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LESSON 14:
APPROACHES TO STRATEGY ( CONTINUED )
Learning objectives
On completion of this chapter you should be able to:
You will understand what are the various approaches to
business strategy and their contributions
You will be able to understand that there are practical and
theoretical
Problems in asserting that a planning process is the only or
the best of generating strategy.
You will be able to understand that strategic planning has
many benefits and many uses. You can apply the concepts
to tickle thinking process to initiate direct activities and focus
debates.
Approaches to Strategic Management
Before we proceed to undertake strategic management process,
particularly strategy formulation, it is desirable to identify the
various approaches, which are applied In strategic decision
making. This is essential because different approaches put
varying emphasis on various elements of strategic management.
There are different approaches to strategic decision making
because an organization may differ from other organizations in
terms of:
1. Degree of formalization in decisionmaking processfrom
highly formalized and structured to informal and
unstructured process
2. Managerial power relationshipfrom the dominant role of the
strategist to compromise of different interest groups; and
3. Nature of environmentfrom highly complex to simple and
stable.
These differences determine the kind of approach individual
organizations would adopt in their decisionmaking process,
Including strategic decision making. However, authors have
described various approaches that are available for adoption in
strategic decision-making differently. For example, Mintzberg
has classified various approaches into three forms (he has
referred to these as modes). These are entrepreneurial, planning,
and adaptive. As against this classification, Steiner et al have a
fivefold classification: formalstructured, intuitiveanticipatory,
entrepreneurialopportunistic, incremental, and adaptive. The
difference between these two sets of classification can be
resolved to some extent. Formalstructured approach resembles
planning approach; incremental and adaptive approaches have
common factors than differences and, therefore can be grouped
together; entrepreneurial approach is basically based on intuition
and anticipation as these elements require high level of vision in
strategists to anticipate opportunities and threats posed by the
relevant environment. Therefore, for further analysis, three types
of approaches will be taken. These are:
1. Entrepreneurialopportunistic approach
2. Formalstructured approach, and
3. Adaptive approach.
Entrepreneurial Opportunistic Approach
Entrepreneurialopportunistic (or simply entrepreneurial)
approach is adopted, generally, by heads of familymanaged
organizations and is characterized by pushing an organization
ahead in the face of environmental odds. The basic features of
strategy making under this approach are as follows:
1. The focus in this approach is on capitalizing the
opportunities rather than problemsolving. There is constant
search of opportunities in the environment either formally
or otherwise.
2. Decision power is centralized in the entrepreneur who is
capable of, making bold and unusual decisions.
3. The bold and unusual decisions made in the face of
environmental uncertainty, lead the organization to move
forward by unusual leaps and thrive with corresponding
gains.
4. The most important objective in this approach is growth
and expansion, assets, turnover, and market share.
Thus, decision-making becomes emergent process as against
formal process.
Suitability and Limitations
Entrepreneurial approach is suitable in those organizations
where key strategists have very high stake in the outcomes of a
strategy. They are in a position to lead the organization from
front sidelining the views of other stakeholders. Usually, such
strategists have very high level of aspirations, high level of
vision about the future business scenarios, and have highrisk
bearing profile. A basic advantage of this approach is that such
decisions are made which may defy the basic principles of
management textbooks. This is the reason that such organiza-
tions outperform their counterparts adopting formalstructured
approach. Exhibit presents examples of how organizations
have grown faster by adopting this approach.
Application Of Entrepreneurial Approach
There are numerous examples throughout the world, which
suggest that organizations have achieved phenomenal growth
through this approach.
1. Akio Morita, Chairman of Sony Corporation, Japan, asked
his research and design engineers to design a walkman (a
minicassette player). Pat came the reaction that this would
not succeed in the market. But he insisted on that and
walkman made a roaring success.
2. Dhirubhai Ambani, Chairman of Reliance Industries, saw
the business opportunity in highpriced premium fabrics in
India, which was unheard at that time. This made roaring
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success in the market. Later on, he conceived many projects
based on this approach. Today, Reliance has become number
one in the private sector in India.
3. In early 1980s, when Hero group of Ludhiana considered
addition of other products in its personal transport product,
it chose to add fourstroke motorcycle which was not
considered highly lucrative at that time as compared to
scooter. In a personal chitchat, Brijmohan All Munjal, the
present Chairman of Hero Honda Motors, commented on
the choice of motorcycle in comparison to scooter, future
personal transport mode will be dominated by motorcycles
and not by scooters. In the age of increasing fuel cost and
speedoriented transport, motorcycles would have an edge
over scooters. Though many did not agree with him, he
proved himself right. Today, Hero Hondas motorcycle sales
have crossed 10 lakh per annum with its Splendor being the
Worlds number one brand in twowheelers.
4. Mansukhbhai Kothari of Kothari Products conceived the
idea of introducing Paan Masala when he saw that
paanchewers were facing problem during traveling because
either paan (betel) was not
available, or not available of
right quality, or the process
of preparing paan was a
timeconsuming activity. For
such people, he introduced
an alternative to paan which
was subsequently branded
as Paan Parag. The product
met with tremendous
success.
The above discussion shows
only the positive aspects of
entrepreneurial approach This
approach has one basic
limitation that if the strategists
do not have intuition and
vision required for doing
something new and extra
ordinary, the strategies are likely
to fail. There have been several such cases. For example, Sunrise
Industries entered the toilet soap market with Yuva and Piyu
brands in 1980s. Both the products failed against the massive
competition posed by then existing players particularly
Hindustan Lever. Similarly, Suraj Automobiles introduced
dieselbased motorcycles to provide saving in fuel cost but the
product failed. There are numerous such cases of failures.
Therefore, entrepreneurial approach is not suitable for all
entrepreneurs.
Formal Structured Approach
Formalstructured (or simply formal) approach involves strategic
decision making in anticipation of the future state that the
organization wants to be in. Strategic decisions are based on
socioeconomic purposes of the organization, values of top
management, external opportunities and threats, and
organizations strengths and weaknesses. The basic features of
this approach are as follows:
1. Strategy making is based on analysis of various factors,
which affect the strategy.
2. It involves systematic and structured approach to the
solution of problems and also the task of assessing the cost
and benefit of various alternatives.
3. It is a comprehensive process, which produces a set of
integrated decisions and strategies.
In India, most of the multinationals follow this approach in
which they have formalized and structured their strategic
decisionmaking process.
Suitability and Limitations
Suitability and limitations of formal approach depend on type
of organization, management styles, complexity of environ-
ment, complexity of production processes, nature of problems
and purpose of planning system. Table 1.6 presents the
situations, which determine the degree of formalization.
Exhibit Factors affecting degree of formalization in
strategic decision making (Table)
A basic advantage of this approach is that it generates enough
information, which enables decision makers to make decisions
in complex situations. However, when decision system
becomes too formalized and highly structured, decision making
process becomes slow because of emergence of professional
bureaucracy, which relies on standardization of skills. Decision-
making is decentralized and takes place where the expertise
exists. With the result, unusual decisions are hard to come by.
Adaptive Approach
Adaptive approach of strategic decision-making is basically
reactive and tries to assimilate the change in decisionmaking
contextvarious factors, particularly environmental ones, affecting
strategic decisions. Various features of strategic decision-making
under adaptive approach are as follows:
1. Decision-making is basically meant for problem solving,
rather than going for new opportunities. Adaptation process
Factor More formalization Less formalization
Organization Large companies Small one-plant companies
Policy maker Democratic-permissive
Management styles
Authoritarian Intuitive thinker
Stable Turbulent
Environment
Little competition Severe competition
Long production lead time Short lead time
Integrated processes Simple processes
High technology Low technology
Production process
Long market reaction time, Short market reaction time
Nature of problems Tough, long range Short range
Purpose of planning system Coordinate division activities Train managers
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is adopted to meet the threats by changed environment as
against the decision making to meet the anticipated changes
in environment which entrepreneurial approach suggests.
2. Decisions are made in sequential, incremental steps, one
thing at a time necessitated by environmental changes. The
basic orientation is to maintain flexibility to adapt the
decisions to more pressing needs.
3. Various interest groups and stakeholders put considerable
pressure on decision-making process so as to protect their
own interests. Thus, the ultimate decision Is a compromised
one which may be, sometimes, at the cost of optimizing
organizational effectiveness.
4. Since decision-making is incremental and fragmented, there is
lack of integrative decision-making. With the result, systems
approach of decision-making is missing.
In India, most of the public sector organizations follow
adaptive approach in their decision making because of the
power distribution between organizations management and
controlling ministries of Government. Those organizations in
the private sector, which cannot anticipate likely future scenarios,
either based on vision and intuition or through formal and
structured approach of environmental analysis, follow this
approach in their strategic decisionmaking process.
Suitability and Limitations
Adaptive approach of strategic decision-making is suitable for
those organizations, which tend to play the role of followers
rather the role of leaders in the industry sector concerned. This
approach saves them from high risk since the strategic decisions
are based on the actual environmental factors. If these factors
are less dynamic, this approach produces satisfactory results.
However, this approach suffers from one basic limitation.
Environmental adaptation as a continuous process works well
so long as there is continuity in environmental changes, which
can be assimilated quickly by the organizations adopting this
approach. When the environmental factors change fast, this
approach does not work because by the time, the organizations
adopt one change, which has some lead-time, environment
changes further making previous adaptation unworkable. In the
present context of global competition, perhaps, this approach is
not very suitable to achieve meaningful competitive advantage.
Combining Dif f erent Approaches
We have seen above that various approaches of strategic
decision making have their positive and negative aspects and
each of these is suitable for particular type of organizations and
the nature of environment. Since there are many variables,
which affect strategic decision-making, many organizations
follow a combination of different approaches. The experts on
strategic management also hold this view, For example,
Sumantra. Ghoshal, Professor of Strategic Leadership, com-
ments that it may be useful for Reliance (following
entrepreneurial approach) to think whether it should follow a
bit of Hindustan Levers structured processes, just as much as it
may be productive for Hindustan Lever to consider ways of
broadening its systems and culture to the entrepreneurial
approach. In fact, Hindustan Lever has restaged the need for
infusing entrepreneurial approach in developing businesslevel
strategies. According to its former Chairman, Keki Dadiseth,
Hindustan Lever has grown in size. While it has its own
obvious benefits, it also brings some drawbacks. What we need
to master is the art of creating and preserving the entrepreneur-
ial ability and connectedness of a small company within a large
company. There may be different ways in which various
approaches may be combined together. More common ways are
as follows:
1. Adaptiveentrepreneurial
2. Structuredadaptive
3. Entrepreneurial structured
4. Adoption of different approaches for different businesses,
and
5. Adoption of different approaches at different stages of
organizational life.
While combining two or more approaches together the
individual organizations can do better if they evaluate their
culture, human resources, and leadership styles and the nature
of environment in which an organization or its different
businesses operations
Snapshot of Strategic Management
Process
Strategy Formulation
1. Formulation of organizational mission and objectives
Formulating mission and mission statement
Business definition in terms of customer, product, and
technology
Formulating longterm broad objectives
2. Environmental analysis
Analysis of general environment
Industry and competition analysis
Preparation of environmental threat and opportunity profile
3. Organizational analysis
Analysis of strengths and weaknesses in different areas
Preparing organizational capability profile
SWOT analysis
Defining core competence and distinctive competence
Developing competitive advantage through
Generic competitive strategies
Strategic intent
Benchmarking
Synergistic approach
Critical success factors approach
Preparing competitive advantage profile
4. Strategic alternatives
Stability strategy
Retrenchment strategy
Turnaround strategy
Divestment strategy
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Liquidation strategy
Growth strategy
Concentric expansion strategy
Vertical integration strategy
Diversification strategy
Merger and acquisition strategy
Joint venture strategy
Strategic alliance
Combination strategy
Business restructuring strategy
5. Choice of strategy
Focusing on strategic alternatives
Evaluating strategic alternatives
Considering decision factors
Strategy choice
Strategy Implementation
1. Activating strategy
Institutionalization of strategy
Resource mobilization and allocation
Translating general objectives into specific
objectives
2. Procedural implementation
3. Structural implementation
Designing organization structure
Prescribing organizational systems
4. Functional Implementation
Prescribing policies and strategies in
Production/ operations
Marketing
Finance
Human resources
5. Behavioural implementation
Leadership implementation
Managing organizational culture
Creating values and ethics
Corporate governance
Managing organizational politics
6. Organizational change and innovation
Initiating and implementing organizational change
Managing organizational innovation
Creating learning organization
Strategy Evaluation and Control
1. Designing evaluation and control system
Setting criteria for evaluation and control
Setting standard in respect of these criteria
2. Exercising control
Strategic control
Financial performance control
Social performance control
This chapter has provided an overview of strategic manage-
ment. This is an important chapter in the scheme of the lecture
plan as it attempts to make you understand the two supporting
pillars of Business strategy the concept of strategy and the
process of strategic management.
The main points covered in this are as below,
I have attempted to derive an understanding of some
illustrations of strategy in action and note how
organizations react to their environment and adopt a course
of actionto deal with it. This course of action is strategy.
This concept has several benefits of great theoretical and
practical value. Yet there are pitfalls in oversimplifying
complex realities and committing the organization to a rigid,
predetermined course of action from which it may become
difficult to deviate
I have given an account of several definitions of the term
strategy. While this certainly makes the issue definitional yet
it serves the purpose of bringing several lines of thinking to
you. We derive the meaning of strategy on the basis of an
explanation of seven definitions. The conclusion is that
strategy is: (i) a plan or course of action or a set of decisions
and rules that make a. pattern or create a common thread (ii)
the pattern related to an organizations activities, (iii) related
to the pursuance of those activities which move an
organization from its current position to a desired future
state, (iv) concerned with the resources necessary for
implementing a plan, and (v) connected to the strategic
positioning of a firm.
Strategy operates at several levels. Mainly, strategies are
formulated at the corporate level, SBU (or business) level,
and functional level. Besides these, societal strategies on the
top and operational strategies at the bottom are also
sometimes specified. While explaining the different levels at
which strategies may operate, we have also seen how these
strategies can be coordinated.
I have tried to compare conventional and strategic
decisionmaking and illustrated how complex the latter form
of decisionmaking is. An attempt has been made to
elaborate the nature of strategic decisionmaking through the
discussion of six related issues. These issues are: criteria,
rationality, creativity, variability, personrelated factors, and the
individual versus the group in strategic decisionmaking.
Ten schools of thought on strategy formation have been
reviewed to provide you with a panoramic view of this
interesting subject. The schools are divided into three
groups. The prescriptive school consists of the design,
planning, and positioning schools. The descriptive school
consists of the entrepreneurial, cognitive, learning, power,
cultural, and environment process schools. The integrative
school includes the configuration school where strategy
formation is a process of transformation.
The process of strategic management is explained by its
definitions, phases, elements, and models.
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On the basis of five definitions we derived the essential
features of strategic management. It may be seen that
strategic management is considered as either decisionmaking
or planning, or a set of activities related to the formulation
and implementation of strategies to achieve organizational
objectives. In strategic management the emphasis is on those
general management responsibilities, which are essential to
relate the organization to the environment in such a way that
its objectives may be achieved.
There are four phases in strategic management, namely,
establishing the hierarchy of strategic intent, formulation of
strategies, implementation of strategies, and performance of
strategic evaluation and control.
As many as 20 different elements in the process of strategic
management have been identified. In establishing the
hierarchy of strategic intent we have the elements of creating
and communicating a vision, designing a mission statement,
defining the business, and setting objectives. In the
formulation of strategies we have: performing
environmental appraisal, organizational appraisal,
considering corporate level strategies; considering business
level strategies; undertaking strategic analysis; exercising
strategic choice; formulating strategies; and preparing strategic
plans. In strategy implementation there are the elements of
activating strategies, designing structures and systems,
managing behavioral implementation, managing functional
implementation, and operational sing strategies. Finally, in
strategic evaluation and control the elements involved are:
performing strategic evaluation, exercising strategic control,
and reformulating strategies.
To enable an easier grasp of the process of strategic
management, two variations of the model are proposed. A
comprehensive model shows all the different elements while
a working model depicts the outlines of the process. The
latter should aid you in remembering the process and model
of strategic management as you read further.
The last section in this plan has been devoted to the
description of the role of several strategists in strategic
management. We have identified nine strategists: board of
directors, chief executives, entrepreneurs, senior
management, the SBUlevel executives, corporate planning
staff, consultants, middlelevel managers, and executive
assistants. We have noted the roles that each of these
strategists play in different phases of the strategic
management process.
The next lecture plan takes up the first phase of the strategic
management process for discussion that is the hierarchy of
intent
Discussion/Application Questions
1. Pickup several business magazines and newspapers. Locate
the corporate reports of different types of companies.
Identify the strategies that these companies are employing at
present. Analyze the matter you have collected to write an
explanatory note on the strategies being used by Indian
companies.
2. Review the literature in strategic management and read
definitions of strategy Derive the essence of the concept of
strategy from these definitions and prepare a lucid note
explaining the various components of the concept of
strategy.
3. Describe the different levels at which strategy operates. How
are the strategies which operate at different levels integrated?
4. Discuss the issues that are relevant for strategic
decisionmaking.
5. Make a comparative assessment of the different schools of
strategy thought. Derive the meaning of the configuration
school clearly.
6. Describe the process of strategic management. Draw a neat
chart that shows comprehensively the differentelements in
the strategic management process.
7. Apply the strategic management model to your own case.
Follow the process and identify the different elements such
as your vision and mission, career objectives, selfappraisal,
the opportunities and threats operating in the job market,
the career advancement strategies that you may choose and
how you could implement these strategies, and evaluate your
performance. Describe your thought process systematically
according to the different phases of strate-gic management.
8. Discuss the roles that major strategists play in strategic
management.
9. What role do you foresee for strategic management in the
first five years of your career? The next five years? After
twenty years?
Notes