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 6 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. 7 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. $6 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: $7 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. $>