Beruflich Dokumente
Kultur Dokumente
Introduction
The First Part of this module is devoted to creating an understanding of the basic issues
involved in the Business Policy and Strategic Management. This part of the module have been
designed to introduce you to the discipline of Business Policy and Strategic Management;
explain the nature, importance, purpose and objectives of the course, lay a foundation for the
for the concepts, issues, factors and practices that have been used and described in the
remainder of this module. And provide an overview of strategic management by talking about
the concept of strategy, the levels at which it operates, the nature of decision making, the way
the different school of thought on strategy formation have evolved, and most important, the
process of strategic management on which this module is based
Learning Outcomes
Learning Objectives
In order to understand the principles of Business Policy and Strategy, one has to look back and
revisit his/her basic Business Management and Marketing concept. In like manner, we are going
to take a look at our very rich history and study what are the major turns in the development of
Marketing and Management that had led us to the innovation of cutting edge and sophisticated
Technology in the present.
Your task is to fill in the K-W-L chart below by jotting down what you already know and the
things that you would like to know about development of the Marketing Concept.
Presentation of Contents
Strategic management is a set of managerial decisions and actions that determines the long run
performance of a corporation. It includes environmental scanning (both external and internal),
strategy formulation (strategic or long-range planning), strategy implementation, and evaluation
and control. The study of strategic management, therefore, emphasizes the monitoring and
evaluating of external opportunities and threats in light of a corporation’s strengths and
weaknesses. Originally called business policy, strategic management incorporates such topics as
strategic planning, environmental scanning, and industry analysis.
As managers attempt to better deal with their changing world, a firm generally evolves through
the following four phases of strategic management:
Phase 1— Basic financial planning: Managers initiate serious planning when they are
requested to propose the following year’s budget. Projects are proposed on the basis of very little
analysis, with most information coming from within the firm. The sales force usually provides
the small amount of environmental information. Such simplistic operational planning only
pretends to be strategic management, yet it is quite time consuming. Normal company activities
are often suspended for weeks while managers try to cram ideas into the proposed budget. The
time horizon is usually one year.
Phase 2—Forecast-based planning: As annual budgets become less useful at stimulating long
term planning, managers attempt to propose five-year plans. At this point they consider projects
that may take more than one year. In addition to internal information, managers gather any
1
Strategic Management and Business Policy 13th Edition; Thomas Wheelen, J. David Hunger
available environmental data—usually on an ad hoc basis—and extrapolate current trends five
years into the future. This phase is also time consuming, often involving a full month of
managerial activity to make sure all the proposed budgets fit together. The process gets very
political as managers compete for larger shares of funds. Endless meetings take place to evaluate
proposals and justify assumptions. The time horizon is usually three to five years.
Phase 3—Externally oriented (strategic) planning: Frustrated with highly political yet
ineffectual five-year plans, top management takes control of the planning process by initiating
strategic planning. The company seeks to increase its responsiveness to changing markets and
competition by thinking strategically. Planning is taken out of the hands of lower-level managers
and concentrated in a planning staff whose task is to develop strategic plans for the corporation.
Consultants often provide the sophisticated and innovative techniques that the planning staff uses
to gather information and forecast future trends. Ex-military experts develop competitive
intelligence units. Upper-level managers meet once a year at a resort “retreat” led by key
members of the planning staff to evaluate and update the current strategic plan. Such top-down
planning emphasizes formal strategy formulation and leaves the implementation issues to lower
management levels. Top management typically develops five-year plans with help from
consultants but minimal input from lower levels.
Phase 4—Strategic management: Realizing that even the best strategic plans are worthless
without the input and commitment of lower-level managers, top management forms planning
groups of managers and key employees at many levels, from various departments and
workgroups. They develop and integrate a series of strategic plans aimed at achieving the
company’s primary objectives. Strategic plans at this point detail the implementation, evaluation,
and control issues. Rather than attempting to perfectly forecast the future, the plans emphasize
probable scenarios and contingency strategies. The sophisticated annual five-year strategic plan
is replaced with strategic thinking at all levels of the organization throughout the year. Strategic
information, previously available only centrally to top management, is available via local area
networks and intranets to people throughout the organization. Instead of a large centralized
planning staff, internal and external planning consultants are available to help guide group
strategy discussions. Although top management may still initiate the strategic planning process,
the resulting strategies may come from anywhere in the organization. Planning is typically
interactive across levels and is no longer top down. People at all levels are now involved.
2
https://charityvillage.com/the_advantages_and_disadvantages_of_strategic_management/
determines methods to leverage strengths, and mitigate weaknesses (at a minimum). As such, it
sets a framework and clear boundaries within which decisions can be made. The cumulative
effect of these decisions (which can add up to thousands over the year) can have a significant
impact on the success of the organization. Providing a framework within which the executive
director and staff can make these decisions helps them better focus their efforts on those things
that will best support the organization’s success.
4. Supports Understanding & Buy-In
Allowing the board and staff participation in the strategic discussion enables them to better
understand the direction, why that direction was chosen, and the associated benefits. For some
people simply knowing is enough; for many people, to gain their full support requires them to
understand.
5. Enables Measurement of Progress
A strategic management process forces an organization to set objectives and measures of
success. The setting of measures of success requires that the organization first determine what is
critical to its ongoing success and then forces the establishment of objectives and keeps these
critical measures in front of the board and senior management.
6. Provides an Organizational Perspective
Addressing operational issues rarely looks at the whole organization and the interrelatedness of
its varying components. Strategic management takes an organizational perspective and looks at
all the components and the interrelationship between those components in order to develop a
strategy that is optimal for the whole organization and not a single component.
3
Strategic Management Concepts and Cases 13th Edition; Fred R. David
strategies by the top people of individual strategic business units, and the functional strategies
are decided by the functional heads.
5. By relationship, it is dynamic:
Strategy is to create a fit between the environment and the organisation’s actions. As
environment itself is subject to fast change, the strategy too has to be dynamic to move in
accordance to the environment.
Success of Microsoft appears to be very simple as far as software for personal computers are
concerned, but Microsoft strategy required continuous decisions in a turbulent and dynamic
environment to remain leader.
6. The purpose of strategy is to create competence (things firm does better than
competitors), synergy (between different parts of the organisation and their activities) and
value creation so as to attain vision and mission.
An organisation can reach its destiny (vision) only if it can create value for the firm and its
stakeholders (mission). Value creation involves economic value addition (profits for the
company), customer value addition (Value customers perceive in relation to competitors), people
value addition (Value gained from enabling employees to be most productive resource.) so as to
fulfil the needs of all concerned.
8. Strategy is almost always the result of some type of collective decision-making process:
The vision, mission, objectives, and corporate strategies are determined by top management.
Business Unit strategies are decided by heads of business units and functional plans by
functional heads. But the top management consent is a must. It is the senior management which
resolves paradoxes between the conflicting objectives, existing functions and future activities,
and the resources allocation.
From the above- table it should not be concluded that they are exclusive from each other. In fact
the two are mutually reinforcing. It is the strategy which provides the reason to initiate tactics. If
the vision is to be industry leader, increases sales is part of this strategy, but to sell in bulk to
achieve the vision, the discount given to a bulk buyer is tactic.
The process of strategy formulation basically involves of the following five steps. Though these
steps do not follow a rigid chronological order, however they are very rational and can be easily
followed in this order.
a. Strategic Intent:
It provides Vision – what the organisation wants to become, Mission – what business the firm is
in, Values – a common set of beliefs guiding the behaviour of organisational members, and
Objectives — Qualitative goals.
b. Situational Analysis:
The three kinds of environments need to be scanned – External,(to know of Opportunities and
Threats), Internal (to know of strengths and weaknesses), and Industry (to determine competitive
scenario)
e. Selection of Strategy:
To create a fit between the environment and the strategic intent of the organisation, a suitable
strategy has to be selected for implementation.
Types of Strategies:4
Concentration:
It means bringing in resources into one or more of a firm’s business keeping customer needs,
customer functions, alternative technologies, singly or jointly so as to expand.
Integration:
Integration means joining activities related to the present activities of a firm. Integration not only
widens the scope of business but also a subset of diversification strategies. Integration can be of
following types:
Horizontal Integration:
It means when a firm takes over the other firm operating at the same level of production or
marketing. Recently ICICI Bank decided to acquire Bank of Rajasthan and Reckit Benkier of
UK took over Paras of India.
4
https://www.businessmanagementideas.com/
Vertical Integration:
When a firm acquires control over another firm operating into the same value chain. It can be of
two types, viz.,
1. Backward Integration – acquiring a firm engaged in raw materials (Tata steel buying a
coal mine company in Indonesia); and
2. Forward Integration — acquiring control over a firm/activity taking it nearer to the
ultimate consumer (Reliance Industries, a petrol refining company, also starting petrol
pumps).
Diversification:
Adding a new customer function(s), customer group(s), or alternative technologies to an existing
business is known as diversification. Diversification strategies can be of following types:
Concentric diversification:
Adding new, but related products or services is known as concentric diversification. It can be
market-related concentric diversification (using common channels); Technology-related (a bank
also selling mutual fund policies-similar procedure); and Marketing and technology related
concentric diversification (Amul, selling butter, curd, Shrikhand, and buttermilk along with
milk). A retailer selling kids wear also starts selling lady wears is a case of related concentric
diversification.
Horizontal Diversification:
It means adding new products or services for present customers. Escort Fortis Hospital may offer
bank, bookstore, coffee shop, restaurant, drug store in their compound for the visitors to the
hospital.
Internationalization:
It means marketing product/service beyond national market.
Cooperation:
It means cooperation among competitors. It may take the form of Mergers and Acquisitions (like
Tata Motors acquired Jaguar Land Rover facilities of UK); Joint Ventures (like Indian Oil
company floated an oil marketing company in Sri Lanka in collaboration with a local company),
and Strategic Alliances (the two cooperating firms remain independent but cooperate for
synergy).
Digitalization:
It includes computerization, electronisation, and digitalization (conversion of analogue electrical
signals into digital signals).
Stability Strategies:
When the firm wants to go for incremental improvement of its performance, it is known as
stability strategy. Basic approach in the stability strategy is ‘maintain present course: steady as it
goes.’ It can be No-change strategy (taking no decision is a decision too); Profit strategy (lying
low and managing profit through cost cutting, price rise, etc.
Retrenchment Strategies:
It means substantially reducing the scope of business activities. It includes turnaround strategy
(to bring back to health through internal and external restructuring); Divestment strategy (Sell-
off or hive-off – to sell off a non-core business divisions; Spin-off -demerging the business
activities; and Split-off – division of business into two separate ownership; Disinvestment –
dilution of control through sale of equity -very recently Government of India has sold stake
through FPO in Power Finance Corporation); and Liquidation Strategy (the last resort in
retrenchment, Lehman Brothers of USA was finally liquidated ).
Combination Strategy:
All the strategies discussed above can be applied simultaneously, sequentially, or in a
combination.
To compete successfully the first generic strategy is Cost- leadership (Microsoft produces
software for PCs at such a cost that no hardware manufacturer ever thinks of producing himself);
second is Differentiation (Dell computers are sold online, whereas all other manufacturers use
physical distribution); and finally it is Focus. Focus may rely on either cost leadership or
differentiation, but its market size is very small, where large competitors do ignore them.
3. Functional Strategies:
These strategies may be Operations Strategy, Marketing Strategy, Finance Strategy, and Human
Resource Strategy.
Opportunities Threats
Strengths Weaknesses
(b) To highlight the strengths, which the company would try to exploit.
These managers have their own values. Many managers come and many managers go away from
the task of formulation. Thus there is confusion as to who made the decision and at all if any
5
https://www.businessmanagementideas.com/management/strategic-management
decision has been made. Sometimes the chosen decision may be a compromising decision,
lacking clarity or direction.
7. Other Impediments:
Poor reward structure, fear of failure, self-interest (status achieved using old strategy), fear of
unknown (to undertake new roles), different perceptions of a situation and distrust in
management are the other barriers to strategy formulation.
Application
Your task
1. Why has strategic management become so important to today’s corporations?1
2. How does strategic management typically evolve in a corporation?1
3. Why are strategic decisions different from other kinds of decisions?1
4. Using the Campbell’s questions below, evaluate the Mission Statement of Cagayan State
University, how many points would Campbell give it?
5. Using the Internet, find at least five mission statements from different organizations, and
choose which of the following is the best and why?1
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
___
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
____________
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
__________________________________________________________________
Feedback
Fill in “What I have Learned” column by writing down what you have learned from this
topic
What I already Know What I Want to know What I have Learned