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Strategic Management Strategic Management MBA Second Year Paper No. 2.9 School of Distance Education Bharathiar University, Coimbatore - 641 046 Author: Upendra Kachru Copyright © 2008, Bharathiar University All Rights Reserved Produced and Printed by EXCEL BOOKS PRIVATE LIMITED A-45, Naraina, Phase-I, New Delhi-110028 for SCHOOL OF DISTANCE EDUCATION Bharathiar University Coimbatore-641046 CONTENTS Page No. UNIT I Lesson 1 Corporate Strategic Planning 7 Lesson 2 Strategic Management Practice in India 53 UNIT II Lesson 3 Environmental Analysis of a Firm 65 Lesson 4 Internal Analysis of Firm 89 UNIT III Lesson 5 Strategy Formulation 129 Lesson 6 Strategies of Leading Indian Companies 144 UNIT IV Lesson 7 Tools of Strategic Planning and Evaluation 177 Lesson 8 Life Cycle Approach to Strategic Planning 194 UNIT V Lesson 9 Strategy Implementation 207 Lesson 10 Strategy Control 231 Model Question Paper 251 STRATEGIC MANAGEMENT SYLLABUS UNIT I Corporate strategic planning - Mission - Vision of the firm - Development, maintenance and the role of leader - Hierarchal levels of planning - strategic planning process. Strategic management Practice in India, Family run corporates. UNIT II Environmental Analysis & Internal Analysis of Firm: General environment scanning, competitive & environmental analysis - to identify opportunities & threat - Assessing internal environment through functional approach and value chain - identifying critical success factors - to identify the strength & weakness - SWOT audit - core competence -Stakeholders' expectations, Scenario-planning - industry analysis. UNIT III Strategy Formulation: Generic strategies - Grand strategies - Strategies of leading Indian companies - The role of diversification -limit - means and forms. Strategic management for small organisations, non- profit organizations and large multi product and multiple market organisations. UNIT IV Tools of Strategy Planning and Evaluation: Competitive cost dynamics - experience curve- BCG approach - cash flow implication. IA -BS matrix - A.D Littles Life -cycle approach to strategic planning - Business portfolio balancing - Assessment of economic contribution of strategy - Strategic funds programming. UNIT V Strategy Implement & Control: Various approach to implementation of strategy - Matching organization structure with strategy - 7Smodel - Strategic control process - Du Pont's control model and other Quantitative and Qualitative tools - Balanced score card - M.Porter's approach for Globalization - Future of Strategic Management. UNIT I LESSON 1 CORPORATE STRATEGIC PLANNING CONTENTS 1.0 Aims and Objectives 1.1 Introduction 1.2 What is Strategy? 1.2.1 Strategy and Tactics 1.2.2 Characteristics of Strategy 1.2.3 Strategic Thinking 1.2.4 Attributes of Strategic Thinking 1.2.5 Early Writings on Business Strategy 1.3 Phases in the Development of Strategic Management 1.3.1 Phase I - Annual Budgeting 1.3.2 Phase II - Long Range Planning 1.3.3 Phase III - Environmental Scanning 1.3.4 Phase IV - Strategic Planning Phase 1.4 Corporate Strategic Planning 1.5 Mission-Vision of the Firm 1.5.1 Vision Statement 1.5.2 A Basis for Performance 1.5.3 Reflects Core Values 1.5.4 Way to Communicate 1.5.5 Mission Statements 1.5.6 Preparation of Vision and Mission Statements 1.5.7 Revision of Mission Statements 1.6 Hierarchical Levels of Planning 1.6.1 Setting Objectives 1.6.2 Balance your Objectives 1.6.3 Multiplicity of Objectives 1.6.4 Themes for Objectives 1.6.5 Use Result Oriented Objectives 1.6.6 Quantify your Objectives Contd.... 8 Strategic Management 1.6.7 Network Objectives 1.6.8 Make them Challenging but Attainable 1.6.9 Other Considerations 1.6.10 SMART Formula 1.6.11 Role of Planning 1.7 Strategic Planning Process 1.8 Let us Sum up 1.9 Lesson End Activity 1.10 Keywords 1.11 Questions for Discussion 1.12 Suggested Readings 1.0 AIMS AND OBJECTIVES After studying this lesson, you will be able to: l Understand corporate strategic planning l Know about mission and vision of the firm l Learn about development, maintenance and the role of leader l Understand hierarchical levels of planning 1.1 INTRODUCTION Strategic Management is necessary for organizations facing major strategic decisions that involve high task complexity, change, uncertainty, and inefficient markets. These characteristics are summarized below: 1. High complexity of the task means that there is a greater need for explicit plans to ensure that the various bits and pieces fit together. 2. Large changes create a need for Strategic Management because organizations are designed to deal primarily with repetitive situations. These changes could come from the environment, from competitors, or from the firm itself. For large changes, the standard bureaucratic responses would be less useful. Large changes call for planning rather than merely reacting. 3. Uncertainty can lead to a waste of resources and in today's environment of change, uncertainty is high for most large businesses. As uncertainty increases, the need for planning increases. Strategic Management can address "what if" questions so that the firm can develop ways to respond to these uncertainties. 4. Inefficient markets call for Strategic Management because the price system does not dictate the organization's actions. The organization has much flexibility in how it acts. An efficient market would inform stakeholders and would help to ensure that their needs are met, no matter what an individual company does. If they plan poorly, another company will replace them. Strategic Management is most relevant when all four of these conditions hold, e.g., if a 9 Corporate Strategic Planning utility decided to build an atomic reactor. It has a complex task, large changes are involved, uncertainty is high as there is a resistance to generation of nuclear power by a number of action groups, and the market is inefficient as subsidies are paid by the government on the cost of generation and in addition the government bears the costs of disasters. An investment in formal Strategic Management might be considered like an insurance policy against these risks: It might be needed. But in situations where the risk is small, the investment in strategic management may not be necessary. In this lesson, we will first look at Strategy and explore the concept. We will also discuss how starting from 1960s, Business Strategy evolved with the different Schools of thought. In particular we will examine the Resource Based Theory, New Positioning Approach and Prahalad and Hamel's concept of Stretch. Strategic Thinking is an approach to problem solving; we will relate it to the strategic management Process. We will also try to explain, discuss and explore different aspects of Strategic Planning and Strategic Management. 1.2 WHAT IS STRATEGY? 'Strategy', narrowly defined, means "the art of the general" (from the Greek StratAgos). The term first gained currency at the end of the 18th century, and had to do with stratagems by which a general sought to deceive an enemy, with plans the general made for a campaign, and with the way the general moved and disposed his forces in war. Clausewitz (1780-1831), a Prussian, was the first great student of strategy and the father of modern study of strategy. The contributions of Clausewitz to strategic thought are many and diverse. He was the first to explain the role of war both as an instrument of social development and as a political act. Clausewitz's definition of strategy was "the art of the employment of battles as a means to gain the object of war." He also was the first to focus on the fact that strategy of war was a means to enforce policy and not an end in itself. The term ‘strategy’ has expanded far beyond its original military meaning. Strategy is now used in all areas where the horizon is long term, there is a competition for the use of resources, and the objective is to realize some goals. With the evolving importance of strategy as a theoretical discipline, scholars have tried to identify the principles of strategy that have traditionally guided military strategists in war. These studies found, though there is no complete agreement on the number of principles, that most lists include the following: l the objective l the offensive l co-operation (unity of command) l mass (concentration) l economy of force l manoeuvre l surprise l security l simplicity 10 Strategy is a set of key decisions made to meet objectives. It refers to a complex web of Strategic Management thoughts, ideas, insights, experiences, goals, expertise, memories, perceptions and expectations that provides general guidance for specific actions in pursuit of particular ends. Nations have, in the management of their national policies, found it necessary to evolve strategies that adjust and correlate political, economic, technological, and psychological factors, along with military elements. Be it management of national policies, international relations, or even of a game on the playfield, it provides us with the preferred path that we should take for the journey that we actually make. Every firm competing in an industry has a strategy, because strategy refers to how a given objective will be achieved. 'Strategy' defines what it is we want to achieve and charts our course in the marketplace; it is the basis for the establishment of a business firm; and it is a basic requirement for a firm to survive and to sustain itself in today's changing environment. An organization cannot operate effectively without a strategy. The strategy may have been developed explicitly through a planning process or it may have evolved implicitly through the operations of the various functional departments - but in order to function effectively in the marketplace, the organization must have answers to these questions: l What business are we in? What products and services will we offer? l To whom? l At what prices? On what terms? l Who are the competitors? l On what basis will we compete? If the organization asks any of these key questions and it has the answers, then there is a strategy in place.
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