G. Sudarsana Reddy - himpub.com · Without a strategy, an organisation is like a ship without a rudder, going around in circles. Its like a tramp, it has no place to go. — By Joel

(As per New Syllabus of Six Semester BBM, Bangalore University, w.e.f. 2012-13)

STRATEGIC

MANAGEMENT

G. Sudarsana ReddyM.Com., MBA, MFM, Ph.D.

Assistant Professor,Dept. of Studies & Research in Commerce

Tumkur UniversityTumakuru (Karnataka)

K. Aswathappa, Ph. D.Former Director,

Canara Bank School of Management Studies,Bangalore University,

Bengaluru.

MUMBAI NEW DELHI NAGPUR BENGALURU HYDERABAD CHENNAI PUNE LUCKNOW AHMEDABAD ERNAKULAM BHUBANESWAR INDORE KOLKATA GUWAHATI

First Edition : 2015

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Strategic Management has been in use for thousands of years. Great battles in the past werefought and won through successful strategies. It is only now that the terms ‘Strategy’, and‘Strategic Management’ are being used increasingly in business and management circles. This isjustified because; intense competition has literally converted marketplaces into veritable battlefields. Business that strategise perfectly and execute them effectively will only survive.

We have tried to make strategic management as simple as possible, without compromisingon the intricacies and dynamism on the subject. However, we have tried our best to retain the rigourof the subject and the same time make it easily comprehendible to the students. We have been ableto do this by illustrating the concepts with numerous examples.

Strategic Management has 13 chapters, though primarily written for the students pursuingBBM course, Strategic Management shall be useful for general readers also.

We are very much grateful to Sri. Niraj Pandey and Mr. Vijay Pandey of HPH, for having givenus the opportunity to write this book.

G. Sudarsana Reddy

K. Aswathappa

PREFACE

SYLLABUS

Objective: The objective of this course is to expose the students to the various strategicissues such as strategic planning, implementation and evaluation etc.

Unit 1 : Introduction to Strategic Management (10 Hours)

Introduction - Meaning and Definition - Need - Process of Strategic Management - StrategicDecision Making - Business Ethics - Strategic Management.

Unit 2 : Environmental Appraisal (12 Hours)

The Concept of Environment - The Company and its Environment - Scanning the Environment,Technological, Social, Cultural, Demographic, Political, Legal and Other Environmental Forces.SWOT Analysis - Competitive Advantage - Value Chain Analysis.

Unit 3 : Strategic Planning (13 Hours)

Strategic Planning Process - Strategic Plans during Recession, Recovery, Boom andDepression - Stability Strategy - Expansion Strategy - Merger Strategy - Retrenchment Strategy- Restructures Strategy - Levels of Strategy - Corporate Level Strategy - Business Level Strategyand Functional Level Strategy - Competitive Analysis - Porter’s Five Forces Model.

Unit 4: Implementation of Strategy (15 Hours)

Aspects of Strategy Implementation - Project Manipulation - Procedural Implementation -Structural Implementation - Structural Considerations - Structures for Strategies - OrganizationalDesign and Change - Organizational Systems. Behavioral Implementation - LeadershipImplementation - Corporate Culture - Corporate Policies and Use of Power. Functional andOperational Implementation - Functional Strategies - Functional Plans and Policies. Financial -Marketing - Operational and Personnel Dimensions of Functional Plan and Policies - Integrationof Functional Plans and Policies.

Unit 5 : Strategy Evaluation (10 Hours)

Strategy Evaluation and Control - Operational Control - Overview of Management Control -Focus on Key Result Areas.

Skill Developmentl Present a chart showing Strategic Management Process.l Select any organization and undertake SWOT analysis.l Present strategy followed by an FMCG company in Indian Market.l Select any sector and make competitive analysis using Porter’s five forces model.l List social responsibility action initiated by any one company.l Select any organization and identify the Key Result Areas

,

Chapter – 1 Introduction to Strategic Management 1 – 28Nature of StrategyHierarchical Levels of StrategyProcess and Strategic ManagementVision, Mission, ObjectivesKey Attributes of Strategic ManagementBenefits of Strategic ManagementReasons for Failure of Strategic ManagementStrategic Decision MakingStrategists and their Role in Strategic ManagementStrategy and Business EthicsLiniaing Stra Trgy with EthicsReview QuestionsSkill Building Exercises

Chapter – 2 Environmental Appraisal – External 29 – 54Concept of EnvironmentThe Company and its EnvironmentObjectives of Environment AppraisalScanning/Process of Environmental AnalysisCompetitive EnvironmentPorter’s Five Forces ModelNew Forces Driving the New EconomyStrategic Groups within IndustriesReview QuestionsSkill Building Exercises

Chapter – 3 Environmental Appraisal — Internal 55 – 77Scanning/Process of Internal Environment AppraisalStrengths and Weaknesses — What Do They Convey?Measuring Strengths and WeaknessesDistinctive Competencies and Competitive AdvantageSWOT AnalysisValue Chain AnalysisGeneric Building Blocks of Competitive AdvantageCompetitive AdvantageReview QuestionsSkill Building Exercises

CONTENTS

Chapter – 4 Corporate Level Strategy 78 – 88Nature of Corporate Level StrategyGrowth StrategiesIntegrationDiversification StrategyReview QuestionsSkill Building Exercises

Chapter – 5 Mergers and Acquisitions 89 – 117Mergers and AcquisitionsEvolution Mergers and Acquisitions in IndiaTypes of MergersReasons for MergersBenefits of MergersEvaluation of Merger ProposalReasons Why Mergers FailStrategies for a Successful AcquisitionTakeoversStrategic AlliancesJoint VentureReview QuestionsSkill Building Exercises

Chapter – 6 Stability and Retrenchment Strategies 118 – 128Nature of Stability StrategiesRetrenchment StrategiesReview QuestionsSkill Building Exercises

Chapter – 7 Corporate Restructuring Strategy 129 – 135Nature of Corporate RestructuringTypes/Forms of Corporate RestructuringMajor Categories of Corporate RestructuringReview QuestionsSkill Building Exercises

Chapter – 8 Business Level Strategies 136 – 143Nature of Business Level StrategyCost Leadership StrategyDifferentiation StrategyFocus StrategyReview QuestionsSkill Building Exercises

Chapter – 9 Implementation of Strategy 144 – 157Nature of Strategy ImplementationInterrelationship between Formulation and ImplementationIssues in Strategy ImplementationMethod of Resource AllocationProject ImplementationProcedural ImplementationReview QuestionsSkill Building Exercises

Chapter – 10 Structural Implementation Considerations 158 – 189Importance of Organisation DesignThe Consequences of Poor Organisational DesignKey Factors in Organisation DesignStrategy Structure RelationshipTypes of Organisation StructuresDesign DecisionsOrganisational SystemsReview QuestionsSkill Building Exercises

Chapter – 11 Behavioural Implementation 190 – 222LeadershipNature of Organisation CultureCultural DimensionsTypes of Organisation CulturesParameters of Good Corporate CultureCreation of CultureSources of Organisation CultureCulture ArtifactsSustaining the CultureEffects of CultureChanging Organisation CultureGuidelines for Changing CultureCulture and Strategy ImplementationPolitics and PowerImpact of Power and Politics on StrategyEthics of Power and PoliticsReview QuestionsSkill Building Exercises

Chapter – 12 Functional and Operational Implementation 223 – 230Functional Policies and PlansNeed for Functional Plans and PoliciesDevelopment of Functional Plans and PolicyReview QuestionsSkill Building Exercises

Chapter – 13 Strategic Evaluation and Control 231 – 244Nature of Strategy EvaluationBenefits of Strategy EvaluationTypes of Organisational ControlCharacteristics of an Effective Evaluation SystemStrategic AuditReview QuestionsSkill Building Exercises

Introduction to Strategic Management 1

LEARNING OBJECTIVESAfter reading this chapter, you should be able to:• Give meaning, definition of strategic management.• Bring out the nature of strategy.• Discuss the strategy developing models.• Explain hierarchical levels of strategy.• Detail the strategic management process.• Discuss the attributes of strategic management.• Bring out the benefits and reasons for failure of strategic management.• Give the meaning of strategic decision making.• Explain the role of strategists in decision making.

Without a strategy, an organisation is like a ship without a rudder, going around in circles. Itslike a tramp, it has no place to go.

— By Joel Ross and Michael Kami

Running a business was a simple and easy affair during the License Raj era. Competition wasless severe. Where it existed, only domestic firms were competing with each other. There washuge market but scarce supplies. Whatever that was produced, was grabbed by waiting buyers.No wonder, one had to wait for seven years to get a phone connection, and 15 years to getcooking gas connection.

Not anymore. Thanks to the economic liberalisation, set in motion in 1991, things changedsignificantly. Competition is heating up (from foreign firms included) and margins are fallingthough volumes are increasing. In this scenario, it has become extremely difficult for anybusinessman to survive and grow. He needs to be always on the toes. He needs to visioneer,strategise and execute so that he can enjoy competitive advantage. In other words, today isbusinessman should practice the art and science of strategic management. What are strategies?What is strategic management? These and other questions are explained in this Chapter.

1CHAPTER

INTRODUCTION TO STRATEGIC MANAGEMENT

2 Strategic Management

Deploy Employ

ENDS MEANS

MEANING AND DEFINITION OF STRATEGIC MANAGEMENTStrategic management refers to the process of formulating and implementing strategies and

evaluating the effectiveness of the strategies. David defines strategic management as “the art andscience of formulating, implementing and evaluating cross-functional decisions that enable anorganisation to achieve its objectives”.

NATURE OF STRATEGYAs will be explained letters, strategic management refers to the process of formulating

strategies, implementing them and evaluating the results. The first step in strategic managementprocess is the formulation of strategies. It is useful that we are clear about what a strategy means.

The concept of strategy has been borrowed from the military and adapted for use in business.In business, as in the military, strategy bridges the gap between policy and tactics. Together,strategy and tactics bridge gap between end and means (See Figure 1.1).

Fig. 1.1: Strategy and TacticsStrategy refers to maneuvering troops into position before the enemy is actually engaged. In

this sense, strategy refers to the deployment of troops. Put in simple words, strategy is an art ofwar. Given the centuries old military origins of strategy, it is sensible to begin the examination ofstrategy with the military view.

Sir Basil H. Liddell Hart examines wars and battles from the time of the ancient Greeksthrough World War II. Concluding his review of wars, policy, strategy and tactics, Liddell Hartarrives the following short definition of military strategy:

“The art of distributing and applying military means to fulfill the ends of policy”.It would be very easy and suitable to adapt this definition to the business after deleting the

word “Military” from the above definition.An appropriate definition of strategy as it is applied in business is given by Henry Mintzberg.

He understands strategy in four ways: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 inparticular markets.

Strategy is perspective, that is, vision and direction.An observation of the above four ways makes it clear that strategy is a “carefully crafted

plan with a stream of decisions and actions over time”.For our purpose, a strategy is:1. a top management decision that directs organisation and business towards predetermined

goal,2. a carefully crafted plan with a stream of decisions and actions over time,3. a plan or a course of action that reveals its objectives, purposes, goals, policies and plans

that are required in achieving the corporate mission,4. a unified, comprehensive and integrated plan designed to assure the basic objective of

firm is achieved,5. a plan that helps in developing competitive position,6. a term that refers to a complex web of thoughts, ideas, insights, experiences, goals,

expertise, memories, perceptions, and expectations that provide general guidance forspecific actions in pursuit of particular ends,

7. the course we chart, the journey we imagine and, at the same time, it is the course westeer, the trip we actually make.

Some significant strategies formulated by corporate India in the recent past are:1. Tata Motors acquired Daewoo Commercial Vehicle company, Korea (March 2004 for

$102 million) Hispano Carrocera, Spain (December 2005 for $15.5 million) with the ideato enter into Africa and Asia Market.

2. Microsoft Launches XBox 360 on 24 September 2007 at less than the price of Sony’splaystations Xbox, PS3; and it is positioned as a home entertainment device. It wouldallow games to play online with people across the world via Xbox line. It is launchedwith the idea to take the growing market ($700 million by 2010 from $30 million now).

3. Tata Steel acquires Corus group (Europe’s second largest steel producer) for $4.3 billion,as a “defining moment” for Ratan N.Tata Company and consistent with its strategy ofgrowth through international expansion. The acquisition is a shared vision of a “globalstrategy”. Tata sail with long proud histories, both companies have compatible culture ofcommitment to stakeholders and complementary strengths in technology, efficiency,product mix and geographical spread. Together they will be even better equipped toremain at the leading edge of the fast changing steel industry.

4. Vodafone (UK) acquired 67 per cent of Hutchison Essar (India’s fourth largest mobilephone company), with the idea to enable Vodafone’s shareholders to benefit from theirincreased investment in the Indian mobile phone market. Vodafone aimed to “raise itsexposure to high growth emerging markets and offset prospective Ebitda declines inEurope”.


HIERARCHICAL LEVELS OF STRATEGYStrategies are formulated at three levels of organisation. The three levels are: corporate level,

business level and functional level. (See Fig. 1.2).

CorporateLevel

Strategy

Business LevelStrategy

Functional Level Strategy

Fig. 1.2: Hierarchical Level of Strategy

The three levels of strategy are relevant in a conglomerate – a business having multi-plantsand multi-divisions. Where the business has a single unit, only two levels — corporate level andfunctional level are relevant.

1. Corporate Level StrategiesAt the top of the hierarchy is corporate level strategy. Corporate level strategy is formulated

by Chief Executive Officer (CEO), Board of Directors (BODs), Senior Executives and othercorporate staff. These managers occupy decision making power at the apex level. These top levelindividuals are responsible for overall purpose and director of an organisation. Corporate levelsexecutives set objectives, analyse internal and external environment, formulate strategies, andensure their implementation also.

Tata Group is into a wide range of businesses, including Indian Hotels (IHCL), Tata AutoGroup Systems, Tata Chemicals, Tata Coffee, Tata Motors, Tata Tea, Tata Technologies, TataConsultancy Services, and VSNL. Tata Group is headed by Chairman Mr. Ratan Tata who decideson overall strategic objectives, allocates resources, and decides investment and disinvestment.Apart from this, he also oversees the performance of business level managers and also acts as alink between managers and its owners (shareholders). Therefore, corporate level managers areviewed as the guardians of shareholder wealth.

2. Business Level StrategiesThe second or middle decision making is at the business level. The business is a self-contained

division that provides a product or service for a particular market. For example, Wipro Oil Division;or software division. Each business or division is called strategic business unit (SBU). Managementat business level consists of the head of the business and a few corporate managers. The role ofthese managers is to translate corporate strategy into concrete objectives and strategies forindividual businesses. Business level managers should determine how the firm will compete


successfully in the targeted product market, identify new promising market segment, whichproducts and services should be developed in which markets and the like. Business level strategiesshould not become standalone entities. They need to be aligned with corporate level strategies. (SeeFig. 1.3).

Head Office

Business 2or SBU

Business 1or SBU

Business 3or SBU

ProductionHR Finance Marketing Information

BusinessLevel

FunctionalLevel

CorporateLevel

Fig. 1.3: Levels of Strategic Management

3. Functional (Operational) Level StrategiesAt the bottom of the decision making hierarchy is the functional level strategy. This level is

composed of managers of different functional areas: Human Resources, Finance, Production,Marketing, Customer Service, and Research and Development. Functional level managers areresponsible for developing annual objectives and short-term strategies of the concerned areas ofoperation. Operational level strategy was encouraged by Peter Drucker in his theory of Managementby Objectives (MBO). Operational level strategies are impacted by business level strategies whichin turn are influenced by corporate level strategies. Functional level managers must address theissues like efficiency and effectiveness of marketing, production, customer service, thereby help ineffective implementation of corporate level strategies and help in achieving firm’s goals or objectives.

PROCESS OF STRATEGIC ANAGEMENTEssentially strategic management involves strategy formulation, strategy execution and

evaluation of the effectiveness of strategy. Broadly, strategic management comprises the followingsteps:

1. Developing vision, mission and corporate objectives.2. Analysis the corporate’s external competitive environment to identify opportunities and

threats.3. Analysis corporate’s internal operating environment to identify its strengths and

weaknesses.4. Formulate and select the strategies on the basis of strengths, weaknesses, opportunities

and threats (SWOT — Step 2 and 3).5. Strategy implementation.6. Strategy evaluation and control. (See Fig. 1.4).


The following figure 1.4 depicts the process of strategic management.The first step can be technically known as strategic intent, the second and third steps together

normally referred to as environmental analysis (SWOT analysis), environmental analysis and thefourth step called as strategy formulation and the remaining steps are called as if they are written.The following paragraphs discuss strategic management process.

Strategic Intent

Vision, Mission and Goals(Step - 1)

Environment Analysis : SWOT

External Environment Internal Environment

• Opportunities • Strengths • Threats • Weaknesses

(Step - 2) (Step - 3)

Strategy Formulation

Corporate Level Strategy

Business Level Strategy

Functional Level Strategy

(Step - 4)

Strategy Implementation

(Step - 5)

Strategic Evaluation andControl

(Step - 6)

Fig. 1.4: Strategic Management Model

Step 1: Developing Vision, Mission and ObjectivesStrategic management process begins with the development of corporate vision, mission and

objectives. Every organisation has a vision, mission and objectives, even if they are not consciouslydeveloped, written or communicated. If the firm’s existing vision, mission and objectives are notrelevant to its business, they need to be rewritten. A corporate vision delineates management’saspirations for the business, providing a panoramic view of “where we are going” and convincingrationale for why this makes good business sense for the organisation. A mission statement defines


the core purpose of the organisation — why it exists; it examines the “raison d’être” for theorganisation beyond simply increasing shareholder’s wealth, and reflects employees’ motivationfor engaging in the company’s work. Effective missions are inspiring, long-term in nature and easilyunderstood and communicated. Objective is a desired future state or goal that a company attemptsto realise. The goals or objectives for an organisation are based on vision and mission. Objectivemust be specific, realistic and must be measurable. The detailed discussion on vision, mission andobjectives is in order.

VISIONVision is the starting point for articulating organisation’s hierarchy of goals and objectives. A

vision statement is a vivid idealised description of a desired outcome that inspires, energizes andhelps firm to create a mental picture of its target. It represents a destination that is driven by andevokes passion, but it does not specify the means that will be used to reach the desired destination.The vision provides the point of reference on the horizon — a beacon of light. It seeks to answerthe basic question, “what do we want to become?”

The corporate success depends on the vision articulated by the chief executive officer or thetop management. In other words, developing and implementing a vision is one of a leader’s centralroles. CEO or top management need to have not only a vision statement but also a plan to implementit. This view was supported by a research conducted with sample of 1500 top level employees (630senior leaders and 870 CEOs) from 20 different countries. The respondents were asked what theybelieved were the key traits that leaders must have ninety-eight per cent of respondents opined that“a strong sense of vision,” was the most important trait. Similarly, when asked about the criticalknowledge skills, the respondents cited “strategy formulation to achieve a vision,” as the mostimportant skill.

Examples of Vision1. Disneyland – “To be the happiest place on earth”.2. ONGC – “To be world-class and gas company integrated in energy business with dominant

Indian leadership and global presence”.3. McDonald’s - “To be world’s best quick service restaurant”.4. P&G – “Be and be recognised as, the best consumer products and services company in

the world”.5. Toyota – “To become the most successful and respected car company in each market

around the world”.The vision statement may also contain slogan, a diagram, or a picture — whatever grabs

attention. Take example of Canon’s battle with Xerox, the Canon’s slogan or battle cry was “BeatXerox.” “Total customer satisfaction,” is the Motorola’s slogan.

How is Vision Created?Creating a vision statement begins with and relies heavily on intuition and dreaming. In the

process of creating vision, top management may have brainstorming sessions with staff or Board.By using this exercise, the organisation may evolve a vision statement. In the brainstorming session,the following questions are debated:


• How do you want your community to be different?• What role do you and your organisation play in your community?• What will success look like?

The vision may evolve at the end of brainstorming session or it may form in one person’s headin the shower one morning. Vision takes form at the end of group discussion or in one person’s head.It should consist of two major components. (1) Core ideology, and (2) Environed future.

1. Core Ideology: It means the long lasting character of a firm as it passes through thechanging circumstances like competition, technology or management style. Generally, core ideologyrests on the core values and core purposes. By values, we mean the beliefs, business principles, andpractices that are incorporated into the way the company operates and the behaviour of theorganisation personnel. Company value statements generally contain between four and eight values(treatment of employees and customers, integrity, ethics, innovativeness, emphasis on qualityservice, social responsibility and community citizenship) which ideally, are tightly connected to andreinforce the company’s vision, strategy, and operating practices. The typical values statementsconsists of – Ethics, Trust, Customer Focus, Teamwork, etc. Example of values. Initiative,motherhood etc.

Microsoft: As a company and as individuals, we value:• Integrity and honesty.• Passion for customers, for our partners, and for technology.• Openness and respect fullness.• Taking on big challenges and seeing them through constructive self-criticism, self-

improvement, and personal excellence.• Accountability to customers, shareholders, partners, and employees for commitments,

results and quality.

Intel’s values: Discipline, risk taking, quality, customer orientation, a results-oriented atmosphereand being a great place to work guide the company’s business behaviour and pursuit of its “coremission” of being the building block supplier to the Internet economy.

Ford Motor Company: The customer is Job 1. We do the right thing for our customers, ourpeople, our environment and our society. By improving everything we do, we provide superiorreturns to our shareholders.

P&G: P&G is its people and the values by which we live. We attract and recruit the finestpeople in the world. We build our organisation from within, promoting and rewarding people withoutregard to any difference unrelated to performance. We act on the conviction that the men andwomen of Procter & Gamble will always be our most important asset.

DuPont Company: Which calls itself “a Science Company,” and makes a wide array ofproducts, stresses four values – safety, ethics, respect for people and environmental stewardship?The first three have been in place since the company was founded over 200 years ago byE.I. DuPont.

Managers who are involved in creating vision should connect values to the strategic vision, byexplaining how the vision is compatible with the firm’s value set. What about the values if it is a


new company? If the company is new one or with week set of values, then managers should considerwhat values, beliefs and operating principles will help to drive the vision forward. Finally, afterconsidering values and beliefs, a company can officially announce and adopt the vision.

Envisioned Future: It is consistent long-term goal and description of what it will be like toachieve that goal.

Caution in Writing Vision: Do not try to write a vision statement with a group, becausegroups are meant for many things, but writing is not one of them. As one or two people to trydrafting a vision statement based on group’s discussion, bring it back to group and revise it untilyou have something that your members can agree on and that your leaders share with enthusiasm.In order to become really effective, an organisational vision statement must become assimilated intothe firm’s culture.

Benefits of Having a Strategic VisionThe process and outcome of visioning may seem vague and superfluous. But the long-term

benefits are substantial:1. Breaks you out of boundary thinking.2. Provides continuity and avoids stumble effect of strategic planning fits and states.3. Identify direction and share sense of purpose.4. Promotes interest and commitment.5. Encourages openness to unique and creative solutions.6. Encourages and builds confidence.7. Alerts stakeholders to needed change.8. Promotes laser-like focus.9. Builds loyalty through investment (ownership).

10. Provides competitive advantage through superior efficiency and innovativeness.

MISSIONMission follows vision. Creating strategic vision is concerned with “what do we want to

become?” On the other hand, a company’s mission statement outlines the core purpose of theorganisation, “why it exists?” The mission examines the “raison d’être” of a company. The visionbecomes tangible as a mission statement. A company’s mission statement is defined by the buyerneeds it seeks to satisfy, the customer groups and market segments it is endeavoring to serve andthe resources and technologies that is developing in trying to please its customers. A mission statementis a message designed to be inclusive of the expectations of all stakeholders for the company’sperformance over the long run. The executives and board who prepare the mission statement attemptto provide a unifying purpose for an organisation, that will lay emphasis on business and therebypath for development. Generally, mission statement addresses the following questions:

1. Why is this firm in business?2. What are our economic goals?3. What is our operating philosophy in terms of quality, company image and self-concept?


4. What are our core competencies and competitive advantages?5. What customers do and can we serve?6. How do we view our responsibilities to stockholders, employees, communities,

environment, social issues and competitors?

Examples of Mission Statements Microsoft: “We work to help people and businesses through the world realise their full

potential. Toyota: “To contribute to people’s lifestyles, society, and the economy through automotive

manufacturing.” Gillette: “To achieve or enhance clear leadership, worldwide, in the existing or new core

consumer product categories in which we choose to compete.” Goodyear India: “Constant improvement in the quality of products and services to meet

our customer’s needs. This is the only means to success and prosperity for GoodyearIndia, our associates, and investors.”

From the above examples of different companies’ mission statements, we can clearly statethat all mission statements are unique (even if they are from same industry) and distinctive, highlightbusiness purposes and also give the means of fulfilling the mission.

How is Mission Created?The process of developing mission statement is almost like the one followed for visioneering.

The top executive takes the initiative and he or she assisted by team of managers. Together, all willbrainstorm, come out with a draft, and after series of revisions, final statement is prepared and thatbecomes the mission statement of the organisation. Unlike vision, mission statement keeps changing.

Components of Mission StatementThere are three indispensable components of the corporate mission statements. They are product

or service, specific product or customer, and the principal technology for production of productsor delivery.

The above three components reflect the three dimensions of business. Abell has given almostthe same dimensions in his definition for business (See Figure 1.5). Central to Abell’s definition arethree questions:

Who is being satisfied (what customer group)? What is being satisfied (what customer needs)? and How they are being satisfied (by what skills)?


Who is beingsatisfied?

CUSTOMERGROUPS

What is beingsatisfied?

CUSTOMERNEEDS

How are customerneeds are satisfied?

DISTNCTIVECOMPETITIVE-

NESS

BusinessDefinition

Fig. 1.5: Abell’s Framework for Defining the Business

Abell’s definition of business stresses the need for a customer orientation, instead of productorientation. It is because, just selling a product is not enough, it is also essential to sell a productthat meets customer needs. Abell’s definition helps the firm in leveraging on the changing businessenvironment. But it excludes the values, what management believes in.

Fig 1.6 takes another look at the elements of a mission statement.

PURPOSEWhy the business exists?

STANDARDS &BEHAVIOURS

The rules that guide howthe business operates?

STRATEGY & SCOPEWhat business and how?

VALUESWhat management

belives in?

Fig. 1.6: Elements of Mission Statements

Elements of a Mission Statement1. A Purpose: Mission statement should consist why does the business exist? Is it there to

create wealth for shareholders? Does it exist to satisfy the needs of all stakeholders?2. A Strategy and Strategic Scope: A strategy may be to produce something. Whereas

strategic scope is the boundary that sets terms of geography, market, business method,and so on. Put in simple words, strategic scope reflects the nature of business.


3. Standards and Behaviours: Translation of mission into actions, needs to have policiesand standards of behaviour. For example, if the business mission includes delivering“Outstanding Customer Service,” it needs a policy (it may be like attending to customercomplaint in the same day of receipt).

4. Values: Values of a company state the beliefs of managers and employees who work inthe company. These may include: Loyalty and Commitment.

Benefits of Having Mission StatementsThe involvement of managers and employees in crafting mission can make a difference to

business success.King and Cleland have given the following (benefits) of mission statement:1. It develops unified purpose of organisation.2. It provides a basis for allocating organisational resources.3. It helps establish a general tone or organisational climate.4. It facilitates the translation of objectives into work structure.5. It specifies organisational purposes, and then to translate these into objectives, in such a

way that cost, time, and performance parameters can be assessed and controlled.

OBJECTIVESVision statement tends to be very short in length but broad in scope and can be described as

a destination. On the other hand, mission statements are more specific and address questionsconcerning the reason for an organisation to exist, and its competitive advantage in the marketplace.Vision and mission statements need to be followed by objectives. Mission statements seek to makea vision more specific and objectives are attempts to make mission statements more concrete. Put insimple words, objectives are used to operationalise the mission statement, and use them asperformance targets. These objectives act as yardstick for measuring company’s performance.Objectives are futuristic that a company attempts to realise.

Characteristics of ObjectivesWell constructed objectives have the following characteristics. Objectives should be:Measurable: Since objectives are yardsticks to measure performance of company, then they

should be measurable. As per Bill Hewlett (Co-founder of Hewlett Packard), “You cannot managewhat you cannot measure.....And what gets measured gets done.” For example, objective of acompany is to maximise customer satisfaction. Customer satisfaction cannot be measurable inquantitative terms.

Specific: Objectives should provide a clear message as to what needs to be accomplished.Say company aims at minimising waste by five per cent, thereby increasing by five per cent profit.

Appropriate: Since objectives are used to operationalise mission statement, they must beconsistent with vision and mission of the organisation.

Realistic: It means that objective must be an achievable one, which is given after consideringorganisation’s capabilities and opportunities in the environment. At the same time, it must bechallenging but doable (that can be done). If the objective is not realistic, then employees may notshow interest in achieving it.


Timely: Objectives should be achievable in a specific period. After all, as the economist JohnMaynard Keynes said, “In the long-run, we are all dead.” A definite time frame for achievingobjectives motivates people to work.

An easy way to remember the characteristics of a good objective is the acronym, “SMART.”It stands for “Specific, Measurable, Achievable, Realistic, and Time bound.”

Kinds of ObjectivesObjectives may be classified as economic and social, primary and secondary, long-term and

short-term (see Fig. 1.7).Objectives

Short-term Long-term

Primary Secondary

Economic Social

Fig. 1.7: Classification of Objectives1. Economic and Social Objectives: Economic objectives are those that are aimed at improving

financial performance of the company. They are generally quantified and seek to earn more profit,enhance shareholder value and make the company more prosperous. This objective is “must”. Firm“must do”.

Social Objectives: Social objectives are those that are not aimed at improving firm value.Objectives deviate from the economic objective and seek to serve social interests such as cleanenvironment, health and hygiene and education.

2. Primary and Secondary Objectives: Primary objectives may be dovetailed with economicobjectives. Primary objectives seek to enhance organisational profitability. Business development,payment of regular dividends to shareholders, payment of fair wages and providing good workingconditions, and provide quality products of reasonable prices are some of the examples of primaryobjectives.

Secondary objectives are the same as social objectives. These seek to serve more of society’sinterest. Secondary objectives include local area development, payment of bonus, providing freehospital and education facilities to employees; develop industry as a member in the industry and soon. For example, Infosys donated computers to government schools, it is a secondary objective.Social objective is not compulsory. But firm “might do.” Social objectives/responsibility is discussedin detail in the last Chapter.

3. Short-term and Long-term Objectives: Economic (read primary) and social objectives(read secondary) may be for short-term or long-term. An organisation needs to have both short-term (say less than one year) and long-term objectives (say more than two years).

Short-term objectives may be a means to achieve long-term objectives. For example, if a firmhas long-term objectives of doubling its sales within five years cannot wait until the fourth or fifthyear to start taking actions or strategies that help in increasing sales. Firm should start from the


first minute of deciding the long-term objective. In other words, company has to decide annual (orquarterly) targets, to speed up at which long-range objectives are to be achieved. Short-termobjective differ from long-term objectives, when organisation is evaluating performance and it cannotreach the long-term objectives in just one year. Short-term objective helps as stair steps.

Approaches to Determine ObjectivesObjectives of an organisation may be determined with the adoption of either top-down approach

or bottom-up approach.In the top-down approach, the top level managers (senior managers) determine the objectives

for their subordinates. On the other hand, in bottom-up approach, subordinates determine objectivesfor their job and the same would be presented to top level managers for consideration. Here, toplevel managers decide objectives by consolidating the subordinates’ objectives. This approach ofsetting objectives with little or no guidance from top level, indicates absence of strategic leadershipon the part of senior manager.

But generally, many organisations adopt top-down approach for setting objectives. Thisprocess ensures the financial and strategic performance targets established for different businessunits, divisions, functional departments and operating units that are directly connected to theachievement of company-wide objectives. For example, top level management of an organisationwhich has 5 divisions, sets ` 150 crore net profit as target for the next year. The same targeted profitcan be raised from all five divisions. After discussing with divisional managers of each division, toplevel manager may set target for each division. It is not necessarily that target profit of each divisionshould be equal. It may be more for one division or less for another.

Top-down approach is beneficial in the following ways:1. Cohesion: It creates cohesion among the strategies and objectives of different divisions

of the organisation; and2. Unify Internal Efforts: It helps to unify internal efforts to move the organisation along

with the strategic path.

Areas of Setting ObjectivesIncrease in return on investment, earnings per share, return on shareholders’ funds and

increased shareholders’ value are achieved, only when objectives are set in all those strategicperformance areas. Drucker says objectives need to be set in the eight prime areas: They are marketstanding; innovation; productivity; physical and financial resources; profitability; managerperformance and development; worker performance and attitude; and public responsibility. Theeight areas of setting objectives are the strategic areas which are applicable for all manufacturingorganisations. Almost the same areas are identified by corporate for setting objectives.

Factors Affecting Strategic Objectives SettingObjectives may be set either by top-down approach or bottom-up approach, the people involved

in setting objectives have to consider the factors (internal and external) that affect the objectives.Glueck identified four factors that should be considered in setting objectives. They are: the forcesin the environment; resources, capabilities and internal power relationships; top executives’ valuesystem, and knowing past objectives. Let us discuss in detail.


1. Enhancing Shareholders’ Value: As you are aware that shareholders’ wealth maximisationis the prime objective of any organisation, which had raised capital by issue of equity share capital.But objective setters need to consider not only equity shareholders’ interest but also otherstakeholders (government, employees, creditors, society and customers). Interest of differentstakeholders may not match, but managers need to make balance among the interests of differentstakeholders. Goal setters need to keep in mind that the interest of stakeholders varies from time totime, indicating that there is a need to shift in the importance attached to different stakeholders’interest.

2. Organisational Availability: Objectives are achieved based on the availability of resources(men, machine, material, money) capability and relationship among divisions (ability to share). Forexample, adding two new attributes to a product needs to spend financial resources on R&D,without which it is not possible to develop new attributes. At the same time, internal power hasimpact on objectives. Generally, top level (BODs; CEO) managers who have power may set theobjectives as per their views. Power affects objectives, which may vary from time to time, becausepower changes from period to period.

3. Value Systems of Top Management: The value system at top executive level affects ingeneral corporate philosophy and objectives in particular. Values are long-lasting beliefs. Valuesaffect the process of setting objectives. For example, take Muragappa Group of Companies, acquireda liquor manufacturing company, which is running with huge profits. But the Group’s values madeto close the liquor manufacturing company, because they do not want to make profit by producinga product which is not socially beneficial.

4. Experience of Past Objectives: Organisation might have different objectives in the pastdue to different reasons. If there is no change in the business environment, then there is a need tofollow same objectives, otherwise it had to change objectives.

Selling objectives after considering internal and external environment is very important for anyorganisation. By scanning, environment firm will be able to develop strengths, weaknesses,opportunities and treats (SWOT).

Step 2: Analysis of Company’s External EnvironmentThe second phase of strategic management process is analysis of organisation’s external

operating environment. The prime purpose of analysing external operating environment is to identify(organisation’s) strategic opportunities and threats for the organisation, in which organisationpursues its vision, mission and goals. The key environmental factors that affect an organisation arepolitical and legal, economic, technological, socio-cultural and societal factors. All these factorsmay be grouped into three categories, they are: (1) industry environment, (2) national environment,and (3) macro environment. This is explained in Chapter 2.

Step 3: Analysis of Company’s Internal EnvironmentIt is the third phase of strategic management process. The essential purpose of the internal

analysis is to identify strengths and weaknesses of the organisation. The internal environment oforganisation consists of variables that are within the organisation itself. They are the structure,culture and resources. A business becomes strong when it has all these three in balance. The absenceof all these or any of them makes the firm weak. For detailed discussion, see Chapter 3.


Step 4: Strategy FormulationStrategy formulation is the development of long-range plans for the effective management of

environmental opportunities and threats. In this step, managers develop a series of strategicalternatives to pursue. The alternative strategies may be at global level, corporate level, businesslevel, and functional level. Managers develop a firm specific model, which will align, fit or matchthe company’s resources and capabilities. Strategies should help build competitive advantage.(Alternative strategies are discussed in detail in Chapters 4, 5, 6, 7 and 8).

Step 5: Strategy ImplementationAfter developing alternative strategies and selecting a specific strategy to achieve competitive

advantage, strategy developers must ask managers to put it into action. Sometimes, the existingculture, structure and policies may not support the strategy implementation. In such cases, there isa need to change them or modify them according to the requirement. Managers should not pursue astrategy that does not suit the existing culture, structure and policies. Generally, strategyimplementation is done by middle and operating level managers, and the same is reviewed by toplevel managers. (Strategy implementation and the issues relating to this is discussed in Chapter 9, 10,11 and 12).

Step 6: Strategy Evaluation and ControlStrategy Evaluation and Control go side by side strategy implementation. Just strategy

formulation and implementation may not help in achieving corporate objectives. Good control iscritical for corporate success. Strategic evaluation and control is the process in which corporateactivities and performance results are measured and monitored with a view to compare actual resultwith the predetermined target performance. If the corporate objectives are not achieved, thenmanagers need to take corrective action. Evaluation and control helps in identifying weakness inimplementing strategies. (See Chapter 13)

KEY ATTRIBUTES OF STRATEGIC MANAGEMENTIt is useful to discuss briefly the attributes of strategic management for better understanding

of strategic management subject and see how this course differs from other functional areas, suchas accounting, marketing, operations and finance. The following are the four main attributes ofstrategic management.

Strategic Management Directs the Organisation towards Overall Organisational Goalsand Objectives

Formulation and implementation of strategy directs the overall organisation’s benefit and asingle functional area. When we study individual functional (subjects) areas with a view that eachsubject is the best interest of the firm overall. But a plan adapted by a functional area may not be thebest for another functional area. For example, production department may decide to schedule longproduction runs of similar products in order to lower units’ costs. However, the standardisedoutput may be counter to what marketing needs in order to appeal to a sophisticated and demandingtarget market. Therefore, strategic management subject includes cases, and strategic issues fromthe perspective of the organisation rather than that of the functional area.


Strategic Management Includes Multiple Stakeholders in Decision MakingGenerally, strategic managers would consider all stakeholders’ interests in decision making.

Emphasising any one area leads to frustration of employees elsewhere. For example, if the strategicmanagers lay overwhelming emphasis on maximisation of profits for the shareholders, employeesof the organisation may become trusted, customers may not get good quality products and servicesand suppliers may become resentful of continual demands for pricing concessions. But most of theorganisations have been able to satisfy multiple stakeholders’ interests simultaneously.

Strategic Management Requires Incorporating both Long-term and Short-termPerspective

Strategic management needs to emphasize both long-term as well as short-term goals.Comprising any one leads to fractured development of the organisation. If the strategy, for example,is to lay-off senior employees to save cost in the short-run, from the long-term perspective, it is aloss to the company. Balancing between long-term and short-term goals is what Peter Senge calls“Creative tension”.

Strategic Management Involves the Recognition of Trade-off between Effectivenessand Efficiency

Another balancing area is the trade-off between effectiveness and efficiency. Effectiveness isunderstood as “doing things right”, whereas efficiency typifies “doing right things”. There cannotbe any trade-off between effectiveness and efficiency. An organisation must do both – do rightthings and do them rightly.

BENEFITS OF STRATEGIC MANAGEMENTStrategic management enables an organisation to be more proactive than reactive in shaping its

own future. It also permits organisation to initiate and influence activities and thus to exert controlover its own destiny. Research has revealed that organisations engages in strategic managementgenerally outperform those that do not. Companies that created competencies and capabilities thatrivals do not have and cannot readily match can relate to greater product innovation capabilities thanrivals. For example, Toyota and Honda have expertise in defect-free manufacturing, Dell Computeris ahead of others in providing e-commerce facilities.

A survey of nearly 50 corporations in different countries and industries revealed the followingthree highly rated benefits of strategic management:

1. Clear sense of strategic vision for the firm.2. Sharper focus on what is strategically important.3. Improved understanding of a rapidly changing environment.More specifically, the benefits of strategic management are several. For example, strategic

management:1. allows for identification, prioritisation and exploitation of opportunities.2. provides an objective view of management problems.3. represents a framework for improved coordination and control of activities.4. minimises the effects of adverse conditions and changes.5. allows major decisions to better support established objectives.


6. allows effective allocation of time and resources among business units.7. allows fewer resources and less time to be devoted to correcting erroneous or ad hoc

decisions.8. creates a framework for internal communication among personnel.9. helps integrate the behaviour of individuals into a total effort.

10. provides basis for classifying individual responsibilities.11. encourages forward thinking.12. provides a cooperative, integrated and enthusiastic approach to tackling problems and

opportunities.13. encourages a favourable attitude towards change.14. gives a degree of discipline and formality to the management of business.

REASONS FOR FAILURE OF STRATEGIC MANAGEMENTStrategic management fails may be because of faulty strategy formulation or poor

implementation. In general, strategic management fails because of the following reasons:1. Failure to define the end objectives correctly.2. Failure to understand the customer

— Why do they buy?— Is there a real need for the product?— Inadequate or incorrect marketing research

3. Inability to predict environmental reaction— What will competitors do?

– Fighting brands– Price wars

— Will government intervene?4. Overestimation of resource competence

— Can the staff, equipment, and processes handle the new strategy?— Failure to develop new employee and management skills

5. Failure to coordinate— Reporting and control relationships not adequate— Organisational structure not flexible enough

6. Failure to obtain senior management commitment— Failure to get management involved right from the start— Failure to obtain sufficient company resources to accomplish task


7. Failure to obtain employee commitment— New strategy not well explained to employees— No incentives given to workers to embrace the new strategy

8. Underestimation of time requirements— No critical path analysis done

9. Failure to follow the plan— No follow through after initial planning— No tracking of progress against plan— No consequences for above

10. Failure to bring out change— Inadequate understanding of the internal resistance to change— Lack of vision on the relationships between processes, technology and organisation

11. Poor communications— Insufficient information sharing among stakeholders— Exclusion of stakeholders and delegates

12. Failure to focus— Inability or unwillingness to make choices which are true to the strategic mission

(i.e., to do fewer things, better), leads to mediocrity, inability to compete13. Unrealistic expectations

— The strategy made may be unrelated to the ability or resources of the organisation.

STRATEGIC DECISION MAKINGAs we have read in the strategy and strategic management sections that strategic management

is a complex process, and it requires competent and capable people for strategy formulation andimplementation. Sometimes, human beings are bounded by our own cognitive capabilities. Strategyformulation is based on the huge information obtained from thoughout the firm and also externalinformation. It may be difficult to remember all information and sometimes it may lead to systematicerrors in the decision formulation and selection. Systematic errors arise from a series of cognitivebiases in the process of decision making process. Thus, many managers end up making poorstrategic decisions.

A number of biases have been verified repeatedly in laboratory settings. So, we can bereasonably sure that they exist and that we are all prone to them. The following are the importantbiases:

Prior Hypothesis: Refers to the fact that decision makers who have strong prior beliefs aboutthe relationship between two variables tend to make decisions on the basis of these belief. Forexample, if a CEO who is strong prior belief that a strategy that is right, may also be right in futureafter changing business environment.

Escalating Commitment: It takes place when decision makers already allocated hugeresources to a project and commit even more resources, even if the project is failed.


Reasoning by Analogy: In the competitive environment, reasoning by analogy may not betrue.

Representativeness: Collecting data through sampling, and assuming it represents populationis not appropriate.

Illusion of Control: Refers to overestimation of one’s ability to control events. Generally,high level authorities feel this. It is known as hubris hypothesis of takeovers.

Cognitive biases not only makes poor strategic planning and groupthink but also leads to poorstrategic decisions. Group think occurs when a group of decision makers embark on formulation ofaction plan without questioning underlying assumptions.

As we have read in the previous sections, that there are many potential pitfalls of strategicmanagement that decrease the effectiveness of the strategic planning process. One of these pitfallsis failure to include different viewpoints. The common problem is cognitive conflict and the otherproblem is groupthink.

There are two techniques available to enhance strategic thinking and improve decision making.They are:

1. Devil’s Advocacy, and2. Dialectic Inquiry.Devil’s Advocacy: In this technique, one member (expert) develops plan and another member

of the decision making group acts as a devil’s advocate and criticises the plan by taking all thepossible reasons that make the export plan unacceptable (See Fig.1.8).

Expert Plan

Devil’s Advocate Criticises

Formulation of Final Plan

Fig. 1.8: Technique of Devil’s Advocacy

Through this process, decision making can avoid possible dangers of directing wrong action.Dialectic Inquiry: In this technique, there is a need to develop two expert plans [(thesis),

one plan (Thesis) and the other on counter plan (anti-thesis)]. The later one indicates plausible butconflicting courses of action (See Fig. 1.9).


Expert Plan 1 Expert Plan 2(Thesis) (Anti-thesis)

Debate Synthesis

Formulation of Final Plan

Fig. 1.9: Technique of Dialectic Inquiry

In the second stage, strategy formulators listen to a debate between advocates of Plan 1 andPlan 2, and finally make judgment, which plan is better for higher performance. Generally, thisprocess helps in revealing problem, solutions for problems, and assumption of both plans. This willresult in right strategy formulation.

STRATEGISTS AND THEIR ROLE IN STRATEGIC MANAGEMENTStrategists are the individuals who are responsible for the success or failure of an organisation,

because they are the ones who formulate strategy. Strategists gather, analyse and organiseinformation. They analyse external and internal environment, and prepare SWOT analysis of theorganisation. With this information, they develop models, scenario analysis, evaluate and controldivisional units/businesses/SBUs and provide corrective action plans. Strategists differ as much asorganisations themselves and these differences must be considered in the strategy formulation,implementation, evaluation and control of strategies. They also differ in their attitudes, values, ethics,willingness to take risks, concern for social responsibility, concern for profitability, concern forshort-term versus long-run aims, and management style.

The following are the strategies in a typical organisation:1. Board of Directors.2. Chief Executive Officer.3. Senior Managers.4. SBU Level Managers.5. Corporate Planning Staff.6. Consultants.7. Executive Assistant.Now let us discuss in brief the role of each of them.

1. Board of Directors (BODs)Boards of Directors are elected by the shareholders of the organisation. “They are ultimate

legal authority of a firm. BODs are responsible to the stakeholders for ensuring the continuity ofmanagement (replacing or returning managers), protecting the use of stakeholders’ resources,ensuring that managers take prudent actions regarding corporate objectives, approving majorfinancial and operational decisions of the managers, representing the company with other


organisations and bodies in society, maintaining, revising and enforcing the corporate charter andbye-laws.” Board may consists people from the organisation and outsiders. Staying at the top ofthe organisational hierarchy, BOD is the body which decides on strategies to be pursued by the firm.CEO presides over the meetings of the BOD.

2. Chief Executive Officer (CEO)As stated above, CEO presides over the BOD’s meetings. CEO is the most coveted post in any

organisation. The incumbent should visioneer and guide the board members to formulate strategies.The CEO should also ensure that the strategies are extended by executives down the line.

The role of CEO comprises the following:1. Putting business model innovation on the company’s agenda,2. Encouraging experimentation with business model innovation,3. Defining and establishing an ongoing process to create improved business models, and4. Making business model innovation a priority over streamlining the existing business models

when conflicts arise.What are the attributes of a model CEO? Is it vision? Strategic thinking? The ability to build

client relationships and close the deal?Obviously, CEOs need to have all these skills. However, one attribute stands head and shoulders

above the rest, i.e., FOCUS. “The more clarity you (CEO) have around your own role, the moreefficient and effective your performance will be. And the more you focus on your own roles a CEO,the more your senior managers can focus on theirs.” Exactly what should the CEO focus on? Thefollowing are the key roles of the CEO:

1. Strategist: CEO sets the future direction of his/her company. Team-centered strategicplanning is necessary for the process of creating effective strategy, where CEO carries his/herteam, look three years into the future and asks the most important strategic question: Where willyour company’s future profit margins come from? Chances are that they will not come from thesame position as today. If CEO conducts annual reviews, he/she must have quarterly reviews aswell, “Because planning minus review equals cynicism. Planning plus review equals solidmomentum.”

2. Ambassador: CEO should act as an ambassador, where he/she should meet his/hercustomers and clients once or twice a year, not for a sales call but for an informal lunch or dinner.This helps build trust between himself and clients. Trust builds CEO’s credibility.

3. Inventor: As an inventor, CEO needs to find his/her customer’s pain and develop newproducts and services to relieve the pain. It ensures that the strategic direction of the companyaligns around the customer’s pain thereby helps in running business successfully.

4. Coach: As a coach, CEO should inculcate a learning culture in the organisation. The CEOshould also create an enabling environment for the employees to learn.

5. Investor: CEO should treat his/her company as an investment. He/she should know themarket value of his business and strive to develop.

6. Student: Like student, CEO should stay active in continued professional development – notjust the CEO’s idea of functional expertise but as a student of leadership.

The above all must become CEO’s top priorities.


3. Senior ManagersSenior managers are those employees who are working at higher level of managerial hierarchy.

Any big task can be completed successfully by constituting different committees and assigningwork to them. A specific task is assigned to each committee like new product development,modernisation, restructuring and so on. Senior managers need to be associated with thesecommittees.

4. Business/Division/SBU Level ManagersBusiness level managers should formulate strategies and implement at the respective business

levels. Each business has its own strategic plan.

5. Corporate PlannersCorporate planners or staff assists top management in formulating and implementing strategies.

They also take part in the evaluation and control of activities.

6. ConsultantsMany organisations consult external experts in strategic management. Consultants may be

individual practitioner, academicians, or consulting firms. Consultants may be for a specific functionarea or may be able to provide service on all functional areas. Few famous consultants in the worldare Earnst and Young, McKinsey, Boston Consultancy Group, Tata Consultancy, AF Ferguson,SB Billimorial are Indian consulting firms, and Anderson Consulting. Outsourcing corporate staff,or taking service from consultants is beneficial in terms of getting unbiased service, specialisedservice and cost-effectiveness. All the services from consultants are time-bound or a specificassignment limited, and they do not serve in the entire strategic management process.

7. Executive AssistantExecutive assistant is a person who assists the chief executive in performing his/her duties.

Chief Executive may be an MBA or a CA qualified one. The assistance may be in the form of datacollection and analysis, preparing briefs of various proposals and projects help in managing publicrelations, coordination activities with the internal staff as well as outsiders, thereby optimise timeutilisation. Executive assistant may not be there where corporate planning cell exists.

STRATEGY AND BUSINESS ETHICSStrategies are formulated by top level (employees) officials who were given the responsibility

by shareholders (owners). The decision makers are the agents of shareholders. They should takestrategic decisions which improve the value of the organisation thereby stakeholders’ benefits. Acompany’s stakeholders are individuals or groups or institutions who have interest over thecompany’s performance. The stakeholders include shareholders, creditors, employees, customers,government and society in which company does business.

Stakeholders can be divided into two: Internal stakeholders and External stakeholders. Internalstakeholders are employees including officers, managers and Board members. External stakeholdersare customers, creditors, suppliers, government and society. All stakeholders have an exchangerelationship with the company, since all of them contribute their part to the organisation’s performanceand expects their interests are benefited. For example, creditors provide capital to the company andthey expect repayment loan/amount given with interest on the scheduled instalments. Governments.


provide legal and physical (roads, communication) infrastructure and expects fair competition amongcompanies and tax from companies when they have income.

Therefore, a company must take stakeholders’ interests into account when formulatingstrategies. When a company takes strategic decision without considering their stakeholders’ interests,they may withdraw their support. Shareholders may sell their shares and buy some other company’sshares; debt holders may demand higher interest payments on new debt; employees leave job;customer may buy competitors’ products. All these lead to reduction in the value of the company,i.e., value minimization.

Agency TheoryIt studies the problems arising in a company when one group/person delegates the responsibility

of decision making to another (called as agents). Agents should take decision in the best interests ofStakeholders but, sometime they forget the relationship (as agent) and take unethical decisions thataffect stakeholders’ interests.

LINKING STRATEGY WITH ETHICSEthics refers to the accepted beliefs, values, principles of right or wrong that influence the

behaviour (conduct) of a person, the member of a profession or the actions of a businessorganisation. Business ethics are the accepted beliefs, values, principles of right or wrong thatinfluence the conduct of a business. Simple moral Standards any decision is said to be ethical whenit is taken in accordance with accepted beliefs, values, and principles and vice versa. When we sayaccepted beliefs, values, and principles, they are acceptable by the majority the people in society, butthe same may not be acceptable by a few.

Strategy ought to be ethical. Therefore, it should be arightful action, and not wrong action. Adecision should pass the test or moral scrutiny. Ethics and moral standards go beyond the law.

Every company has an ethical duty to each of the stakeholders – owners, employees, suppliers,creditors, customers, government and the community at large. But, conflict may arise between thegoals of a company or the goals of an individual manager and the interests of various stakeholders.Strategic managers should respect the basic rights of stakeholders. Violation of those rights isunethical.

Stakeholders have the right to timely and accurate information about their investment, expectrate of return on investment; Employees have right to safe working conditions, fair compensationfor the work and good treatment by superiors; Customers have right to be informed about theproducts and services they purchase, and to know the harmful effects of using the product orservice; Suppliers have right to expect contracts to be respected, if need company need to rewritethe contract; Community have the right to expect that a company will respect the expectations thatthey place like paying taxes, not polluting environment, not dumping pollutants, overcharging forproduct or price.

Manager behaves unethically when they forgot the goals of company and decide to achievetheir personal goals. The unethical behaviour may be:

1. Information Manipulation: Control corporate data show wrongly to enhance theirperformance in delivering a job, secure higher position, higher salaries and benefits. For example,Satyam Computers manipulated financial data.


2. Exploitation: Opportunistic exploitation of players in value chain – employers, suppliersand buyers. In the late 1990, Boeing entered a contract with Titanium Metal Corporation to buysome titanium for ten years. But, Titanium Company started production expansion program tosupply titanium to Boeing and spent $100 million, then Boeing demanded to reduce price throughcontract modification.

3. Sub-standard Working Conditions: This will be done to reduce cost of production andthis happens in countries where there is no or less workplace regulations. Nike’s sub-standardworking conditions and very low wage. It happened in Vietnam where a young women at aVietnamese subcontractor worked for 6 days a weak in poor working conditions with the toxicmaterials for only 20 cents an hour.

4. Anticompetitive Behaviour: It refers of range at actions by a company aiming harmingcompetition (actual – potential) thereby enhancing long-run prospects. In 1990s, Microsoftmonopoly in operating systems forced PC makers to bundle Microsofts’ web browser, InternetExplorer with Windows and to display Internet Explorer prominently on the desktop. This wasreported by Justice Department. Microsoft would not supply with Windows to PC makers unlessthey did this.

5. Others: Environment Pollution; Corruption; improper use of scarce available resources;use of child labour and the like.

Strategic decision makers live up to the ethical standards and he/she should be proactiverather than reactive in their decision and ethics. Ethical decision goes long way in ensuring that thebusiness actions reflect integrity and ethical standards.

Tests of a Winning StrategyThere are three tests to be used to evaluate the merits a good ethical strategy.1. The Goodness a Fit Test: A good strategy has to be well matched to the internal and external

environment. It should have crafted to the company’s strengths and weaknesses, competencies andcompetitive capabilities. In other words, a strategy is said to be good only when it fits tight with thecompany’s external environment and internal circumstances.

2. The Competitive Advantage Test: Strategy is said to be good when it help gain and sustaincompetitive advantage.

3. The Performance Test: Boosting the company’s performance is the one of the attributesof a good strategy. The two main types of performance are – profitability and long-term marketposition.

The above given are the three prime tests. However, there are some additional criteria usedfor judging whether a strategy is good or not. They are completeness and courage of all the bases;internal consistency among all the pieces of strategy; the degree of risk involved and flexibility.

REVIEW QUESTIONS

Conceptual Type1. What do you mean by strategy?2. Give Michael Porter’s definition of strategy.


3. Define strategic management.4. What do you understand by SWOT analysis?5. What do you understand by TOWS analysis?6. What do you understand by “cognitive bias”?7. What is illusion of control?8. What do you understand by Devil’s advocacy?9. What is meant by Dialectic inquiry?

10. What is vision statement?11. What do you mean by values?12. Define mission.13. Define business as per Abell.14. Define mission as per Mintzberg.15. Distinguish between vision and mission.16. What do you understand by the acronym “SMART”?17. Bring out the kinds of objectives.

Analytical Type1. What is strategy? Give the elements of strategy.2. Give an example of strategy from Indian industry.3. What is effective strategy? Explain.4. Write a note on hierarchal level of strategy.5. What is strategic management? Give elements.6. Explain the four attributes of strategic management.7. “Strategy is a process.” Explain the tasks of strategic management.8. Why do strategists scan external environment?9. Explain the variables of internal environment.

10. What is the benefit of SWOT analysis?11. Explain the benefits of strategic management.12. What is strategic decision making? List the dimensions of strategic decisions.13. What characteristics make a decision as strategic decision?14. List out any five reasons for failing strategic management.15. What are cognitive biases? Explain any two biases.16. Explain techniques of improving strategic decision making.17. Write a note on Devil’s Advocacy.18. Write a short note on Dialectic inquiry.19. Explain the attributes of strategic intent.


20. “Crafting vision is beneficial.” Discuss.21. What is mission? Discuss the components of mission statement.22. Briefly discuss business definitions given by Abell.23. Bring out the benefits of having mission.24. Explain the different kinds of objectives.25. Distinguish between economic and social objectives.26. “Top-down approach of setting objective is superior to bottom-up approach.” Comment.

Essay Type1. Explain the role of BODs in strategic management.2. Explain the role of consultants in strategic management.3. Discuss the strategic management process.4. Explain in detail the benefits and limitations of strategic management.5. Explain the various reasons for poor or no strategic planning in some organisations.6. “Strategists play a major role in strategic management.” Discuss.7. Explain the meaning of strategy and criteria for effective strategy.8. Discuss its attributes and benefits of strategic management.9. “Strategic management fails due to cognitive biases and groupthink.” Discuss.

10. What is strategic decision making? List out the dimensions of strategio decision.11. “Strategic decision making can be improved.” Discuss with the techniques available.12. “Strategic vision is very important for corporations.” Discuss.13. “There is no guarantee that all firms will succeed in achieving the state of strategic

vision.” Discuss.14. Discuss in detail the process, characteristics and benefits of mission statements.15. Discuss in detail the recent trends in the components of mission statements.16. “Objectives act as yardsticks of performance.” Discuss.17. Discuss the characteristics of meaningful objectives.18. Explain the approaches available in developing objectives with their merits and limitations.19. Explain the factors affecting objectives setting. Also bring out the benefits of setting

objectives.

SKILL BUILDING EXERCISES1. Pick up any business magazine and newspaper of your choice, read articles on corporate

reports of different companies. Identify the strategies employed by the companies.2. Pick a recent copy of Business Week and read the “Corporate Strategies” section. Identify

whether the main decision discussed was strategic or not? At what level in the organisationwas the key decision made?


3. Does strategic management (subject) course differs from that of other subjects, you havestudied? Yes or No? Discuss.

4. Identify (invite to your institute) few practicing strategic managers who use strategicmanagement models in their organisations. List out the similarities and differences betweenthe practiced models and the one you read in the textbook.

5. Assume searching for a job is a strategic decision. How would the strategic managementmodel be helpful to you in identifying and securing the most promising position?

6. Search websites of any two of your own choice and identify the tasks of the select company’scorporate planning staff.

7. Give an example of a company that is actively trying to increase the amount of empowermentin the strategic management process through the organisation. Do that company seems to behaving positive outcomes? Why? Why not?

8. Go to the internet and access one of these company websites: www.fordmotor.com,www.walmaret.com, or www.ge.com. What are the some of the key events that wouldrepresent the “romantic” perspective of leadership? What are some of the key events thatdepict the “External Control” perspectives of leadership?

9. Collect 20th February 2007 Business Standard — the strategist, a tool kit for business,newspaper, read the article “The CEO’s Role in Leading Transformation”. Present the articlein your class after concising.

10. Visit website: htt://www.refresher.com/!dwmroles.html, copy article titled “Strategic Rolesfor Model Leaders”, read and present the same in your class, by highlighting the role ofmodel CEO.

11. Collect “Business Line -18th February 2007” Newspaper. Find an article titled “What Vodafonewill collect from the Hutch Call?” and analyse the strategic intent of Vodafone.

12. Look up the vision statements of five select companies. Read them thoroughly and decidethat whether they are constructive and useful as a means of motivating employees and providinga strong strategic direction? Why? Why not (Note: Annual reports along with internet may begood source of information).

13. Collect Biocon mission statement, and list the ways in which they seek to achieve excellence.14. Locate a mission statement of your choice (not given in the chapter), and read it. What is

presented in a consolidated statement, or were you forced to assemble it yourself fromvarious sources of information? How many of the elements outlined are not discussed in thischapter?.

15. Collect mission statements of top five pharmaceutical companies in India, and decide whichis the best one in your opinion? Why?

16. Go to Google web and find literature on Tata Small Car (The Ratan Tata Interview Material)and identify what is his vision.

Documents

G. Sudarsana Reddy - himpub.com · Without a strategy, an organisation is like a ship without a rudder, going around in circles. Its like a tramp, it has no place to go. — By Joel