5c617International Strategic Management for Class

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International Strategic management

Module- I

1. Strategic Management

Strategic management is that set of managerial decisions and actions

that determines the long run performance of a corporation. It includes

environmental scanning (both external and internal), strategy

formulation (strategic planning), strategy implementation, and

evaluation and control.

The study of strategic management therefore emphasizes the

monitoring and evaluating external opportunities and threats in the

light of a corporations internal strengths and weaknesses in order togenerate and implement a new strategic direction for an organization.

Strategic Management can be defined as the art and science of

formulating, implementing and evaluating cross functional decisions

that enable an organization to achieve its objectives.

Strategic management focuses on integrating management, marketing,

human resource, finance, production, operations research, computer

information systems to achieve organizational objectives.

If a strategy allows an organization to match its resources and

capabilities to the needs of the external environment in order toachieve competitive advantage, the process of bringing about the

strategy is the strategic management. All organization set goals they

want to achieve. Strategic management is about analyzing the

situation facing the organization, and on the basis of this analysis,

formulating a strategy and finally implementing that strategy. The end

result is for the organization to achieve competitive advantage over its

rivals in the industry. In formulating strategy, an organization must

also consider how that strategy should be implemented

Strategic Management is the continuous process of determining the

mission and goals of an organization within the context of its externalenvironment and its internal strengths and weaknesses, formulating

and implementing strategies, and exerting strategic control to ensure

that organizations strategies are successful in attaining its goals.

Traditionally, Strategic Management begins with developing a vision,

mission, goals and objectives. However today, by and large, a top

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down method is adopted by most companies, although in certain cases

the bottom up approach is also essential.

In top- down approach, top management drives strategy for the middle

and junior management to implement. In the bottom-up approach,

strategies are conceived at the field, operational and functional levelsand presented to the top management.

This is followed by SWOT analysis wherein the firm looks at the

external environment, namely political, economical sociological,

cultural, environmental and legal, relevant to organizational goals.

Similarly, an in-depth analysis of internal factors on resources and

competency is critical. This would help to identify the gaps and work

on them so that the organizational goals are met.

Contemporary strategic management thinkers also lay a lot of stress

on resource based strategy deployment as a source of acquisition and

allocation are immensely relevant in a cost-conscious, competitive,time-bound world.

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Stages of Strategic Management

Strategic Management Process consists of three stages i.e. (1) Strategy

Formulation, (2) Strategy Implementation and (3) Strategy Evaluation &

Control

1. Strategy Formulation includes developing (1) a vision and mission, (2)identifying an organizations external opportunities and threats, (3)

determining internal strengths and weaknesses, (4) establishing long term

objectives, (5) generating alternative strategies and (6) choosing particular

strategies to pursue

Strategy formulation issues include deciding what new business to enter

, what business to abandon, how to allocate resources, whether to expand

operations or diversify, whether to enter international markets, whether to

merge or form a joint venture and how to avoid a hostile takeover

2. Strategy Implementation requires a firm to establish annual objectives,

devise policies, motivate employees and allocate resources so that

formulated strategies can be executed

Strategy Implementation includes developing a strategy- supportive

culture, creating an effective organizational structure,, redirecting

marketing efforts, preparing budgets, developing and utilizing

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information systems ,and linking employee compensation to

organizational performance,

Strategy implementation often is called the action stage of the

strategic management. Implementation strategy means mobilizing

managers and employees to put formulated strategies into actions.

Successful Strategy implementation hinges upon managers ability to

motivate employees, which is more an art than science. Interpersonal

skills are especially critical for strategy implementation. Strategies

formulated but not implemented serves no useful purpose.

3. Strategy Evaluation & Control is the third stage in strategic

management. Managers desperately need to know when particular

strategy is not working well and take corrective action or modification:

strategy evaluation is the primary means for obtaining this information

and control is to take corrective action or modification of strategy

according to the changes occurred in external or internal environment.All strategies are subject to future modifications because external and

internal factors are constantly changing. Three fundamental strategy

evaluation activities are (1) reviewing external and internal factors that

are the bases for current strategies,(2) measuring performance and, (3)

taking corrective actions. Strategy evaluation is needed because success

today is no guarantee for success tomorrow.

Strategy Formulation, Implementation and Evaluation activities occur at

three hierarchical levels in a large organization viz.(1) corporate,(2)

divisional or strategic business unit and (3) functional levels. Most small

businesses do not have divisions or strategic business unit; they have

corporate and functional levels. Managers and employees at all levels

should be actively involved in strategic management process and

activities.

Peter Drucker*(Management, Tasks, Responsibilities and Practices) says

that prime task of strategic management is thinking through overall

mission of a business:

that is of asking the question, What is our Business? This leads to

the setting of objectives, the development of strategies, and the making oftodays decisions for tomorrows results. This clearly must be done by a

part of the organization that can see the entire business; that can balance

objectives and the needs of today against the needs of tomorrow; and that

can allocate resources of men and money to key results.

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Adapting To Change

The Strategic Management is based on the belief that organizations

should continually monitor internal and external events so that timely

changes can be made as needed. Changes are occurring continuously in

the external and internal environment, for example, terrorism, economic

recession, the aging population, the Enron Scandal, merger mania. To

survive all organizations must be capable of identifying and adapting to

change. The Strategic Management process is aimed at allowing

organizations to adapt effectively to change over the in long run.

Key Terms in Strategic Management

Strategy is the means by which long term objectives will be achieved.

Strategy is concerned with the long term objectives of an organization

A Strategy of a corporation is a comprehensive plan stating how the

corporation will achieve its mission and objectives. It maximizes

competitive advantage and minimizes competitive disadvantages.

Strategy is moving from where you are to where you want to be in the

future- through sustainable competitive advantage.

Competitive Advantage:Strategic Management is all about gaining and

maintaining competitive advantage. This term can be well defined as

anything that a firm does especially well compare to rival firms. When

a firm can do something that rival firms cannot do, or owns something

that rival firm desire, that can represent a competitive advantage. Getting

and keeping competitive advantage is essential for long term success in

an organization.

Strategists are those individuals who are responsible for the success or

failure of an organization. Strategists have various job titles such as Chief

Executive Officer, President, Chairman, Managing Director, and

Director. Strategies help an organization, gather, analyze and organizeinformation.

They track industry and competitive trends, develop forecasting models

and scenario analyses, evaluate corporate and divisional performance,

spot emerging market opportunities, identify business threats, and

develop creative action plan.

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Vision and Mission Statements

Many organizations today develop a vision statement that answers the

question What do we want to become? A Vision or Strategic Intent is

the desired future state of the organization. It is an aspiration around

which a strategist, perhaps the Chief Executive, might seek to focus the

attention and energies of the members of the organization.

Developing a vision statement is often considered the first step in

strategic management process, preceding even development of a mission

statement. Most of the vision statements are in single or double

sentences.

Mission Statements are enduring statements of purpose that distinguish

one business from other similar firms. An organizations mission is the

purpose or reason for the organizations existence. A mission statement

identifies the scope of a firms operations in product and market terms.It addresses the basic question that faces all strategies What is our

business? A clear mission statement describes the values and priorities

of an organization as to how it does business and treats its employees.

Developing mission statement compels the strategists to think about the

nature and scope of present operations and to assess the potential

attractiveness of future markets and activities. A mission statement

broadly charts the future direction of an organization.

External Opportunities and Threats

External opportunities and external threats refer to economic, social,

cultural, demographic, environmental, political, legal, governmental,

technological, and competitive trends and events that could significantly

benefit or harm an organization in the future.

Opportunities and Threats are largely beyond the single corporation-thus

the world external. The wireless revolution, biotechnology, the

population shifts, changing work values and attitudes, space exploration,

recyclable packages, fast technological changes, Laws and Government

Regulations, increased competition from domestic and foreign

companies, national catastrophe are examples of opportunities or threats

for companies.Internal Strengths and weaknesses

Internal strengths and internal weaknesses are organizations controllable

activities that are performed especially well or poorly. They arise in

management, human resources, marketing, finance, accounting,

production operations, research and development, and management

information system activities of a business.

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Identifying and evaluating organizational strengths and weakness in the

functional areas of business is an essential strategic management activity.

Organizations strive to pursue strategies that capitalize on internal

strengths and eliminate internal weaknesses.

Objectives and Goals

Objectives are the end results of planned activity. They state what is to be

accomplished by when and should be quantified wherever possible. The

achievement of corporate objectives should result in the fulfillment of the

companys vision and mission.

The term goal is often confused with objective. In contrast to objective, a

goal is an open ended statement of one wishes to accomplish with no

quantification of what is to be achieved and no timeframe for completion.

Long term objectives

Objectives can be defined as specific results that an organization seeks to

achieve in pursuing its basic mission. Long term means more than oneyear. Objectives are essential for organizational success because they

state direction; aid in evaluation, create synergy, reveal priorities; focus

coordination; and provide a basis for effective planning, organizing,

motivating and controlling.

Objectives should be challenging, measurable, consistent, reasonable,

and clear. In a multidimensional firm, objectives should be established

for the overall company and for each division.

Annual Objectives

Annual objectives are short term milestone that an organization must

achieve to reach the long term objectives. Like long term objectives,

annual objectives should be measurable, quantitative, challenging,

realistic, consistent and prioritized. They should be established at the

corporate, divisional and functional levels in a large organization. Annual

objectives should be stated in terms of human resource, marketing,

finance/ accounting, production/ operations, research and development

and management development systems accomplishments. Annual

objectives represent the basis for allocating resources.

Policies

Policies are the means by which objectives will be achieved. Policiesinclude guidelines, rules and procedures established to support efforts to

achieve stated objectives. Speed is a critical necessity for success in

todays competitive, global marketplace. One way to enhance speed and

responsiveness is to allow decisions to be made whenever possible at the

lowest level in organizations. Policies are guides to decision making.

Policies often increase managerial effectiveness by standardizing routine

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decisions and empowering or expanding the discretions of managers and

subordinates in implementing business strategies.

Emergent Strategies: Sometimes some organizations begin

implementing strategies before they clearly articulate mission, goals or

objectives In these case, strategy implementation actually precedes

strategy formulation. Strategies that unfold in these ways are called

Emergent Strategies.

Intended strategy: The original strategy top management plans and

intends to implement.

Realized Strategy: The strategy top management really implements is

called realized strategy.

Corporate Governance is the system by which the business

corporations are directed and controlled. The corporate governance

structure specifies the distribution of rights and responsibilities amongdifferent participants in the corporation, such as the board, managers and

other stakeholders, and spells out rules and procedures for making

decisions on corporate affairs. By doing this, it also provides the structure

through which the company objectives are set and the means of attaining

those objectives and monitoring performance. OECD, April, 1999.

Corporate Governance is a system of structuring, operating and

controlling a company with a view to achieve long term strategic goals to

satisfy shareholders, creditors, employees, customers and suppliers with

the legal and regulatory requirements, apart from meeting environmental

and local community needs. It leads to building of a legal, commercial

and institutional framework. It also demarcates the boundaries within

which these functions are to be performed.

Corporate Governance ensures that long term strategic objectives and

plans are established and the proper management structures

(Organization, System and People) is in place to achieve those objectives,

while at the same time making sure that the structure functions to

maintain the corporations integrity, reputation and responsibility to its

various constituencies. (National Association of Corporate Directors)

A corporation is a mechanism established to allow different parties tocontribute capital, expertise and labor for their mutual benefit. The

investor or shareholder participates in the profits of the enterprise without

taking responsibility of operations. Management runs the company

without being personally responsible for providing funds. The

corporation is fundamentally run by the Board of Directors as the

representatives of shareholders. The corporate governance refers to the

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relationship amongst these three groups, board of directors, management

and shareholders in determining the direction and performance of the

organization.

Sarbanes Oxley Act 2002: In response to the many corporate scandals

uncovered since 2000, the US Congress passed the Sarbanes- Oxley Act

in June 2002. The act was designed to protect Shareholders from the

excess and failed oversight that characterized failures at Enron, Tyco,

WorldCom, Adelphia Communications, Qwest, and Global Crossing

among other prominent companies.

Several essential elements of Sarbanes-Oxley Act were designed to

formalize greater board independence and oversight. For example, the act

required that all directors serving on the audit committee should be

independent of the company and receive no fee other than his services as

director. The board may no longer grant loan to corporate officers and

staff. The act also established formal procedures for individuals known aswhistle blower to report incidents of questionable accounting and

auditing.

Companies are prohibited from taking action against anyone reporting

wrongdoing. Both CEO and CFO must certify corporations financial

information. The act banned auditors from providing both external and

internal audit services of the same company. The act also required that

the companys audit committee, nominating committee and

compensation committee be formed entirely by independent directors.

Corporate Social Responsibility

The concept of Corporate Social Responsibility proposes that

corporation has responsibilities to society that extend beyond making a

profit. Actually, it refers to the expectation that business firms should

serve to society and the financial interests of shareholders. Strategic

decision is often more than just the corporation, A decision to retrench by

closing some plants and discontinuing product lines, for example, affects

not only the firms workforce but also the communities where the plants

are located and the customer with no other source for discontinued

product. Such situations raise questions of the appropriateness of certainmissions, objectives and strategies of business corporations. Managers

must be able to deal with these conflicting interests in an ethical manner

to formulate a viable strategic plan.

There are three principal reasons why the managers should be concerned

about the socially responsible behaviors of their firms. First a companys

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right to exist depends on the responsiveness to the external environment.

Second, federal, state, and local governments threaten increased

regulation if business does not evolve to meet changing social standards.

Third, a responsive corporate social policy may enhance a firms long

term viability. Long term profit maximization is linked to Corporate

Social Responsibility.

The degree to which social responsibility is relevant in strategic decision

making is widely debated.

Adam Smith and Milton Friedman, in arguing a return to a laissez faire

world wide economy with a minimum of government, argues against the

concept of social responsibility. If a businessperson act responsibly by

cutting the price of the firms product to prevent inflation , or by making

expenditures to reduce pollution , or by hiring the hard core unemployed

, that person , according to Friedman , is spending the stockholders

money for a general social interest . Friedman thus referred to the socialresponsibility of business as a fundamentally subversive doctrine and

stated that there is one and only one social responsibility of business

to use its resources and engage in activities designed to increase its

profits so long as it stays within the rules of the game, which is to say,

engages in open and free competition without deception or fraud

Carrolls four responsibilities of business

Archie Carroll proposes that the managers of business organizations havefour responsibilities:

1. Economic responsibilities: are to produce goods and services of value

to society so that the firm may repay its creditors and stockholders.

2. Legal responsibilities: are defined by governments in laws that

management is expected to obey.

3. Ethical responsibility: are to follow the generally held believes about

how one should act in a society.

4. Discretionary responsibilities: are the purely voluntary obligations a

corporation assumes, for example, philanthropic contributions,

training the hard-core unemployed, or providing day care centers .The

difference between ethical and discretionary responsibilities is that

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few people expect an organization to fulfill discretionary

responsibilities, whereas many expect an organization to fulfill ethical

ones.

Robert Owen, UK, showed that organization could be efficient and equally

responsible to the society. In early part of nineteenth century, British

entrepreneurs concentrated on self and co-operations.

In North America, education was given prime importance. Most of the North

American entrepreneurs were associated with educational institutions. There

was realization of the importance of creation of wealth and the

responsibilities of the organizations to the society in which they operate.

Business is expected to create wealth and employment and to provide

conducive environment to the society its long time survival. The value and

ethical standards that a company adopts are the long term assets of the

organization. There are a number of tasks that a business has to fulfill to thesociety. These include the financial task, political task, environment task,

adaptive task, economic task and social task.

An organizations stance on social responsibility can be a critical factor in

making strategic decisions. Today, society also expects business to help

preserve environment, to sale safe products, to treat their employees

equitably and to be truthful with their customers. Prospective customers

have become more interested in learning about a companys social and

philanthropic activities before making purchase decisions. Evidence

suggests that companies following business ethics, good corporate

governance, and their obligations to the society honestly have good value

and reputation in the minds of the public and they take purchase decision on

the basis of these factors.

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Role of Ethics in Decision Making

Ethics is defined as the consensually accepted standard of behaviour of

people in society, occupation, business, trade or profession. Following

Carolls work, if business people do not act ethically, government will be

forced to pass laws regulating their actions- and usually increasing their

costs. For self interest and for other reasons, managers should be ethical

in their decision making. One way to do that is by encouraging code of

ethics.

A code of ethics is a set of principles of conduct within an organization that

guide decision making and behavior. The purpose of the code is to providemembers and other interested persons with guidelines for making ethical

choices in the conduct of their work. Professional integrity is the cornerstone

of many employees' credibility. Member of an organization adopt a code of

ethics to share a dedication to ethical behavior and adopt this code to declare

the organizations principles and standards of practice.

Example of Code Of Ethics

Colgate-Palmolive

The Colgate-Palmolive code of ethics is a long document, but isbroken down into individual areas of conduct. The code is intendedas a guide to all daily business interactions and is used in conjunctionwith the company's business practice guidelines. The code covers 10areas, including: Our Relationship with Each Other; Our Relationshipwith the Company; Our Relationship with Consumers; OurRelationship with Government and the Law; Our Relationship with

Society and Our Relationship with the Environment.

A Code of Ethics expects how an organization expects its employeesto behave while on job. It clarifies company expectations of employeeconduct in various situations and makes clear that company expectsits people to recognize the ethical dimensions in decisions andactions. A Company that wants to improve its employees ethical

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behaviour should not only develop a comprehensive code, but alsocommunicate the code in its training programs, performanceappraisal systems, in policies and procedures and through its ownactions.

General Electric and General Dynamic were first companies toestablish corporate codes. In most organizations top managementtakes the initiatives for developing the corporate code. Certainguidelines must be followed when developing the corporate codes:

A starting point for developing a code of ethics is to consider thethree basic approaches to ethical behavior:

Utilitarian Approach: This approach proposes that actions and plans

should be judged by their consequences. People should thereforebehave in such a way that will produce the greatest benefit to thesociety and produce the least harm or the lowest cost.

Universalistic Theory: Moral standards are applied to the intent of anaction and decision; the principle is that everyone should act toensure decisions would be reached by others.

Individual Rights Approach: This approach proposes that humanbeings have certain fundamental rights and should be respected in all

decisions. A particular decision or behaviour should be avoided if itinterfere with the rights of others.

Justice approach: This approach proposes that decision makers beequitable, fair and impartial in distribution of costs and benefits toindividuals or groups. It follows the principles of distributive justiceand fairness.

Development and Implementation includes the following :-

Development of the code

Identification of Key behaviours: Organizations should identify the keybehaviours that maximize the long term owner value.

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Review by the key members of the organization; Key membersincluding the members of the legal department should review thecode.

Communicate the code: The code must be sent to each and everyemployee.

Implementation of the code:

After developing the code, it is important for the company toimplement it. Ferrell and Fraedrich are of the opinion that theimplementation of strategies for making a corporate code is nodifferent from implementing other type of business strategies. Theapproach they proposed for implementing corporate code was basedon four aspects:-

(1) Organization Structure, (2) Coordination, (3) Motivation and (4)Communication

Update: Codes should be updated at least once in a year to ensurethat they are in accordance with both the company , laws of thecountrys and Government regulations.

Ethical organization: Organizations to be called ethical shouldpossess ethical behaviour. Ethical behaviour is an outcome of thecompanys ideal policies, statements and guidelines.

Judging the Ethical Nature of an Organization:

It is difficult to judge whether an organization is ethical or not. Threetheories provide a frame work for judging the ethical nature of anorganization:

1. The theory of corporate moral excellence2. Ethics and stake holders theory3. Ethics and corporate governance

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According to the first theory, ethical organization is one that isbased on moral values. The moral values guide the behaviour ofthe employees in their day to day activities.

Corporate values can be classified as:-

(1) Espoused values and (2) Value in Practice

Espoused values refer to a companys statements and code ofethics. They describe the organizations purpose and ethicalperspective. Ethical perspectives are aimed at guiding themembers who are responsible for leading and directing theorganization.

Espoused values in many situations differ from value in practice.For example, if an organizations mission statement states that,Customer is the king, but in practice that organization pays littleattention to the customer service. Clearly, there is a differencebetween Espoused values and Value in practice. Organization canalign its Value in practice to its Espoused values if it wishes to bean ethical organization.

According to the second theory, an ethical organization is onewhose managers act in a responsible manner by paying attention

to the needs and rights of all the stakeholders. The primarypurpose of the management in any organization is to maximize theshare holders value. The secondary purpose is to consider theinterests and benefits of all other stake holders while takingmanagerial decisions. Hence, the behaviour of the managementtowards its stakeholders plays crucial roles in building ethicalorganization.

The third theory states the governance practices adopted by theorganization to ensure right, fair, proper and just decisions

and actions plays a major role in building ethical organization.These practices affect the stakeholders in that they focuses on thebusiness relationship with employees, customers, stockholders,creditors, suppliers and members of the society in which itoperates.

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If an organization develops a corporate code to guide thebehaviour of its employees, and if the companys espoused andvalue in practice are aligned, then the organization can be termedas ethical organization.

Cavanagh proposes that the managers solve ethical problems byasking the three following questions regarding an act or adecision:-

1. Utility: Does it optimize the satisfaction of all stakeholders?2. Rights: Does it respects the rights of individuals involved?3. Justice; Is it consistent with the canons of justice?4. Legal: Does it comply with the legal framework?

Need For Ethics In Business

All businesses exist and operate within society and, therefore, theyshould contribute to the welfare of the society. To survive in themarket, business should gain loyal customers and perform socialresponsibility. To create and maintain proper image in the minds ofthe public are very important for the business. Thus, business,either big or small, must operate on ethical grounds and dischargesocial obligations to survive in the long run.

Strategic Position

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The

Environme

nt

Expectatio

n and

Purposes

Resources

and

competenc

e

The

Strategic

Position

Strategic

Choices

Strategy

into action

Developme

nt

directions

&methods

Organizin

Corporate

Level

Strategies

Business

level

strategies

Managing

ChangeEnabling


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A model of the elements of strategic management

The Strategic Position is concerned with the impact on strategy of the

external environment, internal resources and competencies and influence

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of stakeholders. The sorts of questions it raises are central to future

strategy. What changes are going on in the environment and how they

will affect the organization and its activity? What are the resources and

competencies of the organization and can these provide special

advantages or yield new opportunities? What is that those people and

groups associated with the

organization- managers, shareholders or owners, unions and others whoare the stakeholders in the organization- aspire to, and how do these

affect what is expected for the future development of the organization.

These are described briefly below:

(a)The Environment: The organization exists in the context of a

complex commercial, political, economic, social, technological,

environmental and legal world. Environment changes constantly and it

makes complex for many organizations. Changes in the environment may

give rise to opportunities for some companies and threats for some

companies.(b)The Resources and Competences: the resources and competencies of

the organization make up its strategic capabilities. One way of thinking

capabilities of an organization is to consider its strength and weaknesses.

However, competencies that provide real advantage to the organization

are the core competencies. They are the activities, know how, skills and

behaviour, which in combination provide advantages for that

organization which others find difficult to imitate.

(c) There are a number ofinfluences on an organizations purpose. The

issue of Corporate Governance is important. Here the question is, who

should the organization primarily serve and how should the managers beheld responsible for this. The expectations of different stakeholders affect

purpose and what will be seen as acceptable in terms of strategies

advocated by the management. Which views prevail will depend on

which group has the greatest power.

Cultural influences from withinorganization and from the environment

around it also influence the strategy an organization follows. Together, a

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consideration of environment, strategic capability, the expectations and

the purpose within the culture and political frame work of the

organization provides a basis for understanding the strategic position of

the organization. Such an understanding needs to take the future into

account. Assessing the magnitude of strategic changes and the ability of

the organization to effect such changes is important aspect of

organizations strategic position.

Evolution Of Strategic Management

Concept of long range planning later developed as strategic

management(GE and Boston consulting Group)

Bruce Henderson of Boston Consulting Group concluded that

institutive strategies cannot be continued successfully if:-(1 ) the corporation becomes large, (2) the layers of management

increase and (3) the environment changes substantially.

The increasing risk of error, costly mistakes, and economic ruin are

causing todays professional managers to take strategic

management seriously in order to keep the companies competitive

in an increasingly volatile environment.

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Strategic Management within a company generally evolves

through four sequential phases of development

(1) Basic Financial Planning: Seeking better operational control

by trying to meet annual budgets

(2) Forecast based planning: Seeking more effective planning forgrowth by trying to predict future beyond next year

(3) Externally oriented planning( strategic planning):- Seeking

increased responsiveness to markets and competition by trying

to think strategically

(4) Strategic management: Seeking a competitive advantage by

considering implementation, evaluation and control when

formulating strategy

General Electric Company, one of the pioneers of

strategic planning, led the transition from strategic

planning to strategic management during the 1980s. By 1990s, most of the companies around the world had

also begun the conversion from strategic planning to

strategic management.

The Strategic Management Process

Businesses vary in the processes they use to formulate and direct their

strategic planning activities. Sophisticated planners like General Electric,

Proctor & Gamble have developed more detailed processes than less formal

planners of similar sizes.General strategic Planning Process Model is as follows:-

Company Vision, Mission and Social Responsibility

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--------------------------------------------

| | |

External Environment Internal Environment

| |

..

|Strategy Formulation

Strategic Analysis and Choices

1. Creating competitive advantage at business level

2. Building values in multi business companies

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.

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| |

Long Term Objectives Generic and Grand strategies

| |

|

Implement Strategies

Management Issues, HRM, Marketing, Finance

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......

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Measure and Evaluate Performance

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Restructuring, Reengineering and Refocusing organization

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Strategic control and continuous improvement

Components Of Strategic Planning Model

1. Companys Vision and Mission

2. Internal Analysis

3. External Environment4. Strategic Analysis and Choice

Strategic choice is the evaluation of alternative strategies and selection of

best alternative.Simultaneous assessment of the external environment and

the company profile enables a firm to identify range of possibly attractive

interactive opportunities. These opportunities are possible avenues for

investment. However, they must be screened through the criterion of the

company mission to generate a possible and desired opportunities. This

screening process results in the selection of options from which a strategic

choice is made. The process is meant to provide the combination of long

term objectives and generic and grand strategies that optimally position thefirm in its external environment to achieve the company mission.

Strategic Choices involve understanding and underlying bases for future

strategy at both corporate and business level. At the highest level in the

organization there are issues of corporate level strategy. There are strategic

choices in terms how the organization seeks to compete at the business level.

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There is mounting evidence that when an organization is facing a dynamic

environment, the best strategic decisions are not arrived at through

consensus when everyone agrees on one alternative. They actually involve a

certain amount of heated disagreement, and even conflict. Many diverse

opinions are presented, participants trust in one anothers abilities and

competences, and conflict is task oriented and not personal.

One approach is to appoint someone as Devils Advocate, a person or group

assigned to identify potential pitfalls and problem with a proposed

alternative.

Another approach would be to appoint someone as a person or group to

present the advantages of particular alternative and a second person or group

to present the disadvantages of the same alternative in a debate. The idea is

combining two conflicting views- the thesis and the antithesis- into a

synthesis. This method is called Dialectical Enquiry.

5. Long Term Objectives6. Generic and Grand Strategies

Many businesses explicitly and all implicitly adopt one or more generic

strategies characterizing their competitive orientation in the marketplace.

Low cost, differentiation or focus strategies define the three fundamental

options. Enlightened managers seek to create ways their firm possesses both

low cost and differentiation competitive advantages as part of their overall

generic strategy. They usually combines these capabilities with a

comprehensive, general plan of major actions through which their firm

intends to achieve its long term objectives in a dynamic environment.

Grand Strategy means how the objectives are to be achieved. Although

every grand strategy is, in fact, an unique package of long term strategies,14

basic objectives can be identified viz concentration, market development,

product development,, innovation, horizontal integration, joint venture,

strategic alliances, consortia, concentric diversification, conglomerate

diversification, turnaround, divestiture and liquidation.

Action Plan and Short Term Objectives

Action plan translate generic and grand strategies into actions by

incorporating four elements. First, they identify specific functional tactics

and actions to be undertaken in the next week, month or quarter as part ofthe businesss effort to build competitive advantage.

The second element is a clear time frame for completion. Third, action plan

create accountability by identifying who is responsible for each action in the

plan. Fourth, each action in an action plan has one or more specific,

immediate objectives that are identified as outcomes that action plan should

generate.

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Functional Tactics

Within general framework created by the businesss generic and grand

strategies, each business function needs to identify and undertake activities

unique to the functions that help build sustainable competitive advantage.

Managers in each business function develop tactics that delineate the

functional activities in their part of business and usually include them as a

core part of their action plan. Functional tactics are detailed statements of the

means or activities that will be used for short term objectives and establish

competitive advantage.

Strategy Into Action

Translating strategy into action is concerned with ensuring that strategies are

working in practice. A strategy is not just a good idea, a statement or a plan.

It is only meaningful, when it is actually being carried out. This occurs infollowing manners:

Structuring an organization to support successful performance. This

includes structures, organizational processes, boundaries and

relationships.

Enabling success through the way in which separate resource areas of

an organization support strategies and the extent to which the new

strategies are built on the particular resource and competence. Strategy often involves change and the organizations must manage

change processes to achieve the organizational objectives

Getting the work of the business done efficiently and effectively so as

to make the strategy successful.

An internal focus to organize the company to accomplish the mission

To address the question of leadership and values in the organization to

achieve the objectives

Restructuring the company by downsizing, rightsizing, reengineering

to achieve the strategic results

Strategic Control and Continuous Improvement.

Strategic control is concerned with tracking a strategy as it is being

implemented, detecting problems or changes in its underlying premises, and

making necessary adjustments. In contrast to post action control, strategic

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control seeks to guide action on behalf of the generic or grand strategies as

they are taking place and when the end results are still several years away.

Continuous improvement provides a way for the managers to provide a form

of strategic control that allows their organization to respond more

proactively and timely to rapid development in hundreds of areas that

influence a businesss success.

Types of Strategy

Balanced Scorecard Basics

The balanced scorecard is a strategic planning and management system that is usedextensively in business and industry, government, and nonprofit organizationsworldwide to align business activities to the vision and strategy of the organization,

improve internal and external communications, and monitor organizationperformance against strategic goals. It was originated by Drs. Robert Kaplan

(Harvard Business School) and David Norton as a performance measurementframework that added strategic non-financial performance measures to traditional

financial metrics to give managers and executives a more 'balanced' view oforganizational performance. While the phrase balanced scorecard was coined in the

early 1990s, the roots of the this type of approach are deep, and include thepioneering work of General Electric on performance measurement reporting in the

1950s and the work of French process engineers (who created the Tableau de Bord literally, a "dashboard" of performance measures) in the early part of the 20th

century.

The balanced scorecard has evolved from its early use as a simple performancemeasurement framework to a full strategic planning and management system. The

new balanced scorecard transforms an organizations strategic plan from an

attractive but passive document into the "marching orders" for the organization on adaily basis. It provides a framework that not only provides performance

measurements, but helps planners identify what should be done and measured. Itenables executives to truly execute their strategies.

This new approach to strategic management was first detailed in a series of articlesand books by Drs. Kaplan and Norton. Recognizing some of the weaknesses and

vagueness of previous management approaches, the balanced scorecard approachprovides a clear prescription as to what companies should measure in order to

'balance' the financial perspective. The balanced scorecard is a management system(not only a measurement system) that enables organizations to clarify their vision

and strategy and translate them into action. It provides feedback around both theinternal business processes and external outcomes in order to continuously improve

strategic performance and results. When fully deployed, the balanced scorecardtransforms strategic planning from an academic exercise into the nerve center of an

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enterprise.

Kaplan and Norton describe the innovation of the balanced scorecard as follows:

"The balanced scorecard retains traditional financial measures. But financial

measures tell the story of past events, an adequate story for industrial agecompanies for which investments in long-term capabilities and customer

relationships were not critical for success. These financial measures are inadequate,however, for guiding and evaluating the journey that information age companies

must make to create future value through investment in customers, suppliers,employees, processes, technology, and innovation."

Adapted from Robert S. Kaplan and David P. Norton, Using the Balanced Scorecard as a Strategic ManagementSystem, Harvard Business Review (January-February 1996): 76.

Perspectives

The balanced scorecard suggests that we view the organization from four

perspectives, and to develop metrics, collect data and analyze it relative to each ofthese perspectives:

The Learning & Growth PerspectiveThis perspective includes employee training and corporate cultural attitudes related

to both individual and corporate self-improvement. In a knowledge-workerorganization, people -- the only repository of knowledge -- are the main resource.

In the current climate of rapid technological change, it is becoming necessary forknowledge workers to be in a continuous learning mode. Metrics can be put into

place to guide managers in focusing training funds where they can help the most. In

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any case, learning and growth constitute the essential foundation for success of any

knowledge-worker organization.

Kaplan and Norton emphasize that 'learning' is more than 'training'; it also includes

things like mentors and tutors within the organization, as well as that ease ofcommunication among workers that allows them to readily get help on a problem

when it is needed. It also includes technological tools; what the Baldrige criteria call"high performance work systems."

The Business Process PerspectiveThis perspective refers to internal business processes. Metrics based on this

perspective allow the managers to know how well their business is running, andwhether its products and services conform to customer requirements (the mission).

These metrics have to be carefully designed by those who know these processesmost intimately; with our unique missions these are not something that can be

developed by outside consultants.

The Customer PerspectiveRecent management philosophy has shown an increasing realization of the

importance of customer focus and customer satisfaction in any business. These areleading indicators: if customers are not satisfied, they will eventually find other

suppliers that will meet their needs. Poor performance from this perspective is thus

a leading indicator of future decline, even though the current financial picture maylook good.

In developing metrics for satisfaction, customers should be analyzed in terms ofkinds of customers and the kinds of processes for which we are providing a product

or service to those customer groups.

The Financial PerspectiveKaplan and Norton do not disregard the traditional need for financial data. Timelyand accurate funding data will always be a priority, and managers will do whatever

necessary to provide it. In fact, often there is more than enough handling andprocessing of financial data. With the implementation of a corporate database, it is

hoped that more of the processing can be centralized and automated. But the pointis that the current emphasis on financials leads to the "unbalanced" situation with

regard to other perspectives. There is perhaps a need to include additional

financial-related data, such as risk assessment and cost-benefit data, in thiscategory.

Levelsof StrategyStrategies exist at number of levels in an organization. There are at least

three levels of organizational strategies, viz Corporate, Business and

operational. In large firms, there are actually four levels of strategies,

Corporate, Business/ Divisional, Functional and Operational.

Corporate Level Strategy is concerned with the overall purpose and

scope of the organization. This could include issues of geographical

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coverage, diversity of product/ services or business units, and how

resources are to be allocated between the different parts of the

organization.

The corporate centre needed to play a crucial role in determining how the

organization should be structured, how resources should be allocated in

setting targets and reviewing performance. The corporate centre should

also be asking whether there other ways in which they can add value to

the separate business units within the company. It may be that a new

corporate brand should be created. Corporate level strategy is concerned

with the expectations of the owners- the shareholders. It may well take

the form in an explicit or implicit statement of mission that reflects

such expectations.

The Second Level can be thought of in terms ofDivisional orBusiness

Unit Strategy, which is about how to compete successfully in particular

markets. The concerns are, therefore, about how advantage overcompetitors can be achieved; what new opportunities can be identified or

created in markets; which products or services should be developed in

which markets and the extent of which these meet customer needs in such

a way as to achieve the objectives of the organization- perhaps long term

profitability or market share growth. So, whereas corporate strategy

involves decisions about the organization as a whole, strategic decisions

here need to be related to a Strategic Business Unit (SBU). A Strategic

Business Unit is a part of an organization for which there is a distinct

external market for goods and services that is different from another

SBU.

The third level of strategy is Functional strategy. It relates to various

functions like, Marketing, HR, Finance, Information Technology etc

The management functions involve strategic decisions to make the best

opportunities and identify avenues for growth. For example, a Finance

Manager has to necessarily take decision on funding opportunities etc.

Similarly, a Human Resource Manager has to take a number of strategic

initiatives such as leadership development, change management,

succession planning, compensation strategy, competence development

etc.The Human Resource Management Strategy attempts to find the best fit

between the people and the organization. It address the issues of whether

a company or business unit should hire a a large number of low skilled

employees who receive low pay,

The production and operations management function involves a number

of strategic issues. These issues could be the finding of location of

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facility, determining the capacity and selecting the technology and

equipment. Each of these decisions involves careful analysis of different

scenarios that may emerge and managerial involvement in business

options that could be relevant to a chosen technology or production

function.

The marketing function has certain perspectives such as strategic pricing,

market focus, and product mix. Though advertising and promotions have

long-term impact and involve a substantial cost, there is debate over

whether these are tactical or strategic decisions. It has now been

established that advertising and promotions are strategic in nature, as

they involve long term orientation, even though their execution may have

a short- term focus.

The fourth level of strategy is at the operating end of an organization.

Here there are Operational Strategies which are concerned with how arethe component parts of an organization deliver effectively the corporate

and business level strategies in terms of resources, processes and people

Operational Strategies determines how and where a product or service is

to be manufactured, the level of vertical integration, and the deployment

of physical resources and relationship with suppliers.

How Can Managers Make Better Strategic Decisions

Evaluate current performance results in terms of

(a)Return on investment, profitability and so forth,(b)The current strategic position of the company (vision,

mission, objectives, strategies and policies)

Review corporate governance i.e. the performance of the

companys board of directors and top management.

Scan the external environment to locate strategic factors:-

(a) Societal, task

(b) Select strategic factors- (i) Opportunities, (ii) Threat

Scan the internal corporate environment to determine:-

(a) Structure, culture and resources factors

(b) Select strategic factors, Strengths and Weakness

Analyze strategic factors (SWOT) to :-

. (a) Pinpoint problem areas

(b)Review and revise mission and objectives as necessary

(a) Generate and Evaluate Strategic Alternatives

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(b) Select and Recommend best Alternative

Implement Selected Strategies through programs, budgets,

procedures, process.

Evaluate implemented strategies through reviews, feedback

systems and control activities to ensure that no or minimumdeviation from the plans.

This rational approach to strategic management has been used

successfully by many progressive companies in India and abroad.

5c617International Strategic Management for Class

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