Nature and concept of Strategy and Strategic Management

Dr. Shyamal Gomes Introduction: The term ‘Strategy” is derived from the ancient Greek word ‘Strat Agos’ –which can noted the art & science of directing military General / Forces. Strategy is, thus, a well thought out systematic plan of action to defend one or to defeat rivals. Strategy is formulated in anticipation of the possible positions, move actions and reactions of the rivals. However, in business parlance, there is no definite meaning assigned to strategy but it is a space of knowledge, the attitude in the struggle for existence and growth which is indeed very hard for firms, in a competitive environment. Moreover, strategy can be defined as a Set of decisions – what business are we in, what products and services will we offer, to whom , at what prices, on what terms, against which competitors, on what basis will we compete. There are so many experts pointed out their views about the definitions of Strategy, here is some example:

Clausewitz 1820): Strategy is “the art of the employment of battles as a means to gain the objects of WAR”.

Chandler (1962): Strategy is “a comprehensive master plan” that determinates the long term goals of an enterprise.

Mintzberg: Strategy is a mediating force between the organization and its environment: consistent patterns in streams of organizational decisions to deal with the environment; 1979.

Norman: Strategy is the art of creating value; 1993. Porter: Strategy deliberately choosing a different set of activities

to deliver a unique mix of value;1996. Thus, Strategy is a comprehensive master plan stating how the corporation will achieve its mission and long term objectives by Setting

Chapter - 1

the decisions – what business are they in, what products and services they will offer, to whom , at what prices, on what terms, against which competitors, on what basis will they compete. According to Michael Porter, the Principles of Good Strategy are:

1. A good strategy is concerned with the structural evolution of the industry as well as with the firm’s own unique position within that industry.

2. A good strategy makes the company different, giving the company a unique position, involving the delivery of a particular mix of value to some array of customers, which represents a subset of the industry.

3. If a company wants to serve a particular target customer group with a particular definition of value, this must be inconsistent with delivering other types of value to other customers. Therefore a good strategy proves the value of the company in competitive environment.

Policy Vs. Strategy:

Policy: Broad Guideline for decision making that links the formulation of Strategy with its implementation. It is a general course of action with no defined time limits. Companies use policies to make sure that employees throughout the firm make decisions and take actions that support the corporation’s mission, its objectives, and its strategies.

Strategy: A Strategy of a corporation is a comprehensive master plan stating how the corporation will achieve its mission and long term Objectives. Deals with strategic decisions that decide the long term health of an enterprise. It maximizes competitive advantage and minimizes competitive disadvantages

Example: Policy: General Electric must be number one or two where ever it competes (this supports GE’s objective to be number one in market capitalization.)

Strategy: After TATA group of companies realized that it could no longer achieve its objectives by continuing with its strategy of diversification into multiple line of businesses, it sold its companies like Tomco, Lakme etc. to Hindustan Levers Ltd. TATA’s instead choose to concentrate on basic industries like steel, automobiles, etc. an area that management felt had greater opportunities for growth. Strategy policy Pyramid: Fig. 1.1 (In terms of Planning)

Policy Strategy Pyramid: Fig – 1.2: In view of Vision, Mission and Objectives

Strategy and Tactic: Strategy and Tactics are distinct in terms of their dimensions Strategy and tactics are both concerned with formulating and then carrying out courses of action intended to attain particular objectives. A comparative studies has shown in Table – 1.1. Aspects Strategy Tactice Scale of Objectives Grand Limited Scope of the Action Broad and General Narrowly focused Guidance Provided General and ongoing Specific and Situational Degree of Flexibility

Adaptable but hastily changed

Fulid, quick to adjust and adapt in minor or major ways

Timing in Relation to Action

Before Action During Action

Focus of Resource Utilization

Deployment Employment

The typical business firm usually considers three types of strategy: Corporate strategy (CS): It is the long term Strategy encompassing the entire org. CS addresses fundamental questions such as what is the purpose of the org. and what business it wants to be in and how to expand into such business. CS – formulated by top level management Business or Competitive Or SBU (Strategic Business Unit) Strategy: is concerned with decisions Pertaining to the product Mix, market segments and Competitive advantages. SBUS – formulated by Top level SBU managers or top level single Business company manager Functional strategies are strategies for different functional Areas like production, Personnel, Marketing etc. FS formulated by Functional level managers, section engineers, etc. However, the economic liberalization (1991) and the concomitant wide opening up of business opportunities and increase in competition have in fact made strategic management a buzz word among the Indian corporate. What is Strategic Planning? Strategic Planning is the holistic process of determining the long term objectives of an organization and the policies and strategies that govern the acquisition, use and disposition of resources to achieve the vision and mission of any organization. It tends to be a top management responsibility STRATEGIC PLANNING IS THE PROBLEM-SOLVING PROCESS OF ESTABLISHING STRATEGIC OBJECTIVES AND FORMULATING STRATEGIC PLANS TO ACCOMPLISH THOSE OBJECTIVES. STRATEGIC PLAN IS BASED ON ANSWERING THESE 3 QUESTIONS: 1. WHERE ARE WE NOW? 2. WHERE DO WE WANT TO BE? 3. HOW DO WE GET THERE?

Types of Planning

Table: 1.2 : Types of Planning Functional Difference between Strategic Planning, Tactical Planning and Operational Planning:

Strategic Plans (long term) Intermediate (tactical)

plans Operational ( short term plans)

• Long range plan • time frame – 3 or

more years • Top management

responsibility • Concerned with

broad objectives • Focus on planning

and forecasting

• Intermediate plan

• Time frame: 2-3 years

• Performed bymanagers atmiddle level

• concerned withintegrating ofthe org.departments inthe org.

• Focus oncoordination

• Short range plan

• Time frame –yearly

• Done usually at lower levels

• covers day to day the work of various operations; implements internal goals

• Focus on control primarily.

Table: 1.3 : Fundamental different between SP, TP and OP

Top management Chief executive officer, president, vice president, general managers, division heads

Middle management Divisional managers, product – line managers, department heads

Lower Management Functional / Unit managers, first line supervisors

Strategic planning: 3-5 years

Intermediate planning : Six months to two years ???

Operational planning : One week to one years

The Strategic planning basically helps to organization for:

– setting up of goals or objectives; – the analysis of the environment and the resources of the

organization; – the generation of strategic options and their evaluation;

and – the planning of implementation the design of control

systems or monitoring mechanisms. The Identifiable steps for Strategic Planning:

• This planning consists of six identifiable stages that fulfill the requirements of the management thinkers:

– environmental scanning, – evaluation of issues, – forecasting, – goal setting, – implementation, and – Monitoring.

• The merged stages allows information form the external environment in the form of emerging developments to enter the traditionally inwardly focused planning system, thereby enhancing the overall effectiveness of an organization’s planning.

The advantages of Strategic planning for business organizations are:

– It is a highly systemized form of planning and therefore it is easy to grasp the methods, procedures and rituals programmed to execute the strategies.

– It provides a structured means of analysis and thinking about complex strategic problems, requiring management to question and challenge what they take for granted.

– It can be used to involve people in strategy development. – It is also a way to communicate the intent of management to

members of the organization. – It can be used as a means of control by regularly reviewing

performance and progress against agreed objectives. Pitfalls of Strategic Planning:

• Strategic Planning is laborious and time consuming • Immediate results are rarely obtained • Strategic Planning quite often, restricts the organization and

executives to the more rational and risk free options.

• Again, it should be remembered that trying to reach 100% perfection is an ideal intention that can never be satisfied through strategic planning.

What is Strategic Planning is not? According to Peter F. Drucker,

• It is not a box of tricks, a bundle of techniques. It is analytical thinking and commitment of resources to action.

• It is not forecasting. It helps in tracking down faithful opportunities and developing appropriate strategies to achieve them.

• Strategic planning does not deal with future decisions. The question as to what the organization should do tomorrow is not as important as to what it has to do today to be ready for an uncertain tomorrow.

• SP is not an attempt to eliminate or minimize risk, it only helps in choosing rationally among risk – taking courses of action for long term achievement.

Now the questions comes who is managing the strategic planning? Many large organizations have a strategic planning Staff charged with supporting both top management and the business units in the strategic planning process. These planning staffs typically consist of just fewer than 10 people, headed by a senior vice president or director of corporate planning. The staff’s major responsibilities are: 1. Identify and analyses companywide strategic issues and suggest corporate strategic alternatives to top management. 2. Work as facilitators with business units to guide them through the strategic planning process. Other organizations engage in concurrent strategic planning, in which all the organization’s units drafts plans for themselves after they have been provided with the organization’s overall mission and objectives. Here, the typical board of directors expects top management to manage the overall strategic planning process so that the plans of all the units and functional areas fit together into an overall corporate planning.

Therefore, Top management’s tasks includes of evaluating unit plans and providing feedback. To do this, top management may require each unit to justify its proposed objectives, strategies, policies and programmes in terms of how well they satisfy the organization’s overall objectives in light of available resources. What is Strategic Management? Business Policy as a distinct field of study was introduced at Harvard Business School in 1911.This course aimed at improving the Business Management Capabilities of Management students/ professionals in terms of skills knowledge, ideas, plan and perspectives. Basically business process is considered a capstone integrative course offered to students who have already been through a set of core functional area of courses. Terms such as strategic management, business policy, corporate strategy and corporate planning are often used interchangeably. However, a distinction may be drawn between some of them for clear understanding. For instance a differentiation may be drawn between corporate planning and corporate strategy. Even in the absence of competition a company may have a corporate plan, a long-term development plan. For example, even in a monopoly environment companies like The Indian Telephone Industries and Cochin Refineries had corporate plans but they were not corporate strategy or strategic management. However, when the corporate plan is formulated in a competitive environment, it would amount to corporate strategy / strategic management / business policy. The management scholars contributed their thought and ideas on understands or definitions of Strategic management which are as follows: The early 1980s: Glueck (1984): Strategic Management as “ a stream of decisions and actions, which leads to the development of an effective strategy or strategies to help achieve corporate objectives”. Hofer and others (1984): Strategic Management as “ the process which deals with the fundamental organizational renewal and growth with the development of strategies, structures, and systems necessary to achieve such renewal and growth, and with the organizational systems needed to

effectively manage the strategy formulation and implementation processes”. Sharplin (1985) defines strategic Management as “ the formulation and implementation of plans and carrying out of activities relating to the matters which are of vital, pervasive or continuing importance to the total organization” A recent origin 1998s: Harrison and St. John (1998) define Strategic Management as “ the process through which organizations analyze and learn from their internal and external environments, establish strategic direction, create strategies that area intended to help achieve established goals, and execute these strategies, all in an effort to satisfy key organizational stakeholders”. Therefore, it has observed that different authors have defined Strategic Management (SM) differently, yet there are several common elements in the way it is defined and understood. SM is considered as either decision – making and planning, or a set of activities related to the formulation and implementation of strategies to achieve Organizational Objectives. Strategic Management is that set of managerial decisions and actions that determines the long – run performance of a corporation. It includes Strategic Intent, Environmental scanning (both internal and external), and strategy formulation (strategic 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 in order to generate and implement a new strategic direction for an organization. Therefore, we may conclude, SM is the process by which an organization try to determine what needs to be done to achieve LONG TERM or corporate objectives and more importantly, how these objectives are to be met. Ideally, it is a process by which senior management examines the ‘organization’ and the ‘ environment’ in which it operates and attempt to establish an appropriate and optional ‘fit’ between the two to ensure the organization’s success.

Fig. 1.3: Thematic Overview of Strategic Management Fundamental difference between strategic planning and Strategic management:

Table - 1.4: Difference between SP and SM

Phases of Development: The term business policy gradually changes into a new title called Strategic Management. According to Hofer the evolution of business policy to Strategic management in terms of four Paradigm shifts:

Phase – I Mid 1930s

Paradigm of adhoc policy making,budgetary planning & financial controlthrough annual budgets

Basic Financial Planning

Phase – II 1960s The integration of functional areas in arapidly changing environment. Critical look at the basic concept ofBusiness and relationship to theenvironment

Forecast based planning

Phase – III 1980s Concept of Strategies – systems approach with focus on value chain analysis

Externally oriented planning

Phase – VI 1990s The quest for competitive advantage,benchmarking and resource based approach- Strategic Management

Strategic Planning

Table - 1.5: Phases of development Nature of Strategic Management: The nature of Strategic Management is different form other aspects of management as it demands attention to the "big picture" and a rational assessment of the future options. It provides:

a strategic direction endorsed by the team and stakeholders a clear business strategy and vision for the future a mechanism for accountability a framework for governance at the various levels a coherent framework for managing risk for ensuring business continuity.

the ability to exploit opportunities and respond to external change by taking ongoing strategic decisions

Therefore, from the above discussion, it is clearly reveal that there are 4 important elements of strategic management:

1. Strategic Analysis: re-examining the position in the market place or competition in-terms of its products, services, strategies etc.

2. Strategic Choice: formulation of suitable courses of action, their evaluation and the choices between them.

3. Strategy Implementation: mobilizing employees to translates formulated strategies into concrete actions.

4. Strategy evaluation and control: measure performance and take corrective actions.

Benefits of Strategic Management: Wheelen, Hunger and Rangarajan stated 3 most highly rated benefits of Strategic Management to be:

• Clear sense of Strategic vision for the firm. • Sharper focus on what is strategically important • Improved understanding of a rapidly Changing environment

However, the important benefits of Strategic management mentioned below highlight its relevance:

1. SM helps to envision an organization’s future, formulate mission and make objectives clear.

2. SM Process helps to understand each and every people of an organization what the present stands and what could be the development path charted out, what are the planned results over a period of time.

3. It makes people realize what are they working for, what is expected of each SBU, division, functional department even the individuals.

4. SM helps to facilitates the better delegation, coordination, monitoring, performance evaluation and control

5. The identification of Strengths and weaknesses may help an organization to take measures to overcome / minimize the weaknesses and reinforce the strength.

6. The SWOT analysis, which is a part of the SM, helps a company to adopt suitable strategies for exploiting opportunities and combating threats. It will also help the company to drop that business where it would not be successful or which do not meet the objectives.

7. SM helps company to develop Realistic and long-term plan by constant monitoring its objectives.

8. SM makes the management dynamic, appropriate to the environment and result oriented.

9. SM enables a company to meet competition more effectively. 10. SM leads the company in a Standard and competitive.

Limitation and Misgivings:

Strategic Management is not without limitations. The important

limitations of Strategic management are the following:

• SM is based on certain premises and if the premises do not hold valid the strategy or plans based on them would not be realistic or effective.

• SWOT analysis is an important exercise in SM, which requires lot of exercise and information. When these two are lacking the utility of the SWOT analysis is questionable and it could even lead to formulation of wrong or effective strategies.

• In SM effective implementation is vital that demands many things – resource allocation, leadership implementation, right structure and effective evaluation and control. The reason for the failure of many strategies is the implementation failure.

• A serious problem generally rising in a company if there is lack of involvement of the internal people in the strategy formulation and when they are not equally taken into confidence.

• Strategic Planning is a complex and difficult task which requires people with vision, expertise and commitment and an appropriate system

• SM is a costly exercise • One of the most important criticisms against Strategic

Management is that it sometimes makes the organization over ambitious and resultant failure to reach the goals cause frustration. Unrealistic strategies may land companies in severe problems.

Conclusion: Strategic Management has its roots in Business Policy, and evolves or developed through four sequential phases. Phase I: Annual Budgeting (Basic Financial Planning Phase II: Long Range Planning (Forecast based planning) Phase III: Environmental Scanning (Externally oriented planning) Phase IV: Strategic Planning Strategic Management is derived from Strategic Planning and is an extension of the concepts embodied in it.

However, the initial focus of Strategic Management was on the intersection of two broad fields of enquiry:

1. The strategic processes of business firms and 2. The responsibilities of general management.

Anyhow, in the competitive advantages Strategic management became the prior subject for all management concern. References:

• Upendra Kachru: Strategic Management – concept and cases • Azhar Kazmi – Business Policy and Strategic Management • David Hunger – Strategic Management and Business Policy. • V.S.P..Rao – Strategic Management - concept and cases • Porter M.E, What is Strategy, In Harvard Business Review. Nov. –

Dec. 1996, pp 61-78. ----------------------------------------------xxxxxxxxxxxxxxxx---------------------------------