MANAKULA VINAYAKAR INSITUTE OF TECHNOLOGY

Kalitheerthalkuppam, Puducherry – 605 107

DEPARTMENT OF MANAGEMENT STUDIES (III Semester)

STRATEGIC MANAGEMENT - 5301

UNIT 1
Strategic management – definition, need, dimensions – strategic planning – strategic decision making process – benefit and risks
of strategic management – ethics and social responsibility.

INTRODUCTION:

In any organization, the top management is concerned with selection of a course of action from among different
alternatives to meet the organizational objectives. The process by which objectives are formulated and achieved is known as
strategic management and strategy acts as the means to achieve the objective.

Strategy is the grand design or an overall ‘plan’ which an organization chooses in order to move or react towards the
set objectives by using its resources. Strategy helps the organization to meet its uncertain situations with due diligence.
Without an appropriate strategy effectively implemented, the future is always dark and hence, more are the chances of
business failure.

STRATEGY:

o The word strategy is derived from the Greek word “Strategia”, which was used first around 400 B.C. This connotes
the art and science of directing military forces.

o The strategy, according to a survey conducted in 1974 which asked corporate planners to define what they meant
by strategy, “includes the determination and evaluation of alternative paths to an already established mission or
objective and eventually, choice of the alternative to be adopted.”

o Simply put, a strategy outlines how management plans to achieve its objectives. Strategy is the product of the
strategic management process.

o Strategy is the means to achieve the organizational ends.

o Strategy outlines how management plans to achieve its objectives.

STRATEGY DEFINITIONS AND MEANING:

Chandler(1962) Strategy is the determinator of the basic long-term goals of an enterprise, and the adoption of courses of
action and the allocation of resources necessary for carrying out these goals;

Mintzberg (1979) Strategy is a mediating force between the organizations and its environment: consistent patterns in streams
of organizational decisions to deal with the environment.

Prahlad (1993) Strategy is more then just fit and allocation of resources. It is stretch and leveraging of resources.

Porter (1996) Strategy is about being different. It means deliberately choosing a different set of activities to deliver a unique
mix of value.
S. Vaidheeswaran, M.Tech., M.B.A., (Ph.D)1
MVIT, Puducherry.
  In management, the concept of strategy is taken in broader terms. According to Glueck, “Strategy is the unified,
comprehensive and integrated plan that relates the strategic advantage of the firm to the challenges of the
environment and is designed to ensure that basic objectives of the enterprise are achieved through proper
implementation process.”
This definition of strategy lays stress on the following:
a) Unified comprehensive and integrated plan
b) Strategic advantage related to challenges of environment.
c) Proper implementation ensuring achievement of basic objectives.

 “Strategy is organization’s pattern of response to its environment over a period of time to achieve its goals and
mission.”
This definition lays stress on the following:
a) It is organization’s pattern of response to its environment.
b) The objective is to achieve its goals and mission.

TWO VIEWS OF STRATEGIES:

Strategy as Action, inclusive of objective setting

 In 1060s, Chandler made an attempt to define strategy as “the determination of basic long term goals and objective
of an enterprise and the adoption of the courses of action and the allocation of resources necessary for carrying out
these goals.”

Strategy as Action exclusive of objective setting

 Michael Porter has defined strategy as “Creation of a unique and valued position involving a different set of activities.
The company that is strategically positioned performs different activities from rivals or performs similar activities in
different ways.”
After considering both the views, strategy can simply be put as management’s plan for achieving its objectives. It
basically includes determination and evaluation of alternative paths to an already established mission or objective and
eventually, choice of best alternative to be adopted.

NATURE OF STRATEGY:

Based on the above definitions, we can understand the nature of strategy. A few aspects regarding nature of strategy
are as follows:

 Strategy is a major course of action through which an organization relates itself to its environment particularly the
external factors to facilitate all actions involved in meeting the objectives of the organization.
 Strategy is the blend of internal and external factors. To meet the opportunities and threats provided by the external
factors, internal factors are matched with them.
 Strategy is the combination of actions aimed to meet a particular condition, to solve certain problems or to achieve
a desirable end. The actins are different for different situations.
 Due to dependence on environmental variables, strategy may involve a contradictory action. An organization may
take contradictory actions either simultaneously or with a gap of time. For example, a firm is engaged in closing
down of some of its business and at the same time expanding some.
 Strategy is future oriented. Strategic actions are required for new situations which have not arisen before in the
past.
 Strategy requires some systems and norms for its efficient adoption in any organization. Strategy provides overall
framework for guiding enterprise thinking and action.

S. Vaidheeswaran, M.Tech., M.B.A., (Ph.D)2

MVIT, Puducherry.
NEED / PURPOSE OF STRATEGY:

The purpose of strategy is to determine and communicate a picture of enterprise through a system of major
objectives and policies. Strategy is concerned with a unified direction and efficient allocation of an organization’s resources.
A well made strategy guides managerial action and thought. It provides an integrated approach for the organization and aids
in meeting the challenges posed by environment.

IMPORTANCE OF STRATEGY (Benefits – 5 marks):

With the increase in the pressure of external threats, companies have to make clear strategies and implement them
effectively so as to survive. The basic factor responsible for differentiation has not been governmental policies, infrastructure
or labor relations but the type of strategic thinking that different companies have shown in conducting the business. Strategy
is very important for all types of organizations as it provides various benefits to its users:

 Strategy helps an organization to take decisions on long range forecasts.

 It allows the firm to deal with a new trend and meet competition in an effective manner.
 Management becomes flexible to meet unanticipated changes.
 Efficient strategy formation and implementation result into financial benefits to the organization in the form of
increased profits.
 Strategy provides focus in terms of organizational objectives and thus provides clarity of direction for achieving the
objectives.
 Organizational effectiveness is ensured with effective implementation of the strategy.
 Strategy results in increased satisfaction of the personnel as it provides motivation.
 It gets managers into the habit of thinking and thus makes them, proactive and more conscious of their environment.
 Strategy paves the way for the employees to shape their work in the context of shared corporate goals and ultimately
they work for the achievement of these goals.
 It improves corporate communication, coordination and allocation of resources.

ASPECTS / ESSENCE OF STRATEGY:

Strategy, according to a survey conducted in 1974, includes the determination and evaluation of alternative paths
to an already established mission or objective and eventually, choice of the alternative to be adopted.
Strategy is characterized by four important aspects:

 Long term objectives

 Competitive Advantage
 Vector
 Synergy

Long Term Objectives:

Strategy is formulated keeping in mind the long term objectives of the organization. It is so because it emphasizes
on long term growth and development. Strategy is future oriented and therefore concerned with the objectives which have
a long term perspective. The objectives give directions for implementing a strategy.

Competitive Advantage:

Whenever strategy is formulated, managers have to keep in mind the competitors of the organization. The
environment has to be continuously monitored for forming a strategy. Strategy has to be made in a sense that the firm may
have competitive advantage.

S. Vaidheeswaran, M.Tech., M.B.A., (Ph.D)3

MVIT, Puducherry.
 It makes the organization competent enough to meet the external threats and profit from the environmental
opportunities. The changes that take place over a period of time in the environment have made the use of strategy more
beneficial. While making plans, competitors may be ignored but in making strategy, competitors are given due importance.

Vector:

Strategy involves adoption of the course of action and allocation of resource for meeting the long term objectives.
From among the various courses of action available, the managers have to choose the one which utilizes the resources of the
organization in the best possible manner and helps in the achievement of the organizational objectives. A series of decisions
are taken and they are in the same direction.

Strategy provides direction to the whole organization. When the objective has been set, they bring about clarity to
the whole organization. They provide clear direction to persons in the organization who are responsible for implementing the
various courses of action. Most people perform better if they know clearly what they are expected to do and where the
organization is going.

Synergy:
Once we take a series of decisions to accomplish the objectives in the same direction, there will be synergy. Strategies boost
the prospects by providing synergy.

EXAMPLE:

Take this example, to illustrate the essence of strategy in a firm in Pharmaceutical industry:

The objectives of the firm can be:

Return on Investment: threshold 20%, goal 35%.
Sales Growth rate: threshold 10%, goal 15%.

The strategy which comprises of the Competitive Advantage, Growth Vector and Synergy can be:

Competitive Advantage: Patent protection and well developed R & D division.

Growth Vector: Product development and concentric diversification.
Synergy: Use of the firm’s research capabilities and production technology.

In this manner each firm can individually have its own strategy.

STRATEGIC MANAGEMENT

Strategic management is the process by which an organization formulates its objectives and manages to achieve them.

STRATEGIC VISION AND STRATEGIC MANAGEMENT:

Managers must have strategic vision to become strategic managers and thereby to manage the organization
strategically. Strategic vision is a pre-requisite of the strategic managers. Strategic vision implies a profound scanning ability
of the environment in which the company is in i.e., knowing the objectives and values of the organization stakeholders and
bringing that knowledge into future projections and plans of the organization.

The managers’ strategic vision involves:

 The ability to solve complex and more complex problems;
 The knowledge to be more anticipatory in perspective and approach, and
 The willingness to develop options for the future.
STRATEGIC MANAGEMENT AND OPERATIONAL MANAGEMENT
S. Vaidheeswaran, M.Tech., M.B.A., (Ph.D)4
MVIT, Puducherry.
Strategic management:
Strategic management is a stream of decisions and actions which lead to the development of an effective strategy
or strategies to help achieve corporate objectives. The strategic management process is the way in which strategists
determine objectives and make strategic decisions. Strategic management can be found in various types of organizations,
business, service, cooperative, government, etc.

Operational management:
In most of the organizations managers are required to deal with problems of operational control, such as the efficient
production of goods, the effective delivery of services to beneficiaries, the management of sales force, the monitoring of
financial performance or the design of some new system that will improve the efficiency of the operations.
Even though all these are very important tasks, they are essentially concerned with effectively managing a limited
part of the organization within the context of some more general guidelines given to the manger. This is operational
management. Most of the managers spend most of their time doing this. This is vital to the effective implementation of
strategy but it is not strategic management.

LONG RANGE PLANNING AND STRATEGIC MANAGEMENT:

To anticipate future sales and flows of funds, budgets were prepared. But the lack of emphasis on future in budgeting
led to long range planning. Long range planning focused on forecasting the future by using economic and technological tools.
The formulation of these plans was the responsibility of corporate staff group, whose reports were forwarded to top
management. The top management could approve, disapprove or modify these plans. However, the corporate planners were
not the decision makers.
Long range planning had some impact, but not as much as would be expected if the top management were involved.
Moreover, the corporate planners were producing what can be termed “first generation plans.” First-generation planning
means the firm chooses the most probable appraisal of the future environment and of its own strengths and weaknesses.
From this, it evolves the best strategy for a match of the environment and the firm – a single plan for the most likely future.
Today’s approach is called “strategic planning.” The top management, including the board of directors, and
corporate planners has parts to play in strategic management. But the starring roles are for the general managers of the
corporation and its major operating divisions.
Strategic management focuses on “second-generation planning”, that is analysis of the business and the preparation
of several scenarios for the future. Contingency strategies are then prepared for each of these likely future scenarios.

NEED FOR STRATEGIC MANAGEMENT:

 The environment has become complex and more dynamic. The number of variables to be considered in the decision
making process are increasing. Production and other management system and related technologies become
obsolete within a short span of time.

 More reliance has to be placed on creativity, innovation and new ways of looking at the organization in the world in
which we exist. A rapidly changing environment requires that managers make a clear distinction between long range
planning and strategic planning which is a component of strategic management.

 Strategic management sets the major directions for the organization i.e., mission, major products/services to be
offered and major market segments to be served. Without the major directions being set before, establishing
objectives does not carry much sense.

 The strategic management is the major vehicle for planning and implementing major changes an organization must
make. Change comes through the implementation and not through the plan. Though strategic management begins
with strategic planning, the other components are no less important.
BENEFITS OF STRATEGIC MANAGEMENT

1. Universal
S. Vaidheeswaran, M.Tech., M.B.A., (Ph.D)5
MVIT, Puducherry.
 Strategy refers to a complex web of 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.

2. Keeping pace with changing environment

The present day environment is so dynamic and fast changing thus making it very difficult for any modern business
enterprise to operate. Because of uncertainties, threats and constraints, the business corporation are under great pressure
and are trying to find out the ways and means for their healthy survival.
Under such circumstances, strategic management help the corporate management to explore the possible
opportunities and at the same time to achieve an optimum level of efficiency by minimizing the expected threats.

3. Minimizes competitive disadvantage

It minimizes competitive disadvantage and adds up to competitive advantage. For example, a company like
Hindustan Lever Ltd., realized that merely by merging with companies like Lakme, Milk food, Ponds, Brooke bond, Lipton etc
which make fast moving consumer goods alone will not make it market leader but venturing into retailing will help it reap
heavy profits.

4. Clear sense of strategic vision and sharper focus on goals and objectives
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 market place; 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 by
providing vision and encouraging defining mission.

5. Motivating employees
One should note that the labor efficiency and loyalty towards management can be expected only in an organization
that operates under strategic management. Every guidance as to what to do, when and how to do and by whom etc, is given
to every employee.
This makes them more confident and free to perform their tasks without any hesitation. Labor efficiency and their
loyalty which results into industrial peace and good returns are the results of broad-based policies adopted by the strategic
management

6. Strengthening Decision-Making
Under strategic management, the first step to be taken is to identify the objectives of the business concern. Hence
a corporation organized under the basic principles of strategic management will find a smooth sailing due to effective
decision-making. This points out the need for strategic management.

7. Efficient and effective way of implementing actions for results

Strategy provides a clear understanding of purpose, objectives and standards of performance to employees at all
levels and in all functional areas. Thereby it makes implementation very smooth allowing for maximum harmony and
synchrony. As a result, the expected results are obtained more efficiently and economically.

8. Improved understanding of internal and external environments of business

Strategy formulation requires continuous observation and understanding of environmental variables and classifying
them as opportunities and threats. It also involves knowing whether the threats are serious or casual and opportunities are
worthy or marginal. As such strategy provides for a better understanding of environment.
RISKS (LIMITATIONS) OF STRATEGIC MANAGEMENT:

S. Vaidheeswaran, M.Tech., M.B.A., (Ph.D)6

MVIT, Puducherry.
 Strategic management as a fundamental aspect of top management is essential but there are certain practical limitations
to use it. The reason why management fails in strategic management is not an easy job of the top management. However it
can be more effective by recognising its various limitations so that top management functions within those parameters.

1. Complex and dynamic environment

2. Rigidity
3. Inadequate appreciation of strategic management
4. Limitations in implementation

1. Complex and dynamic environment

Strategic management is essential to overcome the problems posed by Complex and dynamic environment. For
strategic management we require knowledge of the trend in environment. However with increasing complexity and an
accelerating rate of change, it becomes more and more difficult to predict the future outcome.

For example, not only there is a very high level of technological and social changes in the environment but there is
wide variation and inconsistency in government policies towards business in the country. such policies are not only in terms
of physical, monetary, and fiscal policies but also in terms of many regulatory measures such as licensing, monopolies and
restrictive trade practices, foreign exchange regulations etc. under these conditions, strategic management becomes more
difficult and without sound basis.

2. Rigidity

Strategic management brings rigidity in the organisation through Strategic planning. Strategies are selected and
implemented in a given set of environment, both external and internal. When these variables are taken into account the
organisation set various parameters for its working.

For example, designing of organisation structure, prescribing rules and procedures, allocating resources etc. Over
the long run, people become accustomed to these. Internal flexibilities, human and procedural may make the strategic
planning ineffective, consequently demotivating the management to go for strategic management.

These problems can be overcome by building enough flexibility in the system through an open systems approach of
strategic management.

3. Inadequate appreciation of strategic management

Problems in Strategic management come because the managers are inadequately aware about its contribution to
the success of the organisation and the way in which Strategic management can be undertaken.

For example, managers often fail to isolate the strategic work, and they use short term out dated evaluation
techniques.

Failures to isolate strategic work are very common to many managers. The problem stems from an inadequate
appreciation of the need for such an appraisal. Another problem in Strategic management emerges from the fact that
managers often attach importance to short term achievement.

4. Limitations in implementation

Many organisational problems cannot be solved by strategic management alone but require the use of other aspects
of management.

The internal conflicts among the departments, individuals, or organisational and personal values cannot be solved
by strategic management. In many of these cases non-strategic management functions are more important.
S. Vaidheeswaran, M.Tech., M.B.A., (Ph.D)7
MVIT, Puducherry.
 The various limitations of strategic management should be weighted in the light of its contributions to the success
of the organisations. Every action has certain limitations but it does not mean that action should not be taken. The recognition
of various limitations of an action provides an opportunity to safeguard oneself against the possible counter-effect of the
action and places the individual in a better way to make the action more effective.

ELEMENTS OF STRATEGIC MANAGEMENT:

Strategic Management is concerned with deciding on the strategy and how the strategy is to be put into effect. Strategic
management has three main elements:

 Strategic analysis
 Strategic choice and
 Strategic implementation

Strategic Analysis:
This is concerned with understanding the strategic situation of the organization. This includes the examination of
matters like changes in the organizational environment and its effects on the organization, assessment of its resources and
strengths in the context of these changes, effect of the changes on people and on their present and future aspirations.

Strategic Choice:
Strategic analysis provides a basis for strategic choice. This is concerned with the formulation of possible courses of
action, their evaluation and the choice between them. This means that the strategic choice has three parts to it – generation
of strategic options, evaluation of strategic options and selection of strategy.

Strategic Implementation:
This is concerned with translation of general directions of strategy into action. This is also as important as strategic
analysis and choice. Implementation can be thought of as having several parts. This involves resource planning in which
logistics of implementation are examined. It also takes in to account the organization structure needed to carry through the
strategy and of course the systems and people who implement strategy.

STRATEGIC PLANNING

In an organisation when comprehensive planning is undertaken for the organisation as a whole, it is divided into two
broad parts – strategic planning and operational planning. While strategic planning had long term orientation. Operational
planning has short-term orientation.

Pfeiffer has defined strategic planning as follow:

“Strategic planning is the process by which the guiding members of an organization envision its future and
develop the necessary procedures and operations to achieve the future”.

From this point of view, examples of strategic planning in an organisation may be planned growth rate in sales,
consideration of how much growth is to be achieved by internal resources and how much growth is to be achieved by mergers
and acquisitions, diversification – product wise as well as technology- wise, etc., strategic planning has the following
characteristics:

S. Vaidheeswaran, M.Tech., M.B.A., (Ph.D)8

MVIT, Puducherry.
 1. Strategic planning guides the choice among the broad directions in which the organization seeks to move the
general planned allocations of its managerial, financial, and physical resources over future specified period of time
and managing the various lines of business as an investment “portfolio”.
2. Strategic planning takes into account the external environment and tries to relate the organizational with it. It usually
encompassed all the functional areas of the organization and is effected within the existing and long- term
framework of economic, political- environment is of prime concern of strategic planners.
3. Since strategic planning sets trends and direction for managerial actions, its time horizon is usually long, say five
years or so.
4. Strategic planning is usually undertaking by top management supported by specified planning staff and other key
managers below the top- level. At the level, people can take overall view of the organization with the external
environment.
5. Monitoring results, measuring progress, and making such adjustments as are required to achieve the strategic intent
specified in the strategic goals and objectives and
6. Reassessing mission, strategy, strategic goals and objectives, and plans at all levels and, if required, revising any or
all of them

STRATEGIC DECISION MAKING

Strategic decision making is the core of strategic management. Therefore, it is desirable to understand the nature of
strategic decision making. Strategic decision is a major choice of an action concerning committing of resources with a view to
achieve organizational objectives. It has the following features:

Features of Strategic Decision:

1. Strategic decision is a major choice of action which affects the entire organisation or major parts of it.
2. It affects the long – term prosperity of the organisation because the commitment is for long term.
3. It involves commitment of large amount of resources – human, financial and physical- in implementing the strategic
option chosen.
4. Because of high – level of futurity, a strategic decision is made after analysing various factors both within the
organisation and its environment.
5. Since a strategic decision has major impact on the organisation on long – term basis. It is made by top management
which has much wider perspective of the organisation and its environment.

Strategic decision making involves the usual decision- making process:

 Specific objectives derived from organization’s strategic intent,

 Search for alternatives to achieve those objectives,
 Evaluation of these alternatives, and
 Choice of the most appropriate alternatives.

Thereafter, this choice is put into action.

However, this process can be conducted by adopting different approaches. Each approach has its own risk- relationship.
Therefore, let us go through these approaches.

S. Vaidheeswaran, M.Tech., M.B.A., (Ph.D)9

MVIT, Puducherry.
APPROACHES TO STRATEGIC DECISION MAKING (MINTZBERG’S MODES):

Different approaches to Strategic decision making emerge because an organisation may differ from other organisation
in terms of:

 Degree of formalisation in decision making process – from highly formalised and structured to informal and
unstructured process.
 Managerial power relationship – from the dominant role of the strategist to compromise of different interest groups
 Nature of environment – from highly complex to simple and stable.

TYPES OF APPROACHES:

 Entrepreneurial opportunistic approach

 Formal structured approach
 Adaptive approach
 Logical Incrementalism (later on added by Quinn)

1. Entrepreneurial opportunistic approach:

Entrepreneurial opportunistic approach is adopted by heads of family managed organisations and is characterised
by pushing an organisation ahead in the face of environmental odds.

The basic features of strategy making under this approach are as follows:

 The focus in this approach is on capitalising the opportunities rather than problem solving. There is constant search
of opportunities in the environment either formally or otherwise.
 Decision power is centralised in the entrepreneur who is capable of making bold and unusual decisions.
 The bold and unusual decisions made in the face of environmental uncertainty, lead the organisation to move
forward by unusual leaps and thrive with corresponding gains.
 The most important objective in this approach is growth and expansion in assets, turnover and market share.

Thus, decision making becomes emergent process as against formal process.

Suitability and limitations:

Entrepreneurial approach is suitable in those organisations where key strategists have very high stake in the outcomes of a
strategy. They are in a position to lead the organisation from front side-lining the views of other stakeholders.

Usually such strategists have very high level of aspirations, high level of vision about the future scenarios and have high risk
bearing profile.

Advantage:

Decisions are made which may defy the basic principles of management textbooks. This is the reason that such organisations
outperform their counterparts adopting formal-structured approach.

2. Formal structured approach (Planning Mode):

Formal structured approach involves strategic decision making in anticipation of the future state that the organisation wants
to be in. Strategic decisions are based on socio economic purposes of the organisation, values of top management external
opportunities and threats and organisation’s strength and weakness.

S. Vaidheeswaran, M.Tech., M.B.A., (Ph.D)10

MVIT, Puducherry.
The basic features of this approach are as follows:

 Strategy making is based on analysis of various factors which affect the strategy.
 It involves systematic and structured approach to the solution of problems and also the task of assessing the cost and
benefit of various alternatives.
 It is a comprehensive process which produces a set of integrated decisions and strategies.

In India most of the multinationals follow this approach in which they have formalised and structured their strategic decision-
making process.

Suitability and limitations:

Suitability and limitations of formal approach depend on type of organisation, management styles, complexity of
environment, complexity of production process, nature of problems and purpose of planning system.

Advantages:

This approach generates enough information which enables decision makers to make decisions in complex situations.

3. Adaptive approach:

Adaptive approach of strategic decision making is basically reactive and tries to assimilate the change in decision making
context various factors, particularly environmental ones, affecting strategic decisions.

Various feature of strategic decision making under adaptive approach are as follows:

 Decision making is basically meant for problem solving, rather than going for new opportunities. Adaption process
is adopted to meet the threats by changed environment as against the decision making to meet the anticipated
changes in environment which entrepreneurial approach suggests.
 Decisions are made in sequential, incremental steps, one thing at a time necessitated by environmental changes.
The basic orientation is to maintain flexibility to adapt the decisions to more pressing needs.
 Various interest groups and stakeholders put considerable pressure on decision making process so as to protect
their own interests. Thus, the ultimate decision is a compromised one which may be, sometimes, at the cost of
optimising organisational effectiveness.
 Since decision making is incremental and fragmented there is lack of integrative decision making. With the result,
systems approach of decision making is missing.

In India, most of the public sector organisations follow adaptive approach in their decision making because of the power
distribution between organisations’ management and controlling ministries of government.

Suitability and limitations:

Adaptive approach of strategic decision making is suitable for those organisations which tend to play the role of followers
rather the role of leaders in the industry sector concerned. This approach saves them from high risk since the strategic
decisions are based on the actual environment factors.

If these factors are less dynamic, this approach produces satisfactory results. When the environmental factors change fast,
this approach does not work because by the time the organisations adopt one change which has some lead time, environment
changes further making previous adaptation unworkable. In the present context of global competition this approach is not
very suitable to achieve meaningful competitive advantage.
4. Logical Incrementalism:

S. Vaidheeswaran, M.Tech., M.B.A., (Ph.D)11

MVIT, Puducherry.
The fourth mode of ‘logical incrementalism’ was later added by Quinn.

In this mode, top management first develops reasonably clear idea of the corporation’s mission and objectives. Then in
its development of strategies, it chooses to use “an interactive process in which the organization probes the future,
experiments and learns from a series of partial (incremental) commitments rather than through global formulations of total
strategies”. Thus the strategy is allowed to emerge out of debate, discussion, and experimentation. This approach appears to
be useful when
 The environment is changing rapidly,
 It is important to build consensus, and
 Needed resources are to be developed before committing the entire corporation to a specific strategy.
Dr. Reddy’s Laboratories follows this mode.

Combining different approaches:

The various approaches of strategic decision making have their positive and negative aspects and each of these is suitable
for particular type of organisations and the nature of environment. Since there are many variables which affect strategic
decision making, many organisation follow a combination of different approaches. There may be different ways in which
various approaches may be combined together. More common ways are as follows:

 Adaptive-entrepreneurial
 Structured-adaptive
 Entrepreneurial-structured
 Adoption of different approaches for different businesses
 Adoption of different approaches at different stages of organizational life cycle

While combining two or more approaches together, the individual organisations can do better if they evaluate their
culture, human resources and leadership styles and the nature of the environment in which an organisation or its different
business operate.

LEVELS OF STRATEGY

It is believed that strategic decision making is the responsibility of top management. However, it is considered useful to
distinguish between the levels of operation of the strategy. Strategy operates at different levels:

 Corporate Level
 Business Level
 Functional Level
 Operating level

There are basically two categories of companies – one, which have different business organized as different directions
or product groups known as profit centers or strategic business units (SBUs) and other, which consists of companies which
are single product companies.

The SBU concept was introduced by General Electric Company of USA to manage product business. The fundamental
concept in the SBU is the identification of discrete independent product / market segments served by the organization.
Because of the different environments served by each product, a SBU is created for each independent product / segment.

S. Vaidheeswaran, M.Tech., M.B.A., (Ph.D)12

MVIT, Puducherry.
 Each and every SBU is different from another SBU due to the distinct business areas (DBAs) it is serving. Each SBU has a
clearly defined product / market segment and strategy. It develops its strategy according to its own capabilities and needs
with overall organizations capabilities and needs.

Each SBU allocates resources according to its individual requirements for the achievement of organizational objectives.
As against the multi product organizations, the single product organizations have single Strategic Unit. In these organizations,
corporate level strategy serves the whole business. The strategy is implanted at the next lower level by functional strategies.
In multiple product company, a strategy is formulated for each SBU (known as business level strategy) and such strategies lie
between corporate and functional level strategies.

1. Corporate Level Strategy:

At the corporate level, strategies are formulated according to organization wise policies. These are value oriented,
conceptual and less concrete than decisions at the other two levels. These are characterized by greater risk, cost and profit
potential as well as flexibility.
Mostly, corporate level strategies are futuristic, innovative and pervasive in nature. They occupy the highest level of
strategic decision making and cover the actions dealing with the objectives of the organization. Such decisions are made by
top management of the firm.

The examples of such strategies include acquisition decisions, diversification, structural redesigning etc. the board
of Directors and the CEO are the primary groups involved in this level of strategy making. In small and family owned
businesses; the entre4prenuer is both the GM and chief strategic manager.

It describes a company’s overall direction towards growth by managing business and product lines? These include
stability, growth and retrenchment.

For example, Coco cola, Inc., has followed the growth strategy by acquisition. It has acquired local bottling units to emerge as
the market leader.

2. Business Level Strategy:

The strategies formulated by each SBU to make best use of its resources given the environment it faces, come under
the scope of business level strategies. At such a level, strategy is a comprehensive plan providing objectives for SBUs,
allocation of resources among functional areas and coordination between them for achievement of corporate level
objectives.
These strategies operate within the overall organizational strategies i.e. within the broad constraints and policies
and long term objectives set by the corporate strategy. The SBU managers are involved in this level of strategy. The strategies
are related with a unit within the organization. The SBU operates within the defined scope of operations by the corporate
level strategy and is limited by the assignment of resources by the corporate level.

However, corporate strategy is not the sum total of business strategies of the organization. Business strategy relates
with the “how” and the corporate strategy relates with the “what”.

Business strategy defines the choice of product or service and market of individual business within the firm. The
corporate strategy has impact on business strategy. Usually occurs at business unit or product level emphasizing the
improvement of competitive position of a firm’s products or services in an industry or market segment served by that business
unit. Business strategy falls in the in the realm of corporate strategy.

For example, Apple Computers uses a differentiation competitive strategy that emphasizes innovative product with creative
design. In contrast, ANZ Grindlays merged with Standard Chartered Bank to emerge competitively.
S. Vaidheeswaran, M.Tech., M.B.A., (Ph.D)13
MVIT, Puducherry.
3. Functional Level Strategy:

This strategy relates to a single functional operation and the activities involved therein. This level is at the operating
end of the organization. The decisions at this level within the organization are described as tactical.
The strategies are concerned with how different functions of the enterprise like marketing, finance, manufacturing etc.
contribute to the strategy of other levels.
Functional strategy deals with a relatively restricted plan providing objectives for specific function, allocation of
resources among different operations within the functional area and coordination between them for achievement of SBU
and corporate level objectives.
It is the approach taken by a functional area to achieve corporate and business unit objectives and strategies by
maximizing resource productivity. It is concerned with developing and nurturing a distinctive competence to provide the firm
with a competitive advantage.

For example, Procter and Gamble spends huge amounts on advertising to create customer demand.

4. Operating level strategy:

Sometimes a fourth level of strategy also exists. This level is known as the operating level. It comes below the
functional level strategy and involves actions relating to various sub functions of the major function. For example, the
functional level strategy of marketing function is divided into operating levels such as marketing research, sales promotion
etc.

DIMENSIONS OF STRATEGY AT DIFFERENT ORGNIZATIONAL LEVELS:

Three levels of strategies have different characteristics as shown:

Table: Strategic Decisions at Different Levels

Dimensions Levels
Corporate Business functional
Nature Conceptual Mixed Operational
(Type of Decision) (Related to BU)
Character Innovative & Creative Action Oriented Totally Action Oriented

Impact Critical Major Insignificant

Risk Involved High Medium Low

Profit Potential High Medium Low

Time Horizon Long Range Medium Range Short Range

Flexibility High Medium Low

Adaptability Low Medium High

S. Vaidheeswaran, M.Tech., M.B.A., (Ph.D)14

MVIT, Puducherry.
 ETHICS AND SOCIAL RESPONSIBILITY

SOCIAL RESPONSIBILITIES OF BUSINESS:

Meaning:

 According to Adolph Berle, Social responsibility is defined as the manager’s responsiveness to public consensus.
 According to Keith Davis, the term “social responsibility” refers to two types of business obligations, viz., (a) the socio-
economic obligation, and (b) the socio-human obligation.

o The socio-economic obligation of every business is to see that the economic consequences of its actions do not
adversely affect public welfare.
o For most business organizations, social responsibility is a way of life. Social responsibility entails all such activities
ranging from providing safe products and services to giving a portion of the company’s profits to welfare
organizations.
o Every business firm is part of total economic and political system. The firm should consider the impact of its action
on all to which it is related.

 Social obligation: when a firm engages in social actions because of its obligation to meet certain economic and legal
responsibilities.

Social responsibility and social responsiveness:

 Corporate Social Responsibility: The serious consideration of the impact of the company’s actions on society.
 Social Responsiveness: the ability of a corporation to relate its operations and policies to the social environment in ways those
are mutually beneficial to the company and to society.

 Both definitions focus on corporations, but these concepts should be expanded to include enterprises other than
businesses and to encompass relationships within an enterprise.
 The main difference between social responsibility and social responsiveness is that the latter implies actions and the
“how” of enterprise responses.

TWO VIEWS OF SOCIAL RESPONSIBILITY:

Classical view:
The view that management’s only social responsibility is to maximize profits.

Socioeconomic View:
The view that management’s social responsibility goes beyond making profits to include protecting and improving society’s
welfare.

SOCIAL RESPONSIBILITIES OF BUSINESS TOWARDS DIFFERENT GROUPS:

Social responsibility of a business is also viewed as conducting its operations in a free and fair manner by discharging its
commitment towards different segments of its operational environment such as share holders, consumers, employees,
creditors, the government, competitors and the general public as explained below:

Responsibility towards Shareholders:

 A business enterprise has the responsibility to provide fair return on capital to the shareholders.
 The firm must provide them regular, accurate and full information about the working of the enterprise in order to fulfill
and encourage their interest in the affairs of the company.

Responsibility towards the Government:

 The business firm has to pay its taxes and be fair in its endeavors.
 It should also support the government in community development projects.
 Responsibility towards Consumers:
S. Vaidheeswaran, M.Tech., M.B.A., (Ph.D)15
MVIT, Puducherry.
  The management has to provide quality products and services to the customers at reasonable prices.
 It should consider customer’s suggestions and also plan its services most effectively through consumer satisfaction
surveys, which focus on unfulfilled customer expectations.

Responsibility towards Employees:

 Good working conditions motivate workers to contribute their best. It is the responsibility of the management to
recognize their unions and respect their right to associate with a union of their choice.
 The management has to provide a fair deal to employees by planning for social security, profit sharing, growth and
development, employee promotions, grievance settlement machinery and employee welfare.

Responsibility towards Creditors:

 The business has to repay the loans it has taken from the financial institutions, as per the repayment schedule.
 Also, it should inform the creditors about the developments in the company from time to time.
 The business firm has to live up to the ethical and moral expectations of its creditors by fulfilling its commitments.

Responsibility towards Suppliers:

 The survival and growth of the supplier is dependent upon any firm’s survival and growth as customer.
 The firm is dependent upon its supplier for regular, timely supplies of the specified quality at the agreed price.
 The supplier in turn depend on the firm for providing correct design specification, adequate time for production, fixation
of a fair price and prompt and timely payments.
 This two way relationship works best when it is based on the realization of mutual dependence.

Responsibility towards competitors:

 A business firm should always maintain the highest ethical standards and maintain cordial relations with each of its
competitors, which is a critical and sensitive segment.

Responsibility towards General Public:

 Business units have a tremendous responsibility towards the general public to support the cause of community
development.
 Most of the companies maintain public relations departments exclusively to maintain good relations with the community.

THE SOCIAL AUDIT:

o Social audit is the main tool to evaluate corporate social responsibility. It involves a commitment to systematic assessment
of the company’s main activities that have a social impact, and reporting to the society on relevant issues. Every voluntary
social programme ends with a social audit.
o Social audit encompasses every possible area, such as pollution control, training and development, promotion of minorities
and so on. It is difficult to determine the amount of money and enterprise spends in selected areas.
o But cost alone is an inadequate measure. It does not necessarily show the results of social involvement. Other problems are
the collection of the data and its presentation in a way that accurately reflects the social involvement of an enterprise.

Benefits:
 It supplies data for comparison with the organization’s social policies and standards.
 It develops a sense of social awareness among all employees.
 It provides data for comparing the effectiveness of different types of programs.
 It provides data about the cost of social programs, so that the management can relate this data to budgets, available
resources, and company objectives etc.
 It provides information for effective response to external groups which make demands on the organization.

Limitations:
 A social audit is a process audit rather than an audit of results. This means that a social audit determines only what an
organization is doing in social areas and not the amount of social good that result from these activities.
 An audit of social results is not made because, they are difficult to measure.

ETHICS IN MANAGING:

S. Vaidheeswaran, M.Tech., M.B.A., (Ph.D)16

MVIT, Puducherry.
  Ethics refer to what is good and bad and is related to moral duty and obligation.
All persons, whether in business, government, a university, or any other enterprise, are concerned with ethics.

 Ethics: Principles, values, and beliefs that define what is right and wrong behaviour.

 Personal ethics are the rules by which an individual lives his or her personal life.
 Accounting ethics constitute the code of conduct for the accounting professionals.
 Business ethics is concerned with truth and justice in conducting business affairs. It encompasses a variety of aspects such as
expectations of society, fair competition, advertising, public relations, social responsibilities, consumer autonomy and
corporate behavior in the home country as well as abroad.
Code of ethics: A code is a statement of policies, principles, or rules that guide behavior. Certainly, codes of ethics do not apply
only to business enterprise; they should guide the behaviour of persons in all organizations and in everyday life.

INSTITUTIONALIZING ETHICS:

 Managers have a responsibility to create an organizational environment that fosters ethical decision making by
institutionalizing ethics. This means applying and integrating ethical concepts with daily actions. This can be accomplished in
three ways:

1. By establishing an appropriate company policy or a code of ethics,

2. By using a formally appointed ethics committee, and
3. By teaching ethics in management development programs.

The most common way to institutionalize ethics is to establish a code of ethics; much less common is the use of ethics
committee.

BUSINESS ETHICS AND CORPORATE GOVERNANCE:

 Business ethics is the application of moral principles to business problems. However, ethics extends beyond the question of
legality and involves the goodness or badness of an act. Therefore, an action may be legally right but ethically wrong.

 It should be remembered that the corporate “shield” which protects a company’s management from unlimited legal liability
does not protect it against unlimited public condemnation for its unethical and immoral actions.

 There are four important factors which affect a manager’s decision on what is ethical or unethical. They are,

 Government legislation
 Business codes
 Pressure groups
 Personal values of the manager himself.

Factors that raise Ethical Standards:

The two factors that raise ethical standards the most are,
1. Public disclosure and publicity and
2. The increased concern of a well-informed public.

These factors are followed by government regulations and by education to raise the professionalism of business managers.
Ethical theory:

S. Vaidheeswaran, M.Tech., M.B.A., (Ph.D)17

MVIT, Puducherry.
  In organizations, managers compete for information, influence, and resources. The potential for conflicts in selecting the
ends as well as the means to the ends is easy to understand, and the question of what criteria should guide ethical
behavior becomes acute.

 Three basic types of moral theories in the field of normative ethics have been developed. They are,

 Utilitarian theory: Plans and actions should be evaluated by their consequences.

 Theory based on rights: all people have basic rights.
 Theory of justice: Decision makers must be guided by fairness and equity, as well as impartiality.

CORPORATE GOVERNANCE:

o The term “Corporate Governance” is used to denote the extent to which companies run in an open and honest manner in the
best of interest of all stake-holders.

o The key elements of good corporate governance are transparency and accountability projected through a code which
incorporates a system of checks and balanced between all key players viz., board of directors, auditors and stake-holders.

The recommendations for the best corporate governance are,

 Non-executive directors whose most important role is to bring an independent judgment to bear on issues of
strategy, performance, resources, etc. should be picked through a formal selection process on merits.
 Companies should have remuneration committees consisting wholly or mainly of non-executive directors which
should recommend to the board executive directors’ emoluments.
 Companies should have audit committees consisting of three non-executive directors to report on any matter
relating to financial management.
 Audit partners should be rotated and there should be fuller disclosure of non-audit work.

Benefits of Good Corporate Governance:

1. It creates overall market confidence and long-term trust in the company.

2. It leads to an increase in company’s share prices.
3. It ensures the integrity of company’s financial reports.
4. It maximizes corporate security.
5. It limits the liability of top management by carefully articulating the decision-making process.
6. It improves strategic thinking at the top by inducting independent directors who bring a wealth of experience and a host
of new ideas.
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S. Vaidheeswaran, M.Tech., M.B.A., (Ph.D)18

MVIT, Puducherry.