MB0052-SLM-Unit-02

8/13/2019 MB0052-SLM-Unit-02

1/28

Strategic Management and Business Policy Unit 2

Sikkim Manipal University Page No. 19

Unit 2 Strategic Management Process

Structure

2.1 Introduction

2.2 Caselet

Objectives

2.3 Strategic Management Model

2.4 Approaches to the Strategic Management Process

2.5 Levels in SMP

2.6 Participants in SMP2.7 Strategic Drift

2.8 Case Study

2.9 Summary

2.10 Glossary

2.11 Terminal Questions

2.12 Answers

2.13 References

2.1 Introduction

In the previous unit, we had defined corporate strategy and strategic

management. In defining strategic management, we had mentioned the

external environment, formulation of strategy and also implementation and

control. Strategic planning and management should actually start with

organizational mission and objectives, consider internal competences and

resources, various strategy alternatives and the competitive situation and,

then proceed with formulation and implementation of the strategy. All these

constitute the strategic management process (SMP). And, this would be the

subject matter of our analysis in the various units starting with Unit 5. In this

unit, we shall give an overview of the strategic management process in termsof different approaches, levels in SMP, planned or intended and realized

strategies, the people involved, roles of the chief executive, board of directors

and consultants, among others. We shall also discuss concepts like strategic

drift and the learning organization and their relevance and roles in the strategic

management process.

8/13/2019 MB0052-SLM-Unit-02

2/28



2.2 Caselet

Every organization follows a strategic management model, which depends

on its size, products and other factors. The organizational structure of the

company is built on the basis of this model. Hindustan Unilever (HUL) is a

fast moving consumer goods (FMCG) company that markets about 100

products/brands grouped into different categories. The different categories

of products require different organizational structure. Therefore, the

company has adopted a hybrid organizational structure based on functions

and product divisionalization. Like most organizations, strategies at HUL

also operate at three levels: corporate, SBU and functional. These will be

discussed in more detail in the unit.

Objectives

After studying this unit, you should be able to:

Explain the different approaches to the strategic management process

Illustrate the strategy-making hierarchy in an organization

Describe the various participants in the strategic management process

Explain the meaning and nature of strategic drift

2.3 Strategic Management Model

The strategic management process consists of four distinct steps or stages:

(a) Defining organizational mission, objectives or goals

(b) Formulation of strategy/strategic plan

(c) Implementation of strategies

(d) Strategy evaluation and control

For understanding these four stages, a company has to consider a number

of other factors like organizational competence and resources, the environment,

various strategy alternatives available, strategy selection criteria, etc. All these

are internal parts of SMP. The strategic management process may best be

illustrated in the form of a model. We can call this the strategic management

model. Relationships among the major components of the strategic management

process are shown in the model (Figure 2.1).

8/13/2019 MB0052-SLM-Unit-02

3/28



Companies may or may not follow the strategic management process as

rigidly as shown in the model. Generally, application of SMP is more formal and

model driven in large, well-structured organizations with many divisions, products,

markets, different priorities for investmhent, etc. Smaller businesses or

companies tend to be less formal. In other words, formality in SMP refers to the

extent to which participants in SMP, their responsibilities, authority and roles/

duties are clearly specified. Also, in practice, strategists may not always follow

the strategic management model as rigid steps or chains in the management

process. Situations may not always warrant this. It would also depend on a

companys approach to SMP.

Figure 2.1 Illustrates the Strategic Management Model.

StabilityStrategies

(Ch. 7)

Strategyfor change

(Ch. 8)

Expansionstrategies

(Ch.9)

Industry &competition

analysis(Ch.10)

Selection &activationof strategy

(Ch.11)

Understandingcorporatestrategy(Ch. 1)

Strategicmanagement

process(Ch.2)

Corporatestrategy

and corporategovernance

(Ch. 3)

Mission. goal,objectives

(Ch. 4)

Internalcompetences

resources(Ch. 5)

Externalenvironment

(Ch. 6)

Structuralimplementation

(Ch. 2)

Functionalimplementation

(Ch. 13)

Behaviouralimplementation

(Ch. 14)

Strategyevaluationand control

(Ch. 15)

Understandingstrategy

Strategyformulation

Strategyanalysis

Strategyselection

Strategyimplementation

Strategyevaluation control

CORPORATE STRATEGY

Figure 2.1 Strategic Management Model

Self-Assessment Questions

1. The _____process consists of four distinct steps or stages Defining

organizational mission, objectives or goals; formulation of strategy/strategic plan; implementation of strategies; and strategy evaluation and

control.

2. Organizational competence and resources, the environment, various

strategy alternatives available, strategy selection criteria, etc., are _____

parts of SMP.

8/13/2019 MB0052-SLM-Unit-02

4/28



3. Application of SMP is more formal and model driven in small businesses.

(True/False)

4. In practice, strategists may not always follow the strategic management

model as rigid steps or chains in the management process as, situations

may not always warrant this. (True/False)

2.4 Approaches to the Strategic Management Process

There are different approaches to the strategic management process (some

call these modes of strategy making). These approaches lay varying emphasison different elements of the strategic management process, primarily because

of differences in the nature and forms of organizations.

Approaches to strategy making or the strategic management process

have been differently enunciated by different authors and strategy analysts.

Mintzberg (1973) has classified various approaches into three modes. He calls

these the three modes of the strategy-making process.

These are:

Entrepreneurial mode

Adaptive mode

Planning mode

Steiner and others (1982) have classified various approaches into five

forms or categories. These are:

Formal-structured approach

Entrepreneurial-opportunistic approach

Intuitive-anticipatory approach

Incremental approach

Adaptive approach

Three modes of Mintzberg and five approaches of Steiner and othershave some commonness or similarities in terms of the content. Therefore, the

two sets of approaches can be regrouped into more coherent forms for the

purpose of analysis. For example, Mintzbergs planning mode resembles the

formal-structured approach of Steiner and others, incremental and adaptive

approaches have common features (adaptive is common in both).

Entrepreneurial-opportunistic approach is essentially based on opportunities,

8/13/2019 MB0052-SLM-Unit-02

5/28



intuition and anticipation. Therefore, entrepreneurial-opportunistic and intuitive-

anticipatory approaches of Steiner and others can be analysed together. So,

the two sets of approaches may be restated in the forms of three basic

approaches:

1. Entrepreneurial-opportunistic

2. Formal-structured and

3. Adaptive

2.4.1 Entrepreneurial-opportunistic Approach

An entrepreneur is a creative thinkeran individual who combines the roles ofan innovator and risk taker. He is tough and pragmatic in decision making and

is constantly driven by an insatiable urge for creation and achievement. He is

characterized by an active search for opportunities in a generally unfriendly or

unfavourable environment. In the entrepreneurial-opportunistic approach, the

focus is on exploiting opportunities against environmental odds rather than

problem solving. In this approach, power rests with one person, the owner and

chief executive, who is capable of taking bold decisions on the basis of personal

power and charisma. Bold decisions are taken many times in situations of

uncertainty. The most dominant goal in this approach is creation and expansion

of assets, markets and market share.

The strategy is to move forward with unusual leaps or discontinuous

growth for achieving entrepreneurial success or profits. Many companies have

successfully used this approach.

The entrepreneurial-opportunistic approach is suitable for organizations

in which the key strategistssometimes a single individualare visionaries.

Also, they have complete control over formulation and implementation of a

strategy and have very high stake in the outcome of the strategy. They lead the

organization from front and by example. These are the reasons why many such

organizations outperform their more professional counterparts adopting formal-

structured approach.

The advantages of this approach may, however, turn into disadvantages

if the strategists are found lacking in what they do or in righteousness. Since

there are hardly any checks and controls, the entrepreneurs/strategists should

have the right vision backed by the right strategy and resources. Otherwise, the

strategy may easily lead to failure. There are many such cases of failures.

8/13/2019 MB0052-SLM-Unit-02

6/28

8/13/2019 MB0052-SLM-Unit-02

7/28



the final decision, many times, is a compromised one, which may be at the cost

of organizational effectiveness or success.

The adaptive approach typically suits large public sector companies, where

there is greater focus on accountability than on growth. There are also important

pressure groups in the form of the controlling ministry and other related

government departments and ministries. In such companies, current problem

solving (with necessary adaptation and compromise) always has higher priority

than future planning. All large public sector companies in India like ONGC,

SAIL, BHEL, IOC, MMTC, STC and, also in other parts of the world, follow the

adaptive approach. The degree of adaptability and compromise on strategic

planning and decision making would depend on the progressiveness of thecompanies and the concerned controlling ministries.

The adaptive approach also suits follower companies (in the private sector)

rather than leaders in the industry. Followers or imitators are companies that

avoid the risk of innovation and are content with producing and selling products

that have already been established in the market. They only concentrate on

market share.

2.4.4 Combination Approach

Many companies realize that adopting a single approach exclusively may not

be the most judicious course. Stakeholders stakes/interests are increasing(including stock options), the marketplace is ever changing and the business

environment is never fully predictable. Due to these factors, the strategic

management process of a company has to cope with a large number of complex

variables or factors, and a single approach may not be sufficient to secure

competitive advantage. A combination of approaches may be the appropriate

strategy.

A dominant entrepreneurial-opportunistic approach may be combined with

the formal-structured approach for better results. Similarly, a formal-structured

approach may be combined with some elements of entrepreneurial-opportunistic

approach. And, environmental (both internal and external) adaptability shouldbe a common element in these approaches. As Sumantra Ghoshal puts it: It

may be useful for Reliance (following entrepreneurial approach) to think whether

it should follow a bit of Hindustan Levers structured processes, just as much as

it may be productive for Hindustan Lever to consider ways of broadening its

systems and culture to the entrepreneurial approach.1

8/13/2019 MB0052-SLM-Unit-02

8/28



Hindustan Unilever, like many other companies, has also realized the

need for infusing entrepreneurial approach into their dominant formal-structured

approach for developing more effective business strategies. According to its

former Chairman, Keki Dadiseth, Hindustan Lever has grown in size. While it

has its own obvious benefits, it also has some drawbacks. What we need to

master is the art of creating and preserving the entrepreneurial ability and

connectedness of a small company within a large company.2

There are different ways in which the three approaches can be combined.

Individual companies have to work out the right combination based on growth

alternatives, investment opportunities or priorities, stakeholders pressures and

top managements style of functioning.

Activity 1

We have mentioned four different entrepreneurial-opportunistic approaches

(Reliance, Dell, Sony, Hero Honda) to the strategic management process.

Make a comparative analysis of these four approaches.


5. ________ has classified various approaches to SMP into three forms,

calling it the three modes of the strategy-making process entrepreneurial

mode, adaptive mode and planning mode.

6. In the ______ approach, the focus is on exploiting opportunities against

environmental odds rather than problem solving.

7. In the __________ approach, the strategic management process depends

largely on the planning system.

8. Which of these approaches is essentially a balancing strategy more

remedial and reconciliatory, and, therefore, more reactive than proactive

as a decision-making process?

(a) Entrepreneurial-opportunistic(b) Formal-structured

(c) Adaptive approach

(d) Combination approach

8/13/2019 MB0052-SLM-Unit-02

9/28



2.5 Levels in SMP

We had mentioned the three levels of strategy in Unit 1. We shall now elaborate

on these strategies with respect to the strategic management process. To do

this, let us first define a strategic business unit (SBU). A strategic business unit

is a division or a product/product group unit which operates as a separate profit

centre having its own set of market and competitors and its own marketing

strategies. The company or the corporate organization consists of related

businesses and/or products grouped into different SBUs. The SBUs are

homogeneous enough to manage and control most factors which affect their

performance. Resources are allocated to SBUs in relation to their contributions

to the corporate objectives, growth and profitability.

Three levels in the strategic management process, as mentioned in Unit

1, are: the corporate level, the business unit or SBU level and the functional

level. These three levels of strategy distinctly exist only in multiple SBU firms.

For single-business companies, corporate-level strategy and SBU-level strategy

are not really distinguishable because all the organizational level strategies for

resource allocation or growth or market diversification are formulated with respect

to the particular product or business of the company (only in the case of product

diversification, corporate-level strategy and single business unit-level strategy

may/would be different). Relationships among corporate level, business unit-level and functional-level strategies in single SBU and multiple SBU firms are

shown in Figures 2.2 and 2.3. We can also call these alternative strategic

management structures.

Corporate/businessstrategy

Functional strategy

Operationsstrategies

Marketingstrategies

Financialstrategies

HRstrategies

Middlemanagement

Top/Seniormanagement

Figure 2.2Corporate/Business Level and Functional Strategiesin Single SBU Company

8/13/2019 MB0052-SLM-Unit-02

10/28



Operationsstrategies

Marketingstrategies

Financialstrategies

Personnelstrategies

SBU 3strategy

SBU 2strategy

SBU 1strategy

Corporatestrategy

Corporatemanagement

SBU topmanagement

Middlemanagement

Figure 2.3 Corporate/Business Level and Functional Strategies

in Multiple SBU Company

2.5.1 Corporate, SBU and functional level

Corporate-level strategy sets the long-term objectives of an organization and

broad policies and controls within which an SBU operates. The corporate-level

strategies also help an SBU to define its scope of operations and also limit or

enhance SBUs operations through resources the corporate management allocates

for securing competitive advantage. Functional-level strategies follow from, and

also support, SBU-level strategies. Strategies at the functional level are often

described as tactical. Such strategies are guided and controlled by overall SBU

strategies. Functional strategies are more concerned with implementation of

corporate-and SBU-level strategies rather than formulation of strategies. Strategic

management process at three levels also involves decision making. But, the types

of decision making, their scope and impact are different at different levels. The

characteristics of decision making at three levels may be more clearly understood

in terms of major dimensions of decision making. These are shown in Table 2.1.

Table 2.1 Characteristics of Strategic Decisions at Corporate, SBU and Functional Levels

Level of Strategy

Dimension Corporate SBU Functional

Type of decision Conceptual/policy Policy/operational Operational

Investment High Medium Low/Nil

Risk involved High Medium Low

Time horizon Long term Medium term Short term

Impact Critical Major Minor

Flexibility High Medium Low

Adaptability Low Medium High

A distinction can be made between functional-level or functional-area

strategies and operating strategies. Functional-area strategies involve

8/13/2019 MB0052-SLM-Unit-02

11/28



approaches, actions and practices to be undertaken for managing particular

functions or business processes or key activities within a business marketing

strategy. Operating strategies in comparison, are relatively narrow strategies

for managing different operating units (plants, distribution centres in different

geographic locations, etc.,) and specific operating activities of strategic

significance (advertising campaigns, management of particular brands, website

sales and operations, etc).3Operating strategies provide more specific details

about functional-area strategies and render completeness to functional-level

strategies and also to overall corporate strategy.

Hindustan Unilever (HUL) is a multi-SBU fast moving consumer goods

(FMCG) company. It markets about 100 products/brands. It has grouped its bigrange of products into three categories: home and personal care, foods and

beverages and, industrial and agricultural. In addition to domestic marketing, it

is also engaged in export which is a separate SBU. The company has adopted

a hybrid organizational structure based on functions and product divisionalization.

Like most organizations, strategies at HUL also operate at three levels: corporate,

SBU and functional. The strategic management process in HUL is shown below

as a model structure (Figure 2.4).

HUL

Corporate level Business level (SBU)

Resource mibilization

Resource deployment

Merger and acquisition

divestment

Appropriation of earnings

Beverages

Personal products

detergents

Ice cream and frozen dessels

Export

Functional level

Technical

Marketing

Finance

Human resources

Research

Corporate affairs

Legal & secretarial

Flow of decision

Flow of support

Figure 2.4Strategic Management Process at HUL

8/13/2019 MB0052-SLM-Unit-02

12/28




9. A ________ is a division or a product/product group unit which operates

as a separate profit centre having its own set of market and competitors

and its own marketing strategies.

10. Strategies at the functional level are often described as_____, and such

strategies are guided and controlled by overall SBU strategies.

11. Corporate-level strategy sets the short-term objectives of an organization

and broad policies and controls within which an SBU operates.

(True/False)12. Operating strategies in comparison are relatively narrow strategies for

managing different operating units. (True/False)

2.6 Participants in SMP

The fact that the strategic management process involves strategy making at

the corporate level, SBU level and functional level also implies that managers

at different levelstop, senior and middleparticipate in the strategic planning

and management process. In addition to the managers, the board of directors

also play a definite role. Many times, management consultants also play importantroles in the strategic planning and management of a company. So, there may

be five major participants in the strategic management process of a company

although they may play quite different roles. The five participants are:

1. Board of directors

2. Chief Executive Officer (CEO)

3. Corporate planning staff

4. Other managers

5. Consultants

2.6.1 Role of Board of Directors

In any organizational hierarchy, the board of directors is the apex/highest level

body. The board is the final authority in managing the affairs of a company,

strategic or non-strategic. They perform these functions according to or subject

to the memorandum of association and articles of association of the company.

The role of a board member depends on his (her) degree of involvement in the

strategic process; and the degree of involvement of a member depends partly

8/13/2019 MB0052-SLM-Unit-02

13/28



on the management philosophy of a company and partly on the interest a

particular board member takes in the affairs of the company. The levels of

involvement and, therefore, the roles of the board members can vary widely.

Wheelan and Hunger4have analysed the role of board members in terms of a

continuum as shown in Table 2.2.

Table 2.2Degree of Involvement of Board Members in Strategic Management

Low High

(Passive/phantom)

RubberStamp

Minimalreview

Normalparticipation

Activeparticipation

(Active/catalyst)

Never knows

what to do

Permits

executives tomake alldecisions andapproveswhat theydecide

Reviews

selectedissuesbrought tohim/her

Involved to a

limited degreeto reviewmanagementsperformance,decisions orprogrammes

Questions,

reviews andmakes finaldecisions onmission,objectives,strategy,policies;performsfiscal andmanagementaudit

Takes the

leading rolein establishingandmodifyingmission,objectives,strategy andpolicies; hasvery activestrategycommittee

Source:T L Wheelen, and J D Hunger (1983), 49

Given the progressive management philosophy of a company, professional boards

can play very effective roles in the strategic management process. Boards ofHindustan Unilever, L&T, ITC, Tata Motors, Tata Steel, for example, are quite

effective and take active part in the strategy-making processes of these companies.

They participate in setting and reviewing corporate objectives, formulation of long-

term strategies, examination and review of proposals for new investment,

appointment of chief executives and other key personnel, etc. According to a

survey conducted by AIMS Research5on the practice of boards of directors and

their roles in company management, the boards of Hindustan Unilever, Tata Motors,

Bajaj Auto, HDFC and L&T are considered the best in India.

On the other extreme, as shown in Table 2.3, there are boards or board

members who play only passive roles. In such cases, strategic decisions are

taken mostly outside the board. Strategy and decision makers may be a powerfulfamily group or a powerful CEO or the top management committee, overseas

parent company in the case of subsidiaries of multinationals or bureaucrats or

ministers in the case of public sector companies.

Between the passive boards and the extraordinarily participative ones,

there are boards which are more common in companies. These boards play a

balancing role between the strategy-making process in the companies and the

shareholders. Major strategic functions performed by these boards are:

8/13/2019 MB0052-SLM-Unit-02

14/28



Approval of the corporate budget and resource allocation for strategic

investments

Periodic review of the strategic planning process

Monitoring the chief executives role in the strategic management process

Triggering discussion on growth possibilities and alternatives

Guiding the chief executive in formulating organization-level strategies

Review of strategy implementation with respect to results or profitability

2.6.2 Role of Chief Executive

The chief executive plays the most important role in the strategic management

process of a company. Major management functions of a chief executive,

however, can be broadly divided into two categories; strategic and non-strategic.

Every chief executive should clearly distinguish between his/her strategic

functions and non-strategic or operational functions so that he can appropriately

allocate his time and concentrate more on strategic functions. Strategic and

non-strategic functions of a chief executive in selected basic organizational

areas are given in Table 2.3.

Table 2.3Strategic and Non-strategic Functional Activities of Chief Executives

Function

Basic organizational area Strategic Non-strategic

Setting goals and priorities

Long-term planning Short-term planning Developing resources

Allocation of work and majorresources

Committing resources

Evaluating results /performance appraisal

Relationship with internal andexternal stakeholders

Deciding organizationalmission and objectives,setting major policies,priorities, etc.

Providing direction andleading the process

Providing directions

Leading organizationalresource developmentteam

Allocating major resourcesto strategic functions andprojects

Committing new projects orresources; discommitingprojects, resources

Negligible or nil

Mobilizing support

Minimal or nil

Constitute the planning team

Reviewing results

Developing human andphysical resources

Designing organizationalstructure andpreparing/approving corporate

budget

Developing control criteria

Measurement of performanceagainst plans; measuringorganizational and managerialeffectiveness

Maintaining good PR for bettergovernance

8/13/2019 MB0052-SLM-Unit-02

15/28



It may be interesting to see how chief executives prioritize their major

functions or roles. T Thomas, the former CEO of Hindustan Unilever visualizes

three major roles6of the chief executive:

Managing relationship with the environment

Managing the board

Long-term planning

It is to be noted that Thomas was holding the positions of the chief executive

and also of the chairman of the company. If the two positions are delinked as

happens in many companies, the chief executives primary role is to assist the

board rather than manage it. Managing the board would be the chairmans job.

Some empirical studies have highlighted the relative importance of major

functions (both strategic and non-strategic) performed by a chief executive.

Results of a study7of 125 Indian CEOs are summarized in Table 2.4.

Table 2.4Major Functions of a Chief Executive

Function

Degree ofimportance*

Time spent(per cent)

1. Long-term planning

2. External relationship

3. Review and control of organizational performance

4. Personnel development5. Short-term planning

6. Performance appraisal

7. Meetings in the organization

8. Review of organizational relations

4.8

4.5

4.0

3.43.2

3.0

2.8

2.6

18.0

30.0

20.0

7.08.0

5.0

6.0

6.0

100.0

* Degree of importance of a function has been measured on a 5-point scale

Source:R K Shah, Top Managerial Effectiveness(1990).

Effectiveness of the strategic role of the chief executive determines the direction

and pattern of growth of most of the companies. An effective chief executive is

a practical/realistic visionary a dreamer who also does. He becomes a catalyst

in the strategic management process and, mobilizes resources, managers and

supports the board to accelerate the growth process. Effective chief executives

are successful leaders; they lead by example and charter a new growth trajectory

for the company. Jack Welch of GE, Lee Iacocca of Chrysler Corporation, Michael

Dell of Dell Computers, Bill Gates of Microsoft, Keki Dadiseth of Hindustan

Unilever, P N Haksar of ITC, Dhirubhai Ambani of Reliance, Aditya Birla of

Hindalco Industries, Azim Premji of Wipro and N R Narayanamurthy of Infosys

have led their companies to unprecedented heights.

8/13/2019 MB0052-SLM-Unit-02

16/28



2.6.3 Role of Corporate Planning Staff

Every chief executive needs the support of his corporate planning staff. With

increasing volatility of the competitive environment, the strategic planning and

management process is becoming more complex. Also, with the introduction of

new tools, techniques and planning models, the planning system is also

becoming more technical and specialized. Therefore, almost all large companies

and multinationals have created a separate corporate planning division or unit.

This division or unit is equipped with specialized planning staff who forms the

nucleus of strategic planning activities of a company. In many companies, this

division or unit functions directly under the charge of the chief executive.

The corporate planning division performs various functions mostly of a

strategic nature. Major functions of the corporate planning staff may be

summarized as follows:

Assisting the chief executive in developing and formalizing fundamental

concepts or divisions about organizational growth and diversification.

Scanning the environment and identifying new business opportunities.

Analysing cost benefits of alternative investment opportunities and

allocating resources to various activities/projects.

Integrating SBU plans (and, sometimes, also functional plans) into

corporate plans.

Monitoring progress of strategic plans at corporate level, SBU level and

functional levels.

Undertaking mid-term review of plans and strategies and, suggesting

changes, if and when necessary.

Evaluating plan performancemeasuring the degree of success (or

failure) of strategic plans and reporting to the chief executive for any

necessary action.

Vaswani (1990) of Gujarat University conducted a study8on the strategic

management process in India based on a cross-section of Indian companies.The study included 12 public sector, 26 FERA9and 24 private sector companies.

One of the study findings focussed on the role or functions of the corporate

planning staff. These are shown in Table 2.5.

8/13/2019 MB0052-SLM-Unit-02

17/28



Table 2.5Functions of Corporate Planning Staff: Relative Importance

Functions Weightage*

1. Getting top management participation in development of plan assumptions

2. Integrating the plans

3. Monitoring plan progress

4. Communicating the plans

5. Issuing planning guidelines

6. Converting physical plans into financial plans

7. Interpreting the plans

8. Monitoring and reviewing strategic plans

9. Negotiating plan targets

10. Verification of plan activities

11. Monitoring performance of operating units

12. Providing continuous staff assistance to chief executive for planning activities

13. Recommending and monitoring allocation of resources to variousorganizational units

14. Identification of new business opportunities

2.7

2.3

2.3

2.2

2.2

2.1

2.1

2.0

2.0

2.01.6

1.6

1.5

1.4

* Weightage is on a four-point scale

Source:P Vaswani, Strategic Management Process in India (1990).

2.6.4 Role of Senior Managers

Not only the corporate planning staff but other managers, particularly the seniormanagers, also play an important role in the strategic management process of

a company. The senior managers include SBU heads and also functional heads.

Some of these heads are at the level of directors who are represented on the

board. The senior managers are members of different management committees,

including top management committees which are involved in strategic planning

and management. Some of these committees consider and evaluate proposals

for new investment, restructuring, diversification, etc. In all these committees

some corporate planning staff members are also represented.

ITC has constituted a Corporate Management Committee (CMC) which

consists of five full-time directors and five senior managers, besides companysecretary. MRF has divided its senior managers into five strategic groups dealing

with products and markets, environment, technology, resources and manpower.

Each group, headed by a leader, prepares position papers (which includes

initiation of strategy proposals, feedback and implementation reports) for the

board. Voltas undertakes strategy implementation through a Corporate Executive

Committee (CEC) headed by the President (Chief Executive) and consisting of

Senior VPs and VPs of different functional areas.

8/13/2019 MB0052-SLM-Unit-02

18/28



2.6.5 Role of Consultants

Management consultants can play very useful roles in the strategic planning

process of a company. Consultants render services in different functional areas

of management including the strategic planning and management process. In

companies with no separate planning division or unit, consultants can fill that

gap. They can undertake planning and strategy exercises as and when the

company management feels the need for such exercises or consultancies. Even

in companies with a corporate planning division/unit, consultants may provide

specialized inputs or insights into identified management or strategy areas. Top

strategic consultants like McKinsey & Company use or develop latest tools,

techniques or models to work out solutions to specific strategic management

problems or issuesbe it productivity, cost efficiency, restructuring, long-term

growth or diversification. Consultants bring with them diversified skills (most of

the consulting companies are multidisciplinary) and experience from various

companies which may not be available internally in a single company. This is

the reason why even large multinational companies hire consultants for achieving

their goals or objectives.

There are many international consultants who are in demand in different

countries. There are also national consultants. Leading international consultants,

in addition to McKinsey & Company, are Boston Consulting Group (BCG), Arthur

D Little and Accenture (formerly Anderson Consulting). Prominent Indianconsulting companies are A F Ferguson, Tata Consultancy Services (TCS) and

ABC Consultants.

Consultants, sometimes have a difficult or delicate role to play. In many

companies, a situation develops when the chief executive or the top management

needs to bank upon the support of an external agency like a consultant to push

through a strategic change in the organizational structure or management system

of the company. It may be for growth and development or downsizing. In both

cases, many companies face internal resistance to change. The resistance is

more if it is downsizing even when it is required for turning around a company.

This happens particularly in public sector companies where implementing changeis always difficult. Consultants are engaged to support or substantiate the

companys point of view (in the form of their recommendations) so that change

is more easily acceptable to the internal stakeholders of the company.

Consultants role may become delicate and, sometimes, tricky in such cases,

and they should carefully weigh the ethical implication of their participation.

8/13/2019 MB0052-SLM-Unit-02

19/28




13. Managers at different levelstop, senior and middleparticipate in the

strategic planning and management process. (True/False)

14. The _______ plays the most important role in the strategic management

process of a company.

15. Most large companies and multinationals have created a separate

_____unit, which is equipped with specialized planning staff who form

the nucleus of strategic planning activities of a company.

16. In companies with no separate planning division or unit, ______can fillthat gap.

2.7 Strategic Drift

In the strategic management process of every company, there is a risk of

strategic drift. In simple terms, strategic drift is the widening gap between

demand for change by the environmental forces and actual strategic change in

a company.

If there is a pressure for change, managers usually look for what is familiar.

But, this creates problems when managing strategic change, because the action

required may be outside the present system or paradigm, and organizations

may be required to change significantly their core assumptions and strategies.

The situation may be one of declining performance. To arrest the decline,

company management may first seek to improve implementation of the existing

strategy. This can be through tightening controls and improving the monitoring

system. If this is not effective, a change of strategy may take place, but, a

change which may still be within the existing paradigm. For example, the

management may seek to expand the market but, may assume that it will be

similar to its existing market and, therefore, plan for managing the new project

in much the same way as it has been used to. This is the strategy of incrementalchange.

But, this may not be enough. Such processes or strategies may not be

adaptive enough to the environmental changes over time. This may give rise to

strategic drifta mismatch between the environmental needs and strategic

actionas shown in Figure 2.5.

8/13/2019 MB0052-SLM-Unit-02

20/28



Phase 2

Flux

Strategicchange

3

TimePhase 3/4

Transformationalchange or demise

2

Environmentalchange

1

5

Amountofch

nge

Phase 1

incremental change

4

Figure 2.5 Strategic Drift in the Management Process

As shown in the Figure 2.6, an organizations strategy gradually moves

away from or neglects the forces at work in its environment. Sometimes, the

strategic drift is difficult to detect and reverse. This happens because not only

changes are being made in strategy, but also such changes may achieve some

short-term improvement in performance tending to legitimize the action taken.But, with time, either the drift becomes evident or the environmental change

increases, and the performance is affected. Strategy development is then likely

to go into a state of flux (Phase 2), with no clear direction, further damaging the

performance. Eventually, more transformational change may be required (Phase

3) if the demise of the organization (Phase 4) is to be avoided. 10

The above description of strategic drift conforms to a situation of lack of

fit or match with the environment. The lack of fit can happen in another way

also. Those organizations, which tend to stretch their competences to create

new opportunities, may also get into problems. In this case, a transformational

change may be attempted through development of entirely new products orservices not previously in existence. This can succeed and create a shift in the

market in accordance with the intended strategy. However, there is a risk that

such an organization can find itself ahead of its environment (Phase 5 in Figure

2.5). The strategy and the environment may eventually realign (as shown in the

8/13/2019 MB0052-SLM-Unit-02

21/28



figure), but, this may not often happen in reality; and, even if it happens, the

time lag in the realignment process can cause significant problems of

performance in the organizations. Strategic drifts of this nature are, however,

not very common. More common drifts in organizations are the ones where the

strategic process lags behind the environmental forces.

But, all this emphasizes the delicate balance that an organization needs

to maintain in developing its strategy. It has internal pressurescultural or

managerialwhich tend to constrain strategy development, and environmental

forces, including markets and competitors, which it must cope with for a particular

strategic process to succeed. Every organization has to constantly endeavour

to align or realign these two forces to avoid the occurrence of a strategic drift.

2.7.1 The Learning Organization

The risk of strategic drift implies that there is not much justification in pursuing

formalized planning approaches with predetermined objectives, analyses and

strategies. The environment is too complex and changes too rapidly for such

approaches to produce desired results. Such uncertainty in the environment

requires that strategy should be managed in a more unconventional,

discontinuous way and not through incremental changes. Managers should

not regard their experience as fixed and unalterable; on the other hand, they

should try to develop an organization in which they continually challenge pastexperience and practices and strive for new, innovative ways. In other words,

they should develop a learning organization. Senge (1990) gives a good

exposition of the art and practice of the learning organizations.

Managers in a learning organization have a questioning mind. They start

by questioning the past and the present. For this to happen, companies need to

develop organizations which are pluralistic, i.e., organizations in which different

and even conflicting ideas and views are encouraged, and discussions, debates

and experimentations are the norms. In this way, all strategic solutions and

decisions emerge through a critical, but progressive process. The job of the top

management is to create such an organization and build teams which can workin a pluralistic environment. This can be done in a number of ways; for example,

through development of different types of organizational structure or through

development of organizational culture. Suitability of the organizational type is

important. The learning organization is also an evolving organization.

8/13/2019 MB0052-SLM-Unit-02

22/28



Activity 2

In every organization, there is a chance of strategic drift. Progressive

organizations try to prevent strategic drift through advance planning and

preventive strategies. Assume that you are the strategic planning manager

of one such company. Give your analysis of preventive planning and

strategies.


17. The widening gap between demand for change by the environmentalforces and actual strategic change in a company is referred to as ______.

18. The risk of strategic drift implies that there is not much justification in

pursuing formalized planning approaches with predetermined objectives,

analyses and strategies. (True/False)

19. Managers in a learning organization have a __________mind.

20. The learning organization is also an evolving organization. (True/False)

2.8 Case Study

Strategic Management Process At Hindustan Unilever (HUL)

Hindustan Unilever (HUL) is a partly owned (majority holding) subsidiary of

Unilever Ltd. For quite some years, Unilever

was on the lookout for expansion

opportunities for its group companies/

businesses in India. When the opportunity

came its way with Indias economic

liberalization in the 1990s, Unilever acted fast,

achieved a big expansion in each of its major

businesses in the country, regrouped andintegrated its companies.

Unilever worked out its corporate strategy for

India in line with its objectives. To achieve its

objectives, HUL formulated a strategy which

had three distinct components:

8/13/2019 MB0052-SLM-Unit-02

23/28



1. A strategy for expansion of businesses

2. A strategy for regrouping and integrating the group companies

3. A strategy for consolidation of ownership and control by the parent

company in the Indian operations by acquiring majority equity in them.

For expansion of its business, HUL exploited a whole range of strategic

possibilities. It used takeovers/ acquisitions, mergers, strategic alliances

and joint ventures. In some cases, it employed the start-up route as well. It,

however, relied heavily on the takeover route for its expansions. There

were valid reasons for this. By relying on the takeover route for its expansion,

Unilever was in a position to avoid the time lags.Along with the expansion of its various businesses, Unilever carried out the

regrouping/integration of its existing businesses/companies in the country.

Its idea was to integrate all its companies in India into a single mega firm. It

used mergers for accomplishing the objective and carried it out in stages.

It took two companies at a timetwo companies of the group which enjoyed

the closest synergy were merged at a time into a single entity, and the

merged entity in turn was subsequently merged with another company of

the group to form a much larger entity. The process continued till it reached

the stage where Unilever had just a single company in India.

Unilever merged four companiestwo of its existing companies, DoomDooma India and Tea Estates India, two taken-over companies, Kissan

and Kothari General Food (KGF), into Brooke Bond. The merging of Doom

Dooma and Tea Estates served two purposes. It furthered the objective of

integrating the group companies. It also helped Unilever to acquire majority

equity in Brooke Bond with an incremental new investment. Unilever then

merged Brooke Bond and Lipton into a single entityBrooke Bond Lipton

India Ltd (BBLIL). Then TOMCO, which had been taken over earlier, was

merged with HLL. Subsequently, the combined entity, Brooke Bond Lipton

India Ltd (BBLIL) was merged with Hindustan Lever. Consolidation of

ownership and control by the parent company was the third part of Unilevers

strategic process with respect to its Indian operations. Unilever acquiredmajority stake and consolidated its position in all its companies in India.

The company acquired 51 per cent or more equity in each of its companies

in India, and it managed this at attractive prices and with minimal new

investment. This was accomplished through a chain of moves involving

mergers of companies and incremental new investments.

8/13/2019 MB0052-SLM-Unit-02

24/28



2.9 Summary

Let us recapitulate the important concepts discussed in this unit:

There are different approaches to the strategic management process.

These approaches can be regrouped into three basic approaches:

entrepreneurial-opportunistic, formal-structured and adaptive.

Many companies use a predominantly entrepreneurial-opportunistic

approach and combine this with the formal-structured approach. Similarly,

a formal-structured approach may be combined with some elements of

adopting predominantly a formal-structured approach with elements ofentrepreneurial-opportunistic approach.

Corporate-level strategies, SBU-level strategies and functional-level

strategies all involve decision making. But, the types of decision making,

their scopes and impacts are different at different levels. For example,

corporate-level strategies are generally long term, SBU-level strategies

are generally medium term and functional level strategies are short term.

Managers at different levelstop, senior and middleparticipate in the

strategic management process. In addition, the board of directors plays

an important role. Consultants also have a role to play. In all, there are

five major participants in SMP: board of directors, chief executives (CEO),corporate planning staff, other managers and consultants.

In the strategic management process of every company, there is a risk of

strategic drift. Strategic drift is the gap between demand for change by

the environmental forces and actual strategic change taking place in a

company.

In learning organizations, managers constantly challenge past experience

and practices and, strive for new innovative ways. In such organizations,

strategy is managed in a more unconventional, discontinuous way and,

not through incremental changes.

2.10 Glossary

Merger:The combining of two or more companies into one, through a

purchase acquisition or a pooling of interests

Strategic business unit:A division or a product/product group unit which

operates as a separate profit centre having its own set of market and

competitors and its own marketing strategies

8/13/2019 MB0052-SLM-Unit-02

25/28



Strategic drift:The widening gap between demand for change by the

environmental forces and actual strategic change in a company

Strategic management process:An ongoing process that entails

specifying the organization's mission, vision and objectives, developing

policies and plans, often in terms of projects and programs, which are

designed to achieve these objectives, and then allocating resources to

implement the policies and plans, projects and programmes.

2.11 Terminal Questions

1. Explain the strategic management process (SMP). Discuss it in terms of

the strategic management model.

2. Distinguish between the entrepreneurial-opportunistic approach, formal-

structured approach and the adaptive approach in strategic management.

Would you generally recommend each of these approaches in isolation

or in some combination for a company?

3. What are the different levels in SMP? Are there any interrelations among

them? Explain.

4. Who are the major participants in SMP? Do you feel all these participants

play equal roles?5. Compare the roles of the board of directors and the chief executives in

the strategic management process.

6. What is the role consultants play in the strategic planning and management

process of a company? Is it an essential role?

7. What is strategic drift? Explain graphically.

8. Which is a learning organization? What is the mindset of managers in a

learning organization?

2.12 Answers

Answers to Self-Assessment Questions

1. Strategic management

2. Internal

3. False

8/13/2019 MB0052-SLM-Unit-02

26/28



4. True

5. Mintzberg (1973)

6. entrepreneurial-opportunistic

7. formal-structured

8. (c)

9. Strategic business unit

10. tactical

11. False

12. True

13. True

14. Chief executive

15. Corporate planning unit

16. Consultants

17. Strategic drift

18. True

19. Questioning

20. True

Answers to Terminal Questions

1. The strategic management process may best be illustrated in the form of

a model. Refer to Section 2.3 for further details.

2. Three modes of Mintzberg and five approaches of Steiner and others

have some commonness or similarities in terms of the content. Refer to

Section 2.4 for further details.

3. Three levels in the strategic management process are the corporate level,

the business unit or SBU level and the functional level. Refer to Section

2.5 for further details.

4. There may be five major participants in the strategic management process

of a companyboard of directors, chief executive officer (CEO), corporate

planning staff, other managers and consultants. Refer to Section 2.6 for

further details.

8/13/2019 MB0052-SLM-Unit-02

27/28



5. The board of directors is the final authority in deciding the affairs and

direction of a company; the chief executive plays the most important role

in the strategic management process of a company. Refer to Section 2.6

for further details.

6. Management consultants can play very useful roles in the strategic

planning process of a company. Refer to Section 2.6.5 for further details.

7. Strategic drift is the widening gap between demand for change by the

environmental forces and actual strategic change in a company. Refer to

Section 2.7 for further details.

8. Due to the fear of strategic drift, every company should be a learningorganization. In learning organizations, managers constantly challenge

past experience and practices and, strive for new innovative ways. Refer

to Section 2.7.1 for further details.

2.13 References

1. Hill, C W L, and G R Jones. 1997. Strategic Management: An Integrated

Approach.2ndedn. Boston: Houghton Mifflinco.

2. Johnson, G, and K Scholes. 2005. Exploring Corporate Strategy. 6thedn.

London: Pearson Education.3. Mintzberg, H. 1973. Strategy Making in Three Modes. California

ManagementReview, Winter.

4. Senge, P. 1990. The Fifth Discipline: The Art and Practice of the Learning

Organization.New York: Doubleday Century.

5. Thomas, J. 1981. Managing a Business in India. New Delhi: Allied

Publishers.

6. Wheelen, T L, and J D Hunger. 1983.Strategic Management and Business

Policy. Massachusetts: Addison-Wisley.

7. Wright, P, C Pringle, and M Kroll. 1998. Strategic Management: Text andCases.Boston: Allyn and Bacon.

Endnotes

1 Sumantra Ghoshal, Collectors of Great People, Economic Times, Supplement (August20, 1999).

2 Keki Dadiseth, Business Growth Through People Growth: Our Blueprint for the NewMillennium , Chairman s Speech (Mumbai: Annual General Meeting of the Company,April 20, 2000).

8/13/2019 MB0052-SLM-Unit-02

28/28



3 A A Thompson Jr, A J Strickland III, and J E Gamble, Crafting and Executing Strategy:

The Quest for Competitive Advantage, 14th ed. (New Delhi: Tata McGraw-Hill, 2005) 34.4 T L Wheelen, and J D, Hunger, Strategic Management and Business Policy

(Massachusetts: Edition Wesley, 1983), 49.5 AIMS Research Survey, Best Boards, Business Today (March 7 21, 1999).6 T Thomas, Managing a Business in India (New Delhi: Allied Publications, 1981), l.7 R K Shah, Top Management Effectiveness, unpublished PhD Dissertation (South Gujarat

University, 1990).8 P Vaswani, Strategic Management Process in India , PhD Thesis Surat: South Gujarat

University, 1990.9 Companies covered under the Foreign Exchange Regulation Act (FERA). FERA has now

been replaced with Foreign Exchange Management Act (FEMA).

10 G Johnson, and K Scholes, Exploring Corporate Strategy (1999), 77.

Documents

MB0052-SLM-Unit-02