Strategic Management

Unit - I
Basic Elements of Strategic Management Process

1) Environmental Scanning

Monitoring, evaluating and disseminating of information from the external and internal
environment.

2) SWOT Analysis
3) Mission - What purpose the organization is existence.
4) Objective - These are the end results of planned activity.

Three types of strategy

Corporate Strategy

Stability, growth, and retrenchment of a corporate company’s over all direction in terms of its
general attitude toward growth of management of its various product lines.

Business Strategy

It occurs at the business unit or product level.

Functional Strategy

Developing and nurturing distinctive competence.

Policies

Broad guide line for decision making.

Strategy Implementation

Strategies and policies put into action through the development programs, budgets and
procedures.

Programs

It is a statement of the activities or steps needed to accomplish a single use plan.

Budgets

Corporation programs in terms of dollars.

Procedures

System of sequential steps or techniques that describe in detail how a particular task or job to
be done.

Evaluation and control

Which corporate activities and performance results are monitored so that actual performance
can be compared with desired performance.

Strategic decision process

Entrepreneurial mode

Decision made by one powerful individual, will be large and bold decisions.

Adaptive mode

Decision making mode is characterized by reactive solutions to existing problems, rather

than proactive search for new opportunities.

Planning mode

Systematic gathering for appropriate information for situation analysis.

Eight steps

1) Evaluate current performance results.

2) Review corporate governance – performance of the firm’s board of directors and top
management.
3) Scan and assess the external environment
4) Scan and assess the internal corporate environment to determine the strategic factors
that are strengths and weaknesses.
5) Analyze strategic factors.
6) Generate evaluate and select the best alternative strategy.
7) Implement selected strategies.
8) Evaluate Implemented strategies.

Corporate governance and Social Responsibility

Corporate Governance

The term CG refers to the relationship among these three groups in determining the direction
and performance of the corporation. (Azar - 46)
Consideration of the Indian Industry (CII), it deals with laws, procedures, practices and
implicit rules that determine a company’s ability to take managerial decisions.

Social Responsibility

A private corporation has responsibilities to society that extend beyond making a profit,
economic, legal, ethical, discretionary.

Unit – II
Environment

External environment

1. Economic
2. Technological
3. Political – legal
4. Social – cultural

Approaches (Azar 119)

Systematic Approach

Environmental scanning is collected systematically from Govt. policies, changes in legislation

and regulations

Adhoc Approach

Organization may conduct special surveys and studies to deal with specific environmental issues
from time to time.

Processed – form Approach

An organization uses information in a processed form, available form, available from different
sources both inside and outside organization.

Sources of Information for Environmental Scanning

1. Documentary or secondary sources of information like publications, newspapers,

magazines, journals.
2. Mass media such as radio, television etc,
3. Internal sources such as company files, documents, Mgt information systems.
4. External agencies like customers, marketing intermediates, suppliers, trade associations.
5. Formal studies from employees, market research agencies, consultants and educational
institutions.
6. Spying and surveillance – Ex-employees of competitors, rival companies.

Techniques for environment scanning by Nanus

Quest  Quick Environmental scanning technique.

Four steps

1. Observe major events and trends in industry.

2. Then they speculate on a wide range of important issues that might affect the future on
their organization.
3. Prepare the report summarizing the major issues and their implications.
4. Report and scenarios are reviewed by a group of strategists who identify feasible strategic
options to deal with the evolving environment.

Factors Affecting Environmental Appraisal

1. Strategist related factors – Strategist characteristic such as age, education, experience,

motivation level, ability to withstand time pressures etc.,
2. Organization related factors – Nature of business of the organization in its age, share,
complexity, nature of its market.
3. Environment related factors – Its complexity, volatility, hostility, and diversity.

Structure the Environmental appraisal

By help of environmental threats and opportunities profile.

Porter’s five model

I) Industry structure II) Positioning of a firm in the industry.

1. Threat of new entrants.

2. Threat of substitute products or services.
3. The bargaining power of suppliers.
4. The bargaining power of buyers.
5. The rivalry among the existing competitors in an industry.
II) Positioning of a firm.

There are two variables – Competitive advantage and competitive scope.

In competitive advantage we again have two factors as follows,

 Lower cost and
 Differentiation.

Meaning/ strategic advantage

They are the result of organizational activities leading to rewards in terms of financial
parameters, such as profit or shareholder value, or non financial parameters such as market share
or reputation. It is compared with historical performance with current performance.

1. Cost leadership (lower cost/broad target)

2. Differentiation
3. Focus(lower cost or differentiation/ narrow target)

Cost leadership/Low cost strategy (Azar 230)

When the competitive advantage of a firm lies in a lower cost of products or services related to
what the competitors have to offer, it is termed as cost leadership.

Differentiation business strategy/Differentiation strategy

Firms offer special feature products, which the competitors who are not able or willing to offer
the special features.

Ex – captain cook salt – with iodine, free low price.

Focus Business strategy

It is called as niche strategies, also called as narrow segmentation customers. It focus on age,
gender, income, occupation etc..,
ex- Rapidesc English learning books.

Globalisation

Integration of country’s economy with the global economy. It is performed in several ways like
enhancing in ward flow of foreign funds, and technology, opening up the system of trade and
investments, and internationalizing markets and corporations in general.

Ex- cross culture , cross borders,

Impact of Globalization.

 Globalization, its process, content and direction.

 Global economic forces, organization blocs, financial system, information systems,
communication network, legal system, competitiveness.

Porter’s four national characteristics.

Factor conditions – such as natural resources, raw materials, labour.

Demand conditions – the nature and size of the buyer needs in the domestic market.

Related and supporting industries

Firm strategy, structure, and rivalry – how firms are created, organized and managed, and the
nature of domestic competitions.

Industry structure

Porter defines two namely industry structure and positioning of a firm.

Resource Allocation:

It means the procurement and commitment of financial, physical and human resource to strategic
tasks for the achievement of organizational objectives. It is a both one time and a continuous
process.

Approaches to Resource Allocation

1) Top Down Approach

2) Bottom up approach
3) Mix of the above/ strategic budgeting.

Top down Approach

Resource are distributed through a process of segregation down to the operating levels.
Board of directors the CEO or MD, executive committee could decide the requirements and
distribute resources accordingly. It is adopted in Entreprenenal mode.

Bottom up approach:

Resources are aloocated ater a process of aggregating form operating level.

Factors affecting resource allocation:

1) Objectives of the organization

2) Preference of dominant strategies
3) Internal politics
4) External influences

Difficulties in Resource Allocation:

1) Scarcity of Resource :  financial , physical and human resources are hard to find

2) Restictions on generating resources for newer units.

Generic business startegy(Azor 227)

Competitive scope could be broad target or a narrow target.

Distinctive competence(Azor 134)

It is any advantage a company has over its competitors because it can do something which they
cannot or it can do something better they can .

Core Competency:

Gain greater currency and popularity.

Organizational Capability(136)

It is the inherent capacity or potential of an organization to use its strength and overcome its
weakness in order to explicit opportunites and face threats in the external environment.

Organizational capability factors:

Capabilities are most often developed specific functional areas such as marketing operations or
in a part of functional area such as distribution or R&D.
Organization capability factors are:

Strategic factors, strategic advantage factors, corporate factors and so on.

Capability factors in Internal Environment

Finance, marketing, operations, personal, information and general management areas.

Financial capability

It relates to availability if usage and management of funds.

Factors influencing a financial capability

1) Factors related to source of funds

2) Factors related to usage of funds
3) Factors related to management of funds.

Strength to support financial capability

1) access to financial resources

2) amicable relationship with financial institutions.
3) High level of credit worthiness
4) Efficient capital budgeting system

Marketing capability

It relates to pricing, promotion and distribution of products and services.

Factors influencing

1) Product related factors

2) Price related factors
3) Place related factors
4) Promotional related factors

Strengths:

1) Wide variety of products

2) Better quality of products
3) Sharply focused positioning
4) Price protection due to the government policy.
Operations capability:

It relates to the production of products or services. The use of material resources

Influence factors:

1. Factors related to production system

2. Factors related to the operations and control system
3. Factors related to the operations and R&D system

Strengths:

1. High level of capacity utilization

2. Favorable plant location
3. High degree of vertical integration
4. Reliable sources of supply

Personnel capability:

It is related to the existence and use of human resources and skills, and allied aspects

Factors influencing:

1. Factors related to the personnel system

2. Factors related to the organizational and employees characteristics
3. Factors related to industrial relations

Strengths:

1. Genuine concern for human resource management

2. Efficient and effective personnel systems
3. Excellent training opportunities and facilities
4. Congenial working environment

Information management capability:

It relates to the design and management of the flow of information from outside into and within
an organization for the purpose of decision-makin
Strengths:

1. Ease and convenience of access to information sources

2. Wide spread use of computerized information system
3. Availability and operability of high-tech environment

General management capability:

If relates to the integration, coordination, and direction of the functional capabilities towards
common goals

1) Factors related to the general management system

Strategy, formulation, and implementation machinery, strategy evaluation system

2) Factors related to general mangers

Values, personal goals, competence capacity for work, track record

3) Factors related to external relationships

Rapport with the government, regulatory agencies, and financial institutions, public relations

4) Factors related to organizational climate

Organizational culture, use of power, management change

Strengths:

1. Effective system for corporate planning

2. Entrepreneurial orientation
3. Good rapport with the government and bureaucracy
4. Favorable corporate image
Strategic Management

Unit III

Functional level strategies:

It deals with a relatively restricted plan which provides the objectives for a specific function. It
derived from business and corporate strategies

Vertical fit:

Congruence and coordination takes place different levels of strategies is vertical fit

Horizontal fit:

There has to be congruence and coordination among the different activities, taking place at the
same level is horizontal fit

Functional plans and policies:

Plans are formulated o select a course of action while policies are required to act as guidelines to
these actions

Functional mangers need guidance from the corporate and business strategies in order to make
decisions. Functional plans tell the functional mangers what has to be done, while functional
policies state how the plans are to be implemented

Need for functional plans and policies:

1) Strategic decisions are implemented by all parts of an organization

2) Controlling activities in the different functional areas at business
3) Coordination across the different functions takes place where necessary.

DEVELOPMENT OF FUNCTIONAL PLANS & POLICIES

The development of functional plans and policies is aimed at making the strategies
formulated at the top management level, practically feasible at the functional level.

It ranges from formal to the informal.

Larger organizations and complex organizations have the formal plans and policies
that means all published in company manuals and documents.

Smaller firms with simple operations in informal.

BUSINESS LEVEL STRATERGY / COMPETATIVE STRATERGY

Business strategies are courses of action adopted by a firm for each of its business,
separately to serve the identified customers groups and provide value to the by a satisfaction of
their needs.

CORPORATE STRATERGY(AZAR 166)

These are basically about the choice of direction that a firm adopts in order to achieve its
objective.

GRAND STRATEGY

According to Glueck there are four strategy alternatives

 Stability
 Expansion
 Retrenchment
 Combinations of these three strategies are termed as grand strategies.

STABILITY STRATEGIES

It is adopted by an organization when it attempts at an incremental improvement of its

functional performance by marginally changing one or more of its business terms of their
respective customers groups, customer functions and alternative technologies.

Eg: A copier machine company provides better sales services to its existing customers to
improve its company and product image and increase the sale of accessories .

EXPANSION STRATEGIES

When an organization aims at high growth substantially broadening the scope of one or
more of its business in terms of their respective customer groups, functions and alternative
technologies single or jointly.

Eg: A printing firm changes from the traditional utter press printing desktop publishing in
order to increase its production and efficiency.

RETRENCHMENT STRATEGIES

When an organization aims at a contraction of activities through substantial reduction or

the elimination of the scope of one or more of the business.

It involves total or partial withdrawal from either a customer group, customer function or
the use of an alternative strategy.
Eg: A corporate hospital decides to focus only on specially treatment and realize higher
revenues by reducing its commitment to general cases which are typical has practical to deal
with.

Combination Strategy:

When an organization adopts a mixture of the above strategies.

Combination Strategies are the Complex Solutions that strategies have to offer when
faced with the difficulties of the real – life business.

Ex: A Paint Company offering decorative paints to provide a wider variety to its customers
(stability) and expands its product range to include industrial and automotive paints (expansion).
Simultaneously, it decides to close down the division which undertakes large scale painting
contracts (Retrenchment).

Dimensions of Grand Strategies:

1. Internal/External Dimension
2. Related/Unrelated Dimension
3. Horizontal/Vertical Dimension
4. Active/Passive Dimension

Vertical Integration

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) or serving as a customer for outputs (such as marketing firm’s product) is
called Vertical Integration.

It could be two ways

1. Backward
2. Forward
Backward means redirecting the source of raw materials and forward means the organization
nearer to the ultimate customer.

Horizontal Integration

When an organization takes up the same type of products at the same level of production or
marketing process.

Ex: When a suitcase manufacturing company take over other suitcase manufacturing company.
Diversification:

These strategies involve all the dimensions of strategic alternatives. It involve internal or
external, related or unrelated, horizontal or vertical, and active or passive dimensions – either
single or collectively.

Different Types

1. Concentric diversification
2. Conglomerate diversification

Concentric Diversification

When an organization takes up an activity in such a manner that it is related to the existing
business definition of one or more of a firm’s businesses.

It may be three types

1. Marketing- related concentric diversification

When a similar type of product or service is provided with the help of unrelated
technology.

Ex: Sewing Machine Company diversifies into kitchenware and house hold appliances.

2. Technology- related concentric diversification

When a new type of product or service is provided with the help of related technology.
Ex: Leasing firm offers hire purchasing services to institutional customers also start
consumer financing

3. Marketing- end Technology related

When a similar type of product (or service) is provided with the help of related
technology.

Ex: Raincoat manufacturer makes other rubber based items such as rubber gloves, water
proof shoes etc..,

Conglomerate Diversification

When an organization adopts strategy which requires taking up those activities which are
unrelated to the existing business.

Ex: ITC Cigarette Industry  Hotel Industry

Reason for Diversification Strategy

1. Minimize risk
2. Capitalize original strength or minimize weaknesses
3. It is the only way out if growth in existing businesses is blocked due to environmental
and regulatory factors.

Expansion through Cooperation

Cooperative strategy types

1. Mergers
2. Takeover/acquisitions
3. Joint ventures
4. Strategic alliances

Mergers

It takes place when the objective of the buyer firm and the seller firm are matched to a
larger extent.

Ex: TVS Whirlpool Ltd with Whirlpool India Ltd.

Takeover

Takeover is a common way for acquisition and may be defined “As the attempt of one
firm to acquire ownership or control over another firm against the wishes of the stock holder.”

JOINT VENTURES

When an independent firm is created by at least two other firms. In an era of globalization, Joint
ventures have proved to be an invaluable strategy for companies.

STRATEGIC ALLIANCES

It becomes quite popular as strategic alternatives for firms looking for cooperation among
national as well as International Partners.
TYPES OF MERGER
HORIZONTAL MERGER

Two or more organization in same business.

Ex: Making footwear combines with another footwear company.

VERTICAL MERGER

Combination of two or more organization not necessarily in the same business.

Ex: Footwear company combines with a chain of shoe retail stores.

CONCENTRIC MERGER

Combination of two or more organization related to each other in terms of customer functions,
customer groups or the alternative technologies used.

Ex: Footwear Company combined with hosiery firm.

CONGLOMERATE MERGER

Combination of two or more organizations unrelated to each other.

Ex: Footwear Company combined with pharmaceuticals.

TYPE OF STRATEGIC ALLIANCES

PROCOMPETITIVE ALLIANCES (Low Interaction/Low conflict)

These are general Inter Industry, vertical value chain relationship between manufactures and
their suppliers or distributors, suppliers and buyers entering upon long term contracts.

NON COMPETITITIVE ALLIANCES(High Interaction/Low conflict)

These are intra industry partnership between non competitive firms. It have the same type of
Industry.

COMPETITIVE ALLIANCE(High Interaction/High conflict)

Partnership that bring two rival firms in a cooperative arrangement where intense Interaction is
necessary. These alliances may be Inter-Intra Industry.
Ex: Several foreign companies operating independently in India and also entering into a
cooperative management with local rival companies for specific purposes.

PRECOMPETITIVE ALLIANCE(Low interaction/High conflict)

These Partnership bring two firms from different, often unrelated industries to work on well
defined activities, such as new technology development; new product development.

REASONS FOR STRATEGIC ALLIANCES:

1. Enhance their organizational capabilities.

2. Entering new markets.
3. Reducing manufacturing cost.
4. Developing and diffusing technology.

MANAGE STRATEGIC ALLIANCE

It’s difficult to manage strategic alliance

Walters, Peters & Dess

1. Clearly define a strategy and assign responsibilities.

2. Phase in the relationship between Partners.

3. Blend the cultures of the Partners.

4. Provide for an exit strategy.

CORPORATE RESTRUCTURING

Restructuring means revamping, regrouping, rationalization.

At micro level three connotations.

1. Corporate or Business level: In order to create more profitable enterprise.

2. Financial Restructuring: Changes in equity pattern, equity holdings and cross holding
pattern, debt servicing schedule etc.

3. Organisation Restructuring: Changes in organization structure like reducing hierarchies,

employees, and redesignation.
BALANCE SCORE CARD

Measure the Performance of an organization is that of the balance score card.

It gives comprehensive view of the business to top level managers. It includes 4:

1. Customer Perspective ->how do customer see?

2. Internal business Perspective ->What must we exceed at?

3) Innovation & learning perspective -> can we continue and improve and create value.

4) Financial Perspective -> How do we look at share holder?

UNIT IV

ORGANISATIONAL STRUCTURE

ENTREPRENURIAL STRUCTURE

Suitable for managed by one person.

Owner manager

Employees

Merits:

1. Quick decision making.

2. Timely response to environment changes.

Demerits:

1. Attention may divert.

FUNCTIONAL STRUCTURE

Distribute the decision making powers.

Merits:

1. Specialization Increases.
2. Top management gets time for decision making.
3.
Demerits:

1. Creates difficulty in coordination.

2. Leads to functional and line staff conflicts.

DIVISIONAL STRUCTURE

In this work is divided on the basis of product lines, type of customer served, or
geographic area covered and then separate divisions or groups created and placed under the
divisional level management.

Merits

1. Generates quick response to environmental changes.

2. Enables the top management to focus on strategic matters.

Demerits

1. Problems in allocation of resources and corporate over bench costs.

STRATEGIC BUINESS UNIT (AZAR 324)

In any part of business organization which is treated separately for strategic management
purposes. When an organization face difficulty in managing divisional operations due to an
increasing diversity, size and number of divisions.

MATRIC STRUCTURE

This type of structure is created by assigning functional specialists to work on a special

project or a new product service for the donation of the project; the specialists from different area
form a group or team and report to a team leader simultaneously. They may also work in their
respective parent departments. Once the project is completed , the team members revert to their
parent departments.
UNIT IV (Azar-325)

Merits

1. Specialization gets importance.

2. Provides good exposure to specialists in general management.

Demerits

1. Requires a high level of vertical and horizontal combination.

2. Shared authority may create communication problems.

Network structure

It is also known as spider web structure, or the virtual organization. The network
structure is composed of a series of project groups or collaborations linked by constantly
changing non- hierarchical cob web like networks.

The network structure is most suited to organizations that have a continually changing
environment requiring quick response, high level of adaptability, and strong innovation skills.

Merits

1. High level of flexibility.

2. Permit concentration on core competencies of the firm.

Demerits

1. Loss of control and lack of coordination as several partners.

2. High costs as a duplication of resources could be there.

PRODUCT BASED STRUCTUERS

The grouping of the activities based on the product or product line is followed by organizations
where there is a need to delegate to a divisions all functions related to that particulars product or
product line.
CUSTOMER BASED STRUCTUER: Geographical based.

ORGANISATION DESIGN AND CHANGE:

The sequence of steps followed in organizational design could be described as below.

Organization mission and objectives will make the organizational design.

1.) Identification of key activities necessary to be performed for achievement of objectivities.

2.) Grouping of activities that are similar in nature and which need a common set of skills to
be performed.
3.) Choice of structure that could accommodate the different group of activities.
4.) Creation of departments, divisions, and so on to which the groups of activities could be
assigned.
5.) Establishing an interrelationship between different departments for the purpose of
coordination and communication.

But there is no one absolutely correct way to organize.

CONTEMPORARY ORGANISATION DESIGN

Traditional organization design Emerging organization design characteristics

characteristics
One large firm Small business units having co0operative
relations
Vertical communication pattern Horizontal communication
Centralized top-down decision making Decentralized participative decision making
Vertical integration Outsourcing and vertical organization
Minimum training Extensive training

ORGANISATIONAL CHANGE

Organizational change takes place 2 broad dimensions.

1.) Structural changes

2.) Accompanying behavioral changes.
1.) The first type of change is formal and related to modification in structural relationship
and may entail the creation or disbandment of departments or managerial postions.
2.) The second type of changes is informal and relate to concomitant behavioral
modifications that are essential to absorb the impact of organizational changes.
ORGANISTAIONAL SYSTEMS

The organizational structure provides the mechanisms for the distribution of authority
and responsibility within the organization.

SBC ORGAINSATIONAL SYSTEM

1.) Information system

2.) Control system
3.) Appraisal system
4.) Motivation system
5.) Development system
6.) Planning system

INFORMATION SYSTEM

To enables the managers to know what they need to group in order to perform their tasks
and also to co-ordinate their activities with others.

CONTROL SYSTEM

It deals with measurement and correction of the performance of activities of subordinates

in order to make sure that enterprise objective are plan devised to attain them are being
accomplished.

1.) Establishing standards

2.) Measuring actual performance
3.) Evaluating actual performance against standards.
4.) And determining corrective action predestined plan.

Controls may be classified as formal direct and informal indirect. Formal are quantitative.
Informal are qualitative adherence to ethical starndards.

Integrating formal and informal control is essential.

Appraisal System:

It is the important component of control system. This performs critical role of evaluating
managerial performance in the light of organizational objectives. The appraisal system used with
multiple criteria rather than single. Procedural appraisal that means who can do the appraisal in
the systematic way.
Strategic control:

The four basic control strategies are

a. Premise Control

b. Implementation control

c. Strategic Surveillance

d. Special alert control

a. Premise control:

It is necessary to identify the key assumptions and keep track of any change in
them so as to assess their impact on strategy control and its implementation. It
serves the purpose of continuous testing of assumptions to find out whether they
are still valid or not.

b. Implementation Control:

It evaluates whether the plans, programs and projects are actually guiding the
organizations towards its predetermined objectives or not.

c. Strategic Surveillance:

It is more generalized and overarching control, designed to monitor a broad range

at events inside and outside the company that are likely to threaten the course of a
firm strategy.

d. Special Alert control:

It is exercised through the formulation of contingency strategies and assigning the

responsibility at handling unforeseen events to crisis management teams.