Starategic Management Essay Example
Starategic Management Essay Example

Starategic Management Essay Example

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  • Pages: 36 (9727 words)
  • Published: April 8, 2017
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Chapter - 1 Introduction to Strategic Management The term "Strategic Management" has been used traditionally through new titles such as Business Policy, Business Policy & Strategic Management, Corporate Strategy and Policy Corporate Planning and Policy, and so on. Essentially all are now used extensively and mean more or less the same concepts and coverage. In the initial days typically in early 1920's till the 1930's, managers used to do day-to-day planning methods. Strategic management focus is towards two aspects - first on the strategic process of business and - second on the responsibilities of general management.

Unlike earlier, in this phase the role of the senior management is vital and of utmost importance. Their role would be important in decisions like. • Whether a company either promotes a joint venture or a new division. • Or decides

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to exit or sell some of its business. • Or decides to go on an expansion. • Or takes other similar important actions. All these actions and decisions have a long-term impact on its future operations and status of the company. They are a result of senior management decision-making.

It is the senior management, which is primarily responsible for charting and deciding the future course of action. As per many eminent authors and management thinkers, Strategic Management/business policy is both about the present and about the future in respect of the following: • The study of the function and responsibilities of senior management. • The crucial problems that affect success in the total enterprise. • The decisions that determine the direction of the organization and shape its future. • The choice of purposes of the organization and the molding of

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its character and its identity. The mobilization of resources and their allocation. Strategic Management is wide and encompasses all functions and thus it seeks to integrate the knowledge and experience gained in various functional areas of management. It enables one to understand and make sense of the complex interaction that takes place between different functional areas. In real life there are constraints and complexities, which Strategic Management deals with. In order to develop a theoretical structure of its own, Strategic Management cuts across the narrow functional boundaries.

This in turn helps to create an understanding of how policies are formulated and also in creating an appreciation of the complexities of the environment that the senior management faces in policy formulation. Characteristics that the Indian manager will require in the current scenario will be as follows 1. Managing and understanding Information Technology. 2. Managers need to be oriented towards shareholders value. 3. Need to acquire skills to maximize shareholder value. 4. To foresee the future and track changes in customer expectation thus 5. Take a Strategic perspective. . Intuitive and conceptual ways using sound reasoning and logic as well as instinct and perceptions in decision-making would be needed. 7. Increasingly the success of companies depends on its people, thus People management would be a requirement of Management. 8. They would have to create capability for initiating and managing change through leadership and personal qualities of patience commitment, and perseverance. 9. Managers would have to provide speedy responses to environmental changes through information systems and organizational processes. 0. Lateral thinking. Managers would have to learn to deal with chaotic situations and the complex relationship between decision variables. 11.

Boundaries across business and countries are shrinking. Thus the need for global sensitivity and experience. Managers would have to develop the sensitivity to deal with global managers and cultural preferences, business protocols, and market conditions. 12. Managers would have to develop the courage to make unconventional decisions. 13. Social responsibility.

Managers would have to maintain high ethical standards in business and focus on social responsibility. Strategic management is the process of specifying an organization's objectives, developing policies and plans to achieve these objectives, and allocating resources to implement the policies and plans to achieve the organization's objectives. It is the highest level of managerial activity, usually formulated and by the Board of directors and performed by an organization's Chief Executive Officer (CEO) and executive team. Strategic management provides overall direction to the enterprise. Strategic management is an ongoing process that assesses the business and the industries in which the company is involved; assesses its competitors and sets goals and strategies to meet all existing and potential competitors; and then reassesses each strategy annually or quarterly [i. e. regularly] to determine how it has been implemented and whether it has succeeded or needs replacement by a new strategy to meet changed circumstances, new technology, new competitors, a new economic environment. , or a new social, financial, or political environment. ”

Strategic management is a combination of 1) strategy formulation and 2) strategy implementation. Strategy formulation involves: • Doing a situation analysis, self-evaluation and competitor analysis: both internal and external; both micro-environmental and macro-environmental. • Concurrent with this assessment, objectives are set. This involves crafting vision statements (long term view of a possible future), mission statements (the role that

the organization gives itself in society), overall corporate objectives (both financial and strategic), strategic business unit objectives (both financial and strategic), and tactical objectives. These objectives should, in the light of the situation analysis, suggest a strategic plan. The plan provides the details of how to achieve these objectives. Strategy implementation involves: • Allocation of sufficient resources (financial, personnel, time, technology support) • Establishing a chain of command or some alternative structure (such as cross functional teams) • Assigning responsibility of specific tasks or processes to specific individuals or groups • It also involves managing the process.

This includes monitoring results, comparing to benchmarks and best practices, evaluating the efficacy and efficiency of the process, controlling for variances, and making adjustments to the process as necessary. • When implementing specific programs, this involves acquiring the requisite resources, developing the process, training, process testing, documentation, and integration with (and/or conversion from) legacy processes. Chapter - 2 Understanding Strategy The concept of strategy is central to understanding the process of strategic management.

The term 'strategy' is derived from the Greek word Strategos, which means generalship - the actual direction of military force, as distinct from the governing its deployment. Therefore, the word 'strategy' literally means the art of the general. Strategy in business has taken various connotations, based on studies and views by various experts and management gurus. Some typical decisions that managers may have to look in the course of deciding on strategy may involve situations like • How to face the competition. • Whether to undertake expansion or diversification. • Whether to be broad-based or have focus. How to chart a turnaround. • How to ensure stability

or should we go in for a divestment, etc. Some definitions of strategy are as follows: Alfred Chandler "The determination of the basic 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. " William Glueck was a Distinguished Professor of Management at the University or Georgia till his death in 1980. "A unified, comprehensive and integrated plan designed to assure that the basic objectives of the enterprise are achieved. We note that strategy is basically: • A plan/course of action/decision rules which are leading to particular direction. • The above is related to the company's activities. • It depends on the vision/mission of the company, where it would like to reach from its current position. • It deals with the future, which has uncertainties. • It is concerned with the resources available today and those that will be necessary in the future for implementing a plan or following a course of action. • It is connected to the strategic positioning of a firm. It is about making trade-offs between its different activities, and creating a fit among these activities. A company will need Strategy at various levels, as there is a different need at each level. A company may have different business with a central corporate office. Thus there will be multiple strategies at different levels. Strategic Business Units When a company has different business/portfolio of products, on of the most common way that the company will organize itself will be in the form of Strategic Business units or SBU's as they are popularly known.

In order to segregate

different units or segments, each performing a common set of activities, many companies are organized on the basis of operating divisions or, simply, divisions. These divisions may also be known as profit centres or strategic business units (SBU's). SBUs are normally formed when there are multiple businesses, each which are unique in some way-either in terms of products, in the customers they serve or in the markets they operate. The division is such a way that they are involved in a unique way of business, which can be segregated. Levels of Strategy Thus there is a corporate and then there are SBU's.

The strategy would be looked at these levels i. e. of the corporate and SBU level. We also need to appreciate that there are differences even at functional levels, like marketing, finance, production, etc. Thus we also need functional level strategies, both at the corporate level and also at the SBU level. These need to aligned and integrated. Corporate level strategy is the broad level strategies or you could call the plans of action at the company level to achieve what the company as a whole. It would cover the various strategies and functions performed by different SBU's.

The strategy needs to be in line with the objectives of the company. Thus it would be for allocation of resources to each SBU and the broad level functional strategies. To ensure this there would need to have coordination of different businesses of the SBU's. SBU level (or business) strategy will be line to achieve the objectives for SBUs, which are derived and in line with the corporate/company objective. It would cover allocation of resources among functional

areas along with functional strategies, which again are in line to functional strategies of the corporate level.

There needs to be coordination between the corporate and SBU level both in objectives and functional strategies for optimization. Functional strategy at the SBU level deals with a relatively smaller area, providing objectives for a specific function in that SBU environment, like marketing, finance, production, operations etc. These are the three levels at which strategic plans are made for most companies. But larger companies may need to have strategies at some other levels too.

Large companies like conglomerates, or companies with multiple business in different countries often need a larger level for the group as a whole. Sometimes even relatively smaller companies may often need a set of strategies at a level higher than the corporate level. This could be for what is known as societal strategies. A societal strategy is a generalized view or how the company perceives itself in its role towards the society or even a country or countries, in terms of a particular vision/mission statement, or even a need or a set of needs that it strives to fulfill.

Corporate-level strategies are then derived from the societal strategy. In the dynamic environment and due to the complexities of business, strategies are needed to be set at lower levels i. e. at one step down the functional level, known as operation level strategies. These would be more specific and would deal with specific and would have a well-defined scope. Typically for example, a marketing strategy could be further subdivided into sales strategies, even sales strategies for different segments and markets, pricing, distribution product development and communications and advertising

strategies.

Some of them may be common and some unique to the target markets. The strategies need to have synergies and contribute to the functional objectives of the marketing function. This would then be interlinked with other strategies at the functional level, like those of the finance, production, etc. , functions. Operational Level strategies are derived from Functional Strategies. Functional strategies operate under the SBU-level. SBU-level strategies are put into action under the corporate-level strategy. Corporate level is derived from the societal-level strategy of a corporation.

Issues in Strategic Decision-Making • A Company would have different people in the decision-making at different periods of time. Decisions often require judgements and thus it is important to note that the person-related factors are important in decision-making and the decisions may differ as the persons change. • Again, an individual does not take decisions along. But often there is a tussle in decisions which would be individual versus group decision-making. The decisions taken by the group could be different form those that may be taken by individuals themselves. A Company would need to decide on which criteria it should make its decision. Thus it needs a process of objective setting, which serve as benchmarks for evaluation of the efficiency and effectiveness of the decision-making process. There are three major criteria in for decision-making-the concept of maximization-the concept of satisfying-the concept of incrementalism. Based on the chosen concept strategic decisions will differ. • It is assumed that decision-making is logical and thus there will be rationality in decision-making.

In the context of strategic decision-making, it means that there would be a proper evaluation and then exercising a choice from among various alternative

courses of action in such a way that it may lead to the achievement of the objectives in the best possible manner. • As situations are complex, straightforward thinking may not be effective. Creativity in decision-making may be needed thus the decision must be original and different. But the also based on situation and circumstances there could be variability in decision-making. Strategists and Their Role in strategic Management

The senior management is involved in strategic management. Let us look at the role of each briefly. 1. Role of Board of Directors-they are the supreme authority in a company, who represent the owners/shareholders, sometimes lenders. They are supposed to direct and are responsible for the governance of the company. The Companies Act and other laws also bind them and their actions. The board though is supposed only to direct, they do get involved in a lot of operational issues also. Professionals on BoD help to get new perspectives and provide guidance. They are the link between the company and the environment. 2.

Role of Chief Executive Officer-the most important strategist and responsible for all the aspects right from formulation/implementation to review of strategic management. The CEO is chief architect of organizational purpose, the leader and builder, motivator and mentor. CEO is the link between the company and the BoD and also is responsible for managing the external environment and relationships. 3. Role of Entrepreneurs-they are the ones who start new businesses, are independent in thought and action. Often even internally, a company could promote the entrepreneurial spirit. Thus this view and attitude can also be inside an organization.

Often they provide a sense of direction and are active in

implementation. 4. Role of senior Management-they would either look after strategic management as responsible for certain areas or as part of teams and are answerable to the BoD and the CEO. 5. Role of SBU-level Executives-they would be more focused on their product line/business and also on co-ordination with other SBU and with senior management. They would be more in the implementation role. 6. Role of Corporate Planning Staff-would normally provide administrative support, tools and techniques and be a co-ordination function. 7.

Role of Consultant-often consultants may be hired for a specialized new business or expertise or even to get an unbiased opinion on the business and the strategy. 8. Role of Middle Level Managers-they are the vital link in strategizing and implementation. Though they are not actively involved in formulation of strategies, they are often developed to be the future top management. Chapter - 3 The Strategic Management Process Glueck Strategic Management is a stream of decisions and actions that lead to the development of an effective strategy or strategies to help achieve corporate objectives.

Hofer Strategic Management is the process, which deals with the fundamental organizational renewal and growth with the development of strategies, structures and systems necessary to achieve such renewal and growth, and with the organizational systems needed to effectively manager the strategy formulation and implementation process. Ansoff Strategic Management is the systematic approach to a major and increasingly important responsibility of general management to position and relate the firm to its environment in a way that will assure its continued success and make it secure from surprises.

Sharplin Strategic Management is the formulation and implementation of plans and carrying out of activities relating

to the matters which are of vital, pervasive or continuing importance, to the total organization. Harrison and St. John Strategic Management is the process through which organizations analyze and learn from their internal and external environments, establish strategic direction, create strategies that are intended to help achieve establish goals and execute these strategies, all in an effort to satisfy key organizational stakeholders.

The simple process is as follows: So from the definitions of Strategic Management, we see that. • It is a process. • Leads to formulation of strategy or set of strategies. • Managing the organizational systems. • For achievement of mission, vision, goals and objectives. • There is a relation between organization and the environment. • Environment management is necessary for success. • Learning is needed. The Strategic Planning Process The component tasks of strategic planning are: 1. Clarifying the mission of the corporation This is the first task of the strategic planning process.

The mission is the expression of the corporate intent. The mission justifies the organisation and legitimizes the corporate's role in the society. It tells insiders and outsiders what the corporate stands for. The mission would carry the grand design of the firm and communicate what it wants to be. It will indicate broadly the businesses it will be in and the customer needs it seeks to satiety. The mission is shaped by the capabilities and vision of the corporation's leaders. Defining the business This is a pre-requisite for selecting the right opportunities and steering the firm on the correct path.

For formulating the strategy too, the proper definition of the business is essential. For environment study and search, the business in which

it operates should be defined clearly. 2. Surveying the environment-External and Internal This is central to strategic planning, basically, a firm gathers all relevant information relating to the environment and analyse them in detail. It analyses the macro-environmental factors as well as environmental factors that are specific to the business concerned. Under the macro-environmental factors, it studies the demographic, socio-cultural economic, political and legal environment.

Business specific environmental factors include emerging trends in the industry, structure of the industry, nature of the competition and the scope for invasion by substitute products. Internal appraisal of the firm This is the process of assessing the corporation's capabilities and resources, strengths and weaknesses, core competencies and competitive advantages. The firm also has to examine which of its perceived strengths actually constitutes the competitive advantage for the firm. The firm compares itself against the competition and develops its competitive advantage profile (CAP).

The process of internal appraisal also throws up the capability gaps of the firm; ie. The gaps between its existing capabilities and the needed capabilities for tapping the opportunities spotted through the environmental survey. SWOT Analysis is a strategic planning tool used to evaluate the Strengths, Weaknesses, Opportunities, and Threats involved in a project or in a business venture. It involves specifying the objective of the business venture or project and identifying the internal and external factors that are favorable and unfavorable to achieving that objective. The technique is credited to Albert Humphrey, who ed a research project at Stanford University in the 1960s and 1970s using data from the Fortune 500 companies. If a clear objective has been identified, SWOT analysis can be used to help in the

pursuit of that objective. In this case, SWOTs are: • Strengths: attributes of the organization that are helpful to achieving the objective. • Weaknesses: attributes of the organization that are harmful to achieving the objective. • Opportunities: external conditions that are helpful to achieving the objective. • Threats: external conditions that are harmful to achieving the objective. Strengths and weaknesses Resources: financial, intellectual, location • Customer service • Efficiency • Infrastructure • Quality • Staff • Management • Price • Delivery time • Cost • Capacity • Relationships with customers • Brand strength • Local language knowledge • Ethics • principles • patents • strong brand names • good reputation among customers • cost advantages from proprietary know-how • exclusive access to high grade natural resources • favorable access to distribution networks Opportunities and threats • Political/Legal • Market Trends • Economic condition • Mergers • Joint ventures • Strategic alliances • Expectations of stakeholders Technology • Public expectations • Competitors and competitive actions • Bad PR • Criticism (Editorial) • Global Markets PEST analysis stands for "Political, Economic, Social, and Technological analysis" and describes a framework of macro environmental factors used in environmental scanning. It is also referred to as the STEP, STEEP, PESTEL, PESTLE or LEPEST (or Political, Economic, Socio-cultural, Technological, Legal, Environmental). Recently it was even further extended to STEEPLED, including ethics and demographics. SLEPT analysis is a tool used to analyse a business environment, similar to the PEST and SWOT analysis tools.

SLEPT stands for Social, Legal, Economic, Political and Technological factors. Social factors relate to the habits of the consumer, as well as the status of the general public (for example,

the average age and income of people in a certain area). Legal factors refer to government legislation that places constraints or obligations upon a business; businesses must adapt to changes in the law quickly in order to avoid prosecution. Economic factors are often effected by social changes, for example through booms and slumps in the economy; in a boom most businesses benefit, whereas in a slump most businesses feel a negative effect.

Other economic factors are tied in with legal issues, for example a change in the minimum wage. Political factors are similar to legal changes, except that this relates to changes in government influence in general; for example, businesses situated within the European Union have been affected by legislation passed by the EU and then implemented into the law of their own country. Technological factors play a particularly significant role in modern business, and businesses must be aware of new technology in order to keep up with the rapid changes that are occurring in this field. . Generate Strategic Alternatives, Evaluate and select-Setting the corporate objectives The main task in setting the corporate objectives is to decide the extent of growth the firm wants to achieve. Balancing the opportunities will organization's capabilities and ambitions, the firm figures out its growth objectives. In addition to growth, there are certain other key determinants of corporate success, which apply to all firms: profitability productivity, technology, competitive position, human resources, social responsibility and corporate image.

The objectives are set in a measurable and time bound manner. 4. Formulating the corporate strategy The cost crucial task is formulating, the corporate strategy. The effectiveness of the entire strategic planning process of a

firm is tested and proved by the effectiveness of the corporate strategy it chalks out. While the objectives clarify where the firm wants to go the strategy provides the design to getting there. The main function of the corporate strategy is to provide strategic direction to the firm. It is corporate strategy that ensures the fit between the firm and its environment.

It finally sets the pace of the corporation's total growth, and thereby it's future and overall prospects. It can be stated that primary corporate strategy denotes the firm product market posture. It is the route map chosen for navigating the firm through all the fluctuations and turbulence the firm may face. 5. Implement, Monitoring, feedback and control of the strategy The strategy has to be monitored and adjustments that become necessary have to be brought. Essentially the thing had to be compatibility of the strategy with the environment as well as internal realities.

Organizations sometimes summarize goals and objectives into a mission statement and/or a vision statement: While the existence of a shared mission is extremely useful, many strategy specialists question the requirement for a written mission statement. However, there are many models of strategic planning that start with mission statements, so it is useful to examine them here. • A Mission statement: tells you what the company is now. It concentrates on present; it defines the customer(s), critical processes and it informs you about the desired level of performance. A Vision statement: outlines what a company wants to be. It concentrates on future; it is a source of inspiration; it provides clear decision-making criteria. Many people mistake vision statement for mission statement. The Vision

describes a future identity and the Mission describes why it will be achieved. A Mission statement defines the purpose or broader goal for being in existence or in the business. It serves as an ongoing guide without time frame. The mission can remain the same for decades if crafted well. Vision is more specific in terms of objective and future state.

Vision is related to some form of achievement if successful. For example, "We help transport goods and people efficiently and cost effectively without damaging environment" is a mission statement. Ford's brief but powerful slogan "Quality is Job 1" could count as a mission statement. "We will be one amongst the top three transporters of goods and people in North America by 2010" is a vision statement. It is very concrete and unambiguous goal. A mission statement can resemble a vision statement in a few companies, but that can be a grave mistake. It can confuse people.

The vision statement can galvanize the people to achieve defined objectives, even if they are stretch objectives, provided the vision is SMART (Specific, Measurable, Achievable, Relevant and Time bound). A mission statement provides a path to realize the vision in line with its values. These statements have a direct bearing on the bottom-line and success of the organization. Which comes first? The mission statement or the vision statement? That depends. If you have a new start up business, new program or plan to re engineer your current services, then the vision will guide the mission statement and the rest of the strategic plan.

If you have an established business where the mission is established, then many times, the mission guides the

vision statement and the rest of the strategic plan. Either way, you need to know where you are, your current resources, your current obstacles, and where you want to go - the vision for the future. Features of an effective vision statement may include: • Clarity and lack of ambiguity • Paint a vivid and clear picture, not ambiguous • Describing a bright future (hope) • Memorable and engaging expression • Realistic aspirations, achievable Alignment with organizational values and culture, Rational • Time bound if it talks of achieving any goal or objective In order to become really effective, an organizational vision statement must (the theory states) become assimilated into the organization's culture. Leaders have the responsibility of communicating the vision regularly, creating narratives that illustrate the vision, and acting as role-models by embodying the vision, creating short-term objectives compatible with the vision, and encouraging others to craft their own personal vision compatible with the organization's overall vision.

Benefits of a Vision A vision helps to create a common identity for the entire company and helps to develop a shared sense of purpose. It helps to bond the employees together. They are usually inspiring. Because they are futuristic, they encourage looking far ahead into the future. Thus they also foster risk taking, and focus on building skills and competencies to achieve the vision. It gives a direction of where the company wants to go. Characteristics of a Mission Statement A mission as defined by Peter Drucker says that a mission is stating what a company will be why it exists.

So it is the reason for the existence of the organization. It is the role it wants

to play in society. So a mission should be feasible, realistic and achievable. Tisco wanted to become the world's lowest cost producer. Mission should be clear and precise, so the employees have clarity on what to achieve. Phillips wants to make things better for the benefit of consumers. It should be motivating for the employees so they will put in efforts and give commitment. It should be distinctive and should indicate the strategic aspects the company wants to pursue. Key Elements in Developing a Mission Statement:

Three key elements must be taken into account in developing mission statements: 1) History of the Organization: Critical characteristics and events of the past must be considered in formulating and developing a mission statement. 2) Organization's distinctive competencies: The organization should seek to do what it does best. Once this has been determined, it can incorporate its competency into the mission statement. 3) The organization's environment: The management should identify the opportunities provided and threats/challenges posed by the environment before formulating a mission statement.

Elements of a Mission Statement: 1) The mission statement should specify the products to be produced and/or services to be rendered, markets and/or customer groups to be served, markets and/or customer group to be served and the type of technology. 2) The primary concern for survival and development through profitability. 3) The organizational philosophy in terms of basic beliefs, values, attitudes and aspirations. 4) Management style to be practices. Characteristics/Features of Mission Statement: 1) Market Focus Rather Than Product Focus: Customers are a key factor in determining an organization's mission.

In recent years a key feature of mission statements has been external rather than internal focus. Hence, it

is viewed that, the mission statement should focus on the broad class of needs that the organization is intending to satisfy (external focus) not on the physical product or service that the organization is serving at present. 2) Achievable: The mission statement should realistic/feasible i. e. It should be practically achievable. Therefore the organization should consider any limitations to its resources while formulating its mission statement. ) Motivational: A well defined mission provides a shared sense of purpose. Thus the mission should motivate the employees and managers to work for the organization customers and the society. 4) Specific: The mission statement should be precise and specific and provide direction and guidelines for management's choices between alternative courses of action. Similarly it should not be so narrow as to restrict the management's activities. 5) Clear: The mission statement should be stated in clear terms. 6) Distinctive: The mission statement of one organization should be different from those of similar organizations. ) Indicate Major Components of Strategy Objectives: The mission statement without the objectives and strategies is incomplete. The organization's mission statement, therefore should indicate the objectives and strategies to be employed. 8) Achievement of the Policies: The mission statements of organization's should include major policies they plan to follow in the pursuit of their missions. Functions of a Mission Statement: 1) It should define what the organization is and what the organization aspires to be. 2) It should be limited enough to exclude some ventures and broad enough to allow for creative growth. ) It should distinguish a given organization from all others. 4) It should serve as a framework for evaluating both current and prospective

activities. 5) It should be stated in terms sufficiently clear to be widely understood throughout the organization. Need for a Written Mission Statement 1) To ensure unanimity of purpose within the organization. 2) To provide a basis for motivating the use of organizational resources. 3) To develop a basis, or standard for allocating organizational resources. 4) To establish a general tone or organizational climate. ) To serve as a focal point for those who can identify with the organization's purpose and direction. 6) To facilitate the translation of objectives and goals into a work structure involving the assignment of tasks of responsible elements within the organization. Contents of Mission Statements 1) Company Product or Service: Identifies the goods or services produced by the organization. 2) Markets: Describes the markets and customers that the organization intends to serve. 3) Technology: Techniques and processes by which the company produces goods and/or renders services. ) Philosophy/Core Values: A statement of organizational philosophy commonly appears as part of the mission statement. It reflects the basic beliefs and values that should guide the organizations business. 5) Public Image: Mission statements normally contain some reference to the type of impression that the organization wants to leave with its public. Goals and Objectives Goals are targets than an organization hopes to/wants to accomplish in a future period of time. Goals are clear and unambiguous and often an organization sets a combination of goals, financial and non-financial, quantitative and qualitative.

Goals are more on an organizational level and thus in this sense they are broad in nature. So an organization could set goals on turnover, profits, returns on assets/equity, it could also have market

share customer satisfaction, employee satisfaction, etc as goals. The important thing to remember is that too many goals can be confusing and can often lead to contradictions. So goals should be limited and manageable, clear and consistent with each other: Objectives are the ends that state specifically how the goals shall be achieved. They are concrete and specific in contrast to goals, which are generalized at the company wide level.

In this manner, objectives make the goals operational. While goals may be qualitative, objectives tend to be more quantitative in specification. In this way they are measurable and comparable. Role of Objectives Objectives are set, and in a way they define what the organization has to achieve for its employees, shareholders, customers, etc. Since objectives are set with the environment in mind they define its relationship with its environment. Objectives are framed in line with the vision/mission of the organization. This consistency helps the organization to pursue its vision and mission.

Objectives become the basis for strategic decision-making, as the right strategies need to be formulated and implemented for achieving the objectives. Objectives are invariably quantitative. They provide clear measures and standards for performance. So they help in appraisal, to see if the organization is one the right track or not. Characteristics of Objectives In order that objectives be understood, so that the employees will be able to pursue them objectives should have the following characteristics 1. Understandable. 2. Have a clearly defined time frame. 3. Concrete and specific. 4. Actionable. 5. Measurable. . Controllable. 7. Challenging, not easily achievable. 8. Correlate with different objectives. Factors to be considered Objective-setting When setting objectives the following factors need

to carefully evaluated. Specificity - they should be specific for the level at which they are being set. If they are too broad, they be confused with goals and if too narrow, will be confused with targets. Corporate objectives, SBU level objectives, operational level objectives need to clearly demarked. Multiplicity - Objectives invariably are for different performance areas, hence they need to be multiplicity of objectives.

Periodicity - Need to be formulated for different time frames, typically short term, medium term and long term and should linked and consistent. Verifiability - Ability to check whether achieved or not is important. Thus need the right measures for quantification. Environment - are the objectives taking into account the environment. Also need to check whether they are fulfilling the needs of the stakeholders in the business, like customers shareholders, employees, suppliers, etc. Reality - Are the objectives looking at the reality of the organization's resources and internal constraints, including politics and power relationships.

Critical success factors Critical success factors (CSFs) are sometimes referred to as strategic factors or key factors for success. These are those factors, resources, skills, etc, which are required for success and hence are crucial for the organization. CSFs (or key factors for success) should be treated as a basic business strategy for competing wisely in any industry. For example, a company in the consumer durable industry should have a very good distribution channel and a good market coverage. Without this, the company will not have greater success in the market. Policies:-

Policies are also plans but they are general statements or understandings, which guide thinking in decision-making. Not all policies are "statements"; they often are merely implied

form the actions of managers. The president of a company, for example, may strictly follow-perhaps for convenience-the practice of promoting from within; the practice may then be interpreted as a policy and carefully followed by subordinates. Thus policies define an area within which a decision is to be made and ensures that the decision will be consistent with, and contribute to, an objective.

Policies help decide issues before they become problems, make it unnecessary to analyze the same situation every time it comes up, and unify other plans. Policies ordinarily exist at all levels of the organization, ranging from major company policies to minor policies applicable to smallest segment of the organization. There are many types of policies. Examples include policies of hiring only university-trained engineers or of encouraging employee suggestions for improved cooperation, promoting from within, setting competitive prices etc. Since policies are guides to decision making, it follows that they must allow for some discretion.

Otherwise they would be rules. Procedures:- Procedures are plans that establish a required method of handling future activities they are quides to action, rather than to thinking, and they detail the exact manner in which certain activities must be accomplished. They are chronological sequences of required actions. Procedures often cut across department lines. For example, in a manufacturing company, the procedure for handling orders will involve sales department (for the original order), the production department (for the order to produce goods r authority to release them from stock), the accounting department (for recording the transaction). There, however exists a relationship between procedures and policies. Company policies may grant employee vacation; procedures to implement this policy will provide for scheduling vacations

to avoid disruption of work setting methods and rates of vacation pay, maintaining records to assure each employee of a vacation and spelling out means for applying for the vacation. Rules:- Rules spell out specific actions or non-actions, allowing no discretion. A procedure might be looked upon as sequence of rules.

For example, a procedure governing the handling of orders may incorporate the rule that all orders must be confirmed the day they are received. This rule allows no deviation from a stated course of action and in no way interferes with the rest of the procedures for handling orders. The essence of a rule is that it reflects a managerial decision that some certain action must or must not be taken. Programs:- Programs are combination of goals, policies procedures, rules, task assignment steps to be taken, resources to be employed, and other elements necessary to carry out a given course of action.

They may be as major as an airline's program for acquiring a $400 million fleet of jets or the 5-year program embarked upon by the Ford Motor Company several years ago to improve the status and quality of thousands of its foremen. A primary program may call or many supporting programs and may require many supporting programs. Consider a program for an airport updation. A program for providing the maintenance and operating bases with spare parts and components. Special maintenance facilities must be prepared and maintenance personnel trained.

Pilots and flight engineers must also be trained, flight personnel must be recruited. Advertising programs must give adequate publicity to the new service. Budgets:- A budget is a statement of expected results expressed in numerical terms. It

may be referred to as a "numberized" program. Budget is often called a "profit plan". Although a budget usually implements a program, it may in itself be a program. One company in difficult financial straits installed an elaborate budgetary control program designed not only to control expenditures but also instill cost consciousness in management.

Infact, one of the major advantages of budgeting is that it makes people plan, because a budget is in the form of numbers, it forces precision in planning. Chapter - 5 Corporate - Level Strategies Grand Strategies Corporate level strategies are at the topmost level-for the company as a whole. They are basically about the direction the company intends to pursue in order to achieving its objectives. When we say a company, it could be a small business involved in a single/product/market/business, or a large, multi product, multi location, complex and diversified conglomerate with several different business.

Corporate level strategies deal with major issues like: • Resource allocation among the different businesses of the company • Transferring resources from one set of businesses to others. • Selecting, managing and nurturing a portfolio of businesses. The Corporate level strategies are formulated in such a way that overall corporate objectives are achieved. An analysis based on business definition provides a set of strategic alternatives that an organisation can consider. Dimensions of business definition Defining business along the three dimensions of customer groups, customer functions, and alternative technologies.

Customer groups relate to 'who' is being satisfied, customer needs describe 'what' is being satisfied, and alternative technologies means 'how' the need is being satisfied. A company needs to look at strategic alternatives before selecting any one of them.

Strategic alternatives give a choice of whether to continue or change the business the company is currently in, or improve the efficiency and effectiveness of existing business, with which the company hopes to achieve its corporate objectives in its chosen business.

According to many authors in management, there are four major options/alternatives-also called as grand strategic alternatives. These are: • Stability in existing business. • Expansion in existing business or new business. • Contraction or retrenchment. • A combination of the above three. Stability Strategies When a company attempts only a marginal or incremental improvement of its functional performance by marginally or improving or changing one or more of its businesses, then the stability strategy is adopted.

These could be in terms of their respective customer groups customer functions, and alternative technologies-either singly or collectively. Usually they would serve the same markets with the present products using the existing technology. The aim in this strategy is to consolidate, more slowly and surely, leading the companies to marginally improve their performance, or at least letting them remain where they are. This may be because they face a volatile and hostile environment and/or a highly competitive market.

It could also because it is less risky, involves fewer changes and people feel comfortable with things, as they are in which the environment faced is relatively stable. When there is lack of resources, confidence then also stability may be adopted, as expansion may be perceived as being threatening and risky. Sometimes after periods of continuous growth or rapid changes and expansion, consolidation is sought through stabilizing. The following options may be available in Stability strategies. Maintain strategies (also known as No Change

strategies) Here the company will be choice, maintain its position, and not do anything new.

It may appear that there is no strategy at all. If the environment is stable, existing competition is manageable and also stable, this may work. However this is a rare situation and thus this strategy may be dangerous in current markets, where there is intense competition and also environment is dynamic Small Exploration strategy (Pause/proceed with Caution strategies) This is typical strategy taken by companies in gauging new products and markets, where they will explore tentatively by small test markets, launches to gauge the reaction of the customers. This normally would be done before an expansion strategy.

It could be also to gear up the entire company in the new direction and also could help the company to learn before they go full-fledged in the market. Consolidation/Better Profit strategies Here the company tries to initiate a lot internal actions like cost cutting, quality improvements all, which will definitely result in a positive payoff, there is practically no risk at all, and the outcomes will always be beneficial. This is often undertaken when the company is unsure of the external markets and waiting and watching for the right moments to undertake some other strategy.

Quite often, this is also an ongoing strategy along with other strategies, for many companies to remain competitive. Expansion Strategies Growth is accepted as the most easly way of life. All organizations look for expansion, thus expansion strategies are the most popular and common corporate strategies. Companies aim for substantial growth. A growing economy, burgeoning markets, customers seeking new ways of need satisfaction, and emerging technologies offer ample opportunities for

companies to seek expansion. When a company follows the expansion strategy, it aims at high growth.

This can be done by a large increase in one or more of its businesses. The scope of the business is broadened in terms of their respective customer groups, customer functions, and alternative technologies-singly or jointly-in order to improve its overall performance. An expansion strategy has a significant and profound impact on a company's internal structure and processes, leading to changes in most of the aspects of internal functioning. Expansion strategies are more risky as compared to stability strategies. Expansion strategy is when environment demands increase in pace of activity, due to increase in market size and large pportunities being available. Management feels more satisfied with the prospects of growth from expansion, it is a matter of pride for employees to the chief executives in working for companies perceived to be growth-oriented. Alternatively after a long time in the business, companies often feel that they can take advantage from their experience to go in for expansion. There may be enough resources generated from existing operations that companies feel that the best way to utilize these resources is to go in for expansion. Expansion strategies can be undertaken in a variety of ways.

Expansion through Concentration For expansion, concentration is often the first-preference strategy for a company. The simple reason for this is that it would like to do more of what it is already doing. A company that is familiar with an industry would naturally like to invest more in known businesses rather than unknown ones. Each industry is unique in the sense that there are established way of doing thing.

Concentration involves converging resources in one or more of a company's business in terms of their respective customer needs, customer functions, or alternative technologies either singly or jointly.

The aim is to have expansion. Concentration strategies are also known as intensification, focus or specialization strategies. Concentration strategies involve investment of larger resources in a product line for an identified market with the help of proven technology. This may be done by various means. A company may attempt market penetration type of concentration, or it may try attracting new users for existing products resulting in a market development type of concentration. Alternatively it may introduce newer products existing markets by concentration on product development.

Concentration strategies have several advantages • Concentration involves fewer organizational changes. • It is less threatening and more comfortable staying with present business. • It also enables the company to specialize by gaining an in-depth knowledge of these businesses and thus master. • Intense focusing of resources helps create the conditions for a company to develop a competitive advantage. • Systems and processes within the form are easily developed. • The decision-making has a high level of predictability. • Past experience s valuable, as it is replicable. Limitations of Concentration strategies • Firstly, concentration strategies are heavily dependent on the industry, so adverse conditions in an industry can and do affect companies if they are intensely concentrated. • Secondly, factors such as product obsolescence, fickleness of markets, and emergence of newer technologies can be threats. • Thirdly, doing too much of a known thing may create an organizational inertia; managers may not be able to sustain interest and find the work less challenging and

less stimulating. Finally, concentration strategies may lead to cash flow problems that may pose a dilemma before a company. For expansion through concentration large cash inflows are required for building up assets while the businesses are growing. But when these businesses mature, company often faces a cash surplus with little scope for investing in the present businesses. Expansion through Integration Integration basically means combining activities on the basis of the value chain related to the present activity of a company.

Sets of interlinked activities performed by an organisation right from the procurement of basic raw materials right down to the marketing of finished products to the ultimate consumers is a value chain. So a company may more up or down the value chain and expands their business. This helps it to concentrate more comprehensively on the customer groups and needs than it is already serving. Integration results in a widening of the scope of the business definition of a company. Integration is also a part of diversification strategies as it involves doing something different from what the company has been doing previously.

Typically in process-based industries such as petrochemicals, steel, textiles or hydrocarbons, we see enough examples of integrated companies. These companies deal with products with a value chain extending from the basic raw materials to the ultimate consumer. One of the best examples is the Reliance group. Companies operating at one end of the value chain attempt to move up or down in the process while integrating activities adjacent to their present activities. There are certain conditions under which a company adopts integration strategies. Most common condition is a 'make or buy' decision.

Transaction cost economics, a

branch of study in the economics of transactions and their costs helps to explain the situation where integration strategies are feasible. The cost of making the items used in the manufacture of one's own products is to be evaluated against the cost of procuring them from suppliers. If the cost of making is less than the cost of procurement then the company moves up the value chain to make the items itself. Likewise, if the cost of selling the finished products is lesser than the price paid to the sellers to do the same thing then it is profitable for the company to move down on the value chain.

In both these cases the company adopts an integration strategy. There are two types of integration-vertical and horizontal Vertical integration: Vertical integration could be of two types: backward and forward integration. Backward integration means retreating to the source of raw materials-in simple terms becoming your own supplier-while forward integration moves the organization nearer to the ultimate customer-in simple terms becoming your own customer.

When an organization starts making new products that serve its own needs, vertical integration takes place. In other words, any new activity undertaken with the purpose of either supplying inputs (such as raw materials, an automobile company going in for a steel mill, this is backward integration) or serving as a customer for outputs (such as, marketing of company's product, for example, Titan going into setting their own retail outlets-this is forward integration) is vertical integration. Horizontal Integration:

When a company starts serving the same customers that it knows very well with additional products that are different from the earlier products in any of the terms

of their respective customer needs, customer functions, or alternative technologies, either singly or jointly, it is horizontal integration. Simple example, a hardware manufacturer starts supplying software also, a car manufacturer getting into vehicle insurance or selling fuel. Expansion through Diversification Diversification is a much-debated strategy and involves all the dimensions of strategic alternatives.

Diversification involves a drastic change in the business in terms of customer functions, customer groups, or alternative technologies of one or more of a company's businesses in isolation or in combination. Different types of diversification strategies Concentric diversification: When an organisation takes up an activity in such a manner that it is related to the existing business, it is called concentric diversification. Conglomerate diversification: When an organisation undertakes a strategy which requires taking up those activities which are unrelated to the existing business, it is called conglomerate diversification.

Why are diversification strategies adopted? As you will note, there are may reasons why organizations adopt diversification strategies. The three basic and important reasons are: • They minimize risk by spreading it over several businesses. • Used to capitalize on organizational strengths or minimize weaknesses. • This may be the only way out if growth in existing businesses is blocked due to environmental and regulatory factors. Expansion through Cooperation Cooperative strategies could be of the following types: Mergers For a merger to take place, two organizations are needed. One is the buyer organization and the other is the seller.

Both these types of organization have a set of reasons on the basis of which they merge. Why the buyer wishes to merge - to increase the value of the organization's stock - to increase the growth rate

and make a good investment - to improve stability of earning and sales - to balance, complete, or diversify product line - to reduce competition - to avail tax concessions and benefits - to take advantages of synergy. Why the seller wishes to merge - to increase the value of the owner's stock and investment - to increase the growth rate - to acquire resources to stabilize operations - to benefit from tax concessions.

Important issues in mergers: • Strategic issues - whether the companies have synergies. • Financial issues - the right valuation. • Managerial issues - integration of two management. • Legal issues in mergers - laws to be adhered to. Joint venture strategies Conditions for joint ventures: May be useful to gain access to a new business under following conditions. • Activity is uneconomical for one organization alone. • Risk of business has to be shared and, is reduced for the participating companies. • Distinctive competence of two or more organizations can be brought together. When setting up an organization requires surmounting hurdles, such as, import quota tariffs, nationalistic - political interest, and cultural roadblocks. Joint ventures are common within industries and in various countries. But they are especially useful for entering international markets. Strategic Alliances: A strategic alliance is one when two or more entities join hands for mutual benefit. They unite to pursue a set of agreed goals. They are interdependent for these goals, but are otherwise independent.

The entities share the benefits of the alliance and control over the performance of interdependent tasks and contribute on a continuing basis in one or more key strategic areas, for example, marketing, technology, etc.

A strategic alliance is therefore a cooperative arrangement between two or more companies where a common strategy is developed in unison and all parties adopt a win-win attitude. The relationship is reciprocal, with each partner prepared to share specific strengths with each other. There is a pooling of resources investments, and risks occurs for mutual (rather than individual) gain.

This could help in entering new markets, reducing manufacturing costs, developing and diffusing technology etc. Managing Strategic Alliances: A strategic alliance is a difficult cooperative strategy to manage. Some of the principles to manage are- 1. Clearly define a strategy and assign responsibilities. 2. Phase in the relationship between the partners. 3. Blend the cultures of the partners. 4. Provide for an exit strategy. Types of International strategies: Companies need larger markets to survive. So one way is to expand the boundaries of the market beyond countries. But conditions in the markets around the world are different.

Stopford and Wells's International Structure Model Stopford and Wells suggest that worldwide companies typically manage their international operations through an international division at an early stage of foreign expansion, when both foreign sales and diversity of products sold abroad are limited. Subsequently, some companies expand their sales abroad without significantly increasing foreign product diversity, tend to adopt an area structure. Other companies, facing substantial increase in foreign product diversity, tend to adopt the worldwide product division structure. Finally when both are high companies resort to the global matrix.

Most companies that experimented with this structure eventually returned to a more conventional structure with clear lines of responsibility being given to geographic managers as the global matrix prevented the resolution of difference among

managers with conflicting views and overlapping responsibilities. There are two sets of factors that make a company's decision to adopt international strategies difficult: The economies of scale thus cost pressures for global competitiveness. The pressures for local responsiveness to adapt to different markets. Cost pressures denote the requirement of large volumes to minimize its unit costs.

Pressures for local responsiveness makes a company tailor its strategies to respond to national-level differences in terms of variables like customer preferences and tastes, government policies or business practices. These two factors are contradictory in nature. When a company creates value by transferring products and services to foreign markets where these products and services are not available, it is adopting an international strategy. International company succeeds by maintaining a tight control over its overseas operation offers standardized products and services in different countries with little or no differentiation.

Most international companies, such as GE, Coca-Cola, IBM, Kellogg, Proctor and Gamble Microsoft and several others adopt their strategy for the different countries they operate in. Companies that have high level of local responsiveness by matching their products and services offerings to the national conditions operating in the countries they operate in are adopting a multinational strategy. The multinational companies extensively customize their products and services according to the local conditions operating in the different countries, leading to a high-cost structure.

Examples are Unilever and Phillips. Companies when they rely on a low-cost approach based on reaping the benefits of experience-curve effects and location economics and offering standardized products and services across different countries are adopting a global strategy. The global company focuses intensively on a low-cost structure by leveraging their expertise in providing

certain products and services and concentrating the production of these standardized products and services at a few favourable locations around the world.

These products are services are offered in an undifferentiated manner in all countries the global company operates in, usually at competitive prices. Three different organization models: 1. Multinational organization model: consists of a decentralized federation of assets and responsibilities, management process with simple financial control systems overlaid on informal personal coordination. 2. International organizational mode: structure resembles multinational organization but subsidiaries are more dependent on the center. 3.

Global organizational model: combination of centralized hub configuration, dependent and tightly controlled subsidiaries and a management mentality that saw the world as a single economic entity. Each of the above have advantages and disadvantages. For a company to be successful in the international markets, they will need to go in for a transnational strategy. They will need a combined approach of low-cost and high local responsiveness simultaneously for their products and services. Dealing with these two often-contradictory objectives is difficult and cal

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