STUDY MATERIAL FOR M.COM. 4TH SEMESTER

2020

STRATEGIC MANAGEMENT e- Study material prepared by

Mahatma Gandhi Kashi Vidyapith, Varanasi

Prof. K. K. Agarwal Head

Department of Commerce

&

Ayush Kumar Asst. Professor

Department of Commerce

Unit- I

STRATEGY: CONCEPT, MEANING, DEFINITION

Strategy is the determination of the long-term goals and objectives of an enterprise and the adoption

of the courses of action and the allocation of resources necessary for carrying out these goals.

Strategy is management‟s game plan for strengthening the organization‟s position, pleasing

customers, and achieving performance targets.

TYPES OF STRATEGY

Strategy can be formulated on three different levels:

· corporate level

· business unit level

· functional or departmental level.

CORPORATE LEVEL STRATEGY

Corporate level strategy fundamentally is concerned with the selection of businesses in which the

company should compete and with the development and coordination of that portfolio of businesses.

Corporate level strategy is concerned with:

Reach - defining the issues that are corporate responsibilities; these might include

identifying the overall goals of the corporation, the types of businesses in which the

corporation should be involved, and the way in which businesses will be integrated and

managed.

· Competitive Contact - defining where in the corporation competition is to be localized.

Take the case of insurance: In the mid-1990's, Aetna as a corporation was clearly identified

with its commercial and property casualty insurance products. The conglomerate Textron

was not. For Textron, competition in the insurance markets took place specifically at the

business unit level, through its subsidiary, Paul Revere. (Textron divested itself of The Paul

Revere Corporation in 1997.)

· Managing Activities and Business Interrelationships - Corporate strategy seeks to

develop synergies by sharing and coordinating staff and other resources across business

units, investing financial resources across business units, and using business units to

complement other corporate business activities. Igor Ansoff introduced the concept of

synergy to corporate strategy.

Management Practices - Corporations decide how business units are to be governed:

through direct corporate intervention (centralization) or through more or less autonomous

government (decentralization) that relies on persuasion and rewards.

Corporations are responsible for creating value through their businesses. They do so by managing

their portfolio of businesses, ensuring that the businesses are successful over the long-term,

developing business units, and sometimes ensuring that each business is compatible with others in

the portfolio.

BUSINESS UNIT LEVEL STRATEGY

A strategic business unit may be a division, product line, or other profit center that can be planned

independently from the other business units of the firm.

At the business unit level, the strategic issues are less about the coordination of operating units and

more about developing and sustaining a competitive advantage for the goods and services that are

produced. At the business level, the strategy formulation phase deals with:

positioning the business against rivals

anticipating changes in demand and technologies and adjusting the strategy to accommodate

them

influencing the nature of competition through strategic actions such as vertical integration

and through political actions such as lobbying.

Michael Porter identified three generic strategies (cost leadership, differentiation, and focus) that

can be implemented at the business unit level to create a competitive advantage and defend against

the adverse effects of the five forces.

FUNCTIONAL LEVEL STRATEGY

The functional level of the organization is the level of the operating divisions and departments. The

strategic issues at the functional level are related to business processes and the value chain.

Functional level strategies in marketing, finance, operations, human resources, and R&D involve

the development and coordination of resources through which business unit level strategies can be

executed efficiently and effectively.

Functional units of an organization are involved in higher level strategies by providing input into

the business unit level and corporate level strategy, such as providing information on resources and

capabilities on which the higher level strategies can be based. Once the higher-level strategy is

developed, the functional units translate it into discrete action-plans that each department or

division must accomplish for the strategy to succeed.

STRATEGIC MANAGEMENT

Strategic management is defined as the art and science of formulating, implementing, and

evaluating cross-functional decisions that enable the organization to achieve its objectives."

Generally, strategic management is not only related to a single specialization but covers cross-

functional or overall organization.

• Strategic management is a comprehensive area that covers almost all the functional areas of

the organization. It is an umbrella concept of management that comprises all such functional

areas as marketing, finance & account, human resource, and production & operation into a

top level management discipline. Therefore, strategic management has an importance in the

organizational success and failure than any specific functional areas.

• Strategic management deals with organizational level and top level issues whereas

functional or operational level management deals with the specific areas of the business.

• Top-level managers such as Chairman, Managing Director, and corporate level planners

involve more in strategic management process.

• Strategic management relates to setting vision, mission, objectives, and strategies that can be

the guideline to design functional strategies in other functional areas

• Therefore, it is top-level management that paves the way for other functional or operational

management in an organization

Definition:

“The determination of the basic long-term goals & objectives of an enterprise and the adoption of

the course of action and the allocation of resources necessary for carrying out these goals”.

-Chandler

“It is the study of the functions and responsibilities of general management and the problems which

affect the character and success of the total enterprise.” -Learned

NATURE OF STRATEGIC MANAGEMENT

Strategic Management as a Process: Strategic management is basically a process. It has emerged

out of management in other fields where the concept of management is taken as a process for

achieving certain objectives of the organization. Thus, strategic management involves establishing a

framework to perform various processes. The concept of strategic management must embody all

general management principles and practices devoted to strategy formulation and implementation in

the organization.

2. Top Management Function: Strategic management is basically top management function. Thus,

in order to ensure effective top management function, it is necessary that a distinction should be

made between strategic management and operational management which emphasises day-to-day

operations in the organization, so that top management can focus more attention on the strategic

aspect rather than emphasising on operational management.

3. General Management Approach: Strategic management has general management approach.

This approach has three characteristics – (i) This approach uses system frame of reference in dealing

with wholeness of an organization. In this dealing, the emphasis is put on identifying tendencies of

various phenomena in the organization and relationships among these tendencies, (ii) Decision

criteria are based on overall betterment of the organization as a whole, not the criteria used by

functional specialists, (iii) Attempt is made to achieve organizational equilibrium and generation of

synergy. This may be even suboptimal for some departments or units of the organization.

4. Relating Organization to Environment: The focus of strategic management is on relating the

organization to its external environment. This emphasises that there is continuous interaction

between the organization and its environment taking an open systems approach. Thus, the

organization must create adequate channel through which external information will pass to various

points in the organization.

5. Long-Term Issues: Strategic management deals primarily with long-term issues of the

organization that may or may not have an immediate effect. For example, investment in research

and development (R&D) may yield no immediate effect in terms of new product development.

However, this investment may lead to development of new products and, therefore, enhanced

profits.

6. Flexibility: Strategic management has flexibility. This flexibility is required because strategic

management works in the context of environment which is quite dynamic. As a result, many

strategic actions planned maybe either left, postponed, or changed in the light of environmental

requirements.

7. Innovation: Strategic management puts emphasis on innovation which is the process of

introducing new things or new ways of working. Innovation is achieved through new strategic

actions which are quite different from the previous actions. Innovation is required to face

environmental challenges effectively.

STRATEGIC MANAGEMENT MODEL / STRATEGIC PROCESS

In today's highly competitive business environment, budget-oriented planning or forecast-

based planning methods are insufficient for a large corporation to survive and prosper. The firm

must engage in strategic planning that clearly defines objectives and assesses both the internal and

external situation to formulate strategy, implement the strategy, evaluate the progress, and make

adjustments as necessary to stay on track.

A simplified view of the strategic planning process is shown by the following diagram:

Figure: Phases of Strategic management process (Source: Azhar Kozami, 2002)

STRATEGIC INTENT

Strategic intent refers to the purpose for which the organization strives for. It is the philosophical

framework of strategic management process. The hierarchy of strategic intent covers the vision

and mission, business definition and the goals and objectives. The following figure indicates the

hierarchy of the strategic intent framework:

VISION, MISSION, OBJECTIVE AND GOAL

Introduction Management of companies is essential for the systematic growth and development of

the company. The management strategies are formulated on the basis of company mission and

vision. In line with them, the goals and objectives are set for the company. The vision and mission

statements play a significant role in the development of strategies by providing a basis for screening

the strategic options .Thus, understanding the concept of mission, vision, goals, objectives and

related concepts is essential for implementing successful strategic management.

VISION

A vision articulates the position that an organization would like to attain in the distant future. It

helps in creating a common identity and a shared sense of purpose. A good vision is one which

foster risk taking and experimentation. It answers the question: „What will success look like?‟

The vision of an organization must possess the following characteristics:

It is created by consensus.

It forms a company‟s future mental image.

It forms the basis for formulating the mission statement.

A good vision possesses the following features:

It should be inspiring.

It should foster long term thinking.

It should be original and unique.

It should be competitive.

It should be realistic.

Examples:

Walt Disney- Make people happy

Infosys- To be a globally respected organization that provides best of breed business solutions,

leveraging technology, delivered by best-in-class people

MISSION

Mission refers to the purpose of an organization. Mission states the business reason for the

organization's existence. It relates the organization to the society. The mission of an organization

should aim high and at the same time it must be realistic. It should provide a strategic direction for

the organization.

“Mission is the fundamental work given by the society to an organization”.

By Koontz & Q’ Ponnell

“The company mission is defined as the fundamental unique purpose that sets a

business apart from other firms of its type & identifies the scope of its operations in

product & market terms”.

By Pearce & Robinson

In order to be effective, a mission statement should possess the following characteristics:

(i) A mission statement should be realistic and achievable. Impossible statements do not motivate

people.

(ii) It should neither be too broad not be too narrow. If it is broad, it will become meaningless. A

narrower mission statement restricts the activities of organization. The mission statement should

be precise.

(iii) A mission statement should not be ambiguous. It must be clear for action. Highly

philosophical statements do not give clarity.

(iv) A mission statement should be distinct. If it is not distinct, it will not have any impact. Copied

mission statements do not create any impression.

(v) It should have societal linkage. Linking the organization to society will build long term

perspective in a better way.

(vi) It should not be static. To cope up with ever changing environment, dynamic aspects should

be considered.

(vii) It should be motivating for members of the organization and of society. The employees of the

organization may enthuse themselves with mission statement.

(viii) The mission statement should indicate the process of accomplishing objectives.

(ix) The clues to achieve the mission will be the motivating factor.

Example

Company Mission Statement

Mayo To inspire hope and contribute to health and well-

Clinic being by providing the best care to every patient

through integrated clinical practice, education and

research.

NIKE Inc. To Bring Inspiration and innovation to every

athlete in the world.

OBJECTIVE

Objectives are the end results of a planned activity. They are stated in quantifiable terms.

Objectives are stated differently at various levels of management. Objectives play a very important

role in enhancing the efficiency and effectiveness of an organization. The following characteristics

must be present in fairly framed objectives:

They should be specific and unambiguous.

They should have a particular time horizon within which it is expected to be

achieved.

They should be flexible enough so that if changes are required, they may be

incorporated easily.

They should be attainable.

They should be measurable.

They should be understandable

They should help in the achievement of the organization‟s mission and vision.

They should be challenging.

There are many factors which have an impact on the formulation of objectives in an

organization. These factors are kept in mind before making objectives. These factors are

mentioned as below:

Size of the organization.

Level of management

Organization culture

Social responsiveness

Objectives are the milestones expressed in specific terms which a person plan to

achieve in a limited time period. Following are a few examples:

Basis Objectives

Financial Objectives To achieve 10% growth in earning per share.

Market Coverage To have 900 million subscriber base in the

country by 2020.

GOAL

Goals are an intermediate result which is expected to be achieved by a certain span of time. It is a

target which an organization wishes to achieve in long term. It provides the basis for judging the

performance of the organization. Goals may be classified into two categories:

Financial goals: They are related to the return on investment or growth in revenues.

Strategic goals: They focus on the achievement of the competitive advantage in

the industry.

Goals should be well constructed and realistic in nature. Following are the examples of

well framed goals:

Basis Goals

Customer service Provide quality service to the customers at least at par

with the highest standard in

the industry.

Community service Provide job opportunities which promote a higher

standard of living for all

the citizens.

'Strategic Business Unit'

A strategic business unit, popularly known as SBU, is a fully-functional unit of a business

that has its own vision and direction. Typically, a strategic business unit operates as a separate unit,

but it is also an important part of the company. It reports to the headquarters about its operational

status.

Description: A strategic business unit or SBU operates as an independent entity, but it has

to report directly to the headquarters of the organisation about the status of its operation. It operates

independently and is focused on a target market. It is big enough to have its own support functions

such as HR, training departments etc. There are several benefits of having an SBU. This principle

works best for organisations which have multiple product structure. The best example of SBU is

companies like Proctor and Gamble, LG etc. These companies have different product categories

under one roof. For example, LG as a company makes consumer durables.

It makes refrigerators, washing machines, air-conditioners as well as televisions. These

small units are formed as separate SBUs so that revenues, costs as well as profits can be tracked

independently. Once a unit is given an SBU status, it can make its own decisions, investments,

budgets etc. It will be quick to react when the product market takes a shift or changes start

happening before the shift happens.

Unit- II

TYPES OF BUSINESS ENVIRONMENT

Mainly Business Environment divided into two types. These are:

1. Internal Environment

2. External Environment

Internal Environment:

• The factors which can be controlled by company.

• Primary factors which directly affects the growth of organization- man,

material, money, machinery and management.

Types of Internal Environment

Value System

Mission & Objectives

Management Structure and

Nature

Internal Power relationship

Human Resources

Company Image & Brand Equity

EXTERNAL ENVIRONMENT

Those factors which are beyond the control of business enterprise are

included in external environment.

External Environment is divided into two parts

a. Micro Environment: The environment which is close to business and

affects its capacity to work is known as Micro Environment.

b. Macro Environment: It includes factors that create opportunities and

threats to business units. Following are the elements of Macro

Environment.

a) MICRO ENVIRONMENT:

• Suppliers

• Customers

– Wholesalers

– Retailers

– Industries

– Government and Other Institutions

– Foreigners

• Market Intermediaries

– Middleman

– Marketing Agencies

– Financial Intermediaries

– Physical Intermediaries

• Competitors

• Public

b) MACRO ENVIRONMENT

Economic Environment: It is very complex and dynamic in nature

that keeps on changing with the change in policies or political

situations. It has three elements:

– Economic Conditions of Public

– Economic Policies of the country

– Economic System

– Other Economic Factors: Infrastructural Facilities, Banking,

Insurance companies, money markets, capital markets etc.

Political Environment: It affects different business units extensively.

Components are

– Political Belief of Government

– Political Strength of the Country

– Relation with other countries

– Defense and Military Policies

– Centre State Relationship in the Country

– Thinking Opposition Parties towards Business Unit

• Socio-Cultural Environment

– Influence exercised by social and cultural factors, not within the

control of business, is known as Socio-Cultural Environment.

– These factors include: attitude of people to work, family system,

caste system, religion, education, marriage etc.

• Technological Environment

– A systematic application of scientific knowledge to practical task is

known as technology.

– Everyday there has been vast changes in products, services,

lifestyles and living conditions, these changes must be analysed

by every business unit and should adapt these changes.

• Demographic Environment

– It is a study of perspective of population i.e. its size, standard of

living, growth rate, age-sex composition, family size, income level

(upper level, middle level and lower level), education level etc.

– Every business unit must see these features of population and

recognize their various needs and produce accordingly.

• International Environment

– It is particularly important for industries directly depending on import or

exports.

– The factors that affect the business are

• Globalization

• Liberalization

• Foreign business policies

• Cultural exchange

ENVIRONMENT SCANNING AND MONITORING

STEPS IN ENVIRONMENTAL ANALYSIS

TECHNIQUES OF SCANNING

SWOT Analysis

PESTEL Analysis

ETOP Analysis

QUEST Analysis

1. SWOT Analysis

2. PESTEL Analysis

A PESTEL analysis is a

framework or tool used by

marketers to analyze and monitor

the macro-environmental

(external marketing environment)

factors that have an impact on an

organization. The result of which

is used to identify threats and

weaknesses which are used in

a SWOT analysis.

3. Environmental Threat and

Opportunity Profile (ETOP Analysis) developed by “Glueck”

It is a process of dividing an environment into different sectors and than

analyzing the impact of each sector on the organization. It provides a clear

picture to the strategists about which sectors & different factors in each

sector, have a favorable impact on the organization

4. Quick Environmental Scanning Technique Analysis (QUEST)

• QUEST is an environmental scanning technique that is designed to assist

with organizational strategies by keeping adheres to change and its

implications.

• Different steps involved in this technique are as follows:

The process of environmental scanning starts with the observation of

the organization‟s events and trends by strategists.

After observation, important issues that may impact the organization

are considered using environment appraisal.

A report is created by making a summary of these issues and their

impact.

In the final step, planners who are responsible for deciding the

feasibility of the proposed strategy, review reports.

SYNERGY

It is the concept that the value and performance of two companies combined

will be greater than the sum of the separate individual parts. The reasoning

behind strategic alliance is generally given is that two separate companies together

create more value compared to being on an individual stand.

So, Synergy is a term that is most commonly used in the context of mergers and

acquisitions (M&A). Synergy, or the potential financial benefit achieved through

the combining of companies, is often a driving force behind a merger.

CORE COMPETENCE

A core competency is a concept in management theory introduced by C. K.

Prahalad and Gary Hamel. It can be defined as "a harmonized combination of

multiple resources and skills that distinguish a firm in the marketplace" and

therefore are the foundation of companies' competitiveness.

Core competencies fulfill three criteria:

Provides potential access to a wide variety of markets.

Should make a significant contribution to the perceived customer benefits of

the end product.

Difficult to imitate by competitors.

For example, a company's core competencies may include precision mechanics,

fine optics, and micro-electronics. These help it build cameras, but may also be

useful in making other products that require these competencies.