Business Policy and Strategic MGT Block - 1

Business Policy & Strategic Management 7
Unit-I : Introduction to Strategic Management Notes

Structure
1.1 Concept of Strategic Management
1.2 What is a Strategy?
1.2.1 Features of Strategy
1.3 Strategic Management-History and Development
1.4 Basic Financial Planning (Budgeting)
1.5 Long-range Planning (Extrapolation)
1.6 Strategic (Externally Oriented) Planning
1.7 Strategic Planning to Strategic Management
1.8 Complex System Strategy
1.8.1 Emergence
1.8.2 Chaos & Complexity
1.8.3 System Thinking
1.8.4 Darwinian Theory
1.9 Complex Dynamic System
1.9.1 Hybrid Systems
1.9.2 Predictive Modeling
Objective
• To study the evolution of strategic management and understand the basics of
strategy and strategic management
• To understand the history of strategic management
• To analyze how strategic management plays an important role in the growth of

an organization
• To understand the various aspects of strategic planning to strategic

management
“Study of the functions and responsibilities of general managers; of problems

that affect the success of the total organization and the decisions that determine the
direction of the organization and shape its future”
Chance favors the prepared mind -- Louis Pasteur
1.1 Concept of Strategic Management

Strategic Management is all about identification and description of the strategies
that managers can carry so as to achieve better performance and a competitive
advantage for their organization. An organization is said to have competitive advantage
if its profitability is higher than the average profitability for all companies in its industry.
Strategic management is the process of managing the pursuit of organizational

mission while managing the relationship of the organization to its environment
--James M. Higgins
Amity Directorate of Distance & Online Education

8 Business Policy & Strategic Management
Strategic management is defined as the set of decisions and actions resulting in the
Notes formulation and implementation of strategies designed to achieve the objectives of the
organization
(John A. Pearce II and Richard B. Robinson, Jr.)
Strategic management can also be defined as a bundle of decisions and acts which
a manager undertakes and that decide the firm’s performance. The manager must
have a thorough knowledge and analysis of the general and competitive organizational
environment so as to take right decisions. They should conduct a SWOT Analysis
(Strengths, Weaknesses, Opportunities, and Threats), i.e., they should make best
possible utilization of strengths, minimize the organizational weaknesses, make
use of arising opportunities from the business environment and shouldn’t ignore the
threats. Strategic management is nothing but planning for both predictable as well as
unforeseen contingencies. It is applicable to both small as well as large organizations
as even the smallest organization face competition. By formulating & implementing
appropriate strategies, they can attain sustainable competitive advantage.
Strategic Management is a way in which strategists set the objectives and proceed
about attaining them. It deals with making and implementing decisions about future
direction of an organization. It helps us to identify the direction in which an organization
is moving.
Strategic management is a continuous process that evaluates and controls

the business and the industries in which an organization is involved; evaluates its
competitors and sets goals and strategies to meet all existing and potential competitors;
and then reevaluates strategies on a regular basis to determine how it has been
implemented and whether it was successful or does it needs any modification.
Strategic Management gives a broader perspective to the employees of an

organization and they can better understand how their job fits into the entire
organizational plan and how it is co-related to other organizational members. It is
nothing but the art of managing employees in a manner which maximizes the ability
of achieving business objectives. The employees become more trustworthy, more
committed and more satisfied as they can co-relate themselves with each organizational
task. They can understand the reaction of environmental changes on the organization
and the probable response of the organization with the help of strategic management.
Employees can judge the impact of such changes on their own job and can effectively
face the changes. Managers & employees need to be both effective as well as efficient.
We can therefore say that Strategic Management helps to--
• Develop “theme” for organization
• Provide discipline for long-term thinking
• Deal with environmental complexities
• More effective resource allocation
• Integrate diverse administrative activities
• Increase managerial effectiveness
• Improve employee motivation
• Address stakeholder concerns

One of the major roles of strategic management is to incorporate various functional
areas of the organization and to ensure that these functional areas harmonize and get Notes
together well. Another role of strategic management is to keep an eye on the goals and
objectives of the organization.
1.2 What is a Strategy?

“Strategy can be defined as knowledge of the goals and the uncertainty of unfolding
of events”
The word “strategy” is derived from the Greek word “strategeos”; stratus (meaning
army) and “ago” (meaning leading/moving).
Strategy is an action that managers take to attain one or more of the organization’s
goals. Strategy can also be defined as “A general direction set for the company and its
various components to achieve a desired state in the future. Strategy results from the
detailed strategic planning process”.
A strategy is all about integrating organizational activities and utilizing and allocating
the scarce resources within the organizational environment so as to meet the current
objectives. While planning a strategy it is essential to consider that decisions are not
taken in a vaccum and that any action taken by a firm is likely to be met by a reaction
from those affected i.e. competitors, customers, employees or suppliers.
Henry Mintzberg, in his 1994 book, “The Rise and Fall of Strategic Planning “, points
out that people use “strategy” in several different ways, the most significant are--:
• Strategy is a plan, a “how,” a means of getting from here to there.
• Strategy is a pattern in actions over time; for example, a company that
regularly markets very expensive products is using a “high end” strategy.
• Strategy is position; that is, it reflects decisions to offer particular products or
services in particular markets.
• Strategy is perspective, that is, vision and direction.
Strategy needs to take into consideration the likely or actual behavior of others.
Strategy is the blueprint of decisions in an organization that shows its objectives
and goals, reduces the key policies, and plans for achieving these goals. It defines
the business the companies intend to carry on, the type of economic and human
organization they want to be, and the contribution they plan to make to its shareholders,
customers and society at large.
• Means of establishing organizational purpose
• Definition of the competitive domain
• Response to external opportunities and threats and internal strengths and

weaknesses
• Way to define managerial tasks with corporate, business and functional

perspectives
• Coherent, unifying and integrative pattern of decisions
• Definition of the economic and non-economic contribution the firm intends to

make to stakeholders

• Expression of strategic intent

Notes
• Means to develop organizational core competencies to create sustainable
competitive advantage
1.2.1 Features of Strategy

1. Strategy is Significant because it is not possible to foresee the future. Without a
perfect foresight, the firms must be ready to deal with the uncertain events which
constitute the business environment.
2. Strategy deals with long term developments rather than routine operations, i.e. it
deals with probability of innovations or new products, new methods of productions,
or new markets to be developed in future.
3. Strategy is created to take into account the probable behavior of customers and
competitors. Strategies dealing with employees will predict the employee behavior.
Strategy is a well defined roadmap of an organization. It defines the overall mission,

vision and direction of an organization. The objective of a strategy is to maximize an
organization’s strengths and to minimize the strengths of the competitors. Strategy, in
short, bridges the gap between “where we are” and “where we want to be”.
1.3 Strategic Management-History and Development

Until the 1940s, strategy was seen as primarily a matter for the military. Military
history is replete with stories about strategy. Almost from the beginning of recorded
time, leaders contemplating battle have devised offensive and counter-offensive
moves to defeat the enemy. The word strategy derives from the Greek for generalship,
strategia, and entered the English vocabulary in 1688 as ‘strategie’. According to
James’ 1810 Military Dictionary, it differs from tactics, which are immediate measures
in face of an enemy. Strategy concerns something “done out of sight of an enemy.” Its
origin dates back to Sun Tzu’s The Art of War of 500 BC.
Over the years, the practice of strategy has evolved through five phases (each
phase generally involved the perceived failure of the previous phase):
1. Basic Financial Planning (Budgeting)
2. Long-range Planning (Extrapolation)
3. Strategic (Externally Oriented) Planning
4. Strategic Management
5. Complex Systems Strategy:
• Complex Static Systems or Emergence
• Complex Dynamic Systems or Strategic Balance
1.4 Basic Financial Planning (Budgeting)

James McKinsey (1889-1937), founder of the global management consultancy that
bears his name, was a professor of cost accounting at the school of business at the
University of Chicago. His most important publication, Budgetary Control (1922), is
quoted as the start of the era of modern budgetary accounting.

Early efforts in corporate strategy were generally limited to the development of a
budget, with managers realizing that there was a need to plan the allocation of funds. Notes
Later, in the first half of the 1900s, business managers expanded the budgeting process
into the future. Budgeting and strategic changes (such as entering a new market)
were synthesized into the extended budgeting process, so that the budget supported
the strategic objectives of the firm. With the exception of the Great Depression, the
competitive environment at this time was fairly stable and predictable.
1.5 Long-range Planning (Extrapolation)

Long-range Planning was simply an extension of one year financial planning into
five-year budgets and detailed operating plans. It involved little or no consideration of
social or political factors, assuming that markets would be relatively stable. Gradually, it
developed to encompass issues of growth and diversification.
In the 1960s, George Steiner did much to focus business manager’s attention on
strategic planning, bringing the issue of long-range planning to the forefront. Managerial
Long-Range Planning, edited by Steiner focused upon the issue of corporate long-
range planning. He gathered information about how different companies were
using long-range plans in order to allocate resources and to plan for growth and
diversification.
A number of other linear approaches also developed in the same time period,
including “game theory”. Another development was “operations research”, an approach
that focused upon the manipulation of models containing multiple variables. Both have
made a contribution to the field of strategy.
1.6 Strategic (Externally Oriented) Planning

Strategic (Externally Oriented) Planning aimed to ensure that managers engaged
in debate about strategic options before the budget was drawn up. Here the focus of
strategy was on the business units (business strategy) rather than in the organization
centre. The concept of business strategy started out as ‘business policy’, a term still
in widespread use at business schools today. The word policy implies a ‘hands-off’,
administrative, even intellectual approach rather than the implementation-focused
approach that characterizes much of modern thinking on strategy. In the mid-1900s,
business managers realized that external events were playing an increasingly important
role in determining corporate performance. As a result, they began to look externally
for significant drivers, such as economic forces, so that they could try to plan for
discontinuities. This approach continued to find favor well into the 1970s.
While the theorists were arguing, one large US Company was quietly innovating.
General Electric Co. (GE) had begun to develop the concept of strategic business
units (SBUs) in the 1950s. The basic idea-now largely accepted as the normal and
obvious way of going about things-was that strategy should be set within the context of
individual businesses which had clearly defined products and markets. Each of these
businesses would be responsible for its own profits and development, under general
guidance from headquarters.
The evolution of strategy began in the early 1960s, when a flurry of authoritative
texts suddenly turned strategic planning from an issue of vague academic interest into
an important concern for practicing managers. Prior to this strategy wasn’t part of the
normal executive vocabulary.
Alfred Chandler (1918-2007), Influential figure in both strategy and business

structure-Strauss Professor of Business History at Harvard since 1971.

Chandler talks about the development of the management of a large company from
Notes history; in particular from the mid nineteenth century to the end of the First World War
(what he calls ‘the formative years of modern capitalism’). During this period, the typical
entrepreneurial or family firm gave way to larger organizations containing multiple units.
A new form of management was needed because the owner-manager could not be
everywhere at once. In addition, a new breed of manager was needed to operate in this
environment – the salaried professional.
He advised splitting the functions of strategic thinking and line management. In

Chandler’s analysis, the effective organization now separates strategy and day-to-day
operations. Strategy becomes the responsibility of managers at headquarters, leaving
the unit managers to concentrate on the here and now in decentralized units. In effect,
he was advising creating a line management who would carry out plans developed by a
more serious staff function elsewhere.
His influential book Strategy and Structure was published in 1962, appealing to
many large companies that were having difficulty in coping with their size. In recent
years it has come under heavy attack from critics, who maintain that strategy must be a
line responsibility, decided as close as possible
John Gardner’s Self-Renewal, published in 1964, which pointed out that

organizations constantly need to reassess themselves, had the earliest real impact
on managers. Like people, they need to keep renewing their skills and abilities –
something they can only do effectively through careful planning.
Kirby Warren at Harvard looked in depth at what happened in a small number of

companies to see what worked well and what didn’t. In several companies for example,
he found that the managers confused the strategic plan with its components – in
particular, the marketing plan was often assumed to be the same thing as the overall
corporate plan.
Wickham Skinner (1924-) who was based at Harvard since 1960, pointed out that
an excessive focus on marketing Planning frequently led companies to forget about
manufacturing needs until late in the day, when there was little room for manoeuvre.
Skinner argued for a clear manufacturing strategy to proceed in parallel with the
marketing strategy. In many ways he was ahead of his time, for the concept of
technology strategy or manufacturing strategy had only begun to take root in the 1980s
and many manufacturing companies still have no one in charge of this aspect of their
business.
One particularly influential idea from skinner was the ‘focused factory’. He
demonstrated that it was not normally possible for a production unit to focus on more
than one style of manufacturing. Even if the same machines were used to produce
basically similar products, if those products had very different customer demands
that required a different manner of working, the factory would not be successful. For
example, trying to produce equipment for the consumer market, where a certain error
rate in production was compensated for by higher volume sales at a lower price, was
incompatible with producing 100 per cent perfect product for the military. The most likely
outcome was a compromise that satisfies no one.
Paul Lawrence and Jay Lorsch, also from Harvard, put forth their contingency
theory of organizations. They argued that every organization is composed of multiple
paradoxes. On the one hand, each department or unit has its own objectives and
environment. It responds to those in its own way, both in terms of how it is structured,
the time horizons people assume, the formality or informality of how it goes about its
tasks and so on. All these factors contribute towards what they call ‘differentiation’. At

the same time each unit needs to work with others in pursuit of common goals. That
requires a certain amount of ‘integration’, to ensure that they are all working with rather Notes
than against each other. In their studies of US firms in a variety of manufacturing
industries, they found that companies with a high level of differentiation could also
have a high level of integration. The reason was simple; the greater the differentiation,
the more potential for conflict between departments and therefore the greater the
need for mechanisms to help them work together. Their work forced many managers
to understand that organizations were not fixed; that strategy and planning had to be
adapted to each segment of the environment with which they dealt.
Igor Ansoff (1918-2002) through his unstintingly serious, analytical and complex,
Corporate Strategy, published in 1965, had a highly significant impact on the business
world. It propelled consideration of strategy into a new dimension. It was Ansoff who
introduced the term strategic management into the business vocabulary.
Ansoff’s sub-title was “An Analytical Approach to Business Policy for Growth
and Expansion. “ The end product of strategic decisions is deceptively simple; a
combination of products and markets is selected for the firm. This combination is
arrived at by addition of new product-markets, divestment from some old ones, and
expansion of the present position,” writes Ansoff. While the end product was simple,
the processes and decisions which led to the result produced a labyrinth followed only
by the most dedicated of managers. Analysis – and in particular ‘gap analysis’ (the gap
between where Organization are now and where Organization want to be) – was the
key to unlocking strategy.
The book also brought the concept of ‘synergy’ to a wide audience for the first time.
In Ansoff’s original creation it was simply summed up as the “2+2=5” effect. In his
later books, Ansoff refined his definition of synergy to any “effect which can produce a
combined return on the firm’s resources greater than the sum of its parts.”
While Corporate Strategy was a notable book for its time, it produced what Ansoff
himself labeled “paralysis by analysis”; repeatedly making strategic plans which
remained unimplemented.
Reinforced by his conviction that strategy was a valid, if incomplete concept, Ansoff
followed up Corporate Strategy with Strategic Management (1979) and Implanting
Strategic Management (1984). His other books include Business Strategy (1969),
Acquisition Behavior in the US Manufacturing Industry, 1948-1965 (1971), From
Strategic Planning to Strategic Management (1974), and The New Corporate Strategy
(1988).
Implanting Strategic Management, co-written with Edward McDonnell, records

much of the research conducted by Ansoff and his associates and reveals a number of
ingenious aspects of the Ansoff model. These include his approach to using incremental
implementation for managing resistance to change, product portfolio analysis, and issue
related to management systems.
The Problem with Strategic Planning (Analysis): The fuel for the modern growth
in interest in all things strategic has been analysis. While analysis has been the
watchword, data has been the password. Managers have assumed that anything
which could not be analyzed could not be managed. The belief in analysis is part of a
search for a logical commercial regime, a system of management which will, under any
circumstances, produce a successful result. Indeed, all the analysis in the world can
lead to decisions which are plainly wrong. IBM had all the data about its markets, yet
reached the wrong conclusions.

There are two basic problems with the reliance on analysis. First, it is all technique.
Notes The second problem is more fundamental. Analysis produces a self-increasing loop.
The belief is that more and more analysis will bring safer and safer decisions. The
traditional view is that strategy is concerned with making predictions based on analysis.
Predictions, and the analysis which forms them, lead to security. The bottom line is not
expansion, future growth or increased profitability-it is survival. The assumption is that
growth and increased profits will naturally follow. If, by using strategy, we can increase
our chances of predicting successful methods, then our successful methods will lead us
to survival and perhaps even improvement. So, strategy is to do with getting it right or,
as the more competitive would say, winning. Of course it is possible to win battles and
lose wars and so strategy has also grown up in the context of linking together a series
of actions with some longer-term goals or aims.
This was all very well in the 1960s and for much of the 1970s. Predictions and
strategies were formed with confidence and optimism (though they were not necessarily
implemented with such sureness). Security could be found. The business environment
appeared to be reassuringly stable. Objectives could be set and strategies developed to
meet them in the knowledge that the overriding objective would not change.
Such an approach, identifying a target and developing strategies to achieve it,

became known as Management by Objectives (MBO).
Under MBO, strategy formulation was seen as a conscious, rational process. MBO
ensured that the plan was carried out. The overall process was heavily logical and,
indeed, any other approach (such as an emotional one) was regarded as distinctly
inappropriate. The thought process was backed with hard data. There was a belief that
effective analysis produced a single, right answer; a clear plan was possible and, once
it was made explicit, would need to be followed through exactly and precisely.
In practice, the MBO approach demanded too much data. It became overly
complex and also relied too heavily on the past to predict the future. The entire system
was ineffective at handling, encouraging, or adapting to change. MBO simplified
management to a question of reaching A from B using as direct a route as possible.
Under MBO, the ends justified the means. The managerial equivalent of highways were
developed in order to reach objectives quickly with the minimum hindrance from outside
forces.
Henry Mintzberg’s book The Rise and Fall of Strategic Planning was first published
in 1994. “The confusion of means and ends characterizes our age,” Henry Mintzberg
observes and, today, the highways are likely to be gridlocked. When the highways are
blocked managers are left to negotiate minor country roads to reach their objectives.
And then comes the final confusion: the destination is likely to have changed during the
journey. Equally, while MBO sought to narrow objectives and ignore all other forces,
success (the objective) is now less easy to identify. Today’s measurements of success
can include everything from environmental performance to meeting equal opportunities
targets. Success has expanded beyond the bottomline.
1.7 Strategic Planning to Strategic Management

Strategic Planning to Strategic Management: Strategic planning was a plausible
invention and received an enthusiastic reception from the business community. But
subsequent experience with strategic planning led to mixed results. In a minority of
firms, strategic planning restored their profitability and became an established part of
the management process. However, a substantial majority encountered a phenomenon,
which was named “paralysis by analysis”: strategic plans were made but remained
unimplemented, and profits/growth continued to stagnate. Claims were increasingly

made by practitioners and some academics that strategic planning did not contribute to
the profitability of firms. In the face of these claims, Ansoff and several of his colleagues Notes
at Vanderbilt University undertook a four-year research study to determine whether,
when paralysis by analysis is overcome, strategic planning increased profitability of
firms.
Ansoff looked again at his entire theory. His logic was impressively simple – either
strategic planning was a bad idea, or it was part of a broader concept which was not
fully developed and needed to be enhanced in order to make strategic planning
effective. An early fundamental answer perceived by Ansoff was that strategic planning
is an incomplete instrument for managing change, not unlike an automobile with an
engine but no steering wheel to convert the engine’s energy into movement.
Characteristically, he sought the answer in extensive research. He examined

acquisitions by American companies between 1948 and 1968 and concluded that
acquisitions which were based upon an articulated strategy fared considerably better
than those which were opportunistic decisions. The result of the research was a book
titled Acquisition Behavior of US Manufacturing Firms, 1945-1963.
In 1972 Ansoff published the concept under the name of Strategic Management
through a pioneering paper titled The Concept of Strategic Management, which
was ultimately to earn him the title of the father of strategic management. The paper
asserted the importance of strategic planning as a major pillar of strategic management
but added a second pillar – the capability of a firm to convert written plans into market
reality. The third pillar- the skill in managing resistance to change – was to be added in
the 1980s.
Ansoff obtained sponsorship from IBM and General Electric for the first International
Conference on Strategic Management, which was held in Vanderbilt in 1973 and
resulted in his third book, From Strategic Planning to Strategic Management.
The complete concept of strategic management embraces a combination of

strategic planning, planning of organizational capability and effective management of
resistance to change, typically caused by strategic planning. Ansoff says that “strategic
management is a comprehensive procedure which starts with strategic diagnosis and
guides a firm through a series of additional steps which culminate in new products,
markets, and technologies, as well as new capabilities. Strategic Management aimed
to give people at all levels the tools and support they needed to manage strategic
change. Its focus was no longer primarily external, but equally internal – how can the
organization seize and maintain strategic advantage by using the combined efforts of
the people that work in it?
Between 1974 and 1979 Ansoff developed a theory which embraces not only
business firms but other environment-serving organizations. The resulting book titled
Strategic Management, was published in 1979.
Self-confirming Theories: In the 1980s, there was a renewed interest in discovering

ways of dealing with an increasingly complex and changing environment. It was during
this time that the practice of strategy began to move toward a metaphorical application
of an old idea. For many years, management theorists had borrowed the ideas of an
economic theory commonly referred to as “equilibrium theory,” or “equilibrium systems
theory,” as a basis for developing management theory. Basically, the concept was
developed around the idea of linearity (and, to some extent, simplicity). Self-confirming
theories of strategy require the strategist to assume that what the firm has done in the
past will be done in the future. In effect, executives “confirm” that past strategy has
been appropriate by adopting it repeatedly over time.

Self-confirming theories may be recognized by their historic-simple frame and

Notes mental models. Such theories use terms such as “mission”, core competencies”,
“competitive advantage”, and “sustainable competitive advantage”. They are founded
in the theory of comparative advantage developed by economists David Ricardo
and Adam Smith. The theory of comparative advantage, which suggests that some
countries have unique assets, has become the basis for contemporary strategy.
Strategists modified the idea and called it “competitive advantage”. If it chooses to use
that approach, a firm needs to identify its core competencies, competitive advantage,
and then convert that identification to a mission. In principle, the purpose of the mission
statement is to keep the firm focused upon its unique area of competitive advantage.
Further, the mission is supposed to set boundaries and to “keep it in the box”.
Generally, self-confirming theories force the assumption of a linear mental model, since
it is historic (including present) competencies or resources that provide the constructs
for future strategy.
Thousands of articles and books have been written on the development of

equilibrium-based strategy. The equilibrium-based strategic model involves a
succession of steps that are designed to keep the firm focused upon its historic
competencies. Out of that concept ideas such as SWOT analysis (strengths,
weaknesses, opportunities, and threats) and “five forces” analysis were developed. The
latter is dealt with in Michael Porter’s 1985 book Competitive Strategy. In most cases,
the difference between one key thinker and another is minor at best, but
Michael Porter of Harvard Business School is perhaps the best known of all the
strategy theorists. He has generally been more prolific than the rest. Porter has been
responsible for the writing of numerous books and articles that have been widely
accepted in the field. He has been especially involved in the creation or popularization
of a number of tools that have been widely used in the discipline.
Porter’s first book for practicing managers, Competitive Strategy; Techniques for
Analyzing Industries and Competitors, was first published in 1980. Drawing heavily
on industrial economics (a field of study that tries to explain industrial performance
through economics), he was trying ‘to take these basic notions and create a much
richer, more complex theory, much closer to the reality of competition’. The book defines
five competitive forces that determine industry profitability – Potential Entrants, Buyers
(Customers), Suppliers, Substitutes, and Competitors within the industry. Each of these
can exert power to drive margins down. The attractiveness of an industry depends on
how strong each of these influences is. Competitive Strategy brought together in a
rational and readily understandable manner both existing and new concepts to form a
coherent framework for analyzing the competitive environment.
The realization that he had not been focusing on choice of competitive positioning,
this work led Porter in turn to his interests in the concept of competitive advantage,
the theme of his next major book, Competitive Advantage: Creating and Sustaining
Superior Performance (1985). He sought a middle ground between the two polarized
approaches then accepted-on the one hand, that competitive advantage was achieved
by organizations adapting to their particular circumstances; and, on the other, that
competitive advantage was based on the simple principle that the more in-tune and
aware of a market a company is, the more competitive it can be (through lower prices
and increased market share). From analysis of a number of companies, he developed
“generic strategies”: Porter contends that there are three ways by which companies can
gain competitive advantage:
• By becoming the lowest cost producer in a given market
• By being a differentiated producer (offering something extra or special to

charge a premium price)
Notes
• Or by being a focused producer (achieving dominance in a niche market)
Porter insisted that though the “generic strategies” existed, it was up to each
organization to carefully select which were most appropriate to them and at which
particular time. The “generic strategies” are backed by five competitive forces which
are then applied to “five different kinds of industries” (Fragmented, Emerging, Mature,
Declining, and Global).
To examine an organization’s internal competitiveness, Porter advocates the use

of a ‘value chain’ –analysis of a company’s internal processes and the interactions
between different elements of the organization to determine how and where value is
added. A systematic way of examining all the activities a firm performs and how they
interact is essential for analyzing the sources of competitive advantage. The value
chain disaggregates a firm into its strategically relevant activities in order to understand
the behavior of costs and the existing and potential sources of differentiation. A firm
gains competitive advantage by performing these strategically important activities
more cheaply or better than its competitors. Each of these activities can be used to
gain competitive advantage on its own or together with other strategically important
activities. Here, the concept of linkages (relationships between the way one value
activity is performed and the cost or performance of another) becomes relevant. These
linkages need not be internal – they can equally well be with suppliers and customers.
Viewing every thing a company does in terms of its overall competitiveness, argues
Porter, is a crucial step to becoming more competitive.
This has led to the myth of “sustainable competitive advantage”. In reality, any
competitive advantage is short-lived. If a company raises its quality standards and
increases profits as a result, its competitors will follow. If a company says that it
is reengineering, its competitors will claim to be reengineering more successfully.
Businesses are quick to copy, mimic, pretend and, even, steal. The logical and
distressing conclusion is that an organization has to be continuously developing
new forms of competitive advantage. It must move on all the time. If it stands still,
competitive advantage will evaporate before its very eyes and competitors will pass.
The dangers of developing continuously are that it generates, and relies on, a
climate of uncertainty. The company also runs the risk of fighting on too many fronts.
This is often manifested in a huge number of improvement programs in various parts
of the organization which give the impression of moving forward, but are often simply
cosmetic.
Constantly evolving and developing strategy is labeled ‘strategic innovation”. The

mistake is to assume that strategic innovation calls for radical and continual major
surgery on all corporate arteries. Continuous small changes across an organization
make a difference. “We did not seek to be 100 percent better at anything. We seek to
be one percent better at 100 things,” says SAS’s Jan Carlzon.
Porter would suggest that his “five forces model” and SWOT allow for nonlinear
analysis, but most would agree that the overlaying of a linear mental model (self-
confirming theory) on top of any nonlinear analysis would render any such argument
questionable.
Jay Barney is often credited with popularizing an adaptation of the equilibrium-

based model, called the “resource view” of the firm. This particular view – that a firm’s
resources must also be analyzed and understood in developing corporate strategy –
might simply be viewed as an addition to the traditional self-confirming theories.

The equilibrium-based strategic model involves a succession of steps that are

Notes designed to keep the firm “in the box” or focused upon its historic competencies. Some
might argue that the use of SWOT analysis avoids this problem, since it analyzes the
firm’s strengths and weaknesses. That generally does not hold true, however, because
the assumption that the firm’s current/historic strengths will serve the company well in
the future tends to override any attempts to engage in discontinuous change.
From the early 1980s to the mid-1900s, approaches based on the equilibrium theory
repeatedly failed, and the level of dissatisfaction with this particular approach grew.
The new global competitive environment that emerged in the late 1980s demanded a
solution. TQM gained a great deal of popularity through the early 1990s, but it soon
fell far short of being a holistic solution. The generally accepted failure rate for TQM
initiatives during this period was over 80%. Failure to understand the critical role that
quality plays in corporate success can be disastrous, but TQM cannot replace strategy,
and it is wrong to believe that quality is all a company needs to be competitive. Quality
is simply the price of admission to play the game. Once in the game, it is strategy that
must drive organizational activities.
In the early 1990s, major consulting firms were overwhelmed with clients who
wanted to use process re-engineering as a solution – for everything from sagging profits
to product development cycles. Like TQM, process re-engineering failed to deliver,
with a failure rate of around 70%. As a result of these failures, many people began to
suggest that the real issue was change – and the usual preponderance of books soon
hit the market. However, once again, the general view was that the majority of change
initiatives added little value to the bottom line.
Discussions with a number of senior executives reveal that most people have given
up on the traditional strategic approach, which is based on mission statements and core
competencies. Interestingly, though, most of their companies still use that traditional
approach. It is important to understand that self-confirming theories of strategy remain
the most frequently used at this time, with well over 90% of all companies making use
of the approach, or of some hybrid that is based upon it. Why do people continue to use
the approach if they no longer trust it? There are a number of answers to that question.
First, most undergraduate and graduate schools still teach that approach, almost
exclusively. Second, the approach is easy to learn and understand. Third, it is
comforting, because it focuses upon what some have called “self-confirming theory” – it
confirms that what we have done in the past is good, since we are going to continue
to do in the future what we have done in the past (i.e. our future strategy will be based
upon our historic competencies).
As early as 1989, Rosabeth Moss Kanter was pointing out, in When Giants Learn
to Dance, the problems with another historic-linear approach, which she refers to as
“excellence”. People tend to love the idea of excellence. It makes for a great book title,
whether it involves “searching for excellence” or “building something to last”. Alongside
these books were the “7 Things That Companies do” titles, which again focused upon
excellence in practice.
“Benchmarking” is a variant of the excellence practice. The underlying mental model

suggests that something someone did somewhere at some point in time will work for
their firm where it is today (and tomorrow). The reality is that it might work but it might
not. Therein lies the problem with linear (simple) historic mental models.
Almost without exception, the companies featured in the excellence books

encountered problems within a few years of the book’s publication. This is true even for
James C. Collins and Jerry I Porras’ Built to Last.

As a result of the apparent failure of the “self-confirming theories”, strategy theorists
have searched for alternatives. Notes
The Reality of Competitive Environments: The new competitive world has moved
from a linear (or highly predictable, somewhat simple) state to a non-linear (or
highly uncertain, complex) state. That does not mean that nothing will continue to be
predictable. It means that in the future historic relationships will most likely not be the
same as they were in the past.
In 1980, Ansoff published a paper which represented another step in the

development of practical strategic management which concerned the development
of practical tools for managing adaptation of firms to turbulent environments. The
paper, called Strategic Issue Management, presented a way of adapting a firm to the
environment, when environmental change develops so fast that strategic planning
becomes too slow to produce timely responses to surprising threats and opportunities.
From 1991 to 2001, rapid change and high levels of complexity have characterized
the global competitive environment. As the rate of environmental change accelerates,
and the level of complexity rises, the ‘rules of the game” change. Such changes mean
that the firm must change in harmony with the environment. If it does not, ultimately the
environment will eliminate it. For the company that does not change in harmony with the
environment, the result is deterioration and, perhaps, demise.
Companies are complex systems operating within complex dynamic systems. In

every case, the complexity as well as the rate of system change will be different at
different points of time. There are a number of implications for this reality.
• Simple-historic or simple-linear strategy is insufficient to prepare a firm for

environments that involve varying levels of complexity and rates of change.
• As a complex system, every aspect off the firm (not just its strategies) must be
balanced with the future environment if the firm is to maximize performance.
• Imbalances between the firm and the environment result in diminished

performance, or in some cases, the demise of the firm.
Put simply, complex environmental systems (the competitive environment) require

complex mental models of strategy if the firm is to succeed. The use of linear mental
models in environments of varying complexity and rate of change is a prescription for
failure.
Henry Mintzberg has famously coined the term “crafting strategy,” whereby strategy
is created as deliberately, delicately, and dangerously as a potter making a pot. To
Mintzberg strategy is more likely to “emerge,” through a kind of organizational osmosis,
than be produced by a group of strategists sitting round a table believeing they can
predict the future.
Mintzberg argues that intuition is “the soft underbelly of management” and that
strategy has set out to provide uniformity and formality when none can be created.
Another fatal flaw in the conventional view of strategy is that it tended to separate
the skills required to develop the strategy in the first place (analytical) from those
needed to achieve its objectives in reality (practical).
Mintzberg argues the case for what he labels ‘strategic programming’. His view is
that strategy has for too long been housed in ivory towers built from corporate data and

analysis. It has become distant from reality, when to have any viable commercial life
Notes strategy needs to become completely immersed in reality.
In an era of constant and unpredictable change, the practical usefulness of strategy

is increasingly questioned. The skeptics argue that it is all well and good to come up
with a brilliantly formulated strategy, but quite another to implement it. By the time
implementation begins, the business environment is liable to have changed and be in
the process of changing even further.
Mintzberg’s most recent work is probably his most controversial. “ Strategy is not
the consequence of planning but the opposite: its starting point,” he says countering the
carefully wrought arguments of strategists, from Igor Ansoff in the 1960s to the Boston
Consulting Group in the 1970s and Michael Porter in the 1980s. The Rise and Fall of
Strategic Planning is a masterly and painstaking deconstruction of central pillars of
management theory.
The divide between analysis and practice is patently artificial. Strategy does not stop
and start, it is a continuous process of redefinition and implementation. In his book, The
Mind of the Strategist, the Japanese strategic thinker Kenichi Ohmae says: “In strategic
thinking, one first seeks a clear understanding of the particular character of each
element of a situation and then makes the fullest possible use of human brain power to
restructure the elements in the most advantageous way. Phenomena and events in the
real world do not always fit a linear model. Hence the most reliable means of dissecting
a situation into its constituent parts and reassembling them in the desired pattern is
not a step-by-step methodology such as systems analysis. Rather, it is that ultimate
nonlinear thinking tool, the human brain. True strategic thinking thus contrasts sharply
with the conventional mechanical systems approach based on linear thinking. But it also
contrasts with the approach that stakes everything on intuition, reaching conclusions
without any real breakdown or analysis.”
When future could be expected to follow neat linear patterns, strategy had a clear
place in the order of things. Organizations are increasingly aware that, as they move
forward, they are not going to do so in a straight unswerving line. The important
ability now is to be able to hold on to a general direction rather than to slavishly
follow a predetermined path. Now, the neatness is being upset, new perspectives are
necessary. The new emphasis is on the process of strategy as well as the output.
Such flexibility demands a broader perspective of the organization’s activities and
direction. This requires a stronger awareness of the links between strategy, change,
team-working, and learning. Strategy is as essential today as it ever was. But, equally,
understanding its full richness and complexity remains a formidable task.
Kenichi Ohmae argues that an effective strategic plan takes account of three main
players – the company, the customer, and the competition – each exerting their own
influence. The strategy that ignores competitive reaction is flawed; so is the strategy
that does not take into account sufficiently how the customer will react; and so, of
course, is the strategic plan that does not explore fully the organization’s capacity to
implement it.
Kenichi Ohmae says that a good business strategy “is one, by which a company can
gain significant ground on its competitors at an acceptable cost to itself.” He believes
there are four principal ways of doing this:
1. Focus on the key factors for success (KFSs). Ohmae argues that certain
functional or operating areas within every business are more critical for
success in that particular business environment than others. If Organization
concentrate effort into these areas and their competitors do not, this is a source

of competitive advantage. The problem, of course, is identifying what these key
factors for success are. Notes
2. Build on relative superiority. When all competitors are seeking to compete on
the KFSs, a company can exploit any differences in competitive conditions.
For example, it can make use of technology or sales networks not in direct
competition with its rivals.
3. Pursue aggressive initiatives. Frequently, the only way to win against a much
larger, entrenched competitor is to upset the competitive environment, by
undermining the value of its KFSs – changing the rules of the game by
introducing new KFSs.
4. Utilizing strategic degrees of freedom. By this tautological phrase, Ohmae means

that the company can focus on innovation in areas which are untouched by
competitors.
“In each of these four methods, the principal concern is to avoid doing the same
thing, on the same battle-ground, as the competition,” Ohmae explains.
Kathryn Rudie Harrigan’s first book, Strategies for Declining Businesses focused
on declining businesses. Harrigan believes there is a life-cycle for businesses and they
need to revitalize themselves constantly to prevent decline. From declining businesses,
Harrigan moved on to the subject of vertical integration and the development of
strategies to deal with it. A central premise of the framework she developed was that,
as firms strived to increase their control over supply and distribution activities, they
also increased their ultimate strategic inflexibility (by increasing their exit barriers). In
search of more flexible approaches she carried out lengthy research into joint ventures.
Despite their boom, Harrigan’s research showed that between 1924 and 1985 the
average success rate for joint ventures was only 46 per cent and the average life span
a meager three and a half years. In her two books on joint ventures, Harrison argued
they will become a key element in competitive strategy. The reasons she gave for this
were: economic deregulation, technological change, increasing capital requirements in
connection with development of new products, increasing globalization of markets. She
predicted:
1. One-on-one competition will be replaced by competition among constellations

of firms that routinely venture together.
2. Teams of co-operating firms seeking each other out like favorite dancing
partners will soon replace many current industry structures where firms stand
alone.
3. To cope with these changes, managers must learn how to co-operate, as well
as compete, effectively.
Harrigan’s later work focused on mature businesses. Managing Maturing

Businesses (1988) examined ‘the second half of a business’s life’ or, as it is more
dramatically put, the endgame. She has coined the phrase ‘The last iceman always
makes money’, which she explains as ‘The last surviving player makes money serving
the last bit of demand, when the competitors drop away.’ The importance of her work
in this area was given credence by the fact that over two-thirds of the industries within
mature economies were experiencing slow growth or negative growth in demand for
their products.

Ameliorating the pain and avoiding premature death have been the motivating
Notes factors of Harrigan’s work. Harrigan’s argument is that endgame can be highly profitable
if companies adopt a coherent strategy sufficiently early. The strategic options are:
1. Divest now – the first company out usually gets the highest price; later leavers
may not get anything.
2. Last iceman –focusing on customer niches which will continue long-term and
will be prepared to pay a premium.
3. Selective shrinking – taking the profitable high ground and leaving the less
profitable low ground to the competitors.
4. Milking the business – the last option, but none the less a practical alternative
in many situations.
1.8 Complex Systems Strategy

Complexity-based approaches or “complex adaptive systems,” were developed
in response to the apparent failure of equilibrium-based approaches. Complexity-
based thinkers will fall into a number of different camps. The majority believe that the
environment must be understood in terms of its complexity, chaos, and ecological
constructs. This group subscribes to the Darwinian hypotheses (upward evolution of a
system) as a metaphor for the business environment. This kind of thinking has resulted
in the idea of “self-organizing” companies.
The complexity group falls into two categories. One might be called a “pure”
complexity-based group, the other a “hybrid”. In the case of the former, theorists
generally apply the concept of emergence to every situation. According to this group
predictive modeling is rendered useless by the chaotic nature of the environment. They
would suggest that any attempt to plan for the future is pointless.
The hybrid group also assumes that the Darwinian hypotheses may be used as a
metaphor for business systems. This particular group of thought is based upon the idea
that the firm may compete on the edge of chaos, that is in a state in which the system
is complex adaptive, but at the same time with a minimal level of predictability in the
system (Brown and Eisenhardt’s Competing on the Edge). This group of thinkers has
combined the emergent (complex-historic) approach with the extrapolation (simple-
future) approach
1.8.1 Emergence:
The emergence camp is divided into at least two or three distinctive groups.
Emergence-based theorists begin with the idea of complex systems and chaos theory.
Some suggest that the ability to deal with complexity on a futuristic basis is impossible.
Others suggest that it is possible to understand some aspects of futuristic systems. A
third group imposes naturalistic ecological presuppositions in its theory.
Ralph Stacey and Henry Mintzberg tend to hold to the view that it is simply not
possible to consider future complex environments. As a result they suggest that
the strategist must wait for events to occur, or emerge, then develop strategy. This
approach of “incrementalism” involves the “after the fact” development of strategy for
discontinuous events. Mintzberg suggests that, as discontinuous events occur, the firm
should dynamically craft strategy.Stacey generally agrees with Mintzberg, but in his
book ‘Managing the Unknowable’, he additionally suggests that it is possible to create
organizations that are designed to deal with ambiguity and complexity.

Others involve themselves in apparently self-defeating arguments. In The Fifth
Discipline, Peter Senge advances the idea of systems thinking and suggests that it Notes
is possible to observe complex systems and make reliable inferences about such
systems. On the other hand, in the multi-author work The Dance of Change, he tends to
take a purely Darwinian emergence view.
The emergent or complex-historic group of strategists is by far the fastest-growing

group in the field. As those who see the failure of self-confirming theories seek
alternatives, the focus on complexity by the emergent group seems to make a lot of
sense.
1.8.2 Chaos and Complexity:

Around the mid-1950s, there had been a certain amount of investigation into the
idea of cybernetics, or the study of processes. That led some people to think about the
competitive environment in a very different way. Chaos and complexity theory were
introduced. By the early 1990s, complexity theory had taken on a life of its own. At
about the same time, the idea of systems thinking was popularized, particularly, in Peter
Senge’s 1990 book The Fifth Discipline.
The period was characterized by a blending of disciplines, including natural science,

social sciences, and business. A number of business theorists moved on from the
metaphor of chaos theory in business to complexity theory. Chaos theory had dealt with
the unpredictable processes that were observable in science. Those who moved on to
complexity theory added an interesting twist to the basic idea of complexity. Complex
systems thinking has to do with the fact that the global system or environment is made
up of a limitless number of other systems. Theorists hypothesize that complex systems
may behave in much the same way as the molecules in a glass of water, which interact
randomly.
1.8.3 Systems Thinking:

Another approach for dealing with complex environments is called systems thinking.
Proponents of systems thinking believe that it is possible to consider complex issues
and to make “reasonable inferences” about the outcomes of such complex systems.
Systems thinking has been widely discussed in corporate circles, but few companies
actually utilize the approach, especially at the senior executive level – where it could
be most beneficial. Those few leaders who have the intuitive ability to think in terms of
complex systems, are and will continue to be, highly successful.
1.8.4 Darwinian Theory:

Alongside this hypothesis relating to complex systems, the idea of using Darwin’s
theory of evolution as a metaphor for complexity was developed. Charles Darwin’s
concept focused upon two ideas: first, the idea of natural selection, or the survival of
the fittest; second, the idea of evolution. His concept of evolution was based upon
the hypothesis that matter was constantly in a state of moving from a lower level of
complexity to a higher level of complexity. In his view, this accounted for the similarities
between monkeys, apes, and the different races of humans.
Scientific evidence generally refutes these particular views (along with others held
by Darwin), but Darwin’s hypothesis has none the less been adapted metaphorically to
complexity theory as it is applied in business. Those who subscribe to the theory say
that the evolution (from lower complexity to higher complexity) that occurs “naturally”
in nature must apply equally to businesses. Complexity management theorists go on
to suggest that one of the goals of every manager should be to allow the business to
emulate nature by “self-organizing”.
This theme is clearly revealed in Peter Senge’s 1999 book The Dance of Change. In

one article in the book, entitled “The leadership of profound change-toward an ecology
Notes of leadership”, Senge suggests that leaders need to understand more about nature and
to manage with that in mind. The CEO, according to Senge, is not the solution to driving
meaningful change in the organization.
In most cases, the complexity-based theorists assume the Darwinian hypotheses

(upward mutation or evolution of complex natural systems) as a metaphor for
management and strategy theory. This idea is developed in what is called “self-
organization”. It is also an integral part of the complexity theorists’ response to the linear
economic model referred to as “equilibrium theory”, which is called “complex adaptive
systems” theory.
The evidence clearly invalidates the Darwinian hypotheses. “Complex dynamic

systems” as an idea is finding support not only as a way of describing the natural
environment, but also as a reasonable metaphor for developing management and
strategy theory. This approach deals with complex systems without the prepositional
fallacies related to complex adaptive systems theory.
Shona L. Brown and Kathleen M. EisenhardtBrown and Eisenhardt’s book

Competing on the Edge (1998) displays their work as somewhat of a hybrid of the
complex adaptive systems approach (including the Darwinian hypotheses) and the
self-confirming schools of thought. In essence, Brown and Eisenhardt suggest that
the firm is competing in complex environments, and thus must deal with high levels
of uncertainty. Their view is that the firm is constantly in a process of changing its
competencies. There is some dissonance between their adoption of competencies and
their prescriptions for dynamic corporate strategy.
Henry Mintzberg The work of Canadian, Henry Mintzberg counters much of

the detailed rationalism of other major thinkers. He falls in the complex-historic
(emergence) category of strategists, although, unlike most in that camp, he does not
appear to have adopted the Darwinian metaphor. Mintzberg believes in incremental
responses to changes as they emerge in the environment. It is clear that he holds to the
idea of a complex environment, yet he also seems to believe that it is not possible to
anticipate or prepare proactively for discontinuous events. His views are the antitheses
of Ansoff’s.
Ralph Stacey His book Managing the Unknowable (1992) was really ahead of the
curve among the work of the proponents of complex adaptive systems. Stacey’s work
differs from that of many of the others in that particular school, since he suggests that
companies need to prepare proactively for complexity.
1.9 Complex Dynamic Systems

The application of a Darwinian-based theory of complexity has resulted in an
alternative to the equilibrium theory of economics – “complex adaptive systems” –
which again, proposes that the economic system is characterized by progressive
upward evolution.
The positive aspect of the theory is that it turns managers toward thinking
about complex systems. There is no doubt that linear thinking (equilibrium-based
management theory) can damage a company, but the absence of scientific support
for “adaptive systems” (in either nature or in business) may also be problematic when
trying to build corporate strategy.
A number of people are now using the idea of complex dynamic systems as a way to
think about the competitive environment. Moving from the Darwinian presupposition of

evolution to recognition of the complex nature of the environment may present a better
opportunity for the corporate strategist. Notes
There is currently a clear trend toward complexity-based corporate strategy.
Emerging research supports the fact that moving from a linear to a non-linear complex
mental model of the environment will help managers to lead a more profitable
organization.
C. K. Prahalad and Gary Hamel in their book ‘Competing for the Future’ first
published in 1994. Their work has gone through a number of cycles, or changes.
Early on, it seemed to focus on self-confirming theories. However, they were quick
to comprehend the apparent failure of that model, and began to move more toward
a complexity-based model. In their later works they have focused on anticipating the
complex nature of the future environment. At the same time they are not proponents
of strategy based on complex adaptive systems (the Darwinian hypotheses). A very
positive aspect of their work is their emphasis on proactive strategies for dealing with
future uncertainty.
The phrase “core competencies” has now entered the language of management. In
layman’s terms, core competencies are what a company excels at. Gary Hamel and
C K Prahalad define core competencies as “the skills that enable a firm to develop a
fundamental customer benefit.” They argue that strategic planning is neither radical
enough nor sufficiently long-term in perspective. Instead its aim remains incremental
improvement. In contrast, they advocate crafting strategic architecture. The
phraseology is unwieldy, but means basically that organizations should concentrate on
rewriting the rules of their industry and creating a new competitive industry.
Richard D’Aveni The best-known work of Richard D’Aveni of Dartmouth College is

Hypercompetition (1994), in which he overtly takes on the traditional self-confirming
strategic approaches. Based upon his observations of the real world, the book
concludes that the world is no longer linear, and does not reward those who use linear
approaches to create corporate strategy. In its place, he suggests, the planner needs to
consider a new approach. In assessing the new corporate world, he makes a number of
insightful observations in Hypercompetition:
• Firms must destroy their competitive advantage to gain advantage.
• Entry barriers work only if others respect them.
• A logical approach is to be unpredictable and irrational.
• Traditional long-term planning does not prepare for the short term.
• Attacking competitor’s weaknesses can be a mistake. Traditional approaches
such as SWOT analysis may not work in a hypercompetitive environment.
• Companies have to compete to win, but competing makes winning more
difficult.
D’Aveni builds the case for a complex environment and the need to change the
organization continually in response to the environment, then proposes an answer to
his argument about the “need for a dynamic theory”: the 7-S approach.
• Superior stakeholder satisfaction.
• Strategic soothsaying.
• Positioning for speed.
• Shifting the rules of the game.
• Signaling strategic intent.
• Simultaneous and sequential strategic thrusts

At the heart D’Aveni’s ideas is his conclusion that companies need to be focused
Notes upon disrupting the market. He suggests that there are three critical factors that enable
a firm to deliver sustainable disruption in the market:
1. A vision for disruption.
2. Capabilities for disruption (the organization).
3. Product/market tactics used to deliver disruptions.
There are a number of similarities between the work of Ansoff and that of D’Aveni.
Both suggest that the environment involves some level of complexity and rate of
change. Both propose a contingency theory approach – that is, the organization must
be designed to respond to the present and future environment. Both believe that
the environment of the 1990s began a new period of highly turbulent, unpredictable,
changing environments.
1.9.1 Hybrid Systems:

One of the more questionable adaptations of the various theories comes from those
who attempt to combine complex adaptive systems and equilibrium-based theory.
These theorists suggest that strategists should apply complex adaptive systems
approaches to their strategy, while at the same time developing historic (or even new)
competencies. Clearly there are problems with this combination.
Observing the global environment, and accepting the fact that there are two
environmental issues that strategists must address – complexity and rate of change –
it is clear that an organization must be continually changing in nonlinear terms both in
speed and in complexity. Rosabeth Moss Kanter’s useful idea of “contingency theory”
(presented in When Giants Learn to Dance) rightly suggests that the organization must
be able to respond contingently to future changes in the environment. Her approach
is similar to W. R. Ashby’s “requisite variety theorem” explained in his Introduction to
Cybernetics.
The modified Ansoff Model is also a hybrid. On one hand, a complex dynamic
systems approach is taken. On the other, an emergence approach is viewed as part of
the firm’s ability to respond to discontinuous events. Then, the firm is assessed using a
complex model to determine its ability aggressively to create the future strategy the firm
needs and the responsiveness capabilities of the firm to address discontinuous events
as they emerge.
Rosabeth Moss Kanter Also from Harvard Business School, the fact that Kanter
rejects the self-confirming approach to the development of strategy in favor of
contingency design is an important underpinning of her work. She believes that the
strategist must begin with an understanding of the future environment, then contingently
design the firm around that understanding. In her book When Giants Learn to Dance
(1990), she offers seven ideas that describe managers who will be successful in the
new corporate environment:
1. They operate without the power of the might of the hierarchy behind them
(leadership vs. positional power).
2. They can compete (internally) without undercutting competition).
3. They must have the highest ethical standards.
4. They possess humility.
5. They must have a process focus.
6. They must be multifaceted and ambidextrous (work across business units/
flexible).

7. They must be willing to tie their rewards to their own performance.
Evan Dudik Strategic Renaissance (2000) by Evan Dudik takes a complex systems Notes
approach to strategy by suggesting that the planner must understand the level of
uncertainty of the future environment (very similar to Ansoff’s turbulence) and, at the
same time, that the firm must create a complex adaptive system (the firm itself) if it is
to deal with that uncertainty. It is clearly an excellent application of contingency theory.
Dudik’s book covers all of the positives related to developing complex mental models
and is excellent in presenting contingency approaches to the development of corporate
strategy.
1.9.2 Predictive Modeling:

Predictive modeling involves a complex mental model and a futuristic (as opposed
to historic) strategic frame. Since complex-futuristic approaches involve complexity,
there are a number of types of those approaches, including some hybrids. Even though
some of the approaches are especially concerned with complexity, some tend to be less
holistic or whole-system than others.
AIS-“Artificial Intelligence Simulation”:
The first approach might be called or AIS, which involves the creation of a computer-
based model in which key variables can be manipulated. The researcher might identify
10 independent variables that appear to drive certain outcomes (dependent variables).
In some cases it is possible to base the behaviors of the variables on statistically based
relationships. That adds power to the model. Regardless, the AIS process allows
the researcher to manipulate variables in order to develop some level of predictive
confidence in the future. In some ways, AIS can be similar to war gaming.
Scenarios and war gaming can be quite helpful in complex environments.
Scenarios: The concept of scenario planning was pioneered by oil giant Shell.
Creating one single strategic plan to be followed with military precision simply didn’t
work in practice. As circumstances changed, the strategic plan also needed changing
and executives were either constantly going back to the drawing board or trying to
push through a plan that was no longer appropriate. The longer the planning horizon,
the worse the problem became. Shell’s answer was to make not one but a number
of sets of assumptions about the future environment. At its simplest, these would be
optimistic, pessimistic, and straightline. Any one of these scenarios could happen,
but managers now drew up plans that followed the most likely series of events, while
building in frequent evaluation points where one of the alternative scenarios could take
over. In effect, what they were doing was thinking through the implications of necessary
deviations of a plan sufficiently far ahead to be able to implement them at minimum cost
and effort.
Scenarios are classified as complex-future models (predictive modeling) and they

have been successfully used for the development of strategy for complex environments
for a number of years. Scenarios involve the analysis of future driving forces in an
environment and the consideration of a range of possible outcomes.. Scenarios tend to
focus on a very narrow area of the future, but ideally will attempt to account for driving
forces, or independent variables that could have an impact upon the area being studied.
Scenarios have two purposes: first, a multiple scenario (i.e. three or four possible
scenarios about a specific issue) can provide a complex systems overview of an issue;
second, they can be extremely helpful in driving organizational learning.
A number of comments have been made regarding “driving” organizational learning

and “managing” resistance to change. It is important to remember that dissonant data

(information that indicates that the future environment will shift, and that the “rules of the
Notes game” will change) is more often rejected by senior managers than accepted. Managing
such resistance (which can be measured using the modified Ansoff model) is quite
important from a profit standpoint.
One of the keys to anticipating future turbulence environments is to ensure that

the firm has the level of adaptiveness required for the level of future turbulence. In
turbulence levels above 3.0, there is a growing expectation of discontinuous or surprise
events. As the turbulence level rises, the ability of the firm to reactively transform
is clearly a profit issue. The higher the level of environmental speed and complexity,
the higher the negative profit impact if the organization has low levels of adaptive
capabilities. As research by Dawn Kelly and Terry Amburgey reveals, internal resistance
to change slows the organizational response to discontinuous events.
War gaming: War gaming is a good way of preparing for complex futures. War
gaming is somewhat similar to using scenarios. There are a number of ways of doing
it, but it generally involves the gathering of competitor information prior to beginning
the exercise. The information might cover the predisposition or probable behavior of
different competitors. Some might use a “five forces” analysis and a SWOT analysis (of
each competitor). A modified Ansoff strategic profile of each competitor can be a most
valuable tool.
Wargaming is a dynamic simulation of real business situations. It allows top decision

makers to gain experience and insight into shaping their strategic decisions. With this
tool, managers can test their strategies without risk and at low cost. They therefore
learn how to move in the right direction.
War gaming involves the organization dividing its managers into teams, which take
on the role of competitors. The competitors simulate a battle. The game is played in
terms of successive “strategies” created by each team. The exercise facilitator creates
ways for the competitors to play out their strategy, based upon the research about the
competitor that they were given. In some cases, the senior executives of the client
firm will take on the role of strategists for their own firm, while their management team
will play the roles of their competitors. This can be an extremely revealing exercise,
especially when the third or fourth passes or battles are completed.
In many ways the value of war gaming, as with scenarios, is that of organizational
learning. War gaming can help internal managers to change their mental models of
the competitive environment as well as their perceptions of competitors’ most probable
behaviors. One word of caution: there is nothing more boring than a poorly conceived
war game, and the services of external facilitators are recommended; make sure that
the facilitators selected are at the cutting edge in their field. Those that revert to simple
(non complexity-based) approaches, such as SWOT alone, should be avoided

Notes
-Evolution of Strategic Management
Summary
• Strategic management is defined as the set of decisions and actions resulting in the
formulation and implementation of strategies designed to achieve the objectives of
the organization
• Strategic management is a wide concept and encompasses all functions and thus it
seeks to integrate the knowledge and experience gained in various functional areas
of management.
• It enables one to understand and make sense of the complex interaction that takes
place between different functional areas.
• There are many constraints and complexities, which the Strategic management
deals with. In order to develop a theoretical structure of its own, Strategic
management cuts across the narrow functional boundaries. This in turn helps to
create an understanding of how policies are formulated and also creating a solution
of the complexities of the environment that the senior management faces in policy
formulation.
Check Your Progress

1. The purpose of strategy is to provide--
a) The strategic direction for an organisation in the foreseeable future.
b) Direction and scope of an organisation over the long-term, which achieves

advantage for an organisation within a changing environment to meet the
needs of markets.
c) Direction and scope of an organisation over the long-term, which achieves

advantage in a changing environment through its configuration of resources
and competences with the aim of fulfilling stakeholder expectations.
d) A set of standards which all employees in an organization should strive to

attain.
2. The competencies or skills that a firm employs to transform inputs into outputs are:

a) Tangible resources.
Notes
b) Intangible resources.
c) Organizational capabilities.
d) Reputational resources.
3. Which one of the following is not an aspect of profit or contribution arising from a
change in strategy?
a) Growth aspect
b) Usage (or productivity) aspect
c) Price aspect
d) Effectiveness aspect
4. Which statement is CORRECT about strategic-management process?
a) It occurs once a year
b) It is a continuous process
c) It applies mostly to large business
d) It applies mostly to small businesses’
5. “A desired future state that the organization attempts to realize”. Identify the term
relevant to the given statement.
a) Goal
b) Strategy
c) Policy
d) Procedure
6. The Strategic Management as an academic discipline is--
a) An isolated discipline from the rest of the business functions.
b) A discipline which integrates or combines all the courses related to the rest of
the business functions.
c) A discipline which is not practically used in the business world.
d) A philosophical doctrine.
7. Which management function includes breaking tasks into jobs, combining jobs to
form departments and delegating authority?
a) Motivating

b) Staffing
Notes
c) Organizing
d) Planning
8. Which of the following is the benefit of strategic management?
a) Fewer complexes
b) More complex
c) Less static
d) More profitable
9. Which of the following period strategic management was considered to be cure for
all problems?
a) Mid 1950s to mid-1960s
b) Mid 1960s to mid-1970s
c) Mid 1970s to mid-1980s
d) Mid 1980s to mid-1990s
Questions & Exercises

1. Briefly define how you will use different types of resources to implement
strategy in order to achieve objectives?
2. How Strategic management has evolved into a vital tool for management?
Explain its development
3. Define strategy and what is the difference between a strategy and a plan?
4. Explain the importance of strategic management in building an organization’s

growth.
5. Explain the history of strategy management.
For Further Readings

1. Exploring Corporate Strategy: Gerry Jhonson, Kevan Scholes
2. Pearce John A & Robinson R B, 1977, Strategic Management : Strategy

Formulation and Implementation, 3rd Ed., A.I.T.B.S. Publishers & Distributors.
3. Aaker David Strategic Market Management, 5th Ed., John Wiley and sons
4. Regular reading of all latest Business Journals : HBR, Strategist, Busienss

World, Business India, Business Today.
5. Porter Michael, Competitive Advantage: Creating and sustaining superior

performance, Free press.

6. Thomson & Strickla d, Business policy and Strategic management, 12th Ed.,
Notes PHI.
7. Munjal, A. Cases and readings in Strategic Management, ABS Handbook.
Case Study
From good to great: world-class innovation in consumer electronics
By streamlining and extending the innovation process, a consumer electronics giant

develops pipeline of breakthrough products
Challenge
A leading consumer electronics company had enjoyed impressive growth over the
last decade by excelling as a “fast follower.” But the company recognized that future
success would require becoming the leading innovator in the industry.
We worked with the client to diagnose its needs. Historically, innovation had been
led by technology teams in the business units (BU); marketing and sales groups
were brought in later to help execute. As a result, cross-BU collaboration was stifled,
innovation processes were inconsistent and often sub-standard and the process yielded
only incremental improvements rather than breakthrough innovations.
We helped the client develop a multi-year transformation plan. It included specific

goals for margins and profits and laid out a clear, detailed vision to become the leading
innovator of consumer electronics.
Discovery
Working closely with top management, we analyzed the company’s innovation
“fingerprint”—that is, its performance relative to its peers on critical dimensions such
as process, organization, and culture. Based on the company’s aspiration to lead the
industry, we analyzed current strengths and weaknesses and developed a blueprint
with five intersecting pieces:
• Setting an aspiration and strategy
• Discovering actionable market insight
• Embedding new innovation processes
• Mobilizing the organization
• Extending open innovation networks
Setting an aspiration and strategy

It was essential that the entire organization understand and support the new
innovation imperative. The CEO also wanted innovation to complement the other pillars
of its corporate strategy: globalization, go-to-market excellence and brand repositioning.
We worked closely with the CEO to craft a stream of communication and employee
interactions for every level of the organization. Simple, clear messages conveyed
the need for change and how success would be defined and measured. These
messages were syndicated with senior executives, and then “cascaded” throughout
the organization using several innovative channels including a CEO blog and internal
bulletins.
Discovering actionable market insight

Putting the consumer at the heart of the new approach to innovation was critical.
The CEO wanted the company to pay closer attention to what consumers were saying
(and not saying) about its products. Consumer data were analyzed to detect and exploit

disruptive shifts in consumer preferences. These new insights were then used to
develop new products, services, and business models. Notes
Embedding new innovation processes
We helped redesign and streamline the innovation process from the bottom up,
so that it became easier to move winning ideas along quickly, and to winnow out the
less promising. We also piloted a new way to create breakthrough innovation based
on McKinsey’s proprietary Insights to Action approach. Pilot teams prototyped the new
process, from defining the strategic “where to play” choices, to conducting ethnographic
research, to developing and presenting business cases for the best ideas to a senior
executive team. This process was refined and then rolled out to innovation teams
across the company, who then used it to develop a robust pipeline of new electronics
products.
Mobilizing the organization

To sustain the new process, we helped the client rethink its organizational structure,
including integrating innovation planning and investment into core processes, and
introducing regular “innovation reviews” with the CEO. We established a central “lean”
team to:
• Support innovation in both the corporate center and the businesses
• Ensure consistent processes
• Facilitate sharing across groups
• Provide coaching to teams in bus
Critically, this central team also played a role as an internal “incubator,” and quickly
helped some of the businesses rise above their daily operations, creating five cross-
functional teams to support the goal of innovating as part of daily work. We also helped
design performance indicators so that the company would know when the new system
was working and when mid-course corrections were needed.
Extending open innovation networks

To ensure that the company incorporated a broad range of thinking, we set up
an open innovation network to tap into new and promising ideas from the venture
community this included a strategic venture investment group with offices in Israel and
Silicon Valley. We also launched a global business plan competition, which received
more than 4,000 business concepts from across the enterprise. The competition
helped to generate and identify new ideas, and reinforced the importance of innovation
throughout the company.
Impact
The company now has a pipeline that includes ten breakthrough products in
development. Several have the potential to reach $1 billion in sales soon after launch,
an aspiration that has become a commitment to investors. The company has rolled
out its new innovation process to all its labs worldwide. And its new incubator team,
charged with collecting and generating insights, is now leading a strategic process to
manage its investments in innovation.

Unit-II : Process and Patterns of Strategy

Notes
Development
Structure
2.1 Strategic Management Process
2.2 Environmental Scanning – Internal & External Analysis of Environment
2.3 Strategy Formulation
2.4 Strategy Implementation
2.5 Strategy Evaluation
2.5.1 The Process of Strategy Evaluation
2.6 Benefits of Strategic Management
2.6.1 Financial Benefits
2.6.2 Non Financial Benefits
2.7 Limitations of Strategic Management
2.8 Patterns of Strategic Development
2.8.1 Incremental Strategy Development
2.8.2 Intended and Realized Strategies
2.8.3 Emergent, Opportunistic and Imposed Strategies
2.9 Elements of Strategic Decision Making Process
2.10 Paradigm and Risk of Strategic Drift
2.11 Summary
Objectives
• To understand the process of strategy management and patterns of strategy
development
• To assess the competitors and set goals and strategies to meet all existing and
potential competitors
• To decipher each and every component of strategic management process in

detail
• To understand different facets of strategic decision making process.
“Strategic management is an ongoing process that assesses the business and the
industries in which the company is involved; assesses its competitors and sets goals
and strategies to meet all existing and potential competitors; and then reassesses each
strategy annually or quarterly [i.e. regularly] to determine how it has been implemented”
- Lamb 1984
2.1 Strategic Management-Process

The strategic management process means defining the organization’s strategy. It is
also defined as the process by which managers make a choice of a set of strategies
for the organization that will enable it to achieve better performance. Strategic
management is a continuous process that appraises the business and industries in
which the organization is involved; appraises its competitors; and fixes goals to meet

all the present and future competitor’s and then reassesses each strategy. Strategic
management process has following four steps: Notes
1. Environmental Scanning- Environmental scanning refers to a process of
collecting, scrutinizing and providing information for strategic purposes. It helps
in analyzing the internal and external factors influencing an organization. After
executing the environmental analysis process, management should evaluate it
on a continuous basis and strive to improve it.
2. Strategy Formulation- Strategy formulation is the process of deciding best

course of action for accomplishing organizational objectives and hence
achieving organizational purpose. After conducting environment scanning,
managers formulate corporate, business and functional strategies.
3. Strategy Implementation- Strategy implementation implies making the

strategy work as intended or putting the organization’s chosen strategy into
action. Strategy implementation includes designing the organization’s structure,
distributing resources, developing decision making process, and managing
human resources.
4. Strategy Evaluation- Strategy evaluation is the final step of strategy

management process. The key strategy evaluation activities are: appraising
internal and external factors that are the root of present strategies, measuring
performance, and taking remedial / corrective actions. Evaluation makes
sure that the organizational strategy as well as it’s implementation meets the
organizational objectives.
These components are steps that are carried, in chronological order, when creating
a new strategic management plan. Present businesses that have already created a
strategic management plan will revert to these steps as per the situation’s requirement,
so as to make essential changes.
Exhibit 2.1-Components of Strategic Management Process
Strategic management is an ongoing process. Therefore, it must be realized that

each component interacts with the other components and that this interaction often
happens in chorus.
2.2 Environmental Scanning - Internal & External Analysis of

Environment
Organizational environment consists of both external and internal factors.
Environment must be scanned so as to determine development and forecasts of factors
that will influence organizational success. Environmental scanning refers to possession
and utilization of information about occasions, patterns, trends, and relationships within
an organization’s internal and external environment. It helps the managers to decide
the future path of the organization. Scanning must identify the threats and opportunities
existing in the environment. While strategy formulation, an organization must take
advantage of the opportunities and minimize the threats. A threat for one organization
may be an opportunity for another.

In simple, Environmental Scanning can be defined as Careful, diligent monitoring of

Notes an organization’s internal and external environments. It amounts to detect early signs
of opportunities and threats that may influence the organization’s current and future
plans.
Internal analysis of the environment is the first step of environment scanning.

Organizations should observe the internal organizational environment. This includes
employee interaction with other employees, employee interaction with management,
manager interaction with other managers, and management interaction with
shareholders, access to natural resources, brand awareness, organizational structure,
main staff, operational potential, etc.
Also, discussions, interviews, and surveys can be used to assess the internal
environment. Analysis of internal environment helps in identifying strengths and
weaknesses of an organization.
As business becomes more competitive, and there are rapid changes in the external
environment, information from external environment adds crucial elements to the
effectiveness of long-term plans. As environment is dynamic, it becomes essential to
identify competitors’ moves and actions. Organizations have also to update the core
competencies and internal environment as per external environment. Environmental
factors are infinite, hence, organization should be agile and vigile to accept and adjust
to the environmental changes. For instance - Monitoring might indicate that an original
forecast of the prices of the raw materials that are involved in the product are no more
credible, which could imply the requirement for more focused scanning, forecasting and
analysis to create a more trustworthy prediction about the input costs.
In a similar manner, there can be changes in factors such as competitor’s activities,

technology, market tastes and preferences.
While in External Analysis, three correlated environment should be studied and

analyzed —
• Immediate / industry environment
• National environment
• Broader socio-economic environment / macro-environment
Examining the industry environment needs an appraisal of the competitive

structure of the organization’s industry, including the competitive position of a
particular organization and it’s main rivals. Also, an assessment of the nature, stage,
dynamics and history of the industry is essential. It also implies evaluating the effect
of globalization on competition within the industry. Analyzing the national environment
needs an appraisal of whether the national framework helps in achieving competitive
advantage in the globalized environment. Analysis of macro-environment includes
exploring macro-economic, social, government, legal, technological and international
factors that may influence the environment. The analysis of organization’s external
environment reveals opportunities and threats for an organization.
Strategic managers must not only recognize the present state of the environment
and their industry but also be able to predict its future positions.
2.3 Strategy Formulation

Strategy formation creates strategy, designing new businesses and organizations
to carry out those businesses. Formation involves exploration, the search for new
advantages and business possibilities. Strategy formation creates a theory of business
and its accompanying hypotheses. Strategy formation, or creation, is an aspect of Notes
strategic management.
Strategy formulation refers to the process of choosing the most appropriate course
of action for the realization of organizational goals and objectives and thereby achieving
the organizational vision. The process of strategy formulation basically involves six
main steps. Though these steps do not follow a rigid chronological order, however they
are very rational and can be easily followed in this order.
1. Setting Organizations’ objectives - The key component of any strategy statement

is to set the long-term objectives of the organization. It is known that strategy is
generally a medium for realization of organizational objectives. Objectives stress
the state of being there whereas Strategy stresses upon the process of reaching
there. Strategy includes both the fixation of objectives as well the medium to be
used to realize those objectives. Thus, strategy is a wider term which believes in
the manner of deployment of resources so as to achieve the objectives.
While fixing the organizational objectives, it is essential that the factors which
influence the selection of objectives must be analyzed before the selection of
objectives. Once the objectives and the factors influencing strategic decisions have
been determined, it is easy to take strategic decisions.
2. Evaluating the Organizational Environment - The next step is to evaluate the

general economic and industrial environment in which the organization operates.
This includes a review of the organizations competitive position. It is essential to
conduct a qualitative and quantitative review of an organizations existing product
line. The purpose of such a review is to make sure that the factors important for
competitive success in the market can be discovered so that the management can
identify their own strengths and weaknesses as well as their competitors’ strengths
and weaknesses.
After identifying its strengths and weaknesses, an organization must keep a track of
competitors’ moves and actions so as to discover probable opportunities & threats to its
market or supply sources.
3. Setting Quantitative Targets - In this step, an organization must practically fix the
quantitative target values for some of the organizational objectives. The idea behind
this is to compare with long term customers, so as to evaluate the contribution that
might be made by various product zones or operating departments.
4. Aiming in context with the divisional plans - In this step, the contributions
made by each department or division or product category within the organization is
identified and accordingly strategic planning is done for each sub-unit. This requires
a careful analysis of macroeconomic trends.
5. Performance Analysis - Performance analysis includes discovering and analyzing

the gap between the planned or desired performance. A critical evaluation of the
organizations past performance, present condition and the desired future conditions
must be done by the organization. This critical evaluation identifies the degree of
gap that persists between the actual reality and the long-term aspirations of the
organization. An attempt is made by the organization to estimate its probable future
condition if the current trends persist.
6. Choice of Strategy - This is the ultimate step in Strategy Formulation. The

best course of action is actually chosen after considering organizational goals,

organizational strengths, potential and limitations as well as the external

Notes opportunities.
2.4 Strategy Implementation

Strategic implementation put simply is the process that puts plans and strategies
into action to reach goals. A strategic plan is a written document that lays out the plans
of the business to reach goals, but will sit forgotten without strategic implementation.
The implementation makes the company’s plans happen.
Strategy implementation is the translation of chosen strategy into organizational

action so as to achieve strategic goals and objectives. Strategy implementation is
also defined as the manner in which an organization should develop, utilize, and
amalgamate organizational structure, control systems, and culture to follow strategies
that lead to competitive advantage and a better performance. Organizational structure
allocates special value developing tasks and roles to the employees and states how
these tasks and roles can be correlated so as maximize efficiency, quality, and
customer satisfaction-the pillars of competitive advantage. But, organizational structure
is not sufficient in itself to motivate the employees.
An organizational control system is also required. This control system equips

managers with motivational incentives for employees as well as feedback on
employees and organizational performance. Organizational culture refers to the
specialized collection of values, attitudes, norms and beliefs shared by organizational
members and groups.
Following are the main steps in implementing a strategy:

• Developing an organization having potential of carrying out strategy
successfully.
• Disbursement of abundant resources to strategy-essential activities.
• Creating strategy-encouraging policies.
• Employing best policies and programs for constant improvement.
• Linking reward structure to accomplishment of results.
• Making use of strategic leadership.
Excellently formulated strategies will fail if they are not properly implemented. Also, it
is essential to note that strategy implementation is not possible unless there is stability
between strategy and each organizational dimension such as organizational structure,
reward structure, resource-allocation process, etc.
Strategy implementation poses a threat to many managers and employees in an

organization. New power relationships are predicted and achieved. New groups (formal
as well as informal) are formed whose values, attitudes, beliefs and concerns may not
be known. With the change in power and status roles, the managers and employees
may employ confrontation behaviour.
Strategy Formulation vs Strategy Implementation

S.No Strategy Formulation Strategy Implementation
1 Strategy Formulation includes Strategy Implementation involves all
planning and decision- those means related to executing the
making involved in developing strategic plans.
organization’s strategic goals and
plans.

2 Strategy Formulation is placing the Strategy Implementation is managing
Forces before the action. forces during the action. Notes
3 Strategy Formulation is an Strategic Implementation is mainly an
Entrepreneurial Activity based on Administrative Task based on strategic
strategic decision-making. and operational decisions.
4 Strategy Formulation emphasizes Strategy Implementation emphasizes
on effectiveness. on efficiency.
5 Strategy Formulation is a rational Strategy Implementation is basically an
process. operational process.
6 Strategy Formulation requires co- Strategy Implementation requires co-
ordination among few individuals. ordination among many individuals.
7 Strategy Formulation requires a Strategy Implementation requires
great deal of initiative and logical specific motivational and leadership
skills. traits.
8 Strategic Formulation precedes Strategy Implementation follows
Strategy Implementation. Strategy Formulation.
Exhibit:2.2-Difference between Strategy Formulation and Strategy Implementation
2.5 Strategy Evaluation

Strategy Evaluation is as significant as strategy formulation because it throws light
on the efficiency and effectiveness of the comprehensive plans in achieving the desired
results. The managers can also assess the appropriateness of the current strategy in
today’s dynamic world with socio-economic, political and technological innovations.
Strategic Evaluation is the final phase of strategic management.
The significance of strategy evaluation lies in its capacity to co-ordinate the task
performed by managers, groups, departments etc, through control of performance.
Strategic Evaluation is significant because of various factors such as - developing
inputs for new strategic planning, the urge for feedback, appraisal and reward,
development of the strategic management process, judging the validity of strategic
choice etc.
2.5.1 The process of Strategy Evaluation

1. Fixing benchmark of performance- While fixing the benchmark, strategists
encounter questions such as - what benchmarks to set, how to set them and how
to express them. In order to determine the benchmark performance to be set, it is
essential to discover the special requirements for performing the main task. The
performance indicator that best identify and express the special requirements
might then be determined to be used for evaluation. The organization can use both
quantitative and qualitative criteria for comprehensive assessment of performance.
Quantitative criteria includes determination of net profit, ROI, earning per share,
cost of production, rate of employee turnover etc. Among the Qualitative factors
are subjective evaluation of factors such as - skills and competencies, risk taking
potential, flexibility etc.
2. Measurement of performance- The standard performance is a bench mark with

which the actual performance is to be compared. The reporting and communication
system help in measuring the performance. If appropriate means are available
for measuring the performance and if the standards are set in the right manner,
strategy evaluation becomes easier. But various factors such as manager’s
contribution are difficult to measure. Similarly divisional performance is sometimes
difficult to measure as compared to individual performance. Thus, variable

objectives must be created against which measurement of performance can be

Notes done. The measurement must be done at right time else evaluation will not meet its
purpose. For measuring the performance, financial statements like - balance sheet,
profit and loss account must be prepared on an annual basis.
3. Analyzing Variance- While measuring the actual performance and comparing it

with standard performance there may be variances which must be analyzed. The
strategists must mention the degree of tolerance limits between which the variance
between actual and standard performance may be accepted. The positive deviation
indicates a better performance but it is quite unusual exceeding the target always.
The negative deviation is an issue of concern because it indicates a shortfall
in performance. Thus in this case the strategists must discover the causes of
deviation and must take corrective action to overcome it.
4. Taking Corrective Action- Once the deviation in performance is identified, it

is essential to plan for a corrective action. If the performance is consistently less
than the desired performance, the strategists must carry a detailed analysis of
the factors responsible for such performance. If the strategists discover that the
organizational potential does not match with the performance requirements, then
the standards must be lowered. Another rare and drastic corrective action is
reformulating the strategy which requires going back to the process of strategic
management, reframing of plans according to new resource allocation trend and
consequent means going to the beginning point of strategic management process.
2.6 Benefits of Strategic Management

There are many benefits of strategic management and they include identification,
prioritization, and exploration of opportunities. For instance, newer products, newer
markets, and newer forays into business lines are only possible if firms indulge in
strategic planning. Next, strategic management allows firms to take an objective view
of the activities being done by it and do a cost benefit analysis as to whether the firm is
profitable.
Just to differentiate, by this, we do not mean the financial benefits alone (which
would be discussed below) but also the assessment of profitability that has to do with
evaluating whether the business is strategically aligned to its goals and priorities.
The key point to be noted here is that strategic management allows a firm to orient
itself to its market and consumers and ensure that it is actualizing the right strategy.
2.6.1 Financial Benefits

It has been shown in many studies that firms that engage in strategic management
are more profitable and successful than those that do not have the benefit of strategic
planning and strategic management. When firms engage in forward looking planning
and careful evaluation of their priorities, they have control over the future, which is
necessary in the fast changing business landscape of the 21st century. It has been
estimated that more than 100,000 businesses fail in the US every year and most of
these failures are to do with a lack of strategic focus and strategic direction. Further,
high performing firms tend to make more informed decisions because they have
considered both the short term and long-term consequences and hence, have oriented
their strategies accordingly. In contrast, firms that do not engage themselves in
meaningful strategic planning are often bogged down by internal problems and lack of
focus that leads to failure.
2.6.2 Non-Financial Benefits

The section above discussed some of the tangible benefits of strategic
management. Apart from these benefits, firms that engage in strategic management
are more aware of the external threats, an improved understanding of competitor
strengths and weaknesses and increased employee productivity. They also have Notes
lesser resistance to change and a clear understanding of the link between performance
and rewards. The key aspect of strategic management is that the problem solving
and problem preventing capabilities of the firms are enhanced through strategic
management. Strategic management is essential as it helps firms to rationalize change
and actualize change and communicate the need to change better to its employees.
Finally, strategic management helps in bringing order and discipline to the activities of
the firm in its both internal processes and external activities.
Closing Thoughts
In recent years, virtually all firms have realized the importance of strategic
management. However, the key difference between those who succeed and those who
fail is that the way in which strategic management is done and strategic planning is
carried out makes the difference between success and failure. Of course, there are
still firms that do not engage in strategic planning or where the planners do not receive
the support from management. These firms ought to realize the benefits of strategic
management and ensure their longer-term viability and success in the marketplace.
2.7 Limitations of Strategic Management

In 2000, Gary Hamel coined the term strategic convergence to explain the limited
scope of the strategies being used by rivals in greatly differing circumstances. He
lamented that successful strategies are imitated by firms that do not understand that for
a strategy for the specifics of each situation.
But in the world where strategies must be implemented, the three elements are
interdependent. Means are as likely to determine ends as ends are to determine
means. The objectives that an organization might wish to pursue are limited by the
range of feasible approaches to implementation. (There will usually be only a small
number of approaches that will not only be technically and administratively possible, but
also satisfactory to the full range of organizational stakeholders.) In turn, the range of
feasible implementation approaches is determined by the availability of resources.
Another critique of strategic management is that it can overly constrain managerial

discretion in a dynamic environment.
“How can individuals, organizations and societies cope as well as possible with ...
issues too complex to be fully understood, given the fact that actions initiated on the
basis of inadequate understanding may lead to significant regret?”
Some theorists insist on an iterative approach, considering in turn objectives,

implementation and resources.i.e;
“A...repetitive learning cycle [rather than] a linear progression towards a clearly

defined final destination”
“Strategies must be able to adjust during implementation because “humans rarely

can proceed satisfactorily except by learning from experience; and modest probes,
serially modified on the basis of feedback, usually are the best method for such
learning.”
Woodhouse and Collins claim that the essence of being “strategic” lies in a capacity
for “intelligent trial-and error” rather than strict adherence to finely-honed strategic
plans. Strategy should be seen as laying out the general path rather than precise steps.

2.8 Patterns of Strategy Development

Notes Since strategy is about the long-term direction of an Organization, it is typically
thought of in terms of major decisions about the future. However, it would be a mistake
to conceive of Organizational strategy as necessarily developing through one-off
major changes. The strategic development of Organizations is better described and
understood in terms of continuity. There is a tendency towards ‘momentum’ of strategy:
once as Organization has adopted a particular strategy then it tends to develop from
and within that strategy, rather than fundamentally changing direction.
2.8.1 Incremental Strategy Development

Henry Mintzberg’s historical studies of Organizations over many decades showed
that ‘global’ or transformational change did take place but was infrequent. More
typically, Organizations changed incrementally, during which times strategies formed
gradually; or though piecemeal change, during which times some strategies changed
and others remained constant; there were periods of continuity, in which established
strategy remained unchanged; and also periods of flux, in which strategies did change
but in no very clear direction.
One strategic move - an acquisition, product launch, or significant investment

decision perhaps - may well grow out of the existing mainstream strategy, which in
itself gradually changes. Such moves may over time form an overall strategic approach
of the firm, so that as time goes on each decision taken is informed by this emerging
strategy and, in turn, reinforces it. Over time, this process could, of course, lead to a
quite significant shift in strategy, but gradually.
In many respects such gradual change makes a lot of sense, and arguably
managers should seek to manage strategy so that it is achieved. No Organization
could function efficiently if it were to undergo frequent major revisions of strategy; and,
in any case, it is unlikely that the environment will change so rapidly that this would
be necessary. Incremental change might therefore be seen as an adaptive process
in a continually changing environment; indeed, this is the view held by some writers
on the management of strategy and by many managers themselves. There are,
however, dangers here. Environmental change may not always be gradually enough
for incremental change to keep pace: if such incremental strategic change lags behind
environmental change, the Organization may get out of line with its environment, and in
time may need more fundamental strategic change to occur. Mintzberg’s work seems
to suggest that this is so: transformational change tends to occur at times of crisis in
Organizations, typically when performance has declined significantly.
2.8.2 Intended and Realized strategies

Conceiving of Organizations’ strategies in terms of such patterns of change means
it is important to be careful about just what is meant by ‘strategy’. Typically, strategy is
written about as though it is developed by managers in an intended, planned fashion.
Strategy is conceived of as being formulated, perhaps through some planning process,
resulting in a clear expression of strategic direction, the implementation of which is also
planned in terms of resource allocation, structure, and so on. The strategy then comes
about, or is realized in actuality. In this way, strategy is conceived of as a deliberate,
systematic process of development and implementation (route 1 in Exhibit2.3). This is
broadly the framework adopted in this book because it is a convenient way of thinking
through the issues relating to strategy. However, it does not necessarily explain how
strategies are actually realized. It has to be said that such evidence as exists about
the effectiveness of planning systems suggests that in many Organizations that have
them, and which attempt to formulate strategies in such systematic ways, the intended
strategies do not become realized; or only part of what is intended comes about. In
effect, much of what is intended follows route 2 in Exhibit 2.3 and becomes unrealized:
that is, statements of strategy which do not come about in practice.

Notes
Exhibit2.3: Strategy Development Routes

2.8.3 Emergent, Opportunistic, and Imposed Strategies
The fact that a planned, intended strategy does not come about, does not
necessarily mean that the Organization has no strategy at all. If strategy is regarded
as the direction of the Organization, which develops over time, then it can also be
conceived as an emergent process (route 3 in Exhibit2.3). It should also be pointed out
that, despite the existence of a stated, intended strategy which appears to have come
about through a planning mechanism, strategy development may still be of an emergent
nature. For example, the planning process may perform the role of monitoring the
progress or efficiency of an emergent strategy. On the other hand, it may do little more
than pull together the views and ‘wisdom’ of management or industry experts which
have been built up over time. Indeed, it is a frequent complaint of chief executives that
their planning systems seem to have degenerated into little more than rather routinized
elaborations of where the Organization has come from, and the received wisdom which
has been built up in it. This is, in effect, route 4 in Exhibit2.3. It can be dangerous
because the firm appears to be taking a proactive, systematic approach to strategy
development, and this may mask a somewhat complacent view of the situation the
Organization is in.
Strategies may also come about in opportunistic ways (route 5 in Exhibit2.3). For
example, as changes occur in the environment, or new skills are recognized, these
may be taken advantage of in an opportunistic manner. Indeed, a firm may be set up
in the first place because an entrepreneur sees an opportunity in the market; and the
likelihood is that, if the initial strategic approach of that firm is successful, that strategy
will persist for some time. On the other hand, a long-established firm may enter a
new market sector because of an opportunistic acquisition, for example. This is not to
suggest that such opportunistic developments are always wise, but they do occur, and
can lead to changes in the realized strategy of an Organization.
Finally strategy may be imposed (route 6 in Exhibit2.3). A strategy of retrenchment,

with divestments and the cutting of costs, may be forced by recession or a threatened
take-over. Developments of new products may be forced by the obsolescence of
existing products. Government action may have a direct impact on Organizational
strategy; for example, in the public sector; or by privatization of public utilities or state-
owned organizations, as has happened most dramatically in recent years in eastern
Europe. Again such pressure may be dealt with through planning mechanisms within
the Organization; or it may be handled through some other mechanism, such as
individual decision making by senior executives. In any event, such imposed strategy
development can result in significant long-term changes for an Organization.

2.9 Elements of Strategic Decision-making Process

Notes There are four stages which can be discerned in decision processes. These are
represented in Exhibit2.4
1. Issue awareness: the recognition that ‘something is amiss’, that a state of affairs
exists which needs remedying, or that an opportunity exists for development.
2. Issue formulation: the collection of information about, and examination of the

circumstances of, the issue and the formulation of an organsiational view about it.
3. The development of solutions: the generation of possible solutions.
4. The selection of a solution: the means by which a decision about what is to be done
is reached.
Exhibit2.4: Phases of strategic decision making
The awareness of a strategic issue typically occurs at an individual or small group

level. This is not likely to be an analytical process; rather people get a ‘gut feeling’
based on their previous experience. These people may not be managers - they are
likely to be those in most direct contact with whatever stimulates awareness, perhaps
sales staff dealing with customers. This awareness will develop through a period
of ‘incubation’ in which various stimuli build up a picture of the extent to which an
Organization’s circumstances deviate from what is normally to be expected. These
stimuli are likely to be related to internal performance measures such as turnover or
profit performance; customer reaction to the quality and price of service or products;
and changes in the environment, in terms of competitive action, technological change,
and economic conditions.
The importance of the individual’s role in problem recognition needs to be

emphasized. There is evidence to suggest that successful business performance is
associated with management’s capability in sensing its environment. This does not
necessarily mean that the company has complex or sophisticated means of achieving
this, but rather that people in the Organization - not only managers - respond to or take
into account a wide range of influences.
This accumulation of stimuli eventually reaches a point where the presence of

a problem cannot be ignored and requires an organizational response. Typically, this
triggering point is reached when the formal information systems of the Organization
begin to highlight the problem; perhaps a variance against budget becomes undeniable
or a number of sales areas consistently report dropping sales. At this stage, however,
issues may still be ill defined.

Issue formulation involves a number of processes. Information gathering is likely to
take place, but not necessarily in a highly structured, objective manner. Information is Notes
sought and gathered on a verbal and informal basis, particularly among more senior
management. This may, of course, be supplemented through more formal analysis.
However, the rationalization of information so as to clarify the situation is a process
which draws heavily on existing managerial experience. Indeed, the role of information
generated from more formalized environmental analysis in this process is often to post-
rationalize or legitimize managers’ emerging views of the situation.
The resolution (or definition) of what constitutes the nature of the issue may prove
difficult. Overall, formal analysis appears to play much less of a role than is suggested
in some management texts. Through debate and discussion, there will probably be an
attempt to reach an Organizational view or consensus on the problem to be tackled.
The emerging view will therefore take shape in terms of both individual and collective
experience, and different views will be resolved through social and political processes.
It may also be that these processes of issue formulation could trigger a different
problem, so the process tends to be interactive.
In developing solutions, managers search for ready-made solutions through memory

search, in which the manager seeks for known, existing, or tried solutions; or passive
search, which means waiting for possible solutions to be thrown up. It is likely that
there will be a number of these searches in which managers draw on what they have
experienced and tried in the past before there is an attempt to design a solution; that
is, to custom-build a strategy to handle the problem at hand. In either search or design
the process of choice tends to be iterative. Managers begin with a rather vague idea
of a possible solution and gradually refine it by recycling it through selection routines
back into problem identification or through further search routines. The process is
developmental, based on debate and discussion within the organization and, again,
on the collective management wisdom and experience in the Organization. Indeed, the
logical incrementalist view of strategy development suggests that successful managers
actively use bargaining processes in order to challenge prevailing strategic inclinations
and generate information from other parts of the Organization to help in making
decisions.
As has been seen, the process of developing solutions may overlap with the
processes of selecting solutions. They are somewhat arbitrary categorizations for the
purpose of description and might be regarded as part of the same process, in which a
limited number of potential solutions gradually get reduced until one or more emerges.
This may occur through ‘screening’, in which managers eliminate that which they
consider not to be feasible. However, the pre-dominant criterion for assessing feasibility
is not formal analysis but managerial judgment followed by political bargaining. Formal
analysis is the least observed of these three approaches, and needs again to be seen
in the context of social and political processes.
It should also be remembered that the process might well be taking place below the
most senior levels of management, so it may be necessary to refer possible solutions
to some higher level, and seeking this authorization is another way of selecting
between possibilities. Typically, though not always, authorization is sought for a
complete solution after screening has taken place. Thus raises the question of whether
it is sensible to view this referral as a sort of checking of an incrementally generated
strategic solution against some overall strategy.
2.10 Paradigm and the Risk of Strategic Drift

Strategic drift is a gradual change that occurs so subtly that it is not noticed until it is
too late. By contrast, transformational change is sudden and radical.

In professional services firms, strategic drift occurs because professionals have

Notes their own perspectives, independent of what the firm’s leaders may think. Professionals
view themselves as running their own businesses. So strategic drift is inherent in the
professional service business model. Whether it becomes problematic and costly
depends on how it’s managed.
The conservative influence of the paradigm (i.e., the frame of reference managers
have built up over time consisting of their beliefs and assumptions about the nature
of their business) and ‘the way we do things around here’ are likely to have important
implications for the development of strategy in Organizations.
Faced with pressures for change, managers will be likely to deal with the situation in
ways which protect the paradigm from challenge. This raises difficulties when managing
strategic change, for it may be that the action required is outside the scope of the
paradigm, and that members of the Organization would therefore be required to change
substantially their core beliefs or routines. Desirable as this may be, the evidence is
that it does not occur easily. Managers are much more likely to attempt to deal with
the situation by searching for what they can understand and cope with in terms of the
existing paradigm, and this seems to be especially so in Organizations in which there
is a particularly high degree of homogeneity in the beliefs and assumptions which
comprise it. Managers will, then, typically attempt to minimise the extent to which they
are faced with ambiguity and uncertainty by looking for that which is familiar.
Exhibit2.5 illustrates how this might occur. Faced with a stimulus for action, in
this case declining performance, managers first seek for means of improving the
implementation of existing strategy: this could be through the tightening of controls.
In effect, they will tighten up their accepted way of operating. It this is not effective,
a change of strategy may occur, but still a change which is in line with the existing
paradigm. For example, managers may seek to extend the market for their business,
but may assume that it will be similar to their existing market, and therefore set about
managing the new venture in much the same way as they have been used to. There
has been no change to the paradigm and there is not likely to be until this attempt to
reconstruct strategy in the image of the existing paradigm also fails. What is occurring
is the predominant application of the familiar and the attempt to avoid or reduce
uncertainty or ambiguity.
Exhibit2.5-The dynamics of paradigm change

[Adapted from P. Grinyer and J. C. Spender (1979). Turnaround: Managerial recipes for
strategic success,Associated Business Press. p. 203.]
This is, of course, an alternative explanation of incremental or adaptive strategy
development. Indeed, it may be that changing the strategy within the paradigm makes Notes
sense: after all, it does encapsulate the experience of those in the Organization, and
permits change to take place within what is familiar and understood. However, the
outcome of processes of decision making of this kind may not be the adaptive strategy
making, which keeps in line with environmental change. Rather it may be an adaptation
in line with the experience enshrined in the paradigm. Nonetheless the forces in the
environment will have an effect on performance. Over time this may well give rise
to the sort of strategic drift, in which the Organization’s strategy gradually, even if
imperceptibly, moves away from the forces at work in its environment.
This pattern of drift is made more difficult to detect and reverse because although
changes are being made in strategy - albeit within the parameters of the paradigm -
such changes is the application of the familiar and may achieve some short-term
improvement in performance, thus tending to legitimize the action taken. However,
in time either the drift becomes apparent or environmental change increases, or
performance is affected. Strategy development is, then, likely to go into a state of flux,
with no clear direction, further damaging performance. Eventually more transformational
change is required, if the demise of the Organization is to be avoided.
The paradigm is, then, an inevitable feature of Organizational life which can be
thought of either as encapsulating the distinctive competences of the Organization or,
more dangerously, as a conservative influence likely to prevent change and result in a
momentum of strategy which can lead to strategic drift.
2.11 Summary
This Unit has dealt with the processes of strategic management as they are to
be found in Organizations: it is therefore descriptive not prescriptive. There is no
suggestion here that, because such processes exist, this is how strategy should
be managed. However, it is important to understand the reality of strategy making
in Organizations not least because those who seek to influence the strategy of
Organizations must do so within that reality. There is little point in formulating strategies
which may be analytically elegant without having an understanding of the processes
which are actually at work. Moreover, it is the intention that the subject should be
approached in such a way that it builds upon this understanding of reality and, wherever
possible, relates an essentially analytical approach to the real world of managers.
In this concluding section, some of the lessons of this Unit are summarized and
related to what follows in the rest of the book.
It is important to distinguish between the intended strategy of managers - which

they say the Organization will follow - and the realized strategy of an Organization -
that which it is actually following. This is particularly important when considering
how relevant current strategy is to a changing environment: it may be more useful to
consider the relevance of realized strategy than intended strategy.
Strategy usually evolves incrementally. Strategic change tends to occur as a

continual process of relatively small adjustments to existing strategy through activity
within the subsystems of an Organization. However, there is likely to be an overall
strategic direction, a strategic momentum, which is persistent over time.
The incremental change in Organizations is likely to occur through cultural, social

and political processes, or by managers experimenting and ‘learning by doing’ - the
notion of logical incrementalism.

Formal planning (e.g. corporate planning systems) may be important as an aid to

Notes analysing strategic positions and thinking through options, but it is not necessarily the
vehicle by which strategies are formulated.
Over time the Organization may become out of line with a changing environment
(strategic drift), eventually reaching a point of crisis. At this time, more fundamental or
transformational change may occur.
The way in which managers assess the need for strategic change is through an
essentially qualitative assessment of signals which accumulate from inside and outside
the Organization.
The definition of strategic problems and choice of strategies by managers rely not
so much on dispassionate analysis of data as on (a) perceptions of what powerful
individuals in the Organization see as the problem, and (b) the manager’s reconciliation
of the circumstances of the situation with past experience and the received wisdom
encapsulated in the core assumptions and beliefs of the Organization, termed here the
paradigm.
The cultural web of an Organization - its political structures, routines, rituals and
symbols - is likely to exert a preserving and legitimizing influence on the core beliefs
and assumptions that comprise the paradigm, hence making strategic change more
difficult to achieve.
• The strategic management process means defining the organization’s strategy. It is

also defined as the process by which managers make a choice of a set of strategies
for the organization that will enable it to achieve better performance
• Strategy management process comprises 4 steps. They were Environment

Scanning, Strategy formulation, Strategy Implementation and strategy evolution.
• The 4 Elements of Strategic Decision-making Process were Issue awareness, Issue

Formulation, Development of various solutions and selection of a solution.
• It is important to distinguish between the intended strategy of managers - which

they say the Organization will follow - and the realized strategy of an Organization -
that which it is actually following.
Check your progress:

1. Which one of the following is not a part of the external environment of an
organization?
a) Social factors
b) Political factors
c) Legal factors
d) Organizational culture
2. The term environmental scanning stands for
a) Gathering data about the organization and its surroundings
b) Collecting information about the shareholders

c) Gathering information relating to the employees Notes

d) None of the above
3. One of the important assumptions of the ----------perspective is that uncertainty in

environment is more of an internal problem and less of an external problem
a) Objective environment perspective
b) Perceived environment perspective
c) Enacted environment perspective
d) None of the above
4. Political variables have a significant effect on which one of the following?
a) Formulation and implementation of strategy
b) Formulation and Evaluation of a strategy
c) Implementation and evaluation of a strategy
d) Formulation, implementation and evaluation of a strategy
5. Which of the following is NOT a component of external environment analysis?
a) Customer satisfaction feedback
b) Global impacts
c) Legal issues within the industry
d) Competitive position of rival companies
6. The general conditions for competition that influence business firms, which provide
similar products and services is known:
a) Remote environment
b) International environment
c) External environment
d) Industry environment
7. All of these are pitfalls an organization should avoid in strategic planning EXCEPT:
a) Using plans as a standard for measuring performance.
b) Using strategic planning to gain control over decisions and resources
c) Failing to involve key employees in all phases of planning
d) Being so formal in planning that flexibility and creativity are stifled

8. The three organizational levels are:

Notes
a) Corporate level, business level, functional level
b) Corporate level, business unit level, functional level
c) Corporate strategy level, business unit level, functional level
d) Corporate strategy level, business level, specialist level
e) Corporate level, strategic business level, functional level
9. The business unit strategy has three major components:
a) Mission, business, and SBU goals
b) Marketing, advertising and pricing objectives
c) Mission, business unit goals, and competencies
d) Business mission, department mission, and daily plans
e) Competencies, abilities, and problem statements
10. A useful framework used to assess a company’s investments/divisions is called:
a) Unit production analysis
b) Corporate insight analysis
c) Company productivity analysis
d) Business portfolio analysis
e) SBU knowledge analysis
11. ______ provides focus and direction for formulating strategy to achieve specific
organizational objectives.
a) Strategy by objectives
b) Management by strategy
c) Management by objectives
d) Strategic planning mode
Questions & Exercises

1. Define Organizational Strategy. Explain all the levels of organizational strategy.
2. What are the financial and non-financial benefits of strategic management? Explain
with the help of examples
3. Explain in detail the limitations of strategic management
4. Explain the dynamics of paradigm change

5. What is strategic draft? Explain.
Notes
6. What are the differences between strategy implementation and strategy
formulation?
7. Explain the financial and non-financial benefits of strategic management.
For Further Readings

1. Exploring Corporate Strategy: Gerry Jhonson, Kevan Scholes
2. Pearce John A & Robinson R B, 1977, Strategic Management : Strategy

Formulation and Implementation, 3rd Ed., A.I.T.B.S. Publishers & Distributors.
3. Aaker David Strategic Market Management, 5th Ed., John Wiley and sons
4. Regular reading of all latest Business Journals : HBR, Strategist, Busienss World,
Business India, Business Today.
5. Porter Michael, Competitive Advantage: Creating and sustaining superior

performance, Free press.
6. Thomson & Strickla d, Business policy and Strategic management, 12th Ed., PHI.
7. Munjal, A. Cases and readings in Strategic Management, ABS Handbook
A Case study on strategy implementation of Virgin Group
Grabbing and successful:

Richard Branson, entrepreneurial owner and founder of Britain’s untraditional
Virgin Group, has fused two dissimilar lines of work – show business and commerce
– into a single, extremely profitable enterprise. Virgin Group comprises more than 100
companies in 15 countries. It includes Virgin Atlantic, a 12 plane long distance carrier,
the Virgin Retail Group outlets that sell CDs, videos and games; Virgin Communications
including a small publishing company a commercial AM radio station, and a television
station; Virgin Interactive Communication a computer games software publisher, and
the Voyager Group a collection of diverse assets ranging from a hotel chain to a model
agency.
Branson’s business strategy places him at the forefront as the company’s most
effective marketing tool. He has become the world’s greatest underdog commented
a London analyst. He is great actor. In addition his strategy also involves making the
most of publicity. If you have got an airline, Branson asserted, you’ve got to keep it in
the public eye somehow. This he accomplishes through a variety of methods including
headline grabbing adventures such as crossing the Atlantic Ocean by speedboat and
balloon.
Such exploits have served to define Virgin’s organizational culture. In addition

morale is boosted by the success of Virgin Atlantic which had humble beginning as an
upstart airline and was vulnerable to allegedly unfair competitive tactics by rival British
Airways (BA). Being around through the gulf war, the recession and BA’s dirty tricks
campaign has been particularly satisfying. The airline now holds 22 percent of the
transatlantic market. This is less than BA’s share, but more than American or United
holds. And Virgin is still expanding.
The structure Branson relies on entails his heavy involvement. He believes in

taking a hands-on approach particularly with airlines. At times, he even greets Virgin

passengers at airports and asks them how they enjoyed their flights. Any time that he
Notes goes out to meet passengers he is always scribbling things he commented.
With the airline in an industry plagued by intense competition and price survival
remains a constant goal. Branson is therefore cautious. There are a lot of big airlines
in America that have gone belly-up. As airlines get bigger they sometimes get more
vulnerable. Branson is determined not to let happen to his airline.
In recent years, Branson appears to have mellowed with regard to his ambitions.
Before he wanted to build the biggest entertainment empire in the world.
Now, the man who has everything, doesn’t need more. There is also an element of
social crusading in him that needs to be assuaged. Branson has now found at least a
degree of contentment, He is now complacent that he has enough money to have three
meals a day, to feed his children, clothe them, take holidays and build up and continue
to run his companies. He has no more ambitions to build the biggest company in the
world.
Branson remain conservative in his lifestyle. He attributes this to his respect for
employees. As a businessman he thinks it’s very important to set an example for his
staff in the way you behave. You don’t drive flashy cars and you choose a wife who isn’t
into diamond rings and expensive, glitzy clothes .This he implied leads to a staff with
similar values.
In line with this, as Virgin has grown, Branson has broken operations down into
smaller companies of between 50 and 100 people. He believes that each company
should occupy separate offices and that employees should be able to take ownership
of their company. A culture that emphasizes individual responsibility in this way enables
drastic changes to take place quickly and easily.
The systems within the company are also very supportive of empowerment.
For example, through the strong communication system, budgeting is explained to
employees, with daily graphs that display performance by area in comparison to area
budgets. The hiring system also relies on the empowerment of employees. At one point
four junior employees were made responsible for hiring their own replacements when
they were promoted.
Virgin offices are extremely informal. With 15-foot ceilings, working fire places and
lavish gardens the building is more like a home than a place of business. Antiques are
scattered around, along with plush sofas, intimate family pictures, various plaques and
models of Virgin airplanes. And employees dress casually in line with the surroundings.
The elements of Virgin’s strategy thus clinch the company’s success. Under
Branson’s creative leader ship exciting twists promise to lie ahead.

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Business Policy & Strategic Management 7

Unit-I : Introduction to Strategic Management Notes

• To understand the history of strategic management

• To analyze how strategic management plays an important role in the growth of

• To understand the various aspects of strategic planning to strategic

“Study of the functions and responsibilities of general managers; of problems

Chance favors the prepared mind -- Louis Pasteur

1.1 Concept of Strategic Management

Strategic management is the process of managing the pursuit of organizational

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(John A. Pearce II and Richard B. Robinson, Jr.)

Strategic management is a continuous process that evaluates and controls

Strategic Management gives a broader perspective to the employees of an

• Develop “theme” for organization

• Provide discipline for long-term thinking

• Deal with environmental complexities

• More effective resource allocation

• Integrate diverse administrative activities

• Increase managerial effectiveness

• Improve employee motivation

• Address stakeholder concerns

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1.2 What is a Strategy?

• Means of establishing organizational purpose

• Definition of the competitive domain

• Response to external opportunities and threats and internal strengths and

• Way to define managerial tasks with corporate, business and functional

• Coherent, unifying and integrative pattern of decisions

• Definition of the economic and non-economic contribution the firm intends to

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• Expression of strategic intent

1.2.1 Features of Strategy

Strategy is a well defined roadmap of an organization. It defines the overall mission,

1.3 Strategic Management-History and Development

1. Basic Financial Planning (Budgeting)

2. Long-range Planning (Extrapolation)

3. Strategic (Externally Oriented) Planning

5. Complex Systems Strategy:

• Complex Static Systems or Emergence

• Complex Dynamic Systems or Strategic Balance

1.4 Basic Financial Planning (Budgeting)

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1.5 Long-range Planning (Extrapolation)

1.6 Strategic (Externally Oriented) Planning

Alfred Chandler (1918-2007), Influential figure in both strategy and business

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He advised splitting the functions of strategic thinking and line management. In

John Gardner’s Self-Renewal, published in 1964, which pointed out that

Kirby Warren at Harvard looked in depth at what happened in a small number of

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Implanting Strategic Management, co-written with Edward McDonnell, records

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Such an approach, identifying a target and developing strategies to achieve it,

1.7 Strategic Planning to Strategic Management

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Characteristically, he sought the answer in extensive research. He examined

The complete concept of strategic management embraces a combination of

Self-confirming Theories: In the 1980s, there was a renewed interest in discovering

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Self-confirming theories may be recognized by their historic-simple frame and

Thousands of articles and books have been written on the development of

• By becoming the lowest cost producer in a given market

• By being a differentiated producer (offering something extra or special to