UNIT:I
LESSON 1:
INTRODUCTION TO STRATEGIC
MANAGEMENT
Learning Objective
On completion of this chapter you should be able to:
• You should be able to understand the nature, need,
benefits and terminology of the processes for producing
and implementing major plans directing business activity.
• You will come to know about the nature and value of
strategic management, emphasizes the practical value of a
strategic management approach for a business
organization.
• You will understand that strategic management activities
are undertaken at three levels: corporate, business and
functional.
• You will understand that business strategy is a set of
decisions and actions resulting in the formulation and
implementation of strategies designed to achieve the
objectives of an organization.
Dear Student,
As an entrepreneur, one is expected to connect oneself with
the external environment such that requisite strategies are
formulated & implementated for achieving organizational
goals. Lets now look at what is this ‘strategy’ is all about?
Definition of Strategy
There is considerable confusion in management literature
regarding the various terms used in strategic management. A
recent survey by the American Management Association
revealed that respondents found it difficult to define policy,
and differentiate between strategy, policy and objectives,
further compounding the difficulty. According to Andrews,
strategy, policy and objectives embrace a range of statements
from the “broad” and “important” to “narrow” and
“unimportant”. Policies get merged into procedures and
procedures into rules. Strategies get blended into tactics,
resulting in an “end-means continuum”. This can be
illustrated by the following example. Suppose a company
decides upon a sales growth of 35 per cent and desires to
achieve this by acquiring other companies, instead of intro-
ducing new products. Acquisition in this case can be
considered as a strategy chosen by the company. The company
will then have to decide on the size of the firm to be acquired.
If it decides on acquiring a small company, this becomes the
objective.
Strategy
The word strategy has entered the field of management more
recently. At first, the word was used in terms of Military
Science to mean what a manager does to offset actual or
potential actions of competitors. The word is still being used
in the same sense, though by few only. Originally, the word
strategy has been derived from Greek ‘Strategos’, which
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11.601
STRATEGIC PLANNING
CHAPTER :I
STRATEGIC CONTEXT AND TERMINOLOGY
STRATEGIC MANAGEMENT
means generalship. The word strategy, therefore, means the art of
the general.
When the term strategy is used in military sense, it refers to action
that can be taken in the light of action taken by opposite party.
According to Oxford Dictionary, ‘military strategy is the art of so
moving or disposing the instruments of warfare (troops, ships,
aircrafts, missiles, etc.) as to impose upon the enemy, the place,
time and conditions for fighting by oneself. Strategy ends, or
yields to tactics when actual contact with enemy is made’.
In management, the concept of strategy is taken in slightly
different form as compared to its usage in military form; it is
taken more broadly. However, in this form, various experts do
not agree about the precise scope of strategy. Lack of unanimity
has resulted into two broad categories of definitions: strategy as
action inclusive of objective setting and strategy as action exclusive
of objective setting. Let us see some definitions in these two
categories in order to conceptualize strategy properly.
You must have heard about the term strategy, let us discuss what
does it mean:
First of all you need to look at the different views and opinions
expressed by leading thinkers in the field of business strategy.
Tomorrow always arrives. It is always different. And even the
mightiest company is in trouble if it has not worked on the
future. Being surprised by what happens is a risk that even the
largest and richest company cannot afford, and even the smallest
business need not run. -Peter Drucker
If we know where we are and something about how we got
there, we might see where we are treading and if the outcomes
which lie naturally in our course are unacceptable, to make timely
change. -Abraham Lincoln
Without a strategy, a company is like a ship without a rudder,
going around in circles. It’s like a tramp; it has no place to go.
-Hoel Ross and Michael Kami
If a man takes no thought about what is distant, he will find
sorrow near at hand. He who will not worry about what is far off
will soon find something worse that worry. -Confucius
It is human nature to make decisions based on emotion, rather
than fact. But nothing could be more illogical.
-Toshiba Corporation
No business can do everything. Even if it has the money, it will
never have enough good people. It has to set priorities. The
worse thing to do is a little bit of everything. This makes sure
that nothing is being accomplished. It is better to pick the wrong
priority than none at all. -Peter Drucker
So, Tell me what do you mean by strategy?
1

STRATEGIC MANAGEMENT
Further,
Based on various thinkers point of view we need to define
strategy:
Management is an art as well as science. Many of the concepts
used in building management theory have been derived from
practice. Unlike the pure sciences, which have their foundation
in experimental research, management studies draw upon the
practical experiences of managers in defining concepts. Business
policy is rooted in the practice of management and has passed
through different phases before taking its shape in the present
form of strategic management. One of the earliest contributors
to this young subject was Alfred D Chandler.
Alfred D Chandler (1962)
Chandler made a comprehensive analysis of interrelationships
among environment, strategy, and organizational structure. He
analyzed the history of organizational change in 70 manufactur-
ing firms in the US. While doing so, Chandler defined strategy
as: “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.” Note that Chandler refers to three aspects:
• Determination of basic long-term goals and objectives,
• Adoption of courses of action to achieve these objectives,
and
• Allocation of resources necessary for adopting the courses of
action.
Kenneth Andrews (1965)
Andrews belongs to the group of professors at Harvard
Business School who were responsible for developing the
subject of business policy and its dissemination through the
case study method. Andrew defines strategy as: “The pattern
of objectives, purpose, goals, and the major policies and plans
for achieving these goals stated in such a way so as to define
what business the company is in or is to be and the kind of
company it is or is to be”. This definition refers to the ‘busi-
ness definition’, which is a way of stating the current and
desired future position of company, and the objectives,
purposes, goals, major policies and plans required to take the
company from where it is to where it wants to be.
Igor Ansoff (1965)
Professor Ansoff is a well-known authority in the field of
strategic management and has been a prolific writer for the last
three decades. I n one of his earlier books, Corporate Strategy
(1965), he explained the concept of strategy as: “The common
thread among the organization’s activities and product-
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2 11.601
markets… that defines the essential nature of business that the
organization was or planned to be in future”.
Ansoff has stressed on the commonality of approach that
exists in diverse organizational activities including the products
and markets that define the current and planned nature of
business.
William F Glueck (1972)
Another well-known author in the area of strategic manage-
ment was Glueck, who was a Distinguished Professor of
Management at the University of Georgia till his death in 1980.
He defined strategy precisely as: “A unified, comprehensive and
integrated plan designed to assure that the basic objectives of
the enterprise are achieved”. The three adjectives, which Glueck
has used to define a plan, make the definition quite adequate.
‘Unified’ means that the plan joins all the parts of an enterprise
together; ‘comprehensive’ means it covers all the major aspects
of the enterprise, and ‘integrated’ means that all parts of the
plan are compatible with each other.
Henry Mintzbeg (1987)
Mintzberg of McGill University is a noted management thinker
and prolific writer on strategy. He advocates the idea that
strategies are not always the outcome of rational planning. They
can emerge from what an organization does without any formal
plan. He defines strategy as: “a pattern in a stream of decisions
and actions”. Mintzberg distinguishes between intended
strategies and emergent strategies. Intended strategies refer to
the plans that managers develop, while emergent strategies are
the actions that actually take place over a period of time. In this
manner, an organization may start with a deliberate design of
strategy and end up with another form of strategy that is
actually realized.
Michael E Porter (1996)
Michael Porter of the Harvard Business School has made
invaluable contributions to the development of the concept of
strategy. His ideas on competitive advantage, the five-forces
model, generic strategies, and value chain (you will get to learn
about all these later at appropriate places in this book) are quite
popular. He opines that the core of general management is
strategy, which he elaborates as: “… developing and communi-
cating the company’s unique position, making trade-offs, and
forging fit among activities”.
So, you can see how strategy got evolved.
Write down five names associated with business strategy and
their area of contribution?
So what exactly business strategy is all about?
Strategic position is based on customers’ needs, customers’
accessibility, or the variety of a company’s products and services.
A company’s unique position relates to choosing activities that
are different from those of the rivals, or to performing similar
activities in different ways. However, a sustainable strategic
position requires a trade-off when the activities that a firm
performs are incompatible. Creation of fit among the different
activities is done to ensure that they relate to each other.
It must be noted that the different approaches referred to above
to define strategy cover nearly a quarter of a century. This is an
indication of what a complex concept strategy is and how
various authors have attempted to define it. To put it in
another way, there are as many definitions as there are experts.
The same authors may change the approach they have earlier
adopted. Witness what Ansoff said 19 years later in 1984 (his
earlier definition is of 1965): “Basically, a strategy is a set of
decision-making rules for the guidance of organizational
behavior”.
I have tried to give you an assortment of definitions out of the
many available. Rather than an assortment, it may be more
appropriate to call this section a bouquet of definitions and
explanations of strategy. Each flower (definition) is resplendent
by itself yet contributes synergistically to the overall beauty of
the bouquet.
The field of strategy is indeed fascinating, prompting an author
to give the title-: What is Strategy and does it matter?”- to his
thought-provoking book. Drucker goes to the extent of
terming the strategy of an organization as its “theory of the
business”.
By means of the deeper insight that developed through years
of experience and thinking, they have attempted to define the
concept of strategy with greater clarity and precision.
So, you can see that this discipline is in the process of evolution
and a uniform terminology is still evolving.
By combining the above definitions we do not attempt to
define strategy in a novel way but we shall try to analyze all the
elements that we have come across.
You should note that strategy is:
• A plan or course of action or a set of decision rules forming
a pattern or creating a common thread,
• The pattern or common thread related to the organization’s
activities which are derived from its policies, objectives and
goals,
• Related to pursuing those activities, which move an
organization from its current position to a desired future
state.
You have looked at a few practical illustrations in the previous
section, which were aimed at developing an understanding of
strategy and at some representative definitions of strategy, in
this section.
Lets take an example to focus more on strategy:
Strategy defines a framework for guiding the choice of action.
Some time we may ask, “What is Coca-Cola’s strategy to go on
to become a market leader?
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Is Strategy Static in Nature or Dynamic?
STRATEGIC MANAGEMENT
Because the firm’s internal and external environment change
over time, the Strategy also changes consequently, the idea that
strategy is dynamic is inherent in our conception of strategic
management.
Strategy has Four Components
First, strategy should include a clear set of long term goals.
Second components are that it should define the scope of the
firm i.e. the types of products the firm will serve etc.
Thirdly, a strategy should have a clear statement of what
competitive advantage it will achieve and sustain.
Finally, the strategy must represent the firms’ internal contest
that will allow it to achieve a competitive advantage in the
environment in which it has chosen to compete.
Thus, you may say,
‘Goals’ are ‘What’ of the strategy
‘Competitive Advantage; is how of the strategy and the; logic is
the ‘Way’ of the strategy.
Examples: -
Goals—————’ Where’—————— Where does the
management of the firm want it to be?
Scope—————’ What’—————— What kinds of
products will the firm produce? Or
What Markets will the Firm Target?
Competitive Advantage——’How’—How the firm intends to
have the cost leadership?
How the Firm Intends to Achieve its
Long-Term Goals?
Logic————————’Why’——————Sree Leathers,
the shoe manufacture’s strategy is to attract more and more of
middle class and lower middle class customers by offering low
priced durable leather shoes.
Similarly, you take an example and try to explain how company
A or company B focuses on its business strategy?
Strategic management is a science of choosing the alternatives
from the designed and available courses. The managers have to
decide on a process that will be most suitable to their condi-
tions and that would enable them to achieve a desired position
for their organization.
Thus, strategic management can be defined as follows:
3
STRATEGIC MANAGEMENT
Strategic management is the process of systematically analyzing
various opportunities and threats vis-à-vis organizational
strengths and weaknesses, formulating, and arriving at strategic
choices through critical evaluation of alternatives and imple-
menting them to meet the set objectives of the organization.
So, in your opinion, what is the single major benefit of using a
strategic management approach? Justify your answer
If you recall what various thinkers contributed to the study:
It has been defined by Lloyd L. Byars as-Strategic management
is concerned with making decisions about an organizations’
future direction and implementing those decisions.
Alfred D.Chandler (1962) made a detailed analysis of various
inter-relationships among environment, strategy, and organiza-
tion structure in 70 manufacturing firms in the US and defined
strategy as, ‘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’.
It is pertinent to note here what Alfred D. Chandler has made
reference to three basic aspects of strategic process;
i. Determination of basic long-term goals,
ii.. Adoption of course of actions to achieve these goals, and
iii. Allocation of necessary resources for carrying out these goals.
Kenneth Andrews (1965) outlines business strategy definition
as a method of describing the future position of a company, its
objectives, purposes, goals, policies, and plans that may be
required for guiding the company from its existing position to
where it desires to be.
Andrews defines strategy as, ‘The pattern of objectives for
achieving these goals and the major policies and plans for
achieving these goals stated in such a way so as to define what
business the company is in or is to be and the kind of company
it is or is to be.”
Igor Ansoff (1965) in his book Corporate Strategy has defined
strategy as, ‘The common thread among the organizations’
activities and product markets that defines the essential nature
of business that an organization was or plans to be in future.
Professor William F. Glueck (1972) defines strategy as, ‘A
unified, comprehensive, and integrated plan, designed to assure
that the basic objectives of the enterprise are achieved.’
So, by now you have understood how the old rules of business
have become obsolete and there is a paradigm shift in ap-
proaches to business.
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4 11.601
Thus, you find that Strategic Management is a set of rules
aimed at taking decisions for sustenance and growth of an
organization in a given environment.
Activity 1
Now you try to do an activity, which is aimed at giving practical
exposure about how companies focus on strategic manage-
ment.
Step1. Choose any company that is listed on the stock exchange
and whose information is freely available e.g. Reliance industries.
Step 2. Identify what you consider to be threats, strengths,
weaknesses & opportunities for the company identified.
Step 3. Through discussion, compare your number of factors
to those developed by other teammates. Further add some
factors to your list from the discussion. Keep this information
for use in later activities.
Thus you see, strategy covers the following aspects.
i. Exploring and determining the vision of the company in the
form of a vision statement.
ii. Developing a mission statement of the company that
should include statement of methodology for achieving the
objectives, purposes, and the philosophy of the
organization adequately reflected in the vision statement.
iii. Defining the company profile that includes the internal
culture, strengths and capabilities of an organization.
iv. Critical study of external environmental factors, threats,
opportunities etc.
v. Finding out ways by which a company profile can be-
matched with its environment to be able to accomplish
mission statement.
vi. Deciding on the most desirable courses of actions for
accomplishing the mission of an organization.
vii. Selecting a set of long-term objectives and also the
corresponding strategies to be adopted in line with vision
statement.
viii.Evolving short-term and annual objectives and defining the
corresponding strategies that would be compatible with the
mission and vision statements.
ix. Implementing the chosen strategies in a planned way based
on budgets and allocation of resource, outlining the action
programs and tasks.
x. Installation of a continuous compatible review system to
create a controlling mechanism and also generate data for
selecting future course of action)
SO, in what ways you as a learner expect to benefit in your
personal life by studying business strategy?