Unit I

UNIT I WHAT IS STRATEGY? Strategy is a set of key decisions made to meet objectives. It 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. An organization can not operate effectively without a strategy, either developed explicitly through a planning process or evolved implicitly.  What business are we in? What products and services will we offer?  To whom?  At what prices? On what terms?  Against which competitors?  On what basis will we compete? If the organization asks these key questions and it has the answers, then there is a strategy in place. Strategic Management has its roots in Business Policy, and evolves through four sequential phases.  Phase I: Annual Budgeting  Phase II: Long Range Planning  Phase III: Environmental Scanning  Phase IV: Strategic Planning Strategic Management is derived from Strategic Planning and is an extension of the concepts embodied in it. Phase I - Annual Budgeting The budgeting procedure reduces the process of Business Strategy to a financial problem. Procedures are developed to forecast  revenue,  costs, and  capital needs. The budget identifies limits for expenses. Information systems report on functional performance and compare it with budgetary targets to establish control and feedback. The planning horizon is 1 year. With this knowledge businesses can grow to reasonable limits without the need to set up an expensive planning systems. Complexities increase when companies become large due to:  the number of products and markets served,  the degree of technological sophistication required, and  the complex economic systems involved The financial planning system at this stage becomes inadequate to estimate the capital needs and the trade offs between alternative financing plans. Phase II - Long Range Planning Phase II is the traditional long-range planning system. It extrapolates past trends and attempts to predict the future impact of political, economic, and social forces. The objective of the long-range planning activities is to provide the organization with answers to the questions:  Where is the organization now? 1

 Where is it going?  Where does it want to go? and  What does it have to do to get to where it wants to go? The different activities in long range planning include the following:  monitoring selected trends of interest to the organization,  forecasting the expected future of those trends,  defining the desired future by setting organizational goals in the context of the expected future,  developing and implementing specific policies and actions designed to reduce the difference between the expected future and the desired future, and  monitoring the effects of these actions and policies on the selected trends.

The interrelationship between the activities is shown in figure. The models are deterministic with a focus on short or medium-term operating performance. Phase II planning is often a mechanical routine, a copy of last year's plan with adjustments to extend trend lines for another 12 months into the future. Phase II improves the effectiveness of strategic decision-making. It forces management to confront the long-term implications of decisions and to give thought to the potential business impact of discernible current trends. One of the greatest impacts of Phase II is on resource allocation. Planners learn how to look at the flow of capital and other resources among business units with a longer time frame. The major limitation of the long-range planning model is that information about the changing external environment is usually not taken into account systematically. It is assumed that there is continuity in the environment. Due to the limited view of the horizon, Phase II companies tend to be focused on current capabilities, rather than on the search for longer term options. 2

These assumption are effective only under very special circumstances, e.g. mature industries, or to basic industries like mining etc. Phase III - Environmental Scanning: As businesses become more competitive, more advanced forecasting tools are required to handle the complexities of the marketplace:  identify new and potentially crucial information of relevance to the firm to identify and track their impact.  identify possible developments that must be used to adjust the forecasts of the internal issues derived form forecasting.  The environmental scanning model is also designed with 4 major activities:  scanning the external environment for threats or opportunities to the organization,  Analyzing each potential issue or trend for the nature and degree of its impact on the organization, if it should actually materialize.  Developing an understanding of the expected future for important issues and trends.  Track the continued relevance each issue and identify areas for additional and continued scanning. 

The interrelationship between Phase III activities is shown in figure. Models are sophisticated, which may include trend analysis and regression models and, eventually, computer simulation models. In an environment of rapid change, the understanding provided by these models result in a new grasp of the key determinants of business success and improved planning effectiveness The most significant way in which Phase III differs from Phase II is that:  Corporate planners are expected to offer a number of alternatives to top management. Each choice is usually characterized by a different risk/reward profiles.

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The approach recognizes two distinct strategic levels: corporate decisions and business-unit decisions. Management has the option to prioritize different objectives of the organization. Planning becomes more meaningful as decision making is linked more closely to strategy implementation. Phase IV - Strategic Planning Phase: By merging the two models, long-range planning and environmental scanning, the Strategic Planning Model is formed. The Strategic Planning model is a tool that helps an organization in:  setting up of goals or objectives;  the analysis of the environment and the resources of the organization;  the generation of strategic options and their evaluation; and  the planning of implementation the design of control systems or monitoring mechanisms. 

This model consists of six identifiable stages that fulfill the requirements of the management thinkers:  environmental scanning,  evaluation of issues,  forecasting,  goal setting,  implementation, and  monitoring. The merged model allows information form the external environment in the form of emerging developments to enter the traditionally inwardly focused planning system, thereby enhancing the overall effectiveness of an organization’s planning.

The six stages of the Strategic Planning Model are shown above The advantages of Strategic Planning for business organizations are:  It is a highly systemized form of planning and therefore it is easy to grasp the methods, procedures and rituals programmed to execute the strategies.

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It provides a structured means of analysis and thinking about complex strategic problems, requiring management to question and challenge what they take for granted. It can be used to involve people in strategy development. It is also a way to communicate the intent of management to members of the organization. It can be used as a means of control by regularly reviewing performance and progress against agreed objectives.

The words, ‘strategic planning’, provide the key elements that underlie its meaning.  The process is strategic because it involves preparing the best way to respond to the circumstances of the organization's environment.  It is clear about the organization's objectives and resources.  It involves anticipating the future environment, of decisions that are made in the present.  The process is about planning because it involves developing an approach to achieving this future The nature of Strategic Management is different form other aspects of management as it demands attention to the "big picture" and a rational assessment of the future options. It provides:  a strategic direction endorsed by the team and stakeholders  a clear business strategy and vision for the future  a mechanism for accountability  a framework for governance at the various levels  a coherent framework for managing risk for ensuring business continuity.  the ability to exploit opportunities and respond to external change by taking ongoing strategic decisions. Strategic Management’ and ‘Strategy’, although not synonymous, are often considered as such. In its broadest sense, Strategic Management is about taking "strategic decisions". It starts where strategic thinking ends. It applies strategic thinking to lead the organization to its vision. Strategic Management is a system with a focus on continuous change. The process is iterative and ongoing. It is an evolution of the Strategic Planning Process.

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Evaluation

Firm & Stakeholder

Technological Environment

Strategy You stay on the same course or not

Implementation

Market

Business Environment

CHARACTERSTICS OF STRATEGIC MGMT:  Strategic Management co-ordinates and integrates business activities: It addresses the needs of the consumer, and provides greater efficiency and value for money to the stake holders.  Strategic Management strengthens the competitive position: It helps the firm to develop and maintain meaningful assets and skills such that the assets and skills form a sustainable competitive advantage.  Strategic Management satisfies Customers: It sees how best the firm can satisfy the needs of the people that will use its services and products.  Strategic Management works toward achieving Performance Targets: It evaluates the execution of activities related to strategic issues and goals.  Strategic Management is adaptive: It keeps an organization relevant. It is easier to understand the Strategic Management process if we consider its three main elements: 1. Strategic Analysis : Its aim is to form a view on the key factors that will have an affect on the future well being of the firm. 2. Strategic Choice : Making choices and decisions is at the heart of strategic management process 3. Strategy Implementation : It is concerned with the translation of strategy into action The Strategic Management process can also be described by a number of tasks to be undertaken by the organization.  Evolve business goals, by formulating its future mission and vision in terms of the expectations of the stake holders; 6

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Set objectives that are achievable in light of changing external factors that include regulation, competition, technology, and customers; Evolve and develop a competitive strategy to achieve the mission; Create an effective organizational structure and arrange the resources to successfully carry out the strategy, and Evaluate the performance so that necessary corrective measures can be taken to keep it on track to achieve the vision.

STRATEGIC DECISION MAKING : Business strategy is a senior and top management responsibility. Strategies develop in different ways in different types of organizations.  In family controlled businesses or small and medium businesses strategy decisions are made by an individual or a small group. The style is of an autocratic or a charismatic leader, who is seen as central to the strategy of the organization.  Large manufacturing and service type organizations that have a highly competitive environment have a formal Strategic Management processes. There is a strong vision or mission with definite and precise objectives and a system for analysis and evaluation of environments.  Where the markets are stable or mature, and the environment is benign, strategic decisions are generally taken using standardized planning procedures with systematic data collection and analyses. Top Management requires an evidence base to make Strategy recommendations. Such evidence can take many forms including:  Analysis of key patterns in data in sectors of interest,  study of public attitudes, behaviors and expectations  identification of international best practice to provide guidance to potential futures  develop hypotheses about trends and causal links, and test these hypotheses against available data.

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