing a sustained gro)th,
)hereas it may merely be driven by an e5ternal environmental factor, and )hen this
factor, ceases to e5ist due to some imminent cause, the organi"ation may be left loo-ing
for )ays to survive the onslaught. Long@range planning may be simpler for a single
product company, but for companies having multiplicity of products it may be difficult to
even visuali"e LAP ta-ing care of all the products. +he problems are also in resource
allocation in LAP, as it tends to confuse the planners to)ards overall focus of the
organi"ation. *t is easier to handle a pro1ect in isolation but to evaluate its effect in line
)ith the total vision of organi"ation may be 0uite difficult.
DI**ERENCE BET;EEN LONG RANGE PLANNING AND STRATEGIC
PLANNING
Lon1 R"n1e Pl"nnin1 St'"te1i Pl"nnin1
Focus Present ,ro)th
Cb1ective !nnual Profits Future Profits and share
<onstraints Present Aesources
Environment
Future Aesources Environment
Ae)ards Efficiency, stability 8evelopment of future potential
Ais-s No gro)th Slo) process,
*nformation Present (usiness Present business, future opportunities,
threats etc.
Crgani"ation (ureaucratic2stable etc. Entrepreneurial2fle5ible
Leadership <onservative <reative
Problem
Solving
Aeacts, relies on past
e5perience
!nticipate, discovers creative
approaches
C6AOS T6EORY IN STRAETGIC MANAGEMENT
%>
<haos theory, as given by Ed)ard Loren" and Mitchel Feigenbaum, states that at the root
of all comple5 systems )hether they are organi"ations or the environment lies a set of
rules. +hese rules provide a dynamic order to the comple5ity )hich appears on the
surface. +hese systems are not linear systems? therefore, a simple cause and effect
model cannot e5plain the nature of these systems. Aather, these systems are non linear
and highly dynamic in nature. !ny change that ta-es place in the non linear system is
chaotic. <haos theory uses mathematical models, -no)n as chaotic models, to understand
the nature and )or-ing of non linear and dynamic systems. +he concept of chaos theory
is observed in a variety of processes biological, sociological, economic, and
meteorological. +he chaos theory may be applied in management to understand mar-et
behaviour, financial forecasting, and anticipating competitive strategies.
8. Levy gives the follo)ing reasons to apply chaos theory to strategic management3
%. Long term planning is difficult
6. *ndustries don4t reach a stable e0uilibrium
$. 8ramatic changes can occur une5pectedly
7. Short term forecasts and predictions of patterns can be made
>. ,uidelines are needed to handle comple5ity and uncertainty
+he lesson that )e need to learn is that, in a dynamic environment, it is suicidal for
organi"ations to remain static. +hey have to ma-e sincere attempts to change dynamically
as the environment changes.
CONCEPT O* *ORECASTING
Forecasts are educated assumptions about future trends and events. Forecasting is a
comple5 activity because of factors such as technological innovation, cultural change,
ne) products, improved services, stronger competitors, and shifts in government
priorities, changing social values, unstable economic conditions, and unforeseen events.
Managers often rely upon published forecasts to identify -ey e5ternal opportunities and
threats effectively.
! sense of the future permeates all action and underlies every decision a person ma-es.
+he truth is )e all ma-e implicit forecast throughout our daily lives. +he 0uestion,
therefore, is not )hether )e should forecast but ho) to ma-e effective 2 realistic
forecasts. <an )e obtain information and then ma-e educated assumptions forecasts' to
better guide our current decisions to achieve a more desirable state of affairs. =e should
go into the future )ith our eyes and our minds open.
%:
Many publications and sources on the *nternet forecast e5ternal variables. Several
published e5amples include *ndustry =ee-4s I+rends M ForecastsJ, (usiness =ee-4s
I*nvestment Cutloo-J, and Standard M Poor4s *ndustry Survey.
Sometimes organi"ations must develop their o)n pro1ections. Most organi"ations
forecast pro1ect' their o)n revenues and profits annually. Crgani"ations sometimes
forecast mar-et share or customer loyalty in local areas. +he tools available for
forecasting are of t)o types3 Nuantitative and Nualitative +ools
Nuantitative +echni0ues are most appropriate )hen historical data are available and )hen
the relationships among -ey variables are e5pected to remain the same in the future.
E5ample @ Linear regression. !s historical relationships become less stable, 0uantitative
forecasts become less accurate.
No forecast is perfect, and some forecast are even )ildly inaccurate. +his fact stresses the
need for strategists to devote sufficient time and effort to study the underlying bases for
published forecasts and to develop internal forecasts of their o)n. #ey e5ternal
opportunities and threats can be effectively identified only through good forecasts.
!ccurate forecasts can provide ma1or competitive advantages for organi"ation. Forecasts
are vital to the strategic management process and to the success of organi"ations.
%B
S+A!+E,*< M!N!,EMEN+
Strategic management can be defined as the art and science of formulating, implementing
and evaluating cross functional decisions that enable an organi"ation to achieve its
ob1ectives. Strategic management focuses on integrating management, mar-eting,
finance2accounting, production 2 operations, research and development, and computer
information systems to achieve organi"ational success.
Strategic management is a process. ! process denotes that it has various activities and
these must be performed in a systematic manner. From this point of vie), a process
appears to be a very simple phenomenon. /o)ever, this simplicity appears on conceptual
level. *n actual practice, the process becomes more comple5 )here it )or-s as an
identifiable flo) of information through inter related stages of analysis directed to)ards
the achievement of ob1ectives. *t is dynamic rather than static in )hich events and
relationships are seen as dynamic, continuous and fle5ible and as a )hole, dynamic
interaction both affecting and being affected by many factors.
,L9E<# %.;7' defines strategic management as a Istream of decisions and actions
)hich leads to the development of an effective strategy or strategies to help achieve
corporate ob1ectives.J !s visuali"ed by ,luec-, the end result of strategic management is
a strategy or a set of strategies for the organi"ation.
!NSCFF %.;7' states that strategic management is Ia systematic approach to a ma1or
and increasingly important responsibility of general management to position and relate
the firm to its environment in a )ay that )ill ensure its continued success and ma-e it
secure from surprises.J *n this )ay, the stress is on environment organi"ation
relationship for the purpose of achieving the ob1ective of continued success and
remaining protected from environmental surprises through the adoption of a systematic
approach to general management.
From the various definitions of strategic management, the follo)ing features are
observed3
a' <ontinuously relating the organi"ation to its environment.
b' Formulating suitable strategies to maintain this relationship.
c' *mplementing strategies.
d' Ensuring through evaluation and control that strategies are implemented properly
and produce the results as intended.
%;
Features of Strategic Management
%. Strategic management is basically a process. *t has emerged out of the field of
management in )hich the basic ob1ective is to ensure the achievement of organi"ational
ob1ectives. *t is considered as a process consisting of different phases )hich are
se0uential in nature. +he four essential phases in strategic management are3
a. Establishing the hierarchy of strategic intent.
b. Formulation of strategies.
c. *mplementation of strategies.
d. Performing strategic evaluation and control.
+hese four phases are considered as se0uentially lin-ed to each other and each successive
phase provides a feedbac- to the previous phases.
6. +he focus of strategic management is on relating the organi"ation to its e5ternal
environment. +his lays stress on fact that there is continuous interaction bet)een
organi"ation and its environment ta-ing an Gopen systems approach4. +hus, the
organi"ation must create ade0uate channels through )hich e5ternal information )ill pass
to various points in the organi"ation.
$. Strategic management is basically a top management function. *n order to ensure
effective top management4s involvement, it is necessary to differentiate bet)een strategic
management and operational management emphasis on day to day operations', so that
top management can focus more attention on the strategic aspect rather than emphasi"ing
on operational management. Since the environment of an organi"ation is al)ays changing
providing ne) opportunities and threats, top management must spend more and more
time on this aspect.
Strategic Management Process
*ntroduction3 Strategic management is basically a process. *t has emerged out of the field
of management in )hich the basic ob1ective is to ensure the achievement of
organi"ational ob1ectives. *t is considered as a process consisting of different phases
)hich are se0uential in nature.
+he four essential phases in strategic management are3
a. Establishing the hierarchy of strategic intent.
b. Formulation of strategies.
c. *mplementation of strategies.
d. Performing strategic evaluation and control.
+hese four phases are considered as se0uentially lin-ed to each other and each successive
phase provides a feedbac- to the previous phases.
%.
+he process of strategic management is depicted through a model )hich consists of
different phases, each phase having a number of elements. Most authors agree on
dividing the strategic management process into four phases consisting of about 6&
elements. +he various phases are discussed belo)3
i' +he hierarchy of strategic intent lays do)n the foundation for the strategic
management of any organi"ation. *n this hierarchy, the vision, mission,
business definition and ob1ectives are established. +he strategic intent ma-es
clear )hat an organi"ation stands for. Dision serves as the purpose of stating
)hat an organi"ation )ishes to achieve in the long run. +he mission relates an
organi"ation to society. +he business definition e5plains the business of an
organi"ation in terms of customer needs, customer groups, and alternative
technologies. +he ob1ectives of an organi"ation state )hat is to be achieved in
a given time period. +hese ob1ectives serve as yardstic-s and benchmar-s for
measuring of organi"ational performance.
ii' Environmental and organi"ational appraisal help to find out the opportunities
and threats operating in the environment and the strengths and )ea-nesses of
an organi"ation so as to create a match bet)een them. *n such a manner,
opportunities can be e5ploited and the impact of threats neutrali"ed in order to
build on the organi"ational strengths and minimi"e the )ea-nesses.
iii' Strategic alternatives and choices are re0uired for evolving alternative
strategies out of the many options and choosing the most appropriate
strategies in the light of environmental opportunities and threats and corporate
strengths and )ea-nesses. Strategies are chosen at the corporate level and
business level. +he process used for choosing strategies involves strategic
analysis and choice. +he end result of this set of elements is a strategic plan
)hich can be implemented.
iv' For the implementation of a strategy, the strategic plan is put into action
through si5 process pro1ect implementation, procedural implementation,
resource allocation, structural implementation, behavioral implementation,
and functional and operational implementation. Pro1ect implementation deals
)ith setting up of the organi"ation. Procedural implementation deals )ith
different aspects of the regulatory frame)or- )ithin )hich *ndian
organi"ations have to operate. Aesource allocation relates to the procurement
and commitment of resources for implementation. +he structural aspects of
implementation deal )ith the designing of appropriate organi"ational structure
and systems, and reorgani"ing to match the structure to the needs of the
6&
strategy. +he behavioral aspects consider the leadership styles for
implementing strategies and other issues li-e corporate culture, corporate
policies and use of po)er, personal values and business ethics, and social
responsibility. +he functional aspects relate to the policies to be formulated in
different functional areas. +he operational implementation deals )ith the
productivity, processes, people, and pace of implementing the strategies. +he
emphasis is on action of strategy in this phase.
v' +he last phase of strategic evaluation appraises the implementation of
strategies and measures organi"ational performance. +he feedbac- from
strategic evaluation is meant to e5ercise strategic control over the strategic
management. Strategies may be reformulated, if necessary.
>STRATEGY *ORMULATION PROCESS?
6%
66
6ie'"'%! of St'"te1i Intent
(y strategic intent )e refer to the purposes the organi"ation strives for. +hese may be
e5pressed in terms of a hierarchy of strategic intent. (roadly stated, these could be in the
form of a vision and mission statement for the organi"ation as a corporate )hole. !t the
business level of firms, these could be e5pressed as the business definition and business
model. =hen stated in precise terms, strategic intent lays do)n the frame)or- )ithin
)hich firms )ould operate. /amel and Prahalad coined the term Gstrategic intent4, )hich
they believe )ould help to )in at all the levels in the organi"ation. /ierarchy of Strategic
*ntent includes3 Dision, Mission, (usiness 8efinition and Cb1ectives.
/0 3ISION
*t is especially important for managers and e5ecutives in any organi"ation to agree upon
the basic vision that the firm strives to achieve in the long term. ! vision statement
should ans)er the basic 0uestion, I=hat do )e )ant to becomeOJDision clarifies the
position that a firm )ould li-e to attain in the distant future. ! clear vision provides the
foundation for developing a comprehensive mission statement. Many organi"ations have
both a vision and a mission statement, but the vision statement should be established first
and foremost. +he vision statement should be short, preferably one sentence, and as many
managers as possible should have input into developing the statement.
Dision has been defined in several different )ays. #otter %..&' defines it as a
Idescription of something an organi"ation, a corporate culture, a business, a technology,
an activity' in the future. Dision is a mental perception of the -ind of environment an
individual, or an organi"ation aspires to create )ithin a broad time hori"on and the
underlying conditions for the actuali"ation of this perception. Miller and 8ess %..:'
vie) it simply as the Gcategory of intentions that are broad, all inclusive and for)ard
thin-ing4.
+hus, a strategic vision point an organi"ation in a particular direction, lays a strategic
path for it to follo) in preparing for the future, and moulds organi"ation identity. !
clearly defined strategic vision communicates management4s aspirations to sta-e holders
and helps mobili"e the energies of company employees in a common direction. ! vision
statement is distinctive and specific to a particular organi"ation, and it must say
something definitive about ho) the company4s leaders intend to position the company4s
beyond )here it is today. ! good vision al)ays needs to be a bit beyond a company4s
reach, but progress to)ards the vision is )hat unites the efforts of company personnel.
T%e #u'#ose of " vision st"te$ent is to:
6$
<ommunicate )ith the people of the organi"ation and to those )ho in some )ay
are connected or concerned about the organi"ation its very e5istence in terms of
corporate purpose, business scope and the competitive leadership.
8evelop a frame)or- that )ould lead to development of inter relationships
bet)een the firm and sta-eholders that is, employees, shareholders, suppliers,
customers and various committees )hich may be directly or indirectly involved
)ith the firm.
8efine broad ob1ectives regarding performance of the firm and its gro)th in
various fields vital to the firm.
+hus, a strategic vision is a road map sho)ing a route 2 path a company intends to ta-e in
developing and strengthening its business. *t paints a picture of a company destination
and provides a rationale for going there. Dision is a theme )hich gives a focused vie) of
a company. *t is a unifying statement and a vital challenge to all different units of an
organi"ation. *t consists of a sense of achievable ideas and is a fountain of inspiration for
performing the daily activities. *t motivates people of an organi"ation to behave in a )ay
that )ould be congruent )ith the corporate ethics and values.
E@"$#les of 3ision St"te$ents:
Microsoft <orporations IEmpo)er people through great soft)are any time,
any place and on any device.J
Ni-e I+o bring innovation and inspiration to every athlete in the )orld.J
/ein" I+o be the )orld4s premiere food company, offering nutritious, superior
tasting foods to people every)here.J
*nfosys I+o be a globally respected corporation that provides best of breed
business solutions, leveraging technology, delivered by best in class people.J
,oogle I+o organi"e the )orld4s information and ma-e it universally accessible
and useful.J
8r. Aeddy4s Laboratories I+o become a discovery led global pharmaceutical
companyJ
67
M".o' Co$#onents of " 3ision St"te$ent:
+he ma1or components of a vision statement are3
Mission of the firm in terms of product, mar-et and geographical scope and a )ay
to attain a desired competitive position.
<lear identification of business units and their inter relationship in terms of
shared resources and concerns.
Statement of corporate philosophy, corporate policy and values.
Benefits of 6"vin1 " 3ision:
,ood visions are inspiring and e5citing.
Disions represents a 1ump ahead so that the company -no)s
! good vision helps in the creation of a common purpose
,ood visions encourage ris- ta-ing and e5perimentation.
,ood visions focus on long term thin-ing.
,ood visions represent integrity.
*t provides a base for lo)er level managers for forming departmental missions,
ob1ectives and strategy that are in line )ith the company4s overall strategy.
*t helps an organi"ation to prepare for the future.
MISSION
=hile the essence of vision is for)ard loo-ing vie) of )hat an organi"ation )ants to
become, mission is )hat an organi"ation is and )hy it e5ists. Mission is defined by Peter
8ruc-er as a statement stating )hat a company )ill be, )hy it e5ists. So, it is the reason
for the e5istence of the organi"ation. *t is the role it )ants to pay in society. +hus, a
mission statement is a declaration of an organi"ation4s Ireason for beingJ. ! clear mission
statement is essential for effectively establishing ob1ectives and formulating strategies. *t
refers to the particular needs of the society, for e5ample, its information needs. ! boo-
publisher and a maga"ine editor are both engaged in satisfying the information needs of
society but they do it through different means.
+hompson %..B' defines mission as the Iessential purpose of the organi"ation,
concerning particularly )hy it is in e5istence, the nature of the business es' it is in and
the customers it see-s to serve and satisfy.J
/unager and =heelen %...' defines mission as the Ipurpose or reason for the
organi"ation4s e5istence.J
6>
6:
Sometimes called a creed statement, a statement of purpose, a statement of philosophy, a
statement of beliefs, a statement of business principles, or a statement Idefining our
businessJ, a mission statement reveals )hat an organi"ation )ants to be and )hom it
)ants to serve. !ll organi"ations have a reason for being, even if strategists have not
consciously transformed this reason into )riting.
(e! Ele$ents in Develo#in1 " Mission St"te$ent
6isto'! of t%e O'1"ni7"tion: <ritical characteristics and events of the past must
be considered in formulating and developing mission statement.
O'1"ni7"tion8s Distintive Co$#etitiveness: +he organi"ation should see- to do
)hat it does best. Cnce this has been determined, it can be included in the mission
statement.
T%e O'1"ni7"tion8s Envi'on$ent: +he management should identify the
opportunities provided and threats 2 challenges posed by the environment before
formulating a mission statement.
Ele$ents of " Mission St"te$ent
+he mission statement should specify the products to be produced and or services
to be rendered, mar-ets M2or customer groups to be served and the type of
technology to be used.
+he primary concern for survival and development of the company.
+he organi"ational philosophy in terms of basic beliefs, values, attitudes and
aspirations.
Management style to be practiced.
E@"$#les of %o+ O'1"ni7"tions *o'$ul"te& < Co$$uni"te& T%ei' Mission
St"te$ent:
Eicher <onsultancy3 *t )as born in %..%, )ith a mission statement. *t decided to
have an ambitious statement directly addressed to the )ell being of the country.
/<L3 +he environment for computer companies had become 0uite competitive by
%..%. ! need )as felt to provide a feeling of oneness in the organi"ation. ! core
management team assessed the internal strengths and designed a customer
centric mission statement for team building, mutual trust. *nternal customer
server e0uations and empo)erment.
Aanba5y Laboratories3 +he company reali"ed that competition in pharmaceuticals
industry )as becoming tough and it could not survive 1ust by selling generic
drugs. *n %..$, after a year of deliberations on future direction, the strategies to be
involved in achieving the mission and past e5perience, the <EC drafted the
6B
mission and values. Later, measures )ere ta-en to communicate it e5tensively
throughout the company do)n to the level of )or-ers.
E@"$#les of Mission St"te$ents
Eicher <onsultancy3 I+o ma-e *ndia an economic po)er in the lifetime, about
%& to %> years, of its founding senior managers.J
/<L3 I+o be a )orld class competitorJ
Aanba5y Laboratories3 I+o become a research based international
pharmaceuticals company.J
9nit +rust of *ndia3 I+o -eep the common man in sharper focus? to encourage
saving and investment habits among themPJ
Co$#onents of " Mission St"te$ent
Mission statements can and do vary in length, content, format and specificity. Most
practitioners and academicians of strategic management feel that an effective statement
e5hibits nine characteristics or components. Since, a mission statement is often the most
visible and public part of the strategic management process, it is important that it includes
all of these essential components3
Custo$e's: =ho are the firm4s customersO
P'o&uts o' Se'vies: =hat are the firm4s ma1or products or servicesO
M"',ets: ,eographically, )here does the firm competeO
Te%nolo1!: *s the firm technologically currentO
Cone'n fo' su'viv"lA 1'o+t% "n& #'ofit"-ilit!: *s the firm committed to
gro)th and financial soundnessO
P%iloso#%!: =hat are the basic beliefs, values and aspirations, and ethical
priorities of the firmO
Self B one#t: =hat is the firm4s distinctive competence or ma1or
competitive advantageO
Cone'n fo' #u-li i$"1e: *s the firm responsive to social, community, and
environmental concernsO
Cone'n fo' e$#lo!ees: !re employees a valuable asset of the firmO
E@"$#les of t%e Nine Essenti"l Co$#onents of " Mission St"te$ent:
/0 Custo$e's: =e believe our first responsibility is to the doctors, nurses, patients,
mothers, and all others )ho use our products and services. Qohnson M Qohnson'
C0 P'o&uts o' Se'vies: Standard Cil <ompany *ndiana' is in business to find and
produce crude oil, natural gas and natural gas li0uids? to manufacture high
0uality products useful to society from these ra) materials? and to distribute and
6;
mar-et those products and to provide dependable related services to the
consuming public at reasonable prices.
D0 M"',ets: =e are dedicated to the total success of <orning ,lass =or-s as a
)orld)ide competitor. <orning ,lass =or-s'
20 Te%nolo1!: =e )ill continually strive to meet the preferences of adult smo-ers
by developing technologies that have the potential to reduce the health ris-s
associated )ith smo-ing. AQ Aeynolds'
40 Cone'n fo' su'viv"lA 1'o+t%A "n& #'ofit"-ilit!: +o serve the )orld)ide need
for -no)ledge at a fair profit by adhering, evaluating, producing, and distributing
valuable information in a )ay that benefits our customers, employees, other
investors, and our society.Mc,ra) /ill'
50 P%iloso#%!: Cur )orld class leadership is dedicated to a management philosophy
that holds people above profits. #ellogg'
)0 Self B Cone#t: <ro)n Rellerbach is committed to leapfrogging ongoing
competition )ithin %,&&& days by unleashing the constructive and creative
abilities and energies of each of its employees.
E0 Cone'n fo' Pu-li I$"1e: +o share the )orld4s obligation for the protection of
the environment. 8o) <hemical'
F0 Cone'n fo' E$#lo!ees: +o compensate its employees )ith remuneration and
fringe benefits competitive )ith other employment opportunities in its
geographical area and commensurate )ith their contributions to)ard efficient
corporate operations. Public Service Electric M ,as <ompany'
E@"$#le: Pepsi<o4s mission is to increase the value of our shareholder4s investment. =e
do this through sales gro)th, cost controls, and )ise investment resources. =e believe
our commercial success depends upon offering 0uality and value to or consumers and
customers? providing products that are safe, )holesome, economically efficient, and
environmentally sound? and providing a fair return to our investors )hile adhering to the
highest standards of integrity.
C%"'"te'istis of " Mission St"te$ent
/0 *e"si-le:
C0 P'eise:
D0 Cle"':
20 Motiv"tin1:
40 Distintive:
50 In&i"to' of M".o' Co$#onents of St'"te1!:
)0 In&i"to' of %o+ o-.etives "'e to -e "o$#lis%e&:
6.
BUSINESS DE*INTION
Part of the mission statement is the definition of the business itself. ! business definition
is a clear cut statement of the business or a set of businesses, the organi"ation engages
in presently or )ishes to pursue in future. (y this, )e mean a description of the products,
activities or functions and mar-ets that the firm presently pursues. Products or services'
are the outputs of value created by the system to be sold to its customers. Mar-ets can
refer to classes or types of customers or geographic regions )here the product and 2 or
service are sold. =hen )e refer to functions )e mean the technologies or processes used
to create and add value. +hrough its business definition, the organi"ation specifies the
area in )hich it )ill operate and compete. +his is necessary because an organi"ation can4t
operate in the entire segments of a chosen industry. *t needs to specify the manner in
)hich it )ill operate )ith its competitors. ! business definition reflects t)o main
features3 focus and differentiation.
%. *ous in -usiness &efinition: =hile defining a business, an organi"ation should
focus on its field of business activity. Focus of business may be defined in terms
of the -ind of functions the business performs rather than the broad spectrum of
industry in )hich the organi"ation operates. E5ample is given belo)3
TEXTILES
PERSONAL WEARS
NON - WEARS
SUITINGS SHIRTINGS SAREES SUITS
COTTON SILK
SYNTHETICS
HIGH PRICED
MEDIUM
PRICED
LOW PRICED
$&
+hus, the company actually operates in high priced, premium synthetic sarees. *n order
to have a strategic focus on its real business, the organi"ation must define the business
specifically rather than the industry te5tiles in this case', )hich is meant for public
consumption. Such a sharp focus on business definition provides direction to a company
to ta-e suitable actions including positioning of the company4s business.
6 8ifferentiation in (usiness 8efinition3 refers to ho) an organi"ation differentiates itself
from others so that the business concentrates on achieving superior performance in the
mar-et. 8ifferentiation can be developed on several basis3 0uality, price, delivery,
service, or any other factor )hich the concerned mar-et segment values. +he strengths of
company contribute to)ards the intended differentiation.
8ere- !bell suggests defining business along the three dimensions of customer groups,
customer functions2needs and alternative technologies. <ustomer groups relate to G)ho4 is
being satisfied, customer needs describe G)hat4 is being satisfied and alternative
technologies means Gho)4 the need is being satisfied.
<ustomer Function 2 Need
<ustomer ,roups !lternative Functions
<ustomer groups are created according to the identity of the customers. <ustomer
functions are based on )hat the products or services provide to the customers. !lternative
technologies describe the manner in )hich a particular function can be performed for a
customer.
! clear business definition is helpful for strategic management in many )ays. For
instance, a business definition can indicate the choice of ob1ectives, help in e5ercising a
choice among different strategic alternatives, facilitate functional policy implementation,
and suggest appropriate organi"ational structure.
$%
OBGECTI3ES
Cb1ectives are the end results of planned activity. +hey state )hat is to be accomplished
by )hen and should be 0uantified if possible. +he achievement of corporate ob1ectives
should result in the fulfillment of a corporation4s mission.
+he term IgoalJ is often used interchangeably )ith the term Iob1ectiveJ. *n contrast to an
ob1ective, a goal is an open ended statement of )hat ones to accomplish )ith no
0uantification of )hat is to be achieved and no time criteria for completion. For e5ample,
a statement of Iincreased profitabilityJ is thus a goal, not an ob1ective, because it does
not state ho) much profit the firm )ants to ma-e the ne5t year. !n ob1ective )ould say
something li-e, Iincrease profits %&S over last yearJ. +hus, ob1ectives are concrete and
specific in contrast to goals that are generali"ed. *n this manner, ob1ectives ma-e the
goals operational. =hile goals may be 0ualitative, ob1ectives tend to be mainly
0uantitative in specification. +his )ay they are measurable and comparable.
E@"$#les of O-.etives
*untion O-.etives
S"les +o achieve 6&S gro)th during the current year over the previous
year.
P'o&ution +o achieve .&S of installed capacity.
P'o&ut +o introduce 6 ne) products as identified by the mar-eting
group.
6u$"n Resou'es +o train specific groups for specific s-ills identified for
achieving production and sales targets.
*in"ne +o provide necessary financial resources for achieving the
company4s goals.
A&$inist'"tion +o protect the assets of the company and monitor the sensitive
transactions, )hich are conducive to achievements of companies
goals.
Cl"ssifi"tion of O-.etives
Cb1ectives can be classified on the basis of time and level3
%. St'"te1i O-.etives: are achievable in the long term, and involve si"eable
capital costs. +hey are not easily reversible. For e5ample, a cement manufacturing
unit that is currently operating in ,u1arat )ants to set up a plant in Madhya
Pradesh to cover the central *ndian mar-et.
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6. T"ti"l O-.etives: involve a medium range time frame, related to a planning
period of say, : %; months. For e5ample, <oca <ola may plan an aggressive
promotional campaign in a particular region to defeat Pepsi4s sales move.
$. O#e'"tion"l O-.etives: are those )hich relate more to the day to day
operations of a firm. +his could be something as simple as shift level
productivity targets, the number of contract employees in an operation, or the
number of sale calls to be completed by a particular sales team. Cperational
ob1ectives are generally managed by operating managers in order to accomplish
the immediate tas-.
7. In&ivi&u"ll! Pe'fo'$"ne T"'1ets: are derived from operational tas-s that could
be related to a process or a person in an operation. For e5ample, a territory
manager4s sales target is an individual level performance tas-.
Cb1ectives become po)erful only )hen they are sub divided at a micro level and are
related to targets in respect of operational ob1ectives. Cb1ectives flo) do)n from the top
levels, )hich primarily deal )ith strategic issues, to the tactical level )hich sets periodic
targets to the operational level, and then to individual performance tas-s.
Role of O-.etives
%. Cb1ectives define the organi"ation4s relationship )ith its environment3
Cb1ectives are set, and in a )ay they define )hat the organi"ation has to achieve
for its employees, customers, etc. Since ob1ectives are set )ith the environment
in mind, they define its relationship )ith its environment.
6. Cb1ectives help an organi"ation to pursue its vision and mission3 (y defining the
long term position that an organi"ation )ishes to attain and the short term
targets to be achieved, ob1ectives help an organi"ation in pursuing its vision and
mission.
$. Cb1ectives provide the basis for strategic decision ma-ing 3 (y directing the
attention of strategists to those areas )here strategic decisions need to be ta-en,
ob1ectives lead to desirable standards of behavior, and in this manner help to co
ordinate strategic decision ma-ing.
7. Cb1ectives provide the standards for performance appraisal3 (y stating the targets
to be achieved in a given time period and the measures to be adopted to achieve
them, ob1ectives lay do)n the standard against )hich organi"ational as )ell as
individual performance can be 1udged. *n the absence of ob1ectives, an
organi"ation )ould have no clear and definite basis for evaluating the
performance.
C%"'"te'istis of O-.etives
$$
/0 O-.etives s%oul& -e Un&e'st"n&"-le:
C0 O-.etives s%oul& -e Con'ete "n& S#eifi:
D0 O-.etives s%oul& -e 'el"te& to " Ti$e *'"$e:
20 O-.etives s%oul& -e Me"su'"-le "n& Cont'oll"-le:
40 O-.etives s%oul& -e C%"llen1in1:
50 Diffe'ent O-.etives s%oul& Co''el"te +it% e"% ot%e':
)0 O-.etives s%oul& -e Set +it%in Const'"ints:
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Cone#ts of St'et%A Leve'"1e "n& *it
!long )ith the idea of strategic intent, /amel and Prahalad added the t)in concept of
Gstretch4 and Gleverage4. Stretch is the Gmisfit bet)een resources and aspirations.4
Leverage refers to concentrating, accumulating, complementing, conserving and
recovering resources in such a manner that the insufficient resource base is stretched
to meet the aspirations that an organi"ation dares to have. +he idea of stretch is
diametrically opposite to the idea of Gfit4 that means positioning the firm by matching
its organi"ational resources to its environment.
For achieving the strategic Gfit4 the techni0ues such as the S=C+ analysis are used to
assess organi"ational capabilities and environmental opportunities. Strategy then
becomes a compromise bet)een )hat the environment has got to offer in terms of
opportunities and the counter offer that the organi"ation ma-es in the form of its
capabilities. *n contrast, the ideas of Gstretch4 and Gleverage4 do not see capabilities as
constraints to achieving and the environment is not perceived something as given but
as something )hich can be created and moulded. +he concept of strategic intent
matches 2 )or- in both the cases, though it might be perceived differently in terms of
the levels at )hich aspirations are set. 9nder fit, the strategic intent )ould seem to be
more realistic? under stretch and leverage it could be idealistic. Het, in both the cases,
it is essentially a desired aim to be achieved.
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