- Meaning and Definition

- Origin
- Elements, Hierarchical levels
- Strategy vs Structure
- SMP(Strategic Management Process)
- Reasons for failure of SM
- Strategists and their Role
Overview of Strategic Management

Module 1

Strategic Actions in the Corporate

world

Tata Steel acquires Corus (Europes second largest steel

producer ) to achieve international expansion
Vodafone acquires Hutchinson-Essar to increase its
presence in emerging markets like India.
Centurion Bank and Bank of Punjab merger created
Centurion Bank of Punjab. Centurion was strong in
Western India and BOP in North (particularly Punjab)
Strategies: Some Examples
Geographic expansion Retrenchment
Diversification
Liquidation
Acquisition
Joint venture
Market penetration

1-2

The Basics of Strategy & Strategic

Management
Definition of Strategy

A series of goal-directed decisions and

actions matching an organization's skills
and resources with the opportunities
and threats in its environment

Meaning and Definition

What is Strategy?
An action a company takes to attain superior
performance.
It is a comprehensive action plan that
identifies
long-term
direction
for
an
organization
It is a guidance to utilize resources to
accomplish
organizational
goals
with
sustainable competitive advantage.
The strategic plan is a companys game
plan
1-4

Meaning and Definition

What is Strategic Management?
It is an Art & science of formulating, implementing,
and evaluating, cross-functional decisions that enable
an organization to achieve its objectives
Strategic Management achieves a firms success through
integration
Management

Marketing

Finance/Accounting

Production/Operations

Research & Development

MIS

WHY IS STRATEGIC MANAGEMENT IMPORTANT?

Intuitive Strategies:
(Business Actions based on Intuition)
Cannot be continued successfully.because:
1.Corporations has become LARGE
2.Layers of Management have increased
3.Environment changes substantially
Causing
Higher risk of error
Costly mistakes
Economic Ruin

WHY IS STRATEGIC MANAGEMENT IMPORTANT?

Strategic Management

Gives everyone a role

Makes a difference in performance levels

Provides systematic approach to uncertainties

Coordinates and focuses employees

EVOLUTION OF
STRATEGIC MANAGEMENT

1-8

EVOLUTION OF STRATEGIC
MANAGEMENT
Sequential Phases

Phase 1

Basic Financial Planning/ Annual

Budgeting
Seeking Operational Control by meeting
annual budgets

Phase 2

Forecast-Based Planning

Phase 3

Externally Oriented Planning

Phase 4

Strategic Management

Planning for growth by predicting the

future beyond next year
Seeking increased responsiveness to
markets and competition
Seeking competitive advantage by FIEC.

EVOLUTION OF STRATEGIC
MANAGEMENT
Paradigm Shifts

Phase 1

Paradigm of Ad Hoc Policy

Till Mid 1930s

Expansion- Product Line, Customer

markets &/or Geographic Expansion

Phase 2

Paradigm of Planned Policy

1930s &1940s

Integration of various functional areas

Phase 3
1960s

Strategy Paradigm

Phase 4

Paradigm of Strategic Management

1980s onwards

Focus on business and its relationship to

the environment
Competitive advantage, Strategic innovation,
Ethical issues and Social responsibility.

EVOLUTION OF STRATEGIC
MANAGEMENT
Business Strategies and wars

The word strategy is derived from the Greek word

strategos, which means military commander.
Wars have to be waged deploying critical
resources and putting a desirable future at stake.
The histories of strategy-making and warfare have
had a long allied relationship based on these roots.
Contemporary defense systems have contributed
immensely to management and more specifically
to operations research, strategy, and technology.

Business Strategies and Wars

Target strength strategy
Attack weakness strategy
Concentrating force
Forging a strategic alliance
Controlling the choke point
Containment is good enough

Contd..
Target strength strategy: Attacking the enemy in its
stronghold is the aim of this approach. The Japanese attack on
Pearl Harbor is an example of this strategy.
Examples: Toyota, P&G
Attack weakness strategy: The US offensive against
Germany via Morocco during the Second World War is an
example of this strategy. The Nazis ignored the impending US
attack on Morocco, thinking that Morocco was hardly worth
defending.
Examples: Wal-Mart, Nirma

Contd..
Concentrating force: This strategy is most relevant in todays
business scenario. Organizations should coordinate their
resources and concentrate on the areas where competition is
most intense. In ancient times, generals such as Caesar and
Genghis Khan overwhelmed rivals with much bigger armies by
the use of concentrated force at a pressure point.
Examples: Nike, Nokia, FedEx, BHEL
Forging a strategic alliance: The alliance among the US,
the UK, and the USSR overcame Nazi Germany in the
Second World War, underlining the importance of strategic
alliances. Examples: hospitality (ITC), healthcare (Fortis),
education (IIMs), and financial services (Sundaram
Finance).

Contd..
Controlling the choke point: The Spartans, with an army of 300
soldiers, blocked a Persian Army of 400,000 at a narrow pass in
northern Greece called Thermopylae. At this geographic choke
point, the Spartans killed 15,000 Persians, before themselves being
overrun and killed.
Example: AOL portal
Containment is good enough: The Cold War between the US and
the erstwhile USSR is an example of containment. In business,
when two equal-sized organizations compete aggressively, both end
up with eroded profit margins and large debt burdens. In such cases
containment is often preferred. Example: aerated drinks market

Evolution of Strategic
Schools
of Thought
Management

Year Author
1954 Peter Drucker

Key Concept
Management By
Objectives (MBO)

1957 Philip Selznick

Internal and external

environment analysis

1962
1965
1970
1985
1990

Strategy and Structure

Gap analysis tool
Portfolio theory
Competitive advantage
Strategic intent

Alfred D. Chandler
Igor Ansoff
Harry Markowitz
Michael Porter
Gary Hamel and C. K.
Prahalad

Evolution of Strategic
Schools
of Thought
Management
Strategic management
originated in the 1950s and 60s
Alfred D. Chandler, Jr.,
Philip Selznick,
Igor Ansoff,
Peter F. Drucker

Alfred Chandler
Strategy and Structure
structure follows strategy

Philip Selznick
Organization's internal factors with
external environmental circumstances
SWOT analysis

Igor Ansoff
Market Penetration Strategies
Product Development Strategies
Market Development Strategies
Horizontal And Vertical Integration
Diversification Strategies

Peter Drucker
Stressed the importance of objectives
Management By Objectives (MBO)
McKinsey 7S Framework
Strategy, Structure, Systems, Skills, Staff,
Style, and Shared Values

Gaining competitive advantage

Gary Hamel and C. K. Prahalad
Strategic intent and strategic architecture
Dave Packard and Bill Hewlett devised an active
management style that they called Management By
Walking Around (MBWA).
Michael Porter
cost minimization strategies, product
differentiation strategies, and market focus strategies

The Military Theorists

Business War Games by Barrie James, 1984
Marketing Warfare by Al Ries and Jack Trout, 1986
Leadership Secrets of Attila the Hun by Wess Roberts , 1987
Philip Kotler was a well-known proponent of marketing
warfare strategy
Offensive marketing warfare strategies
Defensive marketing warfare strategies
Flanking marketing warfare strategies
Guerrilla marketing warfare strategies

EVOLUTION OF STRATEGIC
MANAGEMENT
DOMINANT
THEME

MAIN
ISSUES

KEY
CONCEPTS
&
TOOLS

MANAGEMENT
IMPLICATIONS

1950s

1960s-early 70s

Mid-70s-mid-80s

Late 80s 1990s

2000s

Budgetary
planning &
control

Corporate
planning

Positioning

Competitive
advantage

Strategic
innovation

Financial
control

Planning
growth &diversification

Selecting
sectors/markets.
Positioning for
leadership

Focusing on
sources of
competitive
advantage

Reconciling
size with
flexibility &
agility

Capital
budgeting.
Financial
planning

Forecasting.
Corporate
planning.
Synergy

Industry analysis
Segmentation
Experience curve
Portfolio analysis

Resources &
Cooperative
capabilities.
strategy.
Shareholder
Complexity.
value.
Owning
E-commerce.
standards.
Knowledge Management

Coordination
& control by
Budgeting
systems

Corporate
planning depts.
created. Rise of
corporate
planning

Diversification.
Restructuring. Alliances &
Global strategies. Reengineering. networks
Matrix structures Refocusing.
Self-organiz
Outsourcing.
ation & virtual
organization

Common Elements in Successful Strategy

Successful
Strategy

EFFECTIVE IMPLEMENTATION

Long-term, simple
and agreed upon
objectives

Profound
understanding of
the competitive
environment

Objective
appraisal of
resources

Elements of Strategy
Three Elements/ Components
Objectives and Goals
Key Policies that shall guide actions
Action programs that are to be initiated to
accomplish the stated goals

1-29

Elements of Strategy
Characteristics of Effective Strategy:
1.Clear and attainable Objectives
2.Enhance the superiority of the firm vis--vis
competition
3.Committed leadership, interests and values
of key managers must match
4.Protect the resource base of the
organizations and key competencies from
attacks by competitors.

1-30

Meaning and Definition: SMP

What is strategy?
An action a company takes to attain superior performance.
What is the strategic management?
It is an Art & science of formulating, implementing, and
evaluating, cross-functional decisions that enable an
organization to achieve its objectives

What is the strategic management process?

The process by which managers choose a set of
strategies for the enterprise to pursue its vision.
It is the process of formulating and implementing
strategies and evaluating effectiveness of the
strategies.

1-31

Strategic Management
Process

Unit 2

Unit 3

Unit 4

Unit 5

Unit 6
1-32

1. Vision, Mission and Goals

Vision and Mission
The reason for an organizations existence.
Good mission statements identify:

Customers
Products and/or services
Location
Underlying philosophy

Sets out why the organization exists and what it should be doing.

Goals
Specify what the organization hopes to fulfill in the medium to
long term.
Are objectives to be attained that lead to superior performance.
1-33

2. Environment Analysis
:External

Identify strategic opportunities and threats in

the operating environment.

Immediate (Industry)
Macroenvironment

National

1-34

2. Environment Analysis :Internal

Identify strengths
Quality and quantity of resources available
Distinctive competencies

Identify weaknesses
Inadequate resources
Managerial and

organizational deficiencies

1-35

3. Strategy Formulation
SWOT and Strategy Formulation
Strengths and Weaknesses
Opportunities and Threats
(SWOT Analysis)

Strategic Choice
Corporate
Business
Functional

1-36

Hierarchical Levels of Strategy

1-37

Hierarchical Levels of Strategy

Questions addressed by different strategic level:
Corporate strategy
In

what industries and markets should we compete?

Business strategy
How

are we going to compete for customers in this

industry and market?
establishes a competitive advantage over its rivals.

Functional strategy
How

can we best utilize resources to implement our

business strategy?
Concerned with deployment of resources

Corporate-Level Strategies
In what industries and markets should we compete?

Examples:
Vertical integration
Diversification
Strategic alliances
Acquisitions
New ventures
Business portfolio restructuring

1-39

Business-Level Strategies
How are we going to compete for
customers in this industry and market?

Examples:
Cost leadership
Attaining, then using the lowest total cost basis as a

competitive advantage.

Differentiation
Using product features or services to distinguish the firms

offerings from its competitors.

Market niche focus

Concentrating competitively on a specific market segment.
1-40

Functional-Level Strategies
How can we best utilize resources to implement
our business strategy?

Focus is on improving the effectiveness of

operations within a company.
Manufacturing
Marketing
Materials management
Research and development
Human resources

1-41

3. Strategy Formulation
SWOT and Strategy Formulation
Strengths and Weaknesses
Opportunities and Threats
(SWOT Analysis)

Strategic Choice

- Elements of Strategy -

1-42

Elements of Strategy
1. Arenas : Where will we be ?
2. Vehicles:
Vehicles How will we get there?
3. Differentiators:
Differentiators How will we win?
4. Staging:
Staging In What sequence and What speed?
5. Economic Logic:
Logic How will we obtain the

returns?
When the five elements are aligned and
reinforce each other, success is more likely.

4. Strategy Implementation
The process of allocating resources and putting

strategies into action.

All organizational and management systems must be

mobilized to support and reinforce the accomplishment

of strategies.
Designing organizational structure

5. Strategy Evaluation and

Process
of continuously monitoring the companys progress
Control

toward its long-range goals and mission

Matching strategy, structure and controls
Structure
Right fit among strategy, structure, and controls
Managers should ask:
Does the grand strategy need revising?
Where are problems likely to occur?
Controls
Basic strategy evaluation strategies:
Review external and internal factors that are the bases for current
strategies
Measure performance
Take corrective action
Strategy

1-45

5. Strategy Evaluation and

Control
Designing
control systems
Market and output controls
Bureaucratic controls

Structure

Control through organizational culture

Rewards and incentives
Controls

Strategy

1-46

Key Attributes of Strategic Management

1. Directs the organization towards overall organizational
goals and Objectives
2. Future oriented
3. Includes Multiple Stakeholders in Decision making
4. Incorporates both Long term and Short term objectives
5. Stresses on both Effectiveness (doing right things) and
Efficiency (doing things right way)
6. Involve allocation of large amount and resources
7. Have consequences on multiple business

Benefits of Strategic Management

Financial Benefits
Improvement in sales
Improvement in profitability
Productivity improvement
Effective allocation of time & resources

Benefits of Strategic Management

Non-Financial Benefits
1. Proactive in shaping firms future
2. Initiate and influence firms activities
3. Formulate better strategies
Systematic, logical, rational
4. Identification of Opportunities
5. Objective view of management problems
6. Improved coordination & control
7. Minimizes adverse conditions & changes

Ch 1 -49

Benefits of Strategic Management

Non-Financial Benefits
7. Decisions that better support objectives
8. Internal communication among personnel
9. Integration of individual behaviors
10.Clarify individual responsibilities
11.Encourage forward thinking
12.Encourages favorable attitude toward change
13.Provides discipline and formality to the
management of the business
Ch 1 -50

Reasons for failure of Strategic Management

1. Failure to define the end objectives
2. Failure to understand the customer
3. Inability to predict environmental reaction
4. Overestimation of resource competence
5. Failure to develop new employee and
management skills
6. Failure to coordinate
7. Failure to obtain senior management
commitment
Ch 1 -51

Reasons for failure of Strategic Management

8. Failure to obtain employee commitment
9. Under estimation of time requirements
10.Failure to follow the plan
11. Failure to bring out change
12.Failure to Focus on strategic mission
13.Poor Communications among stakeholders
14.Unrealistic expectations

Ch 1 -52

Strategists and their Role in SM

Who are the Strategists?
Top Management encompasses mainly two layers :
Directors and the Chief Executives. The designations are:
Board of Directors
Chief Executive Officer (CEO)
Chief Strategy Officer (CSO)
President
Owner
Board Chair
Executive Director
Overall Role of Strategists :
Strategists gather, analyze and organize information.
With this information, they prepare SWOT analysis,
develop models, do scenario analysis, evaluate and
control units/ businesses / SBUs and provide action Ch 1 -53
plans.

Strategic Managers for All Levels

FIGURE 1.2
1-54

Board Of Directors
Elected by the shareholders of the organization
Composition of the Board and its operations differ from
company to company
Directors can be full-time or part-time depending on the
time they devote towards the affairs of the company
Fulltime directors are called as Executive directors and
Part-time as Non-Executive directors
Eg. Reliance Industries has 15 members on Board: 12 FT
(1 CMD, 1 VC, 10 EDs) and 3 PT.

1-55

Board Of Directors
Role and Responsibilities
Work as per the guidelines in MoA, AoA and Indian Companies Act
1956.
The responsibilities and functions differs depending on the
composition of the Board.
Overall Role of the Board of Directors are:
Act as the trustee of Shareholders
Determine the fundamental Objectives and Policies
Develop Organization Structure and Select Top Executives
Approve financial matters
Maintain Adequate Checks and Controls.
Statutory Functions
1-56

Chief Executive
Role and Responsibilities
Is the most Coveted post in any organization
CEO presides over the BODs meetings
Company may have one CE or multiple CEs
Roles of the CEO:
Architect of organizational purpose, Strategist or Planner
Leader, Organizer, Inventor, Coach, Chief Administrator,
Implementer and Coordinator.
Is a Communicator, Motivator and a Mentor
Is a decision maker for the organization as a whole.
1-57

Chief Executive
Role and Responsibilities
Functions/ Responsibilities of the CEO:
Formulate long term plans
Guiding and Directing
Integrating
Staffing
Reviewing and Controlling
Public Relations

1-58

Other Strategists
Senior Managers
Work at higher level of managerial hierarchy
Senior managers may be associated to task centric Committees
like- NPD, Modernisation, Restructuring etc.
Business/ Division/ SBU Managers
Formulate strategies and implement at the respective business level
Corporate Planners
Assist top management in formulating and implementing strategies.
Also take part in evaluation & control of activities
Consultants
External Experts / consultancy firm (E&Y, McKinsey, BCG)
specialized in SM or specific functional areas.
Their services are time-bound or specific assignment bound and
they do not serve in the entire SMP.
1-59

Module 1 Ends..

1-66