Strategy

Strategic Management
UNIT-1
CONCEPT OF STRATEGY
Concept of Strategy
Learning Objectives After the end of this Unit the readers will be able to understand (1) The concept of strategy and its limitations. (2) Different levels of strategy. (3) Concept of strategy formulation and implementation. (4) Concept of strategic decision making. (5) Various issues related to strategic decision-making. (6) Theories of decision making. Unit Structure 1.1 Introduction 1.2 The concept of strategy 1.3 Levels of strategies 1.3.1 Corporate strategy 1.3.2 Business strategy 1.3.3 Functional strategy 1.4 Strategy Formulation 1.5 Strategy Implementation 1.6 Strategic Decision-Making 1.6.1 What makes a Decision strategic? 1.6.2 Issues in strategic Decision-Making. 1.6.3 Various Theories of Decision-Making. 1.7 Summary 1.8 Keywords 1.9 Questions
1.1 INTRODUCTION
Why are some businesses successful, while so many others fail? Why do some businesses enhance and substain their performance over time, while others experience erosion in their competitive position? These questions are at the heart of Strategic Management. Their answers require a firm to act, activate, and more fast to attain and sustain competitive advantage. Strategy refers to the pursuit of competitive advantage, i.e., of winning in the market place.
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If we are aware of term strategy, we indeed are in a better position to assess the likelihood of acceptance of any proposals. If we understand how and why strategic decision are made, it can be helpful to us in terms of securing resources beneficial to our subunit, in enhancing job performance and improving the career development.
1.2 THE CONCEPT OF STRATEGY

The term 'Strategy' is derived from a Greek word 'Strategos', which means generalship-the actual direction of military force, as distinct from the policy governing its deployment. Literally, therefore, the word 'Strategy' means the art of the general. In business parlance, there is no defining meaning assigned to strategy. It is often used loosely to mean a number of things. A strategy could be: A plan or course of action on a set of decision rules making a pattern or creating a common thread; The pattern or common thread related to the organisation's activities which are derived from the policies, objectives and goals. Related to pursuing those activities which more an organisation from its current position to a desired future state. Concerned with the resources necessary for implementing a plan or following a course of action. Connected to the strategic positioning of a firm, making tradeoffs between its different activities and creating a fit among these activities; and The planned or actual coordination of the firm's major goals and actions, in time and space that continuously co-align the firm with its environment. In simplified terms, a strategy is the means to achieve objectives. In complex terms, it may posses all the characteristics mentioned above. With so many different interpretations of a term, it is really difficult to fathom what strategy really means. This is understandable. Yet, we need to consider all these interpretations at once. This diversity of interpretations gives us valuable insights into what thinkers and writers have proposed from time to time. Undoubtedly, strategy is one of the most significant concepts to have emerged in the subject of management studies in the recent past. Its applicability, relevance, potential and viability have been
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put to severe test. It has emerged as a critical input to
organisational success and has come in handy as a tool to deal with the uncertainties that organisations face. It has helped to reduce ambiguity and provided a solid foundation as a theory to conduct business: a convenient way to structure the many variables that operate in the organisational context and to understand their interrelationship. It has aided thinkers and practitioners in formulating their thoughts in an ordered manner and to apply them in practice. There have been several such benefits, yet there are some pitfalls too. It would be prudent on our part to realise that a blind adherence to the postulations of strategy could be counterproductive. The limitations of the concept of strategy also need to be understood. This is likely to elicit a nature response so that the full potential of this powerful concept can be realised. It is also intended to provide a balanced understanding, of the concept of strategy. Here are the two points of consideration to temper our enthusiasm while embracing the concept of strategy: The application of the concept of strategy to real-life situations may tend to oversimplify things. Actual situations are complex and contain several variables that are not amenable to structuring. The concept of strategy tends to distort reality and, as an abstraction of reality, it is anything but a true reflection of the actual situation. Of course, this limitation is not unique to strategy. It is there in any situation where modelling has to be resorted to, to provide a structured understanding of reality. Several mathematical formulations start with a phrase indicating that a certain number of variables are assumed to be constant. The application of the concept of strategy commits an organisation to a predetermined course of action. While this is essential to chart out a path ahead, it often blinds the organisation to the emergent situations as it goes along the path. Rigidity leads to an attitude of finality with regard to the situations that are actually not known at the time of starting the journey. It might be better, for instance, to move slowly, one step at a time and keep in mind the maxim: look before you leap. One might say that this is already known to the perceptive managers. Yet, there is no harm in being cautious. Discretion is certainly the better part of valour.
Concept of Strategy
1.3 LEVELS OF STRATEGY

It is not uncommon to find many companies, or a group of companies, that while being under the same top management, are
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working
in
different
business or
lines
with
regard Here
to
either a few
products/services, illustrations:
markets
technology.
are
Hindustan Levers, the venerable multinational subsidiary, organises itself into four businesses of home and personal care, foods, new ventures and exports.
The TVS group has companies like Sundaram Fasteners, Lucas TVS, Brakes India, wheels India, Sundaram Bralve linings, TVS motor company and TVS electronics. It operates in technology areas as diverse as airbrake systems, aluminium castings, auto motive components, computer peripherals, software design and two-wheelers. For many companies, such as illustrate above, a single strategy is not only inadequate but also inappropriate. The need is for multiple strategies at different levels. In order to segregate different units or segments, each performing a common set of activities, many companies organise on the basis of operating divisions or, simply divisions. These divisions may also be known as profit centres or strategic business units (SBUs). An SBU, as defined by sharplin, is "any part of a business organisation which is treated separately for Strategic Management purpose."
The typical business firm usually considers three levels of strategy: Corporate - Level Strategy Business (SBU) Level Strategy Functional Level Strategy
Corporate Strategy: Overall Direction of Company and Management of its Businesses Business Strategy: Competitive and Cooperative Strategies Functional Strategy: Maximize Resource Productivity
Figure 1.1 Levels of Strategy
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1.3.1 Corporate Strategy

Corporate level strategy is an overarching plan of action covering the various functions that are performed by different SBUs. It also describes a company's overall direction in term of its general attitude towards growth and the management of its various business and product lines. Corporate strategy is composed of directional strategy, portfolio analysis, and parenting strategy. Corporate directional strategy is conceptualized in terms of stability, growth and retrenchment. It also deals with the objectives of the company, allocation of resources and coordination of the SBUs for optimal performance.
Concept of Strategy
1.3.2 Business Strategy

Business Level (or SBU) strategy is a comprehensive plan providing objectives for SBUs allocation of resources among functional areas and coordination between them for making optimal contribution to the achievement of the corporate level objectives. Business strategy usually occurs at the business unit or product level, at it emphasizes improvement of the competitive position of a corporation's products or service in the specific industry or market segment served by that business unit.
1.3.3 Functional Strategy

Functional strategy deals with a relatively restricted plan, providing objectives for a specific function, allocation of resources among different operations within that functional area and coordination between them for optimal contribution to the achievement of the SBU and corporate-level objectives. Functional strategy is the approach taken by a functional area, such as marketing or research and development, with to achieve corporate and and business a unit objectives and strategies by maximizing resource productivity. It is concerned development nurturing distinctive competence to provide a company or business unit with a competitive advantage. An example of a marketing functional strategy is Dell's selling computer systems directly to the consumer to reduce distribution expenses and increase customer service.
1.4 STRATEGY FORMULATION

Strategy formulation is the development of long-range plans for the effective management of environmental opportunities and threats, in light of corporate strengths and weaknesses. It includes defining the corporate mission, specifying achievable objectives, developing strategies, and setting policy guidelines.
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1.5 STRATEGY IMPLEMENTATION

Strategy implementation is the process by which strategies and policies are put into action through the development of programs, budgets, and procedures. This process might involve changes within the overall culture, structure, or management system of the entire organization or within all of these areas. Except when such drastic corporate wide changes are needed, however, middle-and lower-level mangers typically implement strategy, with review by top management. Sometimes referred to as operational planning. Strategy implementation often involves day-to-day decisions in resource allocation.
1.6 STRATEGIC DECISION-MAKING

Decision-making is the most important function of any manger. Strategic decision making is the primary task of the senior management. Both these kinds of decision-making are essentially the same. The difference lies in the levels at which they operate. While decision-making pertains to all managerial functions, strategic decision making largely relates to the responsibilities of the senior management. Most people agree that decision-making is the process of selecting a course of action from among alternatives. The process works somewhat like this: Objectives to be achieved are determined; Alternative ways of achieving the objectives are identified; Each alternative is evaluated in terms of its objectiveachieving ability; and The best alternative is chosen.
The end result of the above process is a decision or a set of decisions to be implemented. Such a process of decision-making is deceptively simple. In practice, decision-making is a highly complex phenomenon. The first set of problems encountered in decision-making, is related to objective-setting. Second, the identification of all possible alternatives is a difficult task. How to test the objective-achieving ability of each alternative is easier said than done and, lastly, choosing the best alternative is a formidable task too. The problems encountered in decision-making, as indicated above, are experienced by all managers in the course of their day-to-day activities. On the other hand, strategic tasks are, by their very nature, complex and varied. Decision-making while performing
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strategic tasks, is therefore, an extremely difficult, complicated and, at times, intriguing and enigmatic process.
Concept of Strategy
1.6.1 What makes a Decision strategic

Unlike many other decisions, strategic decisions deal with the longrun future of the entire organization and have three characteristics: (1) Rare : Strategic decisions are unusual and typically have no precedent to follow. (2) Consequential : Strategic decisions commit substantial resources (3) Directive and demand a great deal of commitment. : Strategic decisions set precedents for lesser decisions and future actions throughout the organization.
1.6.2 Issues in Strategic Decision-Making

Being a complex process, strategic decision-making is difficult to perform. It is incomprehensible; it cannot be analysed and explained easily. Decision makers are unable to describe the exact manner in which strategic decisions are made. Like the working of the human mind, strategic decision making is fathomless. And rightly so, for it is based on complex mental processes which are not exposed to view. Henry Mintzberg, commenting on the nature of strategic decision-making says that 'the key managerial processes are enormously complex and mysterious, drawing on the vaguest of information and using the least articulated of mental processes. These processes seem to be more relational and holistic than ordered and sequential and more intuitive than intellectual'. Despite these limitations, we can still attempt to understand strategic decision-making by considering some important issues related to it. We deal with six such issues below: (1) Criteria for Decision-Making The process of decision-making requires objective-setting. These objectives save as yardsticks to measure the efficiency and effectiveness of the decision-making process. In this way, objectives serve as criteria for decision-making. There are three major viewpoints regarding setting criteria for decision-making. (a) The first is the concept of maximisation. It is based on the thinking of economists who consider objectives as those attributes which are set at the highest point. The behaviour of the firm is oriented towards achieving these objectives and, in the process, maximizing its returns.
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(b)
The second view is based on the concept of satisfying. The envisages setting objectives in such a manner that the firm can achieve them realistically, through a process of optimisation.
(c)
The third viewpoint is that of the concept of incrementalism. According to this, the behaviour of the firm of complex and the process and the process of decision-making, which includes objective-setting, is essentially a continually-evolving political consensus-building. Through such an approach, the firm moves towards its objectives in small, logical and incremental steps.
(2) Rationality in Decision-Making Rationality in the context of strategic decision making, means exercising a choice from among various alternative courses of action, in such a way that it leads to the achievement of objectives in the best possible manner. The economists who support the maximising criterion consider a decision to be rational if it leads to profit maximisatsion. Behaviourists, who are the proponents of the satisfying concept, believe that rationality takes into account the constraints under which a decision maker operates. Incrementalists are of the opinion that the achievement of objectives depends on the bargaining process between different interested coalition groups existing in an organisation and therefore, a rational decision making process should take all these interests into consideration. (3) Creativity in Decision-Making To be creative, a decision must be original and different. A creative strategic decision-making process may considerably affect the search for alternatives where novel and untried means may be looked for and adopted to achieve objectives in an exceptional manner. Creativity, as a trait is normally associated with individuals and is sought to be developed through techniques such as brainstorming. (4) Variability in Decision-Making It is a common observation that, given an identical set of conditions, two decision makers may reach totally different conclusions. This often happens during case discussions also. A case may be analysed differently by individuals in a group of learners and, depending on the differing perceptions of the problem and its solutions, they may arrive at different conclusions. Such things happen due to variability in decision-making. It also suggests
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that every situation is unique and there is no set formulas that can
be applied in strategic decision-making. (5) Person-related factors in Decision-Making There are a host of person-related factors that play a role in decision-making. Some of these are: age, education, intelligence, personal values, cognitive styles, risk-taking ability and creativity. Attributes like age, knowledge, intelligence, risk-taking ability and creativity are generally supposed to play a positive role in strategic decision-making. A cognitive style which enables a person to assimilate a lot of information, interrelated complex variables and develop an integrated view of the situation is especially helpful in strategic decision-making. Values as enduring prescriptive beliefs are culture-specific and important in matters of social responsibility and business ethics-issues that are important to strategic management. (6) Individual versus Group Decision-Making Owing to person-related factors, there are individual differences among decision makers. These differences matter in strategic decision-making. who understand An an organisation, organisation's such possessing characteristics as chief special and its or characteristics, operates in a unique environment. Decision makers environment are in a vantage position to undertake strategic decision-making. Individual, executives entrepreneurs play the most important role as strategic decisionmakers. But as organisations become bigger and more complex and face an increasingly turbulent environment, individuals come together in groups for the purpose of strategic decision-making.
Concept of Strategy
1.6.3 Various Theories of Decision-Making

Various theories have been suggested about how decisions are made. Most writers focus on three approaches: (1) Rational - analytical (2) Intuitive - emotional (3) Behavioural - polical 1. Rational-Analytical Decision-Making In this model, the decision maker is a unique action whose behavious is intelligent and rational. The decision is the choice that this actor makes in full awareness of all available feasible alternatives in order to maximize advantages. The decision maker, therefore, considers all the alternatives as well as the
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consequences of all the possible choices, puts these consequences
in proper order in the light of a fixed scale of preferences and finally chooses the alternative that ensures the maximum gain. This is the oldest decision-making theory. It prescribes a rational, conscious, systematic and analytical approach. It has been criticized on three counts. (1) (2) The decision maker is often not a unique actor but part of a multi-party decision-situation. Decision-makes are not rational enough or informed enough to consider all alternatives or know all the consequences, and information is costly too. (3) Decision-makers make decisions with more than a maximization of objectives in mind. They tend to 'Satisfice', that is, make a decision expected to yield a satisfactory as opposed to an "optimal", outcome. Besides the objectives may change. 2. Intuitive-Emotional Decision-Making The opposite of the rational decision-maker is the intuitive decision maker. This decision-maker prefers habit or experience, gut-feeling, reflective thinking and instinct using the unconscious mental processes. Intuitive decision-makers consider a number of alternatives, and options simultaneously jumping from one step in analysis or search to another and back again. Some experts who prescribe intuition or judgment as the preferred approach point out that in many cases judgment may lead to "better" decisions than "optimizing" techniques. For examples, consider sensitivity-analysis on a tool such as the economic-order quantity (EOQ). EOQ models suggest that there is an optimal-order quantity considering trade-offs of ordering and holding costs. Yet you can stray far from the optimal in most cases without a very significant impact on total-cost differentials. Here, then, judgment concerning other factors in the decision-situation can lead to a better overall decision about order quantities rather than holding fast to deciding what the rational model prescribes. In fact, the timing of when to implement a decision based on the analysis may require an intuitive feel for what the data are telling you. In many cases, judgment such as this may be preferable to relying on the analysis. Those opposed to this approach argue that: (1) It does not effectively use all the tools available to modern decision makers.
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(2)
The rational approach ensures that adequate attention is given to consequences, of decision before big mistakes are made.
Concept of Strategy
3. Political-Behavioural Decision Making A third point of view suggests that real decision-makers must consider a variety of pressures from other people affected by their decisions. An organization interacts with a variety of stakeholders in a series of interdependent exchange relationship. Unions exchange labour for decent wages and job security. Customers exchange money for products and services. Owners exchange capitals for expected returns on investments. Supplies exchange inputs for money and continued business. Each stakeholder gives the organization something and expects something in return. To the extent an organization has a favourable exchange relationship compared with other organizations and stakeholders, it has more power. More powerful stakeholders have more influence over decisions because the organization is more dependent on these stakeholders. A majority stake holder can have a greater influence on decisions about re-investment versus divident pay-out than if stock is widely held by many small owners. If the firm is labour-intensive, more attention may be paid to union leaders demands for better wages than to the desires of stakeholders for more profit because the union might shut the firm down. Given these realities, decision makers do a juggling act to meet the demands of the various stakeholders. Through political compromise, they attempt to merge competing demands so that a coalition interests emerges that will support the decision. This mode of decision making is a descriptive theory suggesting that the organization in which the decision maker works limits the available choices. Decisions are made when most of the people involved in the process agree that they have found a solution. They do this by mutual adjustment and negotiations following the rules of the game-the way decisions have been made in the organization in the past. The decision-maker must consider whether the decision outcome can be implemented politically.
1.7 SUMMARY
A strategy is a comprehensive plan stating how the corporation will achieve its mission and objectives. It maximizes competitive advantage and minimizes competitive disadvantage. The business firm usually considers three types of strategy:
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corporate, business, and functional. Business firms use all three types of strategy simultaneously. The level of strategy is a nesting of one strategy within another so that they complement and support one another. Functional strategies support business strategies, which, in turn, support corporate strategies. strategic decision-making is the primary task of the senior management. Decision-making in performing strategic tasks is an extremely difficult, complicated and, at times intriguing and enigmatic process. Strategic decision-making leads to the formation of strategies. The different dimensions of the process of strategic decisionmaking are encapsulated in the six issues related to it: criteria for decision-making, decision-making, making. Various theories have also been suggested about how decisions are made. Most writers focus on three approaches: rationale-analytical, intuitive-emotional and behavioural-political. rationality variability in in decision-making, decision-making, creativity in person-related
factor in decision-making and individual versus group decision-
1.8 KEYWORDS
(1) (2) Strategy: Large scale future oriented plans for interacting with the competitive environment to achieve company objectives. Strategic Management: The set of decisions in the formulation and implementation of plans designed to achieve a company's objectives. (3) (4) (5) (6) (7) (8) Stakeholders: Influential people who are vitally interested in the actions of the business. SBU : Any part of a business organization which is treated separately for strategic management purpose. Objectives : The results that an organization seeks to achieve over a period of time. Program: A statement of the activities or steps needed to accomplish a single-use plan. Policies : A broad guideline for decision making that links the formulation of strategy with its implementation. Mission: The organisation's purpose or the reason for its existence.
1.9 QUESTIONS
1.
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Explain the concept of strategy.
2. Describe the different levels at which strategy operates. How is
integration of strategies operating at different levels done? 3. 4. 5. Enumerate the major issues in strategic decision making. Explain the various theories related to decision-making. Explain the concept of strategy formulation and implementation.
Concept of Strategy
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UNIT-2
PROCESS OF STRATEGIC MANAGEMENT
Learning Objectives After the end of this Unit the readers will be able to understand(1) (2) (3) (4) (5) (6) (7) (8) (9) Need of strategic Management. Phases of Development of strategic management. Concept of strategy formulation and implementation. Definition of strategic management. Mintzbergs modes of strategic management. Roles and responsibilities of the strategy makers. Benefits and risks of strategic management. Importance of strategic management as a process. How strategic management is practiced in various organization. Unit Structure 2.1 Introduction 2.2 How has Strategic Management Evolved? 2.3 Concept of Strategic Management 2.4 Formality in Strategic Management 2.5 The Strategic Makers 2.6 Benefits of Strategic Management 2.7 Risks of Strategic Management 2.8 Strategic Management Process 2.8.1 Phase in Strategic Management Process 2.8.2 Elements in Strategic Management Process 2.8.3 Model of Strategic Management Process 2.9 Users of Strategic Management 2.9.1 Strategic Management of Hospitals 2.9.2 Strategic Management of Colleges and Universities 2.9.3 Strategic Management of Arts-Organization 2.10 Summary 2.11 Keywords 2.12 Questions
2.1 INTRODUCTION
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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 strategist determine objective and make strategic decisions. Strategic Management focuses on analysis of the business and the preparation of several scenarios for future. The Board of directors and the corporate planners have vital role to play in Strategic Management. But the star roles are for the general managers of the corporation and for its major operating divisions. Strategic Management is considered as the process of formulating, implementing and evaluating strategies for an organization. The basic purpose of this unit is to help manages to make them sense of the strategic management process and to implement the same in their organization.
Process of Strategy Management
2.2 HOW HAS STRATEGIC MANAGEMENT EVOLVED?

Many of the concepts and technique dealing with long range planning and strategic management have been developed and used successfully by business corporations. Nevertheless, not all organizations use these tools or even attempt to manage strategically. Many are able to succeed for a while with unstated objectives and intuitive strategies. Institute strategies cannot be continued successfully for a longer period of time, so need for strategic management arises when. 1. 2. 3. The corporation becomes large. The layer of management increases The environment changes substantially
The increasing risks of error, costly mistakes and even economic ruin are causing todays professional managers to take strategic management seriously in order to keep their companies competitive in an increasingly volatile environments as top managers attempt to better deal with their changing world. Strategic management within a firm generally evolves through four sequential phases of development. Phase 1 Basic financial planning: Seeking better operational control by trying to meet annual budgets. Phase 2
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Forecast based planning: Seeking more effective planning for growth by trying to predict the future beyond the next year.
Phase 3 External oriented planning (Strategic planning): Seeking increased responsiveness to markets and competition by trying to think strategically. Phase 4 Strategic Management: Seeking a competitive advantage by considering implementation and evolution and control when formulating strategy. General Elective, one of the pioneers of strategic planning, led the transition from strategic planning to strategic management during the 1980s. By the 1990s, most corporations around the world had also begun the conversion to strategic management.
2.3 CONCEPT OF STRATEGIC MANAGEMENT

Strategic Management is defined as the set of decisions and action that result in the formulation and implementation of plans designed to achieve a companys objectives. It comprises nine critical tasks. 1. Formulate the Companys mission, including broad statements about its purpose, philosophy, and goals. 2. Conduct an analysis that reflects the Companys internal conditions and capabilities. 3. Access the Companys external environment, including both the competitive and the general contextual factors. 4. Analyze the Companys options by matching its resources with the external environment. 5. Identify the most desirable option by evaluating each option in light of the companys mission. 6. Select a long term objectives and grand strategies that will achieve the most desirable options. 7. Develop annual objectives and short term strategies that are compatible with the selected set of long term objectives and grand strategies. 8.
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Implement the strategic choices by means of budgeted resources allocations in which the matching of tasks, people,
structure, technologies and reward Systems is emphasized. 9. Evaluate the success of the strategies process as an input for future decision making. As these nine tasks indicate, strategic management involves planning, directing organizing and controlling of a Company's strategy related decisions and actions.
2.4 FORMALITY IN STRATEGIC MANAGEMENT

The formality of strategic management systems varies widely among companies. Formality refers to the degree to which participants, responsibilities, authority, and discretion in decision making are specified. It is an important consideration in the study of strategic management, because greater formality is usually positively correlated with the cost, comprehensiveness, accuracy and success of planning. A number of forces determine how much formality is required in strategic management. The size of the organization, its predominant management style, the complexity of its environment, its production process its problems, and the purpose of its planning system all play a part in determining the appropriate degree of formality. In particular, formality is associated with the size of the firm and with its stage of development. Some firms, especially smaller ones, follows an entrepreneurial more. They are basically under the control of a single individual, and they produce a limited number of products on services. In limited number of products on services. In such firm, strategic evaluation is informal, intuitive and limited. Very large firms, on the other hand, make strategic evaluation part of a comprehensive, formal planning system, an approach that Henry Mintzberg called the planning mode. Mintzberg also identified a third mode the adaptive mode, which he associated with medium sized firms in relatively stables environments. For firms that follow the adaptive mode the identification and evaluation of alternative strategies are closely related to existing strategy. It is not unusual to find different modes within the same organization. For example, ExxonMobil might follow an entrepreneurial mode in developing and evaluating the strategy of its solar subsidiary but follows a planning mode in the rest of the company.
2.5 THE STRATEGY MAKERS

The ideal strategy management team includes decision makers
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from all three company levels (the corporate, business, and functional) for example, the chief executive officer (CEO), the product managers, and the heads of the functional areas. In addition, the team obtains input from company planning staffs, when they exist, and from lower level managers and superiors. The latter provide data for strategic decision making and them implement strategies. Because strategic decisions have a tremendous impart on a company are require large commitments of company resources, top managers must give final approval for strategic action. Table 2.1 aligns levels of strategic decision makers with the kinds of objectives and strategies for which they are typically responsible. Table 2.1 Hierarchy of Objectives and Strategies
Strategies Decision Makers Ends be achieved) Mission, including goals and Grand strategy Short-term strategies and policies Note: indicates a principal responsibility, indicates a secondary responsibility. philosophy Long-term objectives Annual objects Means be achieved?) Board of Corporate Managers Business Managers Functional Managers (What is to (How is it to Directors
Planning departments, often headed by a corporate vice president for planning, are common in large corporation. Medium sized firms often employ at least one full time staff member to spearhead strategic data collection efforts. Even in small firms or less progressive larger firms, strategic planning often is spearheaded by an officer or by a group of officers designated as a planning committee. Precisely what are Managers responsibilities in the strategic planning process at the corporate and business levels? Top management shoulders broad responsibility for all the major elements of strategic planning and management. They develop the
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major portions of the strategic plan and review, and they evaluate
and counsel on all other portion. General Managers at the business level typically have principal responsibilities for developing environmental analysis and forecasting, establishing business objectives, and developing business plans prepared by staff groups. A firm's president or CEO characteristically plays dominant role in strategic planning process. In many ways, this situation is desirable. The CEO's principal duty often is defined as giving long term direction of the firm, and the CEO is ultimately responsible for the firm's success and therefore, for the success of its strategy. In addition, CEOs are typically strong willed, company oriented individuals. However, when the dominance of the CEO approaches autocracy, the effectiveness of the firm's strategic planning and management processes is likely to be diminished. For this reason, establishing a strategic management implies that the CEO will allow managers at all levels to participate in the strategic posture of the company.
2.6 BENEFITS OF STRATEGIC MANAGEMENT

Using the strategic management approach, managers at all levels of the firm interact in planning and implementing. As a result, the behaviorual consequences of strategic management are similar to those of participative decision making. Therefore, an accurate assessment of the impact of strategy formulation on organizational performance criteria but also nonfinancial evaluation criteria measures of behavior based effects. In fact, promoting positive behavioral consequences also enables the firm to achieve its financial goals. However, regardless of the profitability of strategic management improve the firm's welfare: Strategic formulation activities enhance the firm's ability to prevent problems Managers who encourage subordinates attention to planning are aided in their monitoring and forecasting responsibilities by subordinates who are aware of the needs of strategic planning. Group based strategic decisions are likely to be drawn from the best available alternatives. The strategic management process results in better decisions because group interaction generates a greater variety of strategies and because forecasts based on the specialized perspectives of group members improve the screening of options. The involvement of employees in strategy formulation
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improves their understanding of the productivity rewards
relationship in every strategic plan and thus, heightens their motivation. Gaps and overlaps in activities among individuals and group are reduced as participation in strategy formulation classifies differences in role. Resistance to change is reduced. Though the participants in strategy formulations may no more pleased with their own decision than they would be with authoritarian decisions, their greater awareness of the parameters that limit the available options makes them more likely to accept those decisions. Business that take to strategic management are more effective and they reap good results.
2.7 RISKS OF STRATEGIC MANAGEMENT

Managers must be trained to guard against three types of unintended negative consequences of involvement in strategy formulations. First, the time that managers spend on the strategic management process may have a negative impact on operational responsibilities. Managers must be trained to immunize that impact by scheduling their duties to allow the necessary time for strategic activities. Second, if the formulators of strategy are not intimately involved in its implementation, they may shirk their individual responsibility for the decisions reached. Thus, strategic managers must be trained to limit their promises to performance that the decision makers and their subordinates can deliver. Third, strategic managers must be trained to anticipate and respond to the disappointment of participating subordinates over unattained expectations. Subordinates may expert their involvement in even minor phases of total strategy formulation to result in both acceptance of their proposals and an increase in their rewards, or they may expect a solicitation of their input on selected issues to extend to other areas of decision making. Sensitizing managers to these possible negative consequences and preparing them with effective means of minimizing such consequences will greatly enhance the potential of strategic planning.
2.8 STRATEGIC MANAGEMENT PROCESS

Business vary in the processes they used to formulate and direct their strategic management activities. Sophisticated planners, such as General Electric, Procter and Gamble, and IBM, have developed
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more detailed processess than less formal planners of similar size.
Small businesses that rely on the strategy formulation skills and limited time of an entrepreneur, typically exhibit more basic planning concerns than those of larger firms in their industries. Understandably, firms with multiple products, markets or technologies tend to use more complex strategic management systems. However, despite differences in detail and the degree of formalization, the basic elements of the models used to analyze strategic management operations are very similar.
2.8.1 Phases in Strategic Management Process

Strategic Management of Process consists of four of phase viz. establishment strategic Intent, formulation strategies,
implementation of strategies and strategic evaluation and control. The four phases are shown in figure 2.1
Establishme nt of strategic intent Formulation of strategies Implementati on of strategies
Strategies evaluation
Strategic Control
Fig. 2.1 : Four Phases in Strategic Management Process The first phase consists of establishing the strategic intent for the organization. In this text, strategic intent is the hierarchy of objectives that on organization sets for itself. Within this, there are the vision, mission, business definition and objectives. The aim of strategic management is to help the organization realize its strategic intent. The second phase of the formulation of strategies is concerned with the devising of a strategy or a few strategies. This phase is also called strategy planning. Essentially, this is an analytical phase in which strategists (Managers who are responsible for strategic management in an organization) think, analyze and plan strategies. The third phase of implementation is the putting into action phase. The strategies that are formulated are implemented through a series of administrative and managerial actions. The fourth and the last phase of evaluation and control assessing how appropriately the strategies were formulated and how effectively they are being implemented. Depending on the outcome of assessment, actions could be taken ranging from fine tuning implementation to a drastic reformulation of strategies. These four phases are considered to be sequentially linked to each
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other and each successive phase provides a feedback to the previous phases. However, in practice, the different phases of strategic management may not be clearly differentiable, from each other. In fact, we prefer to call them phases rather than stages or steps to signify that the different phases, at the interface, may exist simultaneously and the strategic activities gradually emerge in one phase to merge into the following phase. The feedback arising from each of the successive phases is meant to revise, reformulate or redefine the previous phases, if necessary. Such a representation yields a dynamic model of strategic management which takes into account the emerging factors as the process moves on.
2.8.2 Elements in Strategic Management Process

Each phase of the strategic management process consists of a number of elements, which are discrete are identifiable activities performed in logical and sequential steps. As many as twenty different elements could be identified in the models provided by various authors. From the literature of the strategic management we note that most on all the following activities are considered as parts of the strategic management process A. Establishing the hierarchy of strategic intent: 1. 2. 3. 4. 5. Creating and communicating a vision Designing a mission statement Defining the business Adopting the business model Setting objectives
B. Formulation of Strategies 1. 2. 3. 4. 5. 6. 7. Performing environmental appraisal Doing organizational appraisal Formulating corporate level strategies Formulating business level strategies Undertaking strategic analysis Exercising strategic choice Preparing strategic plan
C. Implementation of Strategies 1. 2. 3.
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Activating strategies Designing the structure, systems and processes Managing behavioural implementation Managing functional implementation
4.
5.
Operationalizing strategies
D. Performing strategic evaluation and control 1. 2. 3. Performing strategic evaluation Exercising strategic control Reformulating strategies
2.8.3 Model of Strategic Management Process

The process of strategic management is depicted through a model which consists of different phases. Figure 2.2 shows the model of strategic management -
Strategic Intent Vision Mission Business definition Business model Objective
Strategy Formulation Environmental Organizational Appraisal SWOT Analysis Corporate level Strategies Business level Strategies Strategic analysis and choice Strategic plan
Strategic Implementatio n Project Procedural Resource allocation Structural Behavioural Functional & Operational
Strategic Evaluation
Strategic Control
Fig. 2.2 : Comprehensive model of strategic management The bird's eye view of the different elements of the process are as follows 1. The hierarchy of strategic intent lays the foundation for the strategic management of any organization. In this hierarchy, the vision, mission, business definition, business model and objective are established. The strategic indent makes clear what the organization stands for. The element of the vision in the hierarchy strategic intent serves the purpose of stating what the organization wishes to achieve in the long run. The mission relates the organization to the society. The business definition explains the businesses of the organization in terms of customer need, The creates customer revenue. then groups The serve and alternative how of the the and
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technologies. organization period. These
business
model
classifies objectives as
organization state what is to be achieved in a given time objectives yardsticks
benchmarks for measuring organizational performance. 2. Environment and organizational appraisal deal with identifying the opportunities and threats operating in the environment and the strengths and weaknesses of the organization in order to create match between them in such a manner that opportunities could be availed of and the impact of threats neutralized and to capitalize on the organizational strengths and minimize the weakness. 3. Formulation of strategies takes place at four levels: Corporate, business, functional and operational. Among these levels, the major ones are the corporate and business level strategies. Corporate level strategies relate to the strategic decisions regarding the management of a portfolio of business. Business strategies aim at developing a competitive advantage in the individual business that a company has in its portfolio. 4. Strategic alternatives and choice are required for evolving alternative strategies, out of the many possible options and choosing the most appropriate strategy or strategies in the light of environment opportunities and threats and corporate strengths and weaknesses. Strategies are chosen at the corporate level and the business level. The process used for choosing strategies involves strategic analysis and choice. The end result of this set of elements is a strategic plan to be implemented. 5. For implementation of strategy, the strategic plan is put into action through six sub-processes: Project implementation, procedural implementation, resources allocation, structural implementation, behavioural implementation and functional and operational implementation. Project implementation deals with the setting up of the organization. Procedural implementation deals with the different aspects of the regulatory have to operate. Resource allocation relates to the procurement and commitment of resources for implementation. The structural aspects of implementation deal with the design of appropriate organizational structures and systems and reorganizing so as to match the structure to the needs of strategy. The behaviorual aspects consider the leadership styles for implementing strategies and other issues like corporate culture, corporate politics and use of power, personal values and business ethic and social responsibility. The functional aspects relate to the policies to be formulated in different functional areas. The operational implementation deals with the productively process, people and pace of
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implementing 6. The last
the of
strategies. strategic
The
emphasis
in
the the
implementation phase of strategic management is on action. phase evolution appraises implementation of strategies and measures organizational performance. The feedback from strategic evolution is meant to exercise strategic control over the strategic management process. Strategies may be reformulated, if necessary.
2.9 USERS OF STRATEGIC MANAGEMENT

This section will introduce ideas about how the concepts of strategic management are applied in various organization.
2.9.1 Strategic Management of Hospitals

These institutions are the most difficult enterprises to manage. A hospital's administrator must deal first with many objectives and many of these are hard to quantify. The objectives include quality patient care, research, professional training, cost- efficiency. The administrator size and community prestige. The administrator is responsible to a board of trustees usually composed of community leaders and physicians. Although the member of the medical staff can use the hospital facilities, they are usually not the hospital employees. The hospitals funds come from patients, donors and third party groups. The employees vary from highly trained professional to semi skilled workers.
2.9.2 Strategic Management of Colleges and University

Some of these may be controlled and financed by central, state or local governments while others may be private or independent ones. They may include wealthy ad week known institutions and also those known mostly to their alumni and local communities. The principals, Directors and Vice-Chancellors or President are faced with a multitude of objective many of which are hard to measure. These include effective teaching, creation and dissemination of research and service to the society as well as unofficial goals such as developing winning sports teams. The president's Governors strategic or management Council, also involves with a Board of the Executive faculty tenure,
professional staff, and sometimes a militant student body. Funds come from tution fee, research grants, donations legislature and ancillary operations such as dormitories, the food service, the book store bowl games and television stations. Universities are faced with serious strategic challenges from time to time. Strategic management offers some sources of help for them. Several writers have described effective strategic management for
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colleges and universities not too differently from the approach of this unit. Mot universities, schools and hospitals are owned and financed by the government. In these cases, there is little direct fund raising or market support activity. But strategic decisions are based on factors like population and on performance criteria, such as student-staff and patient-staff ratios, strategic, plans are also important for their success.
2.9.3 Strategic Management of Arts Organization

Most of the arts organizations are small business, with relatively few employees. Symphonies, opera companies and other dance companies, theater groups and museums are the most typical. Many of these enterprises hire people for part time rather than full time work. The managers of these institutions have a difficult time generating financial support from ticket sales, gifts and grants. Ancillary businesses, such as stores have been used to supplement revenues. The manager's titles vary from curator to impresario. Most of the institutions survive because of the talent and dedication of their leaders. Success also comes from a dedicated and competent group of volunteers who substitute for paid employees and help raise money.
2.10 SUMMARY
Strategic management is the set of decisions and actions that result in the formulation and implementation of plan designed to achieve a company's objectives. Because it involves long term, future oriented, complex decision making and requires considerable resources, top management participation is essential. The process of strategic management consists of four phases. Establishing the strategic intent, formulation of strategies, implementation of strategies and strategic evaluation and control. There are several elements in the process of strategic
management. We identified twenty different elements spread over the four phases of strategic management process.
2.11 KEYWORDS
1. Strategic Management : The set of decision result in the formulation and implementation of plans designed to achieve a company's objective. 2.
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Strategy : Large-sale, future oriented plans for interacting with
the competitive environment to achieve company objective. 3. Formality : The degree to which participation, responsibility authority and 4. discretion in decision making are specified in strategic management. Entrepreneurial Mode : The informal, intuitive and limited approach to strategic management associated with owner managers of small firms. 5. Planning Mode : The strategic formality associated with large firms that operate under a comprehensive formal planning system. 6. Adaptive Mode : The strategic formality associated with medium 7. sized firms that emphasize the incremental modification of existing competitive approaches. Strategic Control : Tracking a strategy as it is being implemented, detecting problems or changes in its underlying premises, and making necessary adjustment. 8. Process : The flow of information through interrelated stages of analysis toward the achievement of an aim.
2.12 QUESTIONS
1. 2. 3. 4. 5. 6. 7. How does strategic management typically evolve in a corporation? Explain the concept of strategic management. What are the Mintzberg's modes of strategic management? What are roles and responsibilities of the strategic makers? Explain the benefits of strategic management. What are the risks involved in the strategic management? Enumerate the elements in the strategic management process.
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UNIT-3 ROLE OF STRATEGISTSMISSION, PURPOSE, OBJECTIVE

Learning Objectives After the end of this Unit, the readers will be able to understand (1) (2) (3) (4) (5) (6) (7) (8) (9) The concept of strategy intent The concept of vision The process of envisioning The concept of mission Characteristics of a mission statement Importance of purpose in an organisation Role and characteristics of objectives Factors to be considered for objective-setting Balanced scorecard approach to objectives-setting
Unit Structure 3.1 Introduction 3.2 Strategic Intent 3.3 Vision 3.3.1 The nature of vision 3.3.2 Defining vision 3.3.3 Benefits of having a vision 3.3.4 What a vision should and shouldn't be 3.3.5 The process of envisioning 3.4 Mission 3.4.1 Defining Mission 3.4.2 Characteristics of a Mission Statement 3.5 Purpose 3.5.1 Importance of organization purpose 3.6 Goals and objectives 3.6.1 Role of objectives 3.6.2 Characteristics of objectives 3.6.3 Issues in objective-setting 3.6.4 Balanced scorecard approach to objectives-setting 3.7 Summary 3.8 Keywords 3.9 Questions
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3.1 INTRODUCTION
Like individuals, organizations too have their dreams and aspirations that they desire to attain. There are so many different ways in which organisations express their aspirations for the future. Strategic intent is the term we choose here to express those aspirations. There is an elaborate hierarchy of strategic intent, having many levels at which organisations state what they wish to achieve. Strategist here play a crutial role in setting goals and objectives of the organisation. Strategist set their long term perception in the form of vision and what the organization wants to achieve in the form of the mission. In this unit, we will study the concept of goal, objectives, mission and vision.
Role of Strategists Mission, Purpose, Objective
3.2 STRATEGIC INTENT

By strategic intent we refer to the purpose the organisations strives for. These may be expressed in terms of a hierarchy of strategic intent. Broadly stated, these could be in the form of a vision and mission statement for the organisation as a corporate whole. When stated in precise terms, as an expressions of aims to be achieved operationally, these may be the goals and objectives. Strategic intent lays down the framework within which firms would operate, adopt a predetermined direction and attempt to achieve their goal.
3.3 VISION
Aspirations, expressed as strategic intent, should lead to tangible, results, otherwise they would just be castles in the air. Those results are the realisation of the vision of an organisation or an individual. It is what ultimately the firm or a person would like to become. For instance, some of you, say in 10 years or may be even earlier would like to become general managers managing an SBU in a large, diversified Multinational Corporation, or some others among you would like to believe that you can be an entrepreneur owing your own company dealing with IT services, employing cutting-edge technology to serve a global clientele, in 10-15 years. A firm think that too. Vision, therefore, articulates the position that a firm would like to attain in the distant future. Seen from this perspective, the vision encapsulates the basic strategic intent.
3.3.1 The Nature of Vision

Vision is dreamt of more than it is articulated. This the reason why it is difficult to say that vision an organisation has unless it is stated explicitly. Sometimes, it is not even evident to the entrepreneur who usually thinks of the vision. By nature, it would be hazy and
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vague, just like the dream that one experienced the previous night and is not able to recall perfectly in broad daylight. Yet it is a powerful motivation to action. Often, it is from the actions that the vision could be derived.
3.3.2 Defining Vision

Vision has been defined in several way. Kotter (1990) defines it as a "description of something (an organisation, a corporate culture, a business, a technology, an activity) in the future". El-Namaki (1992) considers it as a 'Mental perception of the kind of environment an individual, or an organisation, aspires to create within a broad time horizon and the underlying conditions for the actualisation of this perception.' Miller and Dess (1996) view it simply as the 'category of intentions that are broad, all-inclusive and forward thinking'.
3.3.3 The Benefits of having a vision

Parikh and Neubauer (1993) point out the several benefits accruing to an organisation having a vision. Here is what they say: Good visions are inspiring and exhilarating. Vision represent a discontinuity, a step function and a jump ahead so that the company knows what it is to be. Good vision help in the creation of a common identity and a shared sense of purpose. Good visions are competitive, original and unique. They make sense in the market place, as they are practical. Good visions foster risk taking and experimentation. Good visions foster long-term thinking. Good visions represent integrity: They are truly genuine and can be used to the benefit of people.
3.3.4 What a vision should and shouldn't be:

A vision should be: An organisational charter of core values and principles. The ultimate source of our priorities plans and goals. A puller (not pusher) into the future. A determination and publication of what makes us unique. A declaration of independence
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A vision should n't be: A 'high concept' statement, motto or literature or an advertising slogan. A strategy or plan and a view from the top. A history of our proud past. A soft business issue Passionless
3.3.5 The process of Envisioning

The process of envisioning is a difficult one as we see from what Collins and Porras (1996) have to say about it. According to them, a well conceived vision consist of two major components: core ideology and envisioned future. The core ideology defines the enduring character of an organisation that remains unchangeable as it passes through the vicissitudes of vectors such as technology, competition or management fads. The core ideology rests on the core values (the essential and enduring tenets of an organisation) and core purposes (an organisation's reason for being). The envisioned future too consist of two components: a 10-30 years audacious goals and vivid description of what it will be like to achieve that goal. The process of envisioning is shown in figure 3.1 Many organisations mention terms such as corporate philosophy, corporate values and the like, that are used to convey what they stand for and what principles guide them in strategic and day-to-day decision-making. These are all the part of an effort to state what the organisation's vision is.
Well-conceived vision
Core ideology
Envisioned future
Core values Core purpose
Figure 3.1 The process of envisioning
Long-term audacious goal Vivid description of achievement
From vision, we now move on to the second level of strategic intent, that is the mission.
3.4 MISSION
While the essence of vision is a forward-looking view of what an organisation wishes to become, mission is what an organisation is
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and why it exists. Organisations relate their existence to satisfying a particular need of the society. They do this in terms of their mission. Mission is a statement which defines the role that an organisation plays in the society. It refers to the particular needs of the society, for instance, its information needs. A book publisher and a magazine editor are both engaged in satisfying the information needs of the society, but they do it through different means. A book publisher may aim at producing excellent reading material while a Magazine editor may strive to present news analysis in a balanced and unbiased manner. Both have different objectives but an identical mission.
3.4.1 Defining Mission

A mission was earlier considered as the scope of the business activities a firm pursues. The definition of mission has gradually expanded to represent a concept that embodies the purpose of existence of an organisation. Thompson (1997) defines mission as the - 'essential purpose of the organisation, concerning particularly why it is in existence, the nature of the business (es) it is in and the customers it seeks to serve and satisfy'. Hunger and wheeler (199) say that the mission is the 'purpose or reason for the organisation's existence'. In strategic management literature, mission occupies a definite place as a part of strategic intent.
3.4.2 Characteristics of a Mission statement

A mission statement characteristicsshould posses the following seven
(1) It should be Feasible A mission should always aim high but it should not be an impossible statement. It should be realistic and achievable- its followers must find it to be credible. (2) It should be Precise A mission statement should not be so narrow as to restrict the organisation's activities, nor should it be too broad to make itself meaningless. (3) It should be clear A mission should be clear enough to lead to action. It should not just be a high sounding set of platitudes meant for publicity
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purposes. (4) It should be motivating A mission statement should be motivating for members of the organisation and of the society and they should feel it worthwhile working for such an organisation or being its customers. (5) It should be Distinctive A mission statement which is indiscriminate is likely to have little impact. If all scooter manufacturers defined their mission in a similar fashion, there would not be much of a difference among them. But if one defines it as providing scooters that would provide value for money, for years, it creates an important distinction in the public mind. (6) It should indicate the major components of strategy A mission statement, along with the organisational purpose should indicate the major components of the strategy to be adopted. (7) It should Indicate how objectives are to be Accomplished Besides indicating the broad strategies to be adopted, a mission should also provide clues regarding the manner in which the objectives are to be accomplished.
3.5 PURPOSE
The purpose is the reason for the firm's existance. The purpose is expressed in carefully formulated mission statement. The purpose is relatively unchanging and for many firms endures for decades or even centuries. This purpose sets the firm apart from other firms in its industry and sets the direction in which the firm will proceed. Purpose is the cognitive awareness in cause and effect linking for achieving a goal in organization.
3.5.1 Importance of Organizational Purpose

(1) It gives the grounds for all of your decisions Organisational purpose gives your business its reason for existence. It serves as a guiding force upon which every other decision is rooted. It indicates how you will use your time, attention, and resources to your market better than anyone else. (2) It Energizes you to more forward A clearly defined organization purpose is contingent upon finding that thing that naturally energizes, excites, motivates, and inspires your business to move forward.
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(3) It empowers your passion Intense organisational power is achieved when you are able to marry your passion to sound strategy and focus all your attention and energies on navigating your company towards success. Business that have a clear organizational purpose coddle their passion into a customer focused entity. (4) It Frees Resources Successful business learn how to grow their business by focussing on what they do best, then if possible they outsource the rest. They have the wisdom to understand the monumental power yielded by freeing their time, energy and resources to do what they do the best. (5) It separates you from the pack Business that sustain a successful path whittles a carefully crafted position that distinguishes them from their competitors. (6) It helps to maintain a strategic outlook on competition Business with a strong sense of organizational use their strategic prowers to maintained a very wide-eyed view of the competition. (7) It helps the organisations to evolve continually Focus all time, attention, and resources on knowing which customer the organisation can best serve. Then the organisations learn what they need to do to serve them best. Organisations continually asses, and reassess what is going on in the world around them. Then the organisation ask themselves how these external forces will impact the business. Then the organisations design the business to withstand the impact.
3.6 GOALS AND OBJECTIVES

"Goals denote what an organization hopes to accomplish in a future period of time". They, present the future state or outcome of effort put in now. "Objectives are the ends that state specifically how the goals shall be achieved". They are concrete and specific in contrast to goals
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that are generalised. In this manner, objectives make the goals
operational.
3.6.1 Roles of objectives

Objectives play an important role in strategic management. We could identity the various facets of such a role as described below: Objectives defines the organisation's relationship with its environment. Objectives help an organisation purpose its vision and mission. Objectives provide the basis for strategic decision making. Objectives provides the standards for performance appraisal.
3.6.2 Characteristics of objectives

Objectives, as measures of organisational behaviour and performance, should posses certain desirable characteristics in order to be effective. Given below are seven such characteristics: Objectives should be understandable Objectives should be concrete and specific Objectives should be related to a time frame Objectives should be measurable and controllable Objectives should be challenging Different objectives should correlate with each other Objectives should be set within constraints
3.6.3 Issues in Objective-setting

There are many issues which have a bearing on different aspects of objective setting we deal with six such issues: (1) Specificity: Objectives may stated at different levels of specificity. At one stream, they might be very broadly stated as goals, while at the others, they might be specifically stated as targets. Specificity is related to the organisational level for which a set of objectives has been stated. This issue of specificity is ressolved through stating objectives at different levels and prefixing terms such as corporate, general and particular so that they save the needs of performance and its evaluation. (2) Multiplicity: No organisation operates on the basis of a single or a few objectives. The issue of multiplicity deals with different types of objectives with respect to organisational levels, importance, ends, functions, and nature.
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(3) Periodicity: Objectives are formulated for different time periods. It is possible to set long-term, medium-term and short-term objectives. Generally, organisation determines objectives for the long-and, short-term. (4) Verifiability: Each objective has to be tested on the basis of its verifiability. In other words, it should be possible for a manager to state the basis on which to decide whether an objective has been met or not. Only verifiable objectives can be meaningfully used in strategic management. (5) Reality: It is a common observation that organisations tend to have two sets of objectives: official and operative. Official objectives are those which the organisations, profess to attain, while operative objectives are those which they seek to attain in reality. (6) Quality: Objectives may be good as well as bad. The quality of an objectives can be judged on the basis of its capability to provide a specific direction and a tangible basis for evaluating performance.
3.6.4 How are objectives formulated?

Glueck identifies four factors that should be considered for objective setting. These factors are: (1) The forces in the Environment These take into account all the interests-sometimes coinciding but often conflicting-of the different stakeholders in an organisation. Each group of stakeholders has claims or expectations which have to be considered while setting objectives. It is important to note that the interest of the various stakeholders may change from time to time, necessitating a corresponding shift in the importance attached to different objectives. (2) Realities of Enterprise Resources and Internal power Relationships These mean that objectives are dependent on the resources capability of a company as well as the relative decisional power that different group of strategists yield with respect to each other in sharing those resources. Resources-both material and human-place restrictions organisation. (3) The value system of the Top Executive
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on
the
objective-achieving
capability
of
the
This has an impact on the corporate philosophy that organisations
adopt with regard to strategic management in general and objectives in particular. Values, as an enduring sets of beliefs, shape perceptions about what is good or bad, desirable or undesirable. (4) Awareness by the Management Awareness of the past objectives may lead the organisation to a choice of objectives that has been emphasised in the past due to different reasons. Keeping in view the four factors described above, we observe that objective-setting is a complex task which is based on consensusbuilding and has no precise begining or end. Vision and mission provide a 'Common thread' to bid together the different aspects of the objective-setting process, by providing a specific direction along which the organisations can move. The binding together of the different levels of the hierarchy of strategic intent is facilitated by techniques such as the balanced scorecard that we discuss next.
3.6.4 Balanced setting
Scorecard
Approach
to
objectives-
The performance management system called balanced scorecard, developed by Robert S. Kaplan and David Norton of Harvard Business School, seeks to do away with the undue emphasis on short-term financial objectives and seeks to improve organisational performance by focusing attention on measuring and managing a wide range of non-financial, operational objectives. Later, the system application was enlarged to include its usage as a comprehensive strategic planning technique. In doing so, the balanced score card approach advocates a top down approach to performance management, starting with strategic intent being expressed through the organisation, down to operationally relevant targets, Figure 4.2 shows the balanced scorecard model. The balance scorecard model requires an evaluation of
organisational performance from four different perspectives(1) Financial Perspective This perspective considers the financial measures aring from the strategic intent of the organisation. Examples of such measures are revenues, earnings, return on capital and cash flow. (2) Customer's Perspective This perspective measures the ability of organisation to provide
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quality goods and services, effective delivery and overall customer satisfaction. Examples of such measures are market share, customer satisfaction measures and customer loyalty. (3) Internal business Perspective Internal business processes are the mechanism through which performance expectations are achieved. This perspective provides data regarding the internal business results against measures that lead to financial success and satisfied customers. Examples of such measures are productivity indicies, quality measures and efficiency. (4) Learning and Growth Perspective This perspective focus on the ability of the organisation to manage its business and adapt to change. Examples of such measures are morale, knowledge, employee, turnover, usage of best practices, share of revenue from new products and employee suggestions. How do we look to shareholders?
F in a n c ia l P e r s p e c t iv e H o w d o c u s to m e r s s e e u s ? O b je c t iv e s T a rg e ts W h a t m u s t w e e x c e l a t?
C u s to m e r P e r s p e c t iv e V is io n & S tra te g y O b je c t iv e s T a r g e ts
In t e r n a l P r o c e s s P e r s p e c t iv e O b je c tiv e s T a rg e ts
L e a r n in g / I n n o v a tio n P e r s p e c tiv e O b je c t iv e s T a rg e ts
Figure 3.2 The Balanced Scorecard Model How can we sustain our ability to change and improve?
Kaplan and Norton used the technique of strategy maps that provide a visual representation of the organisation's strategy. In such maps, the four perspectives were connected to each other in a 'cause and effect' fashion, thus making clear the relationship of all the strategic objectives to the strategic intent of the organisation. A typical strategic map is shown in figure 3.3.
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L o n g te r m s h a r e h o ld e r s v a lu e
F in a n c i a l p e r s p e c tiv e
Im p ro v e c o s t s tr u c tu re
Im p ro v e c o s t s tru c tu re
C u s to m e r p e r s p e c tiv e
C u s t o m e r V a lu e P r o p o s it io n P r ic e Q u a lit y A v a ila b ilit y S e le c t io n F u n c t io n a lit y S e r v ic e P a r t n e r s h ip B r a n d
In te rn a l p e r s p e c tiv e
O p e r a t io n s M anagem ent P roc e ss
C u s to m e r M anagem ent P ro c e s s
In n o v a tio n P ro c e s s
R e g u la t o r y & S o c ia l P ro c e s s
L e a r n in g / i n n o v a t io n p e r s p e c t iv e
C u lt u r e
L e a d e r s h ip
H u m a n c a p it a l I n f o r m a t io n c a p i t a l O r g a n iz a t io n c a p it a l
A lig n m e n t
T e a m w o rk
Figure 3.3 A typical strategy map
Our purpose here is to note that objective-setting can use the balanced scorecard approach. The four perspectives above can help an organisation to set objectives. In practice, the balanced scorecard approach works something like this: (1) The development of the scorecard begins, with the
establishment of the organisations strategic intent, including the vision and mission. (2) Next, the design of the scorecard is determined by identifying the specific measures related to the four perspective. The specific strategies that should be formulated and implemented to realize that vision are also determined. (3) The following step involves mapping the strategy through the identification of organisational activities that are derived from the strategies. For example, achieving financial growth may be expressed in terms of sales growth and revenue growth. (4) In the final stage, metrics that can be used to accurately measure the performance of the organisation in the specific areas are established. In the above example, metrics for revenue growth may be expressed in terms of sales to new customers, sales of new services or products or entry into new markets.
3.7 SUMMARY
Strategic intent refers to the purposes the organisations strive for. These may be expressed in terms of an hierarchy of strategic intent. The frame work within which firms operate, adopt a predermined mired direction and attempt to achieve their goal is
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provided by an overarching strategic intent. The hierarchy of strategic intent covers the vision, mission, purpose, goals and objectives. Vision constitutes future aspirations that lead to an inspiration to be the best in one's field of activity. The process of envisioning involves dealing with the two components of core ideology and envisioned future. Mission is a statement which defines the role that an organisation plays in the society. Organisations derive their mission statements from a particular set of tasks they are called upon to perform. Goals denote what an organization hopes to accomplish in a future period of time. Objectives are the ends that state specifically how the goals shall be achieved. Objectives-setting can use four perspectives of the balanced scorecard approach. This helps in the prioritisation of key strategic objectives that can be allocated to each of these four perspectives and the identification of associated measures that can be used to evaluate organisational progress in meeting the objectives.
3.8 KEYWORDS
(1) Vision : Mental perception of the kind of environment an individual, or an organisation, aspires to create within a broad time horizon and the underlying conditions for the actualisation of this perception. (2) Mission : Purpose or reason for the organisation's existence. (3) Goals : Goals denote what an organisation hopes to accomplish in a future period of time. (4) Objectives : Ends that state specifically how the goals shall be achieved.
3.9 QUESTIONS
(1) (2) (3) (4) (5) (6) What is meant by 'Stratic intent'? What are the possible pitfalls in not having a vision for an organisation? Define mission in your own words. Mention the characteristics of a good mission statement. Propose the factors to be taken into account while setting objectives. How can the technique of balanced scorecard help in objective setting?
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UNIT-4
ENVIRONMENT COMPONENTS APPRAISING AND SCANNING CAPABILITY FACTORS
Learning Objectives After the end of this unit, the readers will be able to understand(1) (2) (3) (4) (5) (6) (7) (8) (9) Concept of environment in the context of strategic
management. The firm's external environment. Factors related to remote, industry and operating environment. The concept of internal environment. The process of SWOT analysis, along with its benefits and limitations. Porter's value chain method for internal analysis. Process of external environment scanning. Factors affecting external environment appraisal. Analysing the capability factors affecting the internal environment. Unit Structure 4.1 Introduction 4.2 Characteristics of environment 4.3 The external environment 4.3.1 Remote environment 4.3.2 Industry environment 4.3.3 Operating environment 4.4 Internal environment 4.4.1 SWOT analysis 4.4.2 Value chain analysis 4.5 Environmental scanning 4.5.1 Factors to be considered for environment scanning 4.5.2 Approaches to environmental scanning 4.5.3 Sources of Information for environmental scanning 4.5.4 Methods and Techniques used for environmental scanning 4.5.5 Pitfalls in environmental scanning 4.6 Factors affecting external environmental appraisal
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4.7 Capability factors affecting the internal environment
4.7.1 Financial capability factors 4.7.2 Marketing capability factors 4.7.3 Operations capability factors 4.7.4 Personnel capability factors 4.8 Summary 4.9 Keywords 4.10 Questions
Environment Component-Appraising and Scanning Capability Factors
4.1 INTRODUCTION
Just like everything exists in the physical environment, organisations exists in the business environment. Environment literally means the surroundings, external objects, influences or circumstances under which someone or something exists. The environment of any organisation is 'the aggregate of all conditions, events and influences that surround and affect it'. Since the environment influences an organisation in multitudinous ways, its understanding is of crucial important. Strategic Management is basically about dealing with the external environment and establishing a linkage with it. These linkages are the strategies. This is devoted to an understanding of the environment that organisations face. Environment can be divided into external and internal. This unit deals with the different aspects of external and internal environment.
4.2 CHARACTERISTICS OF ENVIRONMENT

The concept of environment can be understood by looking at some of its characteristics. Some of the important and obvious characteristics are briefly described here: Environment is complex- The environment consists of a number of factors, events, conditions and influences aring from different sources. All these do not exist in isolation, but interact with each other to create an entirely new sets of influences. It is difficult to comprehend at once what factors constitute a given environment. All in all, environment is a complex phenomenon- relatively easier to understand in parts but difficult to grasp in its totality. Environment is Dynamic- The environment is constantly changing in nature. Due to the many and varied influence operating, there is dynamism in the environment causing it to continuously change its shape and character. Environment is multi faceted- What shape and character an environment assumes depends on the perception of the
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observer. A particular change in the environment, or a new development, may be viewed differently be different observers. This is frequently seen when the same development is welcomed as an opportunity by one company while another company perceives it as a threat. Environment has a far-reaching Impact - The environment has a far-reaching impact on organisations. The growth and profitability of an organisation depends critically on the environment in which it exists. Any environment change has an impact on the organisation in several different ways. Since environment is complex, dynamic, multifaced and has a far reaching impact, dividing it into external and internal components, enables us to understand it better.
4.3 THE EXTERNAL ENVIRONMENT

A host of external factors influence a firm's choice of direction and action and, ultimately, its organisational structure and internal processes. These factors which constitute the external environment, can be divided into three interrelated sub categories: (1) Factors in the Remote Environment (2) Factors in the Industry Environment (3) Factors in the Operating Environment
R e m o t e E n v ir o n m e n t E c o n o m ic S o c ia l P o lit ic a l T e c h n o lo g ie s E c o lo g ic a l
In
d u s t r y E n v ir o n m e n t O p e r a t in g E n v ir o n m e n t E n t r y b a r r ie r s C o m p e tito r s S u p p lie r p o w e r C r e d it o r s B uyer pow er C u s to m e rs T H E F IR M S u b s t it u t e a v a i la b il it y L a b o u r C o m p e tit iv e r iv a lr y S u p p lie r s
Figure 4.1 The firm's external environment
Figure 4.1, suggests the interrelationship between the firm and its remote, its industry and its operating environment. In combination, these factors form the bases of the opportunities and threats that a firm faces in its competitive environment.
4.3.1 Remote Environment

The remote environment comprises factors that originate beyond,
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and usually irrespective of any single firm's operating situation:
Economic Social Political Technological Ecological factors
(1) Economic Factors Economic factors concern the nature and direction of the economy in which a firm operates. Because consumption patters are affected by the relative affluence of various market segments, each firm must consider economic trends in the segments that affect its industry. On both the national and international level, managers must consider the general availability of credit, the level of disposable income, and the propensity of people to spend. Prime interest rates, inflation rates, and trends in the growth of the gross national product are other economic factors they should monitor. (2) Social Factors The social factors that affect a firm involve the beliefs, values, attitudes, opinions, and lifestyles of persons in the firm's external environment, as developed from cultural, ecological, demographic, religious, educational and ethnic conditioning. As social attitudes change, so too does the demand for various types of clothing, books, leisure, activities and so on. Like other forces in the remote external environment, social forces are dynamic, with constant change resulting from the efforts of inviduals to satisfy their desires and needs by controlling and adapting to environmental factors. (3) Political Factors The direction and stability of political factors are a major consideration for managers on formulating company strategy. Political factors define the legal and regulatory parameters within which firms must operate. Political constraints are placed on firms through fari-trade decisions, antitrust laws, tax programs, minimum wage legislature, pollution and pricing policies, administrative jawboning and many other actions aired at protecting employees, consumers, the general public and the environment. Because such laws and regulations are most commonly restrictive, they tend to reduce the potential profits of firms. However, some political actions are designed to benefit and protect firms. Such actions include patent laws, government subsidies, and product research
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grants. Thus, political factors either may limit or benefit the firms they influence. (4) Technological Factors The fourth set of factors in the remote environment involves technological change. To avoid obsolescence and promote innovation, a firm must be aware of technological changes that might influence its industry. Creative technological adaptations can suggest possibilities for new products or for improvements in existing products or in manufacturing and marketing techniques. A technological breakthrough can have a sudden and dramatic effect on a firm's environment. It may spawn sophisticated new markets and products or significantly shorten the anticipated life of a manufacturing facility. Thus, all firms, and most particularly those in turbulent growth industries, must strive for an understanding both of the existing technological advances and the probable future advances that can affect their products and services. (5) Ecological Factors The most prominent factor in the remote environment is often the reciporacal relationship between business and the ecology. The term ecology refers to the relationships among human beings and other living things and the air, soil and water that support them. Threats to our life-supporting ecology caused principally by human activities in an industrial society are commonly reffered to as pollution. Specific concerns include global warming, loss of habital and biodiversity, as well as air, water and land pollution.
4.3.2 Industry Environment

The industry environment deals with the general conditions that influence all business that provides similar products and services. The state of competition in an industry depends on fire basic forces, which are diagrammed in figure 4.2. The collective strength of these forces determines the ultimate profit potential of an industry. It ranges from intense in industries like tires, metal cans, and steel, where no company earns spectacular returns on investment, to mild in industries like oil-field services and equipment, soft drinks and toiletries, where there is room for quite high returns.
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D e te r m in a n t s o f E n tr y
E P B S C A A P c o n o m ic s o f s c a le r o p rie ta r y p r o d u c t d if fe r e n c e s r a n d id e n t it y w it c h in g c o s t s a p it a l r e q u ir e m e n t s c c e s s t o d is t r ib u t io n b s o lu t e c o s t a d v a n t a g e s r o p rie ta r y c u rv e A c c e s s to n e c e s s a r y in p u t s P r o p r ie t a r y l o w - c o s t p r o d u c t d e s i g n G o v e r n m e n t p o l ic y E x p e c t e d r e t a l ia t i o n
D e t e r m in a n t s o f R iv a lr y
In d u s try g ro w th F ix e d ( o r s t o r a g e ) c o s t s / v a lu e a d d e d I n t e r m it t e n t o v e r c a p a c i t y P r o d u c t d if f e r e n c e s B r a n d id e n t it y S w it c h in g c o s t s C o n c e n t r a t io n a n d b a l a n c e In fo r m a t io n a l c o m p le x ity D i v e r s it y f o c o m p e t i t o r s C o rp o ra te s ta k e s E x it b a r r ie r s
New E n tra n ts
T h re a t o f N e w E n tr a n ts
In d u s try C o m p e tito r s B a r g a in i n g P o w e r o f B u y e rs I n t e n s i t y o f R i v a lr y T h re a t o f S u b s t it u t e s B uyer
S u p p l ie r s
B a r g a in in g P o w e r o f S u p p lie r s
D e t e r m in a n ts o f S u p p lie r P o w e r
D e t e r m in a n t s o f B u y e r P o w e r
B a r g a in in g L e v e ra g e B u y e r c o n c e n t r a t io n v e r s u s firm c o n c e n tr a tio n B u y e r v o lu m e B u y e r s w it c h i n g c o s t s r e la t iv e t o f i r m s w it c h in g c o s t s B u y e r i n f o r m a t io n A b i l it y t o b a c k w a r d s in t e g r a t e S u b s t it u t e p r o d u c t s P u ll- t h r o u g h P r ic e s S e n s itiv ity P r ic e - to ta l p u r c h a s e s P r o d u c t d if f e r e n c e s B r a n d id e n t it y I m p a c t o n q u a lit y / p e r fo rm a n c e B u y e r p r o f it s D e c is i o n m a k e r s in c e n t iv e s
D i f f e r e n t i a t io n o f i n p u t s S w it c h in g c o s t s o f s u p p lie r s a n d f ir m s in t h e in d u s t r y P r e s e n c e o f s u b s t it u t e in p u t s S u p p lie r c o n c e n t r a t i o n I m p o r t a n c e o f v o l u m e t o s u p p l ie r C o s t r e l a t iv e t o t o t a l p u r c h a s e i n t h e in d u s t r y I m p a c t o f i n p u t s o n c o s t o r d if f e r e n t i a t i o n T h r e a t o f f o r w a r d in t e g r a t io n r e la t i v e t o t h r e a t t o b a c k w a r d in t e g r a t io n b y f ir m s in t h e in d u s t r y
S u b s t it u t e s
D e t e r m in a n ts o f S u b s t it u tio n T h r e a t R e la tiv e p ric e p e rfo rm a n c e o f s u b s tit u te s S w it c h in g c o s t s B u y e r p r o p e n s it y to s u b s tit u te
Figure 4.2 Forces Driving Industry Competition
(1) Entry Barriers New entrants to an industry bring new capacity, the desire to gain market share, and often substantial resources. The seriousness of the threat of entry depends on the barriers present and on the reaction from existing competitions that the entrant can expect. If barriers to entry are high and a new comer can expect sharp retaliation from the entrenched competitors, he or she obviously will not pose a serious threat of entering. There are six major sources of barriers to entry: (1) Economics of scale (2) Product Differentiation (3) Capital Requirements (4) Cost Disadvantages independent of size (5) Access to Distribution channels (6) Government Policy (2) Supplier Power Suppliers can exert bargaining power on participants in an industry by raising prices or reducing the quality of purchased goods and services. Powerful supplies, there by, can squeeze profitability out of an industry unable to recover cost increases in its own prices. The power of each important supplier group depends on a number
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of characteristics of its market situation and on the relative importance of its sales or purchases to the industry compared its overall business. A supplier group is powerful if It is dominated by a few companies and is more concentrated than the industry it sells. Its product is unique or atleast differentiated, or if it has buildup switching costs. It is not obliged to contend with other products for sale to the industry. It poses a credible threat of integrating forward into the industry's business. The industry is not an important customer of the supplier group. (3) Buyer Power Customer likewise can force down prices, demand higher quality or more service, and play competitors off against each other-all at the expense of industry profits. A buyer group is powerful if It is concentrated or purchases in large volumes. The products it purchases from the industry are standard or undifferentiated. The products it purchases from the industry form a component of its product and represent a significant of its cost. It earns low profits, which create great incentive to lower its purchasing costs. Highly profitable generally less price sensitive. buyer's products or services. The industry's product does not save the buyer money. The buyers pose a credible threat of integrating backward to make the industry's product. (4) Substitute Availability Substitutes not only limit profits in normal times but also reduce the bonanza on industry can reap in boom times. The producers of fiberglass insulation enjoyed unprecedented demand as a result of high energy costs and severe winter weather. But the industry's ability to raise prices one tempered by the plethora of insulation substitutes, including cellulose, rock wool, and Styrofoam. These buyers, however, are
The industry's product is unimportant to the quality of the
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Environment substitutes are bound to become an even stronger force once the Component-Appraising current round of plant additions by fiberglass insulation producers and Scanning has boosted capacity enough to meet demand. Capability Factors
Substitute products that deserve the most attention strategically are those that (a) (b) are subject to trends improving their price-performance tradeoff with the industry's product. are produced by industries earning high profits.
Substitutes often can rapidly come into play if some development increases competition in their industries and causes price reduction or performance improvement. (5) Competitive Rivalry How to identify competitors? In identifying their firm's current and potential competitors, executives consider several important variable: How do other firms define the scope of their market? The more similar the definitions of the firms, the more likely the firms will view each other as competitors. How similar are the benefits the customers derive from the products and services that other firms offer? The more similar the benefits of products or services, the higher the level of substitutability between them. High substitutability levels force firms to compete fiercely for customers. How committed are other firms to the industry? To size up the commitment of potential competitors to the industry, reliable intelligence data are needed. Such data may relate to potential resources commitments.
4.3.3 Operating Environment

The operating environment, also called the competitive or task environment, comprises factors in the competitive situation that affect a firm's success in acquiring needed resources or in profitably marketing its goods and services. Among the most important of these factors are the firm's competitive position, the composition of its customers, its reputation among suppliers and creditors, and its ability to attract capable employees. The operating environment is typically much more subject to the firm's influence or control than the remote environment. Thus, firms can be mush more proactive in dealing with the operating environment than in dealing with the remote environment. (1) Competitive Position
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Assessing its competitive position improves a firm's chances of designing strategies that optimize its environmental opportunities. Development of competitor profiles enables a firm to more accurately forecast both its short-and long-term growth and its profit potentials. Although the exact criteria used in constructing a competition's profile are largely determined by situational factors, the following criteria are often included: Market share Breadth of product line Effectiveness of sales distribution Proprietary and key accounting advantages Price competitiveness Experience Advertising and promotion effectiveness Location and age of facility Union Relations Capacity and productivity Technological Position Raw material costs Financial position Relative product quality R & D advantages position Caliber of personnel General images Customer profile Patents and copyrights Community reputation
Once appropriate criteria have been selected, they are weighted to reflect their importance to a firm's success. Then the competition being evaluated is rated on the criteria, the rating are multiplied by the weight, and the weighted scores are summed to yield a numerical profile of the competition, as shown in table 4.1. Key Success Factors Market share Price competitiveness Facilities location Raw materials costs Caliber of personnel
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Weight 0.30 0.20 0.20 0.10 0.20 1.00+
Rating* 4 3 5 3 1
Weighted Score 1.20 0.60 1.00 0.30 0.20 3.30
The rating scale suggested is as follows: very strong competitive position (5 points), strong (4), average (3), weak (2), very weak (1).
+ The total of the weights must always equal 1.00. Table 4.1 : Competitor Profile
This type of competitor profile is limited by the subjectivity of its criteria selection, weighting, and evaluation approaches. Nevertheless, the process of developing such profiles is of considerable help to a firm in defining its perception of its competitive position. (2) Customer Profiles Perhaps the most vulnerable results of analysing the operating environment is the understanding of a firm's customers that this provides. Developing a profile of a firm's present and prospective customers improves the ability of its managers to plan strategic operations, to anticipate changes in the size of markets, and to reallocate resources so as to support forecast shifts in demand patterns. The traditional approach to segmenting customers is based on customer profiles constructed from geographic, demographic, psychographic and buyer behaviour information. (3) Supplies Dependable relationship between a firm and its supplies are essential to the firm's long-term survival and growth. A firm regularly relies on its supplies for financial support, services, materials, and equipment. In addition, it occasionally is forced to quick delivery, liberal credit terms, or broken-lot orders. Particularly at such times, it is essential for a firm to have had an ongoing relationship with its supplies. In the assessment of a firm's relationships with its supplies, several factors, other than the strength of that relationship should be considered. With regard to its competitive position with its suppliers, the firm should address the following questions: Are the supplier's prices competitive? Do the supplies offer attractive quantity discounts? How costly are their shopping changes? Are the supplies competitive in terms of production standards? In terms of deficiency rates, are the supplier's abilities, reputations, and services competitive? Are the supplies reciprocally dependent on the firm?
(4) Creditors Because the quantity, quality, price and accessibility of financial,
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human and material resources are rarely ideal, assessment of supplies and creditors is critical to an accurate evaluation of a firm's operative environment. With regard to its competitive position with its creditors, among the most important questions that the firm should address are the following: Do the creditors fairly value and willingly accept the firm's stock as collateral? Do the creditors perceive the firm as having an acceptable record of past payment? A strong working capital position? Little on no leverage? Are the creditor's loan terms compatible with the firm's profitability objectives? Are the creditors able to extend the necessary lines of credit?
The answers to these and related questions help a firm forecast the availability of the resources it will need to implement and sustain its competitive strategies. (5) Labour A firm's ability to attract and hold capable employees is essential to its success. However, a firm's personnel recruitment and selection alternatives often are influenced by the nature of its operating environment. A firm's access to needed personnel is affected primarily by four factors: the firm's reputation an employer, local employment rates, the ready availability of people with needed skills, and its relationship with labour universe.
4.4 INTERNAL ENVIRONMENT

The internal environment refers to all factors within an organisation that impact strengths or cause weakness of a strategic nature. Managers often start their internal analysis with questions like, how well is the current strategy working? What is our current situation? Or what are our strengths and weaknesses. The two approaches that are commonly used by managers by internal analysis are(1) SWOT Analysis (2) Value chain Analysis
4.4.1 SWOT Analysis

SWOT is an acronym for the internal strengths and weaknesses of a firm and the environmental opportunities and threats facing that firm SWOT analysis is a historically popular technique through which managers create a quick overview of a company's strategic
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situation. It is based on the assumption that an effective strategy
Environment Component-Appraising derives from a sound "fit" between a firm's internal resources and and Scanning its external situation. A good fit maximizes a firm's strengths and Capability Factors
opportunities and minimizes its weaknesses and threats. Accurately applied, this simple assumption has sound, insightful implications for the design of a successful strategy. Opportunities An opportunity is a major favourable situation in a firm's environment. Key trends are one source of opportunities. Identification of a previously overlooked market segment, changes in competitive or regulatory circumstances, technological changes, and improved buyer or supplies relationships could represent opportunities for the firm. Threats A threat is a major unfavorbale situation in a firm's environment. Threats are key impediments to the firm's current or designed position. The entrance of new competitors, slow market growth, increased bargaining power of key buyers or suppliers, technological changes, and new or revised regulations could represent threats to a firm's success. Strengths A strength is a resources or capability controlled by or available to a firm that gives it an advantage relative to competitors in meeting the needs of the customers it serves. Strengths arise from the resources and competencies available to the firm. Weakness A weakness is a limitation or deficiency in one or more of a firm's resources or capabilities relative to its competitors that create a disadvantage in effectively meeting customer needs. A simple application of the SWOT analysis techniques involves these steps. 1. 2. 3. Setting the objectives of the organisation or its unit. Identifying its strengths, weaknesses, opportunities and
threats. Asking four question(a) How do we maximise our strengths? (b) How do we minimise our weaknesses? (c) How do we capitalise on the opportunities?
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(d) How do we protect ourselves from the threats? 4. Recommending strategies that will optimise the answers from the four questions. The SWOT analysis is usually done with the help of a template in the form of a four-cell matrix, each cell of the matrix representing the strengths, weaknesses, opportunities and threats. A typical SWOT analysis matrix for a hypothetical organisation is shown in table 4.2.
STRENGTHS - Favourable location - Excellent distribution network - ISO 9000 quality certification - Established R & D Centre - Good management reputation OPPORTUNITEIS - Favourable industry trends - Low technology options available - Possibility of niche target market - Availability of reliable business partners Table 4.2 A typical SWOT matrix WEAKNESSES - Uncertain cash flow - Weak management information - System - Absence of strong USP for major - product lines - Low worker commitment THREATS - Unfavourable political environment - Obstacles in licensing new business - Uncertain competitors intentions - Lack of sustainable financial backing
SWOT analysis has several benefits, among the major being: Simple to use Low cost Flexible and can be adapted to varying situations Leads to clarification of issues Development of goal-oriented alternatives. Useful as a starting point for strategic analysis.
The following could be the pitfalls of using the SWOT analysis indiscriminately Simplicity of the use may turn to be simplistic by trivialising the reality that may be more complex than represented in SWOT matrices.
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May result in just compiling lists rather than think about what is really important for achieving objectives.
Environment Component-Appraising be misinterpreted to justify a previously decided course of and Scanning Capability Factors action, rather than be used as a means to open new
Usually reflects an evaluator's position and viewpoint that can
possibilities. Chances exist where strengths may be confused with opportunities or weaknesses with threats. May encourage organisations to take a lazy course of action of looking for strengths that match opportunities rather than developing new strengths that could match the emerging opportunties.
4.4.2 Value chain Analysis

This is a method for assessing the strengths and weaknesses of an organisation based on an understanding of the series of activities it performs. Porter (1985) is credited with the introduction of the framework called value chain. A value chain is a set of interlinked value-creating activities performed by an organisation. These, activities may begin with the procurement of basic raw material and go through processing in various stages right up to the end products marketed to the ultimate consumer. The value chain of a company may be linked to the value chain of its upstream supplier and downstream buyers, forming a series of chains that Porter terms as the value system. Porter divided the value chain of a manufacturing organisation into primary and support activities. Primary activities are directly related to the flow of the product to the consumer and include five sub-activities listed below: (1) Inbound logistics All activities that an organisation uses for receiving, storing and transporting inputs going into the production process. Typical inbound logistics activities performed in organisations are material handling, warehousing, and inventory control. (2) Operations All activities required for transformation for raw materials to finished products. Typical operations activities performed in organisations are assembling, fabricating, machining, maintaining and packaging. (3) Outbound logistics All activities that an organisation uses for receiving, storing, and transporting outputs going out of the production process. Typical
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outbound logistics activities performed in an organisation are of materials handling, order processing, physical distribution, and warehousing. (4) Marketing and sales All activities that an organisation uses to market and sell its products to customers. Typical marketing and sales activities performed by organisations are of pricing, developing products, advertising, promoting and distributing. (5) Service All activities that an organisation uses for enhansing and
maintaining a product's value. Typical service activities performed by organisations are of installation, repair, maintenance, and customer training. Support activities are provided to sustain the primary activities. These consist of: (1) Firm Infrastructure All activities that an organisation uses for ascertaining the external opportunities and threats, identifying strengths and weaknesses and generally managing of the organisation finance, for achieving its objectives. Typical firm infrastructure activities performed by orgnisations are accounting, planning, general management, legal support and managing government relations. (2) Human Resource Management All activities that an organisation uses for managing human resources. Typical human resource management activities performed by organisations are of recruitment, selection and training, developing, appraising and compensating employees. (3) Technology development All activities than an organisation uses for creating, developing and improving products and services. Typical technological development activities performed by organisations are research and development, product design, process design, equipment design and servicing procedures. (4) Procurement All activities than an organisation uses for procuring inputs needed to produce products or provide services. Typical procurement
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activities performed by organisations are purchasing fixed assets
such as machinery and equipments raw materials and supplies.
Environment Component-Appraising and Scanning Figure 4.3 provides a simplified depiction of the value chain. It is a Capability Factors
representation of the interrelated chain of activities that are required to be undertaken for bringing the finished product to the doorstep of the customer. The profit margin that an organisation earns depends on how efficiently and effectively the value chain is managed. The value chain provides a systematic view of examining
all the activities performed by an organisation and how these activities interact and are interrelated.
Porter's generic value chain

F ir m in f r a s tr u c t u r e
H u m a n R e s o u rc e M a n a g e m e n t
S u p p o r t a c t iv itie s
T e c h n o lo g y D e v e lo p m e n t P r o fit m a r g in
P ro c u re m e n t In b o u n d lo g is tic s O p e r a tio n s O u tb o u n d lo g is tic s
M a r k e tin g a n d S a le s
S e r v ic e
P r im a r y a c t iv it ie s
Figure 4.3 Porter's generic value chain
The value chain analysis requires: Identifying the activities that make up the organizations' value chain and classify them into primary an support activities. Identifying the things done in those activities that contribute to providing value for the customer. Identifying how the value contribution can be increased so that it costs less to provide the same or move value, thereby increasing the profit margin for the organisation. Identifying how the value configuration could be improved by innovatively reconfiguring on recombining activities.
The value chain analysis is a useful method for organisational appraisal as it helps in providing clarity about the areas where the strengths and weaknesses of the organisation reside. In general,
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the activities that can be provided in a manner that they crate more value to the customer at less cost, are strengths. Those activities that provide less value at more cost are weaknesses. In such a case, it would be better for the organisaton to outsource those activities to external parties who could perform them better. Those areas where the organisation is strong should be retained as they are the competencies. The techniques of value chain analysis has some limitations The technique is deceptively simple but difficult to implement. It applies to industrial organisations and needs to be adapted for application to service organisations. The concept of value is hazy. It is difficult to say what constitutes value for the customer. The determination of costs cannot rely on traditional cost accounting methods. Activity-based costing is required to access to correct estimates of costs. The analysis requires collecting data from varied sources. The periodicity of the sources of information needs to be common. Where figures of costs, for instance, are not available for the same period, it becomes difficult to make the analysis. The application of information technology upsets the calculations in the value chain analysis as often, it results in increasing valve and resolving costs simultaneously.
4.5 ENVIRONMENTAL SCANNING

Environmental scanning can be defined as the process by which organisations monitor their relevant environment to identify opportunities and threats affecting their business for the purpose of taking strategic decisions.
4.5.1 Factors Scanning
to
be
considered
for
Environmental
The external environment in which an organisation exist-consists of a bewildering variety of factors. These factors are events, trends, issues and expectations of different interested groups. These factors are explained below: (1) Events are important and specific occurrences taking place in different environmental sectors. (2) Trends are the general tendencies on the courses of action along which events takes place. (3) Issues are the current concerns that arise in response to events and trends.
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(4) Expectations are the demands made by interested groups in the light of their concern for issues. By monitoring the environment through environmental scanning, an organisation can consider the impact of the different events, trends, issues and expectations on its strategic management process. Since the environment facing any organization is complex and scanning it is absolutely essential, strategists have to deal cautiously with the process of environmental scanning. It has to be done in a manner that unnecessary time and effort is not expended, while important factors are not ignored. For this to take place, it is important to devise an approach, or a combination of different approaches, to environmental scanning.
4.5.2 Approaches to Environmental Scanning

Kubr has suggested three approaches which could be adopted for sorting out information for environmental scanning. We could call these approaches as systematic, adhoc and processed form approaches. (1) Systematic Approaches Under this approach, information for environmental scanning is collected systematically. impact on an Information related to markets and activities, government policy customers, changes in legislation and regulations that have a direct organisation's statements pertaining to the organisations business and industry, etc. could be collected continuously to monitor changes and take the relevant factors into account. (2) Adhoc Approach Using this approach, an organisation may conduct special surveys and studies to deal with specific environmental issues from time to time. Such studies may be conducted, for instance, when an organisation has to undertake special projects, evaluate existing strategies or devise new strategies. (3) Processed form Approach By adopting this approach, the organisation uses information in a processed from, available from different sources both inside and outside the organisation. When an organisation uses information supplied by government agencies or private institutions, it uses secondary sources of data and the information is available in a processed form.
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4.5.3 Sources Scanning
of
Information
for
Environmental
Given below are some important types of sources of information: Documentary or secondary sources of information like different types publications. These could be newspapers, magazines, journals, books, newsletters etc. Macs media such as radio, television, internet. Interval sources like company files and documents, internal reports and memoranda, company employee sales staff etc. External agencies like customers, intermediaries, trade associations etc. supplies, marketing,
Formal studies done by employees, market research agencies, consultants, and educational institutions. Spying and surveillance through ex-employees of competitors, industrial espionage agencies, or by planting 'moles' in vival companies.
Strategist use different information sources depending on their needs for environmental scanning.
4.5.4 Methods and Techniques used for Environmental Scanning

The range of methods and techniques available for environmental scanning is wide. There are formal and systematic techniques as well as intuitive methods available. Strategists may choose from among these methods and techniques, those which suit their needs in terms of the quantity, quality, availability, timeliness, relevance and cost of environmental information. Lebell and Krasner outline nine groups of techniques: single-variable extrapolation theoretical limit envelopes dynamic modes mapping multivariable interaction analysis unstructured expert opinion structured expert opinion structured inexpert opinion unstructured inexpert speculation
Owing to the increasingly complicity of the external environment, inevitably there have been attempts to utilise the emerging information
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technologies
in
assisting
strategic
planners
in
environmental scanning. Techniques based on artificial intelligence,
neural networks, data mining and a knowledge-based system have
Environment Component-Appraising been proposed while many of the environmental techniques are and Scanning based on statistical methods and increasingly, the use of Capability Factors
sophisticated
software
in
computer-assisted
environmental
scanning and forecasting, some of them, like scenario-writing, may not use statistical information but employ informed judgemenet and intuition to predict what the future is most likely to be, expressed in the from of a descriptive statement or report.
4.5.5 Pitfalls in Environmental Scanning

Just like any other strategic planning techniques, environmental scanning has its soft underbelly. We could enumerate at least five pitfalls faced while using environmental scanning. Sometimes, strategic planners may focus excessively on the influences in the relevant environment that they miss out on the trends and issues in the general environment that really matter. There is a danger of 'paralysis by analysis', meaning that environmental scanning can create such an overload of information that it may prevent timely action. The purpose of environmental scanning is to uncover influences that matter for the future of the organisational strategic decision-making. This purpose should not be lost and enviornmental scanning should not be used for purposes other than this. The environment scanning function should not be integrated too closely with the operational and functional activities of the organisation. This means that it should not become a line function, thus aligning it too closely with the interests of those activities. Similarly, environmental scanning should not be too far from the realities of the organisation, making it an impersonal, staff function.
4.6 FACTORS AFFECTING EXTERNAL ENVIRONMENTAL APPRAISAL

Given the same environmental conditions, no two strategists or two organisations would appraise the environment in a similar fashion. This is due to many factors that affect the process of environmental appraisal. We could identify these factors by classifying them into three categories: (1) Strategist - related factors (2) Organisations - related factors (3) Environment - related factors
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(1) Strategist-Related Factors Since strategist play a central role in the formulation of strategies, their characteristics such as age, education, experience, motivation level, cognitive styles, strain of responsibility have an impact their organisation's environment and how well they are able to do it. (2) Orgnaisation-related Factors Many characteristics of the organisation also have an impact on the environmental appraisal process. These characteristics are the nature of business the organisation is in, its age, size and complexity, the nature of its market's and the product or services that it provides. (3) Environmental-related Factors The nature of environment facing an organisation determines how its appraisal could be done. The nature of the environment depends on its complexity, volatility or turbulence, hostility and diversity. Information processing perspectives suggest that scanning activity will increase in response to increasing environmental uncertainty.
4.7 CAPABILITY FACTORS AFFECTING THE INTERNAL ENVIRONMENT

Capability factors are the strategic strengths and weaknesses existing in different functional areas within an organisation, which are of crucial importance to strategy formulation and implementation. Different types of capability factors exist within the internal environment of an organisation. These are finance, marketing, operations and personnel.
4.7.1 Financial Capability Factors

Financial capability factors related to the availability, usages and management of funds and all allied aspects that have a bearing on an organisations capacity and ability to implement its strategies. Some of the factors which influence financial capability of any organisaton are: (1)
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Factors related to sources of funds
Capital structure Procurement of capital Controllership Financing pattern
Borrowings Working capital availability Reserves & Surplus] Relationship with lenders Banks and financial Institutions (2) Factors related to usage of funds
Capital investment Current assets Fixed asset acquisition loans and advances Divident distribution Relationship with shareholders (3) Factors Related to Management of funds
Financial Management control system Accounting and budgeting systems Cash Inflation Credit Cost reduction and Control Tax planning State of financial health
4.7.2 Marketing capability Factors

Marketing capability factors relate to the pricing, promotion and distribution of products on services, all the allied aspects that have a bearing on an organisation's capacity and ability to implement its strategies. Some of the important factors which influence the marketing capability of an organisation are as follows: (1) Product-Related factors Variety Differentiation Mix quality Positioning Packaging
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(2) Price-Related Factors Pricing objectives Policies changes Protection
(3) Place-Related factors Distribution Transportation and Logistics Marketing channels Marketing intermediaries
(4) Promotion-Related factors Promotional tools Sales promotion Advertising public relations
(5) Integrative and systemic factors Marketing Mix Market standing Company image Marketing organization Marketing system Marketing management information system
4.7.3 Operations Capability Factors

Operations capability factors relate to the production of products or services, use of material resources and all allied aspects that have a bearing on an organisaston's capacity and ability to implement its strategies. Some of the factors which influence the operations capability of an organisation are as follows: (1) Factors related to the production system
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Capacity Location Layout Product Design Work system Degree of automation
(2) Factors related to the operations and control system
Aggregate production planning Material supply Inventory Cost and quality control Maintenance systems and procedures
(3) Factors related to R & D system Personnel facilities Product Development Patent rights Level of technology used Technical collaboration and support
4.7.4 Personnel Capability Factors

Personnel capability factors relate to the existence and use of human resources and skills, and all allied aspects that have a bearing on an organisation's capacity and ability to implement its strategies. Some of the important factors which influence the personnel capability of an organisation are as follows: (1) Factors related to the personnel system Systems for manpower planning, selection, developments Communication and appraisal Position of the personnel department within the organisation related to organisational and employee
(2) Factors
characteristics Corporate image Quality of managers Working conditions Staff and workers perception organisation as an employer about the image of the
(3) Factors related to industrial relation Union-management relationship Collective bargaining Safety Welfare and security Employee satisfaction and morale
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4.8 SUMMARY
The environment is complex, dynamic, multi-faceted and has a farreaching impact on an organization. It can be divided into external and internal parts. A firm's external environment consists of three interrelated sets of factors that play a principal role in determining the opportunities, threats and constraints that the firm force. The remote environment comprises factors originating beyond and usually irrespective of any single firm's operating situation-economic, social, political, technological, and ecological factors. Factors that more directly influence a firm's prospects originate in the environment of its industry, including entry barries, competitors rivalry, the availability of substitutes and the bargaining power of buyers and supplies. The operating environment comprises factors that influence a firm's immediate competitive situation-competitive position, customer profiles, supplies, creditors and the labour market. SWOT analysis is a systematic approach to find the strengths, weakness, opportunities and threats pertaining to one organisation and its environment. Value chain analysis has managers look at and disaggregate their business as a chain of activities that occur in a sequential manner to create the product nor services they sell. The factors to be considered for environmental scanning are events, trends, issues and expectations of different interested groups. The approaches used for environmental scanning are the systematic, adhoc and processed for approaches. The various sources of information tapped for collecting data for environment scanning could be classified in different ways. There could be formal and informal sources and written and verbal sources. In terms of origin, data sources could be external and internal. A variety of methods and techniques are available for environmental scanning. There are formal and systematic techniques as well as intuitive methods available. Strategists may choose from among these methods and techniques those which suits their needs. Capability is the inherent capacity or potential of an organisation to use its strengths and overcome its weaknesses in order to exploit opportunities and face threats in its external environment. Capability is described in terms of four areas of finance, marketing, operations and personnel.
4.9 KEYWORDS
(1) External Environment : The factors beyond the control of the firm
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that
influence
its
choice
of
direction
and
action,
organisational structures and internal processes.
(2) Ecology : The relationships among human beings and other living things and the air, soil and water that supports them. (3) Pollution : Threats life-supporting ecology caused principally by human activities in an industrial society. (4) Industry : A group of companies that provide similar products and services. (5) Switching costs : Fixed costs that buyers face in changing supplies. (6) Operating Environment : Factors in the immediate competitive situation that affect a firm's success in acquiring needed resources. (7) Opportunity environment. (8) Threat : A major unfavourable situation in a firm's environment. (9) Strength : A resource advantage relative to competitors and the needs of the markets a firm serves or expect to serve. (10) Weakness : A limitation or deficiency in one or more resources or competencies relative to competitors that impedes a firm's effective performance. (11) Value chain : A perspective in which business is seen as a chain of activities that transforms input into outputs that customers value. (12) Value chain analysis : An analysis that attempts to understand how a business creates value by examining the contribution of different activities within the business to that value. : A major favourable situation in a firm's
4.10 QUESTIONS
1. 2. 3. 4. 5. 6. 7. 8. 9. What is the concept of environment in strategic management? Mention some of the important characteristics of environment. Explain all the true factors that make up the firm's external environment. What is the rationale behind performing a SWOT analysis? Explain the process of environment scanning. What are the pitfalls in using environment scanning? Explain the factors related with environmental appraisal. What is value chain analysis? Mention the important factors that influence the capability of an organisation in each of the following functional areas:
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(a) Finance 10. Enumerate
(b) Marketing the pitfalls of
(c) Operations using the
(d) Personnel SWOT analysis
indiscriminately. 11. Explain these terms clearly in the context of environmental scanning: (a) Events Expectations (b) Trends (c) Issues (d)
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UNIT-5
STRATEGIC ALTERNATIVE & CHOICE
Strategic Alternative & Choice
Learning Objectives After the end of this Unit the readers will be able to understand(1) (2) (3) (3) The process of strategic choice. The concepts of gap analysis. The subjective factors in strategic choice. The manner in which organisations handle unforeseen
environmental events through formulation of contingency strategies. (5) Steps involved in the contingency planning process.
Unit Structure 5.1 Introduction 5.2 Process of strategic choice 5.2.1 Focussing on strategic Alternatives 5.2.2 Analysing the strategic Alternatives 5.2.3 Evaluating the strategic Alternatives 5.2.4 Choosing from among the strategic Alternatives 5.3 Subjective factors in strategic choice 5.3.1 Considerations for Governmental Policies 5.3.2 Perception of CSFs and Distinctive competencies 5.3.3 Commitment to past strategic actions 5.3.4 Strategist's decision styles and attitude to risk 5.3.5 Internal political considerations 5.3.6 Timing and competitor considerations 5.4 Contingency strategies 5.5 Summary 5.6 Keywords 5.7 Questions
5.1 INTRODUCTION
Organisations continually face the challenge of exercising choice among alternatives. Choice is an in alienable part of the decisionmarking process. Naturally, a lot of analysis goes into making a strategic choice. An organisation has to look inwards, outwards and sideways before taking a leap into the unknown. Once on the course, things often happen that were not foreseen. An
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organisation has to be prepared with contingency strategies for the anonymous possibilities. This unit will focus on the issues related to the different facets of strategic alternatives and choice.
5.2 PROCESS OF STRATEGIC CHOICE

The process of strategic choice is essentially a decision-making process. The decision-making process consists of setting objectives, generating alternatives, choosing one or more alternatives that will help the organistion achieve its objectives in the best possible manner and finally, implementing the chosen alternative. For making a choice from certain criteria on which to accept or reject alternatives. These criteria are the selection factors. They act as guides to decision making and considerably simplify the process of selection, which otherwise would be a very difficult task. Strategic choice could be defined as "the decision to select from among the grand strategies considered, the strategy which will best meet the enterprise's objectives. The decision involves focussing on a few alternatives, considering the selection factors, evaluating the alternatives against these criteria and making the actual choice. There are four steps in the process of strategic choice as enumerate below: (1) Focusing on strategic alternatives (2) Analysing the strategic alternatives (3) Evaluating the strategic alternatives (4) Choosing form among the strategic alternatives There four steps in the process of strategic choice are describe further.
5.2.1 Focusing on strategic alternatives

The aim of focussing on a few strategic alternatives is to narrow down the choice to a manageable number of feasible strategies. Theoretically, it is possible to consider all the alternatives. On the other hand, a decision maker would, in practice, limit the choice to a few alternatives. Such a situation frequently poses a dilemma before the decision maker. Considering too many alternatives would make the process unwieldy and unproductive; but if only a few alternatives are considered, the decision maker has to focus on a reasonable number of alternatives. It is still difficult to tell what that 'reasonable' number would be. Focussing on alternatives could be done by visualising the future state and working backwards. This is done through gap analysis. A
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company sets objectives for a future period of time, say three
through five years and then works backward to find out where it Strategic Alternative & can reach through the present level of efforts. By analysing the difference between the projected and desired performance, a gap could be found. Figure 5.1, shows how gap analysis works. How wide or narrow the gap is, its importance and the possibility of it being reduced, influence the focus on alternatives. At the corporate level, the strategic alternatives are four; expansion, stability, retrenchment and combination. Where the gap is narrow, stability strategies would seem to be a feasible alternative. If the gap is large, due to expected environmental opportunities, expansion, strategies are more likely. If it is large due to past and expected bad performance, retrenchment strategies may be more suitable. In a complex scenario where multiple reasons are responsible for the gap, combination strategies are likely.
Choice
D e s ir e d p e r fo r m a n c e
P e rfo rm a n c e g a p p e r fo r m a n c e P re s e n t p e rfo rm a n c e
T im e
Figure 5.1 Gap analysis for focussing on strategic alternatives
At the business level, organisations need to think of alternative ways of competing. The choice is essentially between positioning the business as being low-cost, differential or focussed. Organisations need to understand the conditions in the industry and weigh carefully, the risks and benefits of each competitive positioning before making a choice. In practice, the choice leads to a situation of dynamic competitive positioning where low-cost and differentiation are not discrete positions, but lie on a continuum. This can be seen in figure 5.2. Focusing on alternatives at the business level could also be understood by reverting to the business definition. The true dimensions along which a business is defined (Customer groups, customer functions and alternative technologies), enable a decision
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maker to think in a structured fashion and systematically move in one or more dimensions, generating a number of feasible alternatives.
F o c u s e d d iffe r e n tia to r s D iff e r e n t ia t o r s F o c u s e d d iffe r e n ti a to r s D iffe r e n tia tio n ( h ig h e r c o s t s /h ig h e p r ic e s )
F o c u s e d c o s t le a d e r s C o s t le a d e r s F o c u s e d c o s t le a d e r s C o s t l e a d e r s h ip ( lo w e r c o s t s / lo w e r p r i c e s )
Figure 5.2 Dynamic competitive positioning
Figure 5.3 illustrates one way how this could be done for a company which is in the oral care business. Using a business definition, a company could create alternatives by working forward from the present to the future position it wishes to be in. For instance, a company catering to the cosmetic segment could cover the fluoride segment as well. Other alternatives could be to use alternative packaging (e.g. collapsible tube) or different additives (e.g. clove oil orveem). In this way, even within the context of an industry or business, several alternatives can be considered.
C u s to m e r F u n c tio n s
F o rm Foam F re sh n e s s F la v o u r
D e n ta l/ O r a l h e a lt h C o s m e t ic segm ent A lt e r n a t iv e T e c h n o lo g ie s F l u o r id e segm ent C u s to m e r G ro u p s
P a s te /p o w d e r D i f f e r e n t p a c k a g i n g m a t e r ia l D iff e r e n t b a s e m a t e r ia l D iff e r e n t f la v o u r in g m a te r ia l D if f e r e n t a d d i t iv e s
Figure 5.3 Possible business definition of an oral care company
5.2.2 Analysing the strategic Alternatives

Narrowing down the strategic choice should lead to a few feasible
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alternatives. These alternatives have to be subjected to a thorough
analysis. Such an analysis has to rely on certain factors. These Strategic Alternative & factors are termed as selection factors. They determine the criteria on the basis of which the evaluation of strategic alternatives can take place. The selection factors can be broadly divided into two groups: the objective and subjective factors. Objective factors are based on analytical techniques and are hard facts or data used to facilitate a strategic choice. They could also be termed as rational, normative or prescriptive factors. An example of an objective for selection is the market share, expressed as percent of the total market share of a company's business in its industry. Subjective factors, on the other hand, are based on one's personal judgement, collective or descriptive factors. An example of a subjective factor is the perception of the company's top management regarding the prospects of the business in the next 23 years. The alternatives that are generated in the first step have to be subjected to analysis on the basis of these selection factors.
Choice
5.2.3 Evaluating the strategic Alternatives

Selection factors are the criteria on the basis of which a final choice of strategy has to be made. Narrowing the choice leads to a few alternatives, each of which has to be evaluated for its capability to help the organisation achieve its objectives. Evaluation of strategic alternatives basically involves bringing together the analysis done on the basis of the objective and subjective factors. Successive iterative steps of analysing the different alternatives on the basis of selection factors, lie at the heart of such an evaluation. There is no set procedure and strategists may use any approach which suits the circumstances.
5.2.4 Choosing from among the strategic Alternatives

The evaluation of strategic choice should lead to a clear assessment of which alternative is the most suitable under the existing conditions. The final step is, therefore, of making the strategic choice. One or more strategies have to be chosen for implementation. A blueprint has to be made that will describe the strategies and the conditions under which they would operate. Besides the chosen strategies, some contingency strategies would also have to be devised.
5.3 SUBJECTIVE FACTORS IN STRATEGIC CHOICE

It the world were utterly logical, strategic choice would simply be a rational, systematic process of finding alternatives, analysing and evaluating them and chossing the best one.
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It is widely accepted that strategic decision-making is a complex activity. No one set of factors can be sufficient for exercising a strategic choice. How strategists actually make a choice among several alternative strategies has been a subject of considerable interests to researches in management in general and strategic management, in particular. Subjective factors are essentially intuitive and descriptive in nature. We identify six types of subjective factors that are discussed farther in this section(1) Considerations for governmental policies (2) Perception of critical success factors (CSFs) (3) Commitment to past strategic actions (4) Strategist's decision styles and attitude to risk (5) Internal political considerations (6) Timing and competitor considerations
5.3.1 Considerations for Governmental Policies

Strategists within organisations are aware of the crucial role that the government plays in setting down policies and priorities. In fact, in several cases, government policies are the deciding factor. A shift in policies can have a significant impact on the future prospects of companies. This is especially true in the case of industries such as airlines, banking, pharmaceuticals, power, railways or telecommunications that depend heavily on government regulations. Strategic alternatives considered by governmental polices. Expansion, retrenchment, or liquidation types of corporate strategies can only be feasible if the governmental polices act as a major subjective factor in screening alternatives.
5.3.2 Perception of CSFs and Distinctive Competences

Critical success factors and distinctive competencies are important issues in environmental and organisational appraisal. How they are perceived by strategists make them important subjective factors in strategic choice. While considering several strategic alternatives, strategists could be guided by the distinctive competencies that the organisation, possesses and the CSFs that ensure success in an industry. The important thing to focus on the extent of the match that exists between the competencies and the CSFs. The industries, which the strategic alternatives would lead to, have their own CSFs. If the distinctive competencies it has, can lead the organisation to build its strategy around the CSFs, then success is more likely.
5.3.3 Commitment to past strategy Actions

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It is rare that an organisation completely breaks away from its past
strategies and embarks upon a totally new course of action. Strategic Alternative & Experience shows that they move in an incremental fashion. Called upon the exercise a strategic choice, strategists are more likely to start from where the organisation is, and work up in the way that had been adopted by it to reach where it was. In this way, the strategic choice is more likely to be for those alternatives which arise out of past strategic actions. There is another practical reason why past strategic actions affect strategic choice. Strategic actions involve not only the formulation of particular strategies, but also commitment in terms of resources and personnel. Having made a serious commitment, it is difficult to move to areas where existing resources and personnel become redundant. Therefore, strategies tend to eliminate the strategic alternatives that lead the organisation too far away from their existing positions. Only under pressing circumstances and imminent threat from the environment does on organisation move, or is forced to move, away from its existing position. This give rise to another subjective factor in strategic choice i.e., decision styles and attitude to risk.
Choice
5.3.4 Strategist's decision styles and attitude to risk

The decision style adopted by strategists, particularly by the chief executive officer (CEO) and their attitude to risk is a determining subjective factor in strategic choice. It is of much interest to note that, given the same set of environmental factors and identical organisational factors, two organisations may follow different strategic paths. One may act in an aggressive manner and adopt a proactive stance with regard to strategy formulation, while the other may out defensively and react to changes. The crucial variable responsible for the difference between the two approaches is the decision style and attitude to risk of respective strategists.
5.3.5 Internal Political Consideration

By 'Internal political considerations' is meant the strategist's interrelationship and power structure and balance. When strategy formulation is viewed as a political process, strategists are viewed as a coalition of interests. A dominant CEO is able to affect strategic choice decisively where the CEO is perceived as weak, or invites participation, interest groups or cliques emerge which affect the strategic choice process and try to make the process work in their favour. It should be noted, however, that politics and the use of power are not necessarily bad. 'Political behaviour in organisation is perfectly natural and legitimate........ Politics and power are neither good nor bad. They are neutral.' The main issue for CEO is to see
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that they do not adversely affect the process of negotiations and support conditions that are necessary for the coalition of interests to work. Internal political considerations are crucial for strategic choice as such a choice determines where the resources of organisations will be allocated.
5.3.6 Timing and Competition Considerations

The time element and competition consideration is another set of important subjective factors that influence strategic choice. Timing answers the following questions: When to exercise a strategic choice? When a particular strategic choice is to be made? For what time period is a strategic choice to be made?
A strategic choice has to be exercised when the strategists are sufficiently satisfied that all possible alternatives have been considered and the environmental analysis and diagnosis indicates that no other major feasible alternatives are likely to emerge in a near future. A particular strategic choice, say of related diversification, could be made when no other alternative is as attractive and the required strategic choice for instance, stability strategy, is for the short or long-run.
5.4 CONTINGENCY STRATEGIES

Strategic choice is made on the basis of certain conditions assumptions and premises. When there is a change of conditions, shift in assumptions and the premises do not turn out to be wholly valid, then the strategy chosen becomes partly irrelevant. The strategies may have to be shelved. Often, the shift in assumptions is sudden, leaving very little time for the strategists to reorient strategies. Contingency strategies are formulated in advance to deal with uncertainties that are a natural part of the business. Most changes occur in the company's environment. Certain components of the environment, such as the social environment, alter gradually, are such changes can be anticipated well in advance. Then there are other types of environment, for instance, the market, regulatory or the international environment, where changes could be sudden and leave little time for the strategists to readjust to the situation. Apart
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from
environmental
changes,
organisations
face
the
prospects of emergencies or disasters, some of which may result in more harm than can be dealt with by operational contingency
measures. These may occur due to unfortunate circumstances, Strategic Alternative & often beyond the control of organisations. Factory fires, natural catastrophe like hurricanes, wars and civil disturbances, epidemics and crashing of IT systems are examples of such unexpected developments. Under these circumstances, contingency strategies could play a proactive role in dealing with emergencies and disasters. It is not as if only unfortunate circumstances can create the need for contingency strategies. Sometimes even unforeseen but fortuitous circumstances that prove to be lucky for organisations, can call for contingency strategies. The phenomenon of serendipity stumbling across good things unexpectedly sometimes, play a beneficial role in moving an organisation towards new and profitable directions. Examples of these may be an unexpected opportunity opening up for foreign collaboration, a sudden shift in government policy favouring the industry that the company operates in or a technological breakthrough having positive benefits for the company. The idea of contingencies is well accepted in accounting. Companies routinely keep aside contingency reserve funds for unforeseen expenses. Scenario planning too relies on developing alternatives scenarios based on pessimistic, most likely and optimistic assumptions. The pessimistic and optimistic assumptions are, in fact. Contingency that might occur in the future. There are a few approaches to help companies develop and implement contingency strategies. One such approach is based on model of contingency planning process. The model consists of three steps(1) Identifying the contingent events (2) Establishing the trigger points. (3) Developing strategies and tactics. Essentially, the requirements of the model are to list events that may occur in future that are critical to a company's strategy, formulation process. Trigger points in the form of indicator are established that signal the impending occurrence of these events, after such strategies or tactics are employed to deal with the changed situation. Contingency strategies have received a fair amount of attention from policy researchers as they are of immense value to strategists, who have to deal with a transient phenomenon like the business environment.
Choice
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5.5 SUMMARY
The strategic choice process is based on strategic decision-making, which is a highly complex activity. The process of strategic choice is divided into four steps of focussing on alternatives, considering the selection factors, evaluation of strategic alternatives and making the strategic choice. The subjective factors in strategic choice are six: consideration for government polices, strategist's perception related to CSFs and the firm's distinctive competencies, their commitment to past strategic actions, their decision styles and attitude to risk, internal political considerations and timing and competitor considerations. Contingency strategies are formulated to take into account unforeseen events occurring during the strategy implementation, owing to which, midcourse corrections might have to be made.
5.6 KEYWORDS
(1) Strategic choice : The decision to select from among the grand strategies considered, the strategy which will best meet the enterprise's objectives. (2) Gap analysis : Analysis of the differences between the projected and desired performance. (3) Stability strategies : Safety oriented status-quo type strategy without affecting any major change in its present operations. (4) Retrenchment strategies : Desirability of or necessity for reducing its product or service lines, markets, or functions and reduction of activities in units with negative cash flows. (5) Liquidation : A strategy that involves closing down the operations of a business and selling its assets and operations to pay its debts and distribute any gains to stockholders. (6) Long-term objective : The results that an organisation seeks to achieve over a multiyear period.
5.7 QUESTIONS
(1) Describe the manner in which the process of strategic choice works. (2) Differentiate between the objective and subjective strategy selection factors. (3) In what way timing and competition reaction be crutial for a strategic choice? (4) Exemplify how commitment to past strategies actions may
[ 78 ]
restrict the strategic choice for a firm.
(5) Why does the need for developing contingency strategies arise? Strategic Alternative &
Choice
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UNIT-6
GRAND STRATEGIC PLAN
Learning Objectives After the end of the Unit the reader will be able understand (1) (2) (3) (4) The concept of grand strategies 15 principal of grand strategies Grand strategy selection matrix Grand strategic plan
Unit Structure 6.1 Introduction 6.2 Grand Strategies 6.2.1 Concentrated Growth 6.2.2 Market Development 6.2.3 Product Development 6.2.4 Innovation 6.2.5 Horizontal Integration 6.2.6 Vertical Integration 6.2.7 Concentric Diversification 6.2.8 Conglomerate Diversification 6.2.9 Turnaround 6.2.10Divestiture 6.2.11Liquidation 6.2.12Bankruptcy 6.2.13Joint Ventures 6.2.14Strategic Alliances 6.2.15Consortia, Keivetsus, and Chaebols 6.3 Grand Strategy selection matrix 6.4 Grand Strategic Plan 6.5 Summary 6.6 Keywords 6.7 Questions
6.1 INTRODUCTION
Business strategies often known as grand strategies, play on important part through which companies set their strategies. Competition
[ 80 ]
is
pervasive
term
in
the
business
world.
Organizations compete for market share, market space and customers attention and money. Organization also compete for resources from the external environment, advantages from using technology and living the best people available in the recruitment market. Strategies designed to make an organization competitive and stay that way through sustained competitive advantage is the subject matter of this unit. Just like a human being functions through his limbs, corporation or companies operate through their business. Therefore, this unit focus on the formulation of grand strategies, and to describe the various concepts and options of grand strategies which are available to the firms.
Grand Strategic Plane
6.2 GRAND STRATEGIES

Grand strategies, often called master or business strategies, provide basic direction for strategic actions. They are basis of coordinated and sustained effort directed towards achieving longterm business objectives. Grand strategies indicate the time period over where long-range objectives are to be achieved. Thus, a grand strategy can be defined as a comprehensive approach that guides a firms major actions. The 15 principal of grand strategies are 1. 2. 3. 4. 5. 6. 7. 8. 9. Concentrated growth Market Development Product Development Innovation Horizontal Integration Vertical Integration Concentric Diversification Conglomerate Diversification Turnaround
10. Divestiture 11. Liquidation 12. Bankruptcy 13. Joint Ventures 14. Strategic Alliances 15. Consortia, Keiretsus, and Chaebols Any one of these strategies could serve as the basis achieving the major long-term objectives of a single firm. But a firm involved with multiple industries, business, product lines, on customer groups
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as many firms are usually combines several grand strategies. For clarity, however, each of the principal grand strategies is described independently in this section
6.2.1 Concentrated Growth

Concentrated growth is the strategy of the firm that directs it resources to the profitable growth of a single product, in a single market, with a single dominant technology. The main rationale for this approach, sometimes called a market penetration on concentration strategy, is that the firm thoroughly develops and exploits its expertise in delimited competitive arena. Concentrated growth strategies lead to enhance performance. The ability to assess market needs. Knowledge of buyer behaviour, customer price sensitivity, and effectiveness of promotion are characteristics of a concentrated growth strategy. A major misconception of about the concentrated growth strategy is that the firm practicing it will settle for little or no growth. This is certainly true for a firm that correctly utilizes the strategy. A firm employing concentrated growth groups by building on its competencies, and it achieves a competitive edge by concentrating in the product market segment it knows best. A firm employing this strategy is aiming for the growth that results from increased productivity, better coverage of its actual production market segment, and more efficient use of its technology.
6.2.2 Market Development

Market development commonly ranks second only to concentration as the least costly and least risky of the 15 grand strategies. It consists of marketing present products, often with only cosmetic modification, to customers in related market areas by adding channels of distribution or by changing the content of advertising or promotion. Market development, allows firms to practice a form of concentrated growth by identifying new uses for existing products and new demographically, phychographically or geographically defined markets. Frequently changes in media selection in, promotional appeals, and distribution are used to initiate this approach.
6.2.3 Product Development

Product development involves the substantial modification of existing products or the creation of new but related products that can be marketed to current customers through established
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channels. The product development strategy often is adopted either
to prolong the life cycle of current products on to take advantage of a favorite reputation or brand name. The idea is to attract satisfied customers to new products as a result of their positive experience with the firms initial offering.
6.2.4 Innovation
In many industries, it has become increasingly risky not to innovation. Both consumer and industrial market have come to expect periodic changes and improvements in the product offered. As a result, some firms fit it profitable to make innovation their grand strategies. They seek to reap the initially high profits associated with customer acceptance of a new or greatly improved product. Then, rather than face stiffening competition as the basis of profitability shift from innovation to production or marketing competence, they search for other original or novel ideas. The underlying rationale of the grand strategy of innovation is to create a new product life cycle and thereby make similar existing products obsolete. Thus, this strategy differs from the product development strategy of extending an existing products life cycle.
6.2.5 Horizontal Integration

When a firms long term strategy is based on growth through the acquisition of one or more similar firms operating at the same stage of the production marketing chain, its grand strategy is called horizontal integration. Such acquisitions eliminate competitors and provide the acquiring firm with access to new market.
6.2.6 Vertical Integration

When a firms grand strategy is to acquire firms that supply it with inputs on are customers for its outputs, vertical integration is involved. To illustrate, if a shirt manufacture acquires a textile producer by purchasing its common stock, buying its assets, or exchanging ownership interests the strategy is vertical integration. In this case, it is backward vertical integration, since the acquired firm operates at an earlier stage of the production marketing process. If the shirt manufacture had merged with a clothing store, it would have been forward vertical integration the acquisition of a firm nearer to the ultimate consumer. Figure 6.1 depicts both horizontal and vertical integration. The principal attractions of a horizontal integration grand strategy are readily apparent. The acquiring firm is able to greatly expand its operations, thereby achieving greater market share, improving economics of scale, and increasing the efficiency of capital use. In addition, these benefits are achieved with only moderately
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increased risk, since the success of the expression is principally dependent on proven abilities
Textile producer Textile producer
Shirt manufacturer
Shirt manufacturer
Clothing store
Clothing store
Acquisitions or mergers of suppliers or customer businesses are vertical integrations. Acquisitions or mergers of competing business are horizontal integrations. Fig. 6.1 Vertical and Horizontal Integrations
Some increased risk are associated with both types of integration. For horizontally integrated firms, the risks stem from increased commitment to one type of business. For vertically integrated firms, the risks result from the firms expansion into areas requiring strategic managers to broaden the base of their competencies and to assume additional responsibilities.
6.2.7 Concentric Diversification

Concentric diversification involves the acquisition of business that are related to the acquiring firms in terms of technology, markets or products. With this grand strategies the selected new businesses possess a high degree of compatibility with the firms current business. The ideal concentric diversification, occurs when the combined company profits increase the strengths and opportunities and decrease the weaknesses and exposure to risk. Thus, the acquiring firm searches for new businesses whose products, markets, distribution channels, technologies, and resource requirements are similar to but not identical with its own, whose acquisition results in synergies but not complete interdependence.
6.2.8 Conglomerate Diversification

Occasionally a firm, particularly a very large one plans to acquire a business because it represents the most promising investment opportunity available. This grand strategy is commonly known as
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conglomerate diversification. The principle concern, and often the
role concern, of the acquiring firm is the profit pattern of the venture. Unlike concentric diversification, conglomerate diversification gives little concern to creating product market synergy with existing business. The principal difference between the two types of diversification is that concentric diversification emphasizes some commonality in markets, products, on technology, whereas conglomerate diversification is based principally on profit considerations.
6.2.9 Turnaround
For any one of the large number of reasons, a firm can find itself with declining profits. production Among these reasons and are economic innovatives recessions, inefficiencies',
breakthroughs by competitors. In many cases' strategic managers believe that such a firm can survive and eventually recover if a concreted effort is made over a period a few years to fortify its distinctive turnaround. The model of the turnaround process is shown in figure 6.2. the model begins with a depiction of external and internal factors as causes of a firm's performance downturn. When these factors continue to determinately impact the firm, its financial health is threatened. Unchecked decline places the firm in a turnaround process. competencies. This grand strategy is known as
Fig. 6.2 : A model of the Turnaround Process
A turnaround situation represents the absolute and relative to industry declining performance of a sufficient magnitude to wavent
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explicit turnaround actions. Turnaround situations may be the result of years of gradual slowdown on months of sharp decline. In either case, the recovery, phase of the turnaround process is likely to be more successful in accomplishing turnaround when it is preceded by planned retrenchment that results in the achievement of nearterm financial stafilization. The immediacy of the resulting threat to company survival posed by the turnaround situation is known as situation severity. Severity is the governing factor in estimating the speed with which the retrenchment response will be formulated and activated. When severity is low, a firm has some financial cushion. Stability may be achieved through cost retrenchment alone. When turnaround situation severity is high, a firm must immediately stabilize the decline or bankruptcy is imminent cost reductions must be supplemented with more drastic asset reduction measures. Assets targeted for divestiture are those determined to be underproductive. Turnaround responses among successful firms typically include two stages of strategic activities: retrenchment and the recovery phase. Retrenchment consists of cost cutting and asset reducing activities. For firms facing declining financial performance, the key to successful turnaround rests in the effective and efficient management of the retrenchment process. The primary causes of the turnaround situations have been associated with the second phase of the turnaround process, the recovery response. For firms that declined primarily as a result of external problems, turnaround most often has been achieved through creative new entrepreneurial strategies. For firms that decline primarily as a result of internal problems, turnaround has been most frequently achieved through efficiency strategies. Recovery is achieved when economic measures indicate that the firm has gained its predounturn levels of performance.
6.2.10 Divestiture
A divestiture strategy involves the sale of the firm or a major component of a firm. The reasons of divesture vary. they often arise because of partial mismatches between the acquired firm and the parent cooperation. Some of the mismatched parts cannot be integrated into the corporation's main stream activities and thus, must be supun off. A second reason is corporate financial needs. A third reason for divestiture is government antitrust action when a
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firm is believed to monopolize or unfairly dominate a particular
market.
6.2.11 Liquidation
When liquidation is the grand strategy, the firm typically is sold in parts, only accasionally as a whole but for its tangible assets value and not as a going concern. In selecting liquidation, the owners and strategic managers of a firm are admitting failure and recognize that this action is likely to result in great hard ships, to themselves and their employees. For these reasons, liquidation usually is seen as the least attractive of the grand strategies.
6.2.11 Bankruptcy
When the company is unable to pay its debts, as they become due or has more debt than assets, the grand strategy is known as bankruptcy. In this the company closes its door. Investor lose their money, employees loose their jobs, and managers lose their credibility. In owner managed firms, company and personal bankrupcy commonly to hand in hand.
6.2.13 Joint Ventures

Occasionally two or more capable firm lack a necessary component for success in a particular competitive environment. For example, no single petroleum firm controlled sufficient resources to construct the Alaskan pipeline. The solution was a set of joint ventures, which are commercial companies created and operated for the benefit of the co-owners. Those co-operative arrangements provide both the funds needed to build the pipeline and the processing and marketing capacities needed to profitably hand the flow of petroleum.
6.2.14 Strategic Alliances

Strategic alliances are distinguished form joint ventures because the companies involved do not take an equity position in one another. In many instances, strategic alliances one partnerships that exist for a defined period during which partners contribute their skills and expertise to a cooperative project.
6.2.15 Consortia, Keiretsus, and chaebols

Consortia are defined as interlocking relationship between business of an industry, such consortia are known as keiretsus in Japan and chaebols in south Korea.
6.3 GRAND STRATEGY SELECTION MATRIX

One valuable guide to the selection of a promising grand strategy is
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grand strategy selection matrix shown in figure 6.3. The basic idea underlying the matrix is that two variables are of central concern in the selection process : 1. 2. The principal purpose of the grand strategy The choice of an internal or external emphasis for growth or profitability.
Fig. 6.3 : Grand Strategy Selection Matrix
In the past, planners were advised to follow certain rules or prescriptions' in their choice of strategies. Now, more experts agree that strategy selection is better guided by the conditions of the planning period and by the company strengths and weaknesses. It should be noted, however, that even the early approaches to strategy selection sought to match concern over internal versus external growth with a desire to overcome weaknesses or maximize strengths. The same consideration led to the developer of the grand strategy selection matrix. A firm in quadrant I, with "all its eggs in one basket". Often views itself as over committed to a particular business with limited growth opportunities or high risks. One reasonable solution is vertical integration, which enables the firm to reduce risk by reducing uncertainty about inputs or access to customers.
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Another
is
conglomereate investment
diversification, with
which
provides
profitable
alternative
diversity
management
attention
from
the
original
business.
Strategic
management considering these approach must grand against exchanging one set of weaknesses for another. Most conservative approaches to overcoming weaknesses are found in quadrant II. The least disruptive of the quadrant II strategies is retrenchment, pruning the current activities of a business. strategy. Divestiture offers the best possibility for recouping the firm's divestment, but even liquidation can be an attractive option if the alternatives are bankruptcy or an unwanted drain on the firm's resources. In quadrant III, the most common approach is concentrated growth, that is, market penetration. The firm that selects this strategy is strongly committed to its current products and markets. It strives to solidity its position by reinvesting resources to fortify its strengths. Two alternative approaches are market development and product development. With these strategies, the firm attempts to broaden its operation. Market development is chosen if the firms strategic managers feel that its existing products would be well received by new customer groups. Products development is chosen if they feel that the firm existing customers would be interested in products related to its current lines. The final alternative for quadrant III is innovation. When the firm's strengths are in creative products design on unique production technologies, sales can be stimulated by accelerating perceived obsolescence. this is the principle underlying the innovative grand strategy. Maximizing a firm's strengths by aggressively expanding its base of operations usually requires an external emphasis. The preferred option in such cases are shown in Quadrant IV. Horizontal integration is attractive because it makes possible a quick increase in output capability. Concentric diversification is a good second choice for similar reasons. The final alternative for increasing resource capability through external emphasis is a joint venture on strategic alliance. This alternative allows a firm to extend its strengths into competitive arenas that it would be hesitant to enter alone. If the weaknesses of the business arose from inefficiencies, retrenchment can actually save as turnaround
6.4 GROUND STRATEGIC PLAN

A grand strategic plan, is a document which provides information regarding the different elements of strategic management and the
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manner in which an organization and its strategist purpose to put the strategies into action. A comprehensive grand strategic plant document should contain the following information : 1. 2. 3. 4. 5. 6. 7. 8. A clear statement of strategic intent covering the vision. mission, business definition, goals and objectives. Results of environmental appraisal, major opportunities and threats. Results of internal appraisal, major strengths and weaknesses Strategies chosen and the assumption under which those strategies would be relevant. Contingent strategies to be used under different conditions. Strategic budget for the purpose of resource allocation for implementing strategies and the schedule for implementation. Structural and functional implementation. Measures to be used to evaluate performance and asses the success of strategy implementation. Typically, a grand strategic plan document could run into several pages and be treated as a formal report. Another possibility is that a brief document of 3-5 pages could briefly cover the points mentioned above. Much would depend upon the nature and size of the company of and the the management plan policies document. regarding It must the be preparation strategic
remembered, however, that when approved and accepted, a strategic plan document has to be communicated down the line to ... level managers, who will be responsible for its implementation.
6.5 SUMMARY
Grand strategies were defined as comprehensive approaches guiding the major actions designed to achieve long term objectives. Fifteen grand strategy options were discussed : concentrated growth, market development, product development, innovation, horizontal divestiture, integration, liquidation, vertical bankruptcy, integration, joint ventures, concentric turnaround, strategic diversification, conglomerate diversification,
alliances and consortia. Managers in single or dominant product/service business face problems of choosing an appropriate grand strategies that make best use of competitive advantage. Twelve grand strategies were
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identified that will help managers in choosing which grand strategy
would work best through grand strategy matrix. The grand strategic plan is a document which provides information regarding the different elements of strategic management and the manner in which an organization and its strategists propose to put strategies into action.
6.6 KEYWORDS
1. 2. Grand strategy : A comprehensive general firm's major actions. Innovation : A grand strategy that seeks to reap the premium margins associated with creation and customer acceptance of a new product or service. 3. Turnaround : A grand strategy of cost reduction and asset reduction by a company to survive and recover from declining profits. 4. 5. 6. Liquidation : A grand strategy that involved the sale of the assets of the business for their salvage value. Bankruptcy : when a company is unable to pay its debts as they become due, or has more debts than assets. Joint venture : A grand strategy in which the companies create a co- owned business that operates for there mutual benefits.
6.7 QUESTIONS
1 2. 3. 4. Explain the concept of grand strategies Explain the 15 principals of grand strategies Describe the grand, strategic selection matrix. Propose the outlines of strategic plan for a medium sized company.
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UNIT-7
STRATEGIC IMPLEMENTATIONSTRUCTURAL AND FUNCTIONAL IMPLEMENTATION
Learning Objectives After the end of this Unit, the readers will be able to understand(1) (2) (3) (4) (5) (6) (7) (8) (9) Characteristics of strategy implementation. Mckinsey 7-S framework. Strategists role in strategy implementation. Barriers to strategic implementation. Ways to overcome the barriers of strategic implementation. Linkage between strategy formulation and strategy implementation. Model of strategy implementation. Organisation structure implementation. Need of structural implementation. (10) Different types of structure used for strategy implementation. (11) The relevance of vertical and horizontal fits to functional strategies. (12) The nature, need and development of functional plans and policies. Unit Structure 7.1 Introduction 7.2 Nature of strategy implementation 7.3 Mckinsey 7-S framework 7.4 The role of stegists in strategy implementation 7.5 Barriers to strategy implementation 7.6 Interrelationship of formulation and implementation 7.7 A model of strategy implementation 7.7.1 Major themes in strategy implementation 7.8 Structural implementation 7.8.1 What is structure 7.8.2 Structure and strategy 7.9 Types of organisational structures 7.9.1 Entrepreneurial structure
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from the view point of strategy
7.9.2 Functional structure
7.9.3 Divisional structure 7.9.4 SBU structure 7.9.5 Matrix structure 7.9.6 Network structure 7.10 Functional Implementation 7.10.1Functional strategies 7.10.2Functional plans and policies 7.11 Summary 7.12 Keywords 7.13 Questions
Strategic ImplementationStructural & Functional Implementation
7.1 INTRODUCTION
With this unit, we move to the next phase of strategic management. Strategic implementation is the 'proof of the pudding in the eating' phase. All the efforts of strategy formulation bear fruit in this phase. Implementation is necessary to spell out more precisely how the strategic choice will come to be. Structural and administrative mechanisms which are compatible and workable need to be established to reinforce the chosen strategic direction and to provide guides for action. A good strategy without effective implementation is not likely to succeed. Strategic implementation involves the activities required for the execution of a strategic plan. In this process, strategies and policies are put into action through the development of programs, budgets, and procedures. Although implementation considerations usually follow strategy formulation, implementation is a key part of strategic coin. As we discuss the different aspects of strategy implementation, our focus will be mainly on two aspects of implementation i.e. structural and functional implementations. management. Strategy formulation and strategy implementation should thus be considered as two sides of the same
7.2 NATURE OF STRATEGY IMPLEMENTATION

Strategy implementation concerns the managerial exercise of putting a freshly chosen strategy into place. The strategic plan devised by the organisation proposes the manner in which the strategies could be put into action. Strategies by themselves, do not lead to action. They are, in a sense, a statement of intent. Implementation tasks are mean to realise the intent. Strategic,
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therefore, have to be activated through implementation. The characteristics of strategy implementation listed below, save to highlight the essential nature of strategy implementation. Action Orientation
The essential nature of strategy implementation is that is entails action. Strategy implementation involves putting the formulated strategies into action through the management process. Strategy implementation renders the intellectual content of strategy formulation into the operational process of practice. Comprehensive in scope
The different aspects involved in strategy implementation cover practically everything that is included in the discipline of management studies. Demanded varied kills
Since strategy implementation involves a wide range of activities, a strategist has to bring to his on her task, a wide range of knowledge, skills, attitudes and abilities. Wide ranging involvement
As opposed to strategy formulation, which is primarily a top management responsibility, strategy implementation necessitates the involvement of middle level managers. This means that the strategic plan has to be properly communicated to and understood by the middle level managers before they can play an effective role in strategy implementation. Integrated Process
The various tasks in strategy implementation are not stand alone activities. They are interrelated and therefore, strategy implementation has to act in a holistic manner. Each task or activity performed is related to another, creating an interconnected network, the hub of which has to be the strategic plan.
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7.3 MCKINSEY 7-S FRAMEWORK

S tr u ctu re S tr a te g y
S y stem s
S h ared V a lu e s
S t y le
S k ills
S ta ff
Figure 7.1 Mckinsey 7-S framework
The Mckinsey framework suggests that the following components must fit together to make a strategy work effectively: 1. Strategy : A coherent set of actions aimed at gaining a sustainable advantage over competition, improving position vis-vis customers or allocating resources. 2. Structure : The organization chart and accompanying baggage that show who reports to whom and how tasks are both divided up and integrated. 3. Systems : The processes and flows that show how an organization gets things done form day-to-day (information systems, capital budgeting system manufacturing processes, quality control systems all would be good examples). 4. Style : Tangible evidence of what management considers important by the manner it collectively spends time and attention and uses symbolic behaviour. 5. Staff : The people in an organization. Here it is very useful to think not about individual personalities but about corporate demographics. 6. Shared values (or super ordinate goals) The values beyond, but might well include simple goal statements in determining corporate destiny. To fit the concept these values must be shared by most people in an organization. 7. Skills : A derivative of rest. Skills are those capabilities that are possessed by an organization as a whole as opposed to the people in it.
7.4 THE ROLE OF STRATEGISTS IN STRATEGY IMPLEMENTATION

Once basic decisions are made, of course, implementation takes place in a cascade fashion through the basic structural hierarchy of
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the organization. All managers become strategic implementers in their areas of authority and responsibility. They are expected to communicate the case for organizational change clearly and persuasively to organization members and enthusiasm to turn the implementation process a company crusade. The SBUs then choose their specific strategies and implement them into their departments. Strategies require a customer approach to strategy implementation, based on individual company situations and circumstance, the strategy implementers best judgment and implementers ability to us a particular change techniques. For instance, major policy decisions are made by the top manager. These executives may ask the corporate planning staff to work out detailed policy changes in conjunction with affected line executives. Active support and co-operation of middle and lower level managers is necessary to push strategic changes into functional areas and operating units to carry out the strategy effectively. If there is a small corporate planning staff or no corporate planning staff, consultants may be lined to help out. At that point, tasks are assigned inform to the of organizations, their budgets are Any provided personnel and or communications through the administrative system are designed to people responsibilities. organization changes which might be needed must also be made.
Table 7.1 : The role of strategists in Strategy Implementation Strategists Resource allocation and Setting policies and organizing administrative systems Decide Decide for their units Advise and help manage the planning system major Rarely involved hired to Often hired to advise
Corporate top managers Decide SBU top managers Corporate planners Board of directors Consultants Decide for their units Advise Approves changes Occasionally advise
7.5 BARRIERS TO STRATEGY IMPLEMENTATION

In strategy literature, we often come across statements like its much more difficult to implement a strategy than to formulate it or a good enough strategy, implementation awfully. It is indeed true that doing is move difficult than thinking about doing. Strategies often fail not because they were not formulated well, but for the reason that they were not implementation effectively. Research studies report that strategists often find that strategy
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implementation is much move difficult than strategy formulations.
Strategists have developed skills to formulation strategies well but when it comes to implementation, there is much left to be desired. Hrebiniak points same general, overarching issues that impede strategy implementation. Among them is the fact that managers are often trained to plan and not to execute strategies; the top managers are reluctant to soil their hands in the dirty task of implementation; formulation and being interdependent yet being done by two different group of managers; typically implementation taking longer than formulation, putting pressures on managers to show results; and implementation involving many more people within an organization than does formulation. Hrebiniaks own empirical finding listed the following major obstacles: An inability to manage change Poor or vague strategy Not having guidelines or a model to guide implementation efforts Poor or inadequate information sharing Unclean responsibility and accountability Working against the organizational power structure.
Although there could be several ways to improve upon the implementation process, in the light of the short coming we noted above, the means to overcome the barriers to strategy implementation usually revolve around the following two main suggestions: Adopting a clear model of strategy implementation
Often implementation activities take place according to the abilities and initiatives of the managers involved in them. Even through it being a process, implementation moves in fits and starts. The uneven progress of the process does not do much good for, the effectiveness of the implementation efforts. What is required is a clear model of strategic implementation process that can provide unambiguous guidelines to the managers implementing the strategy. Such a model should lay down the elements or at least the major themes, of the implementation process, so that there is a high level of understanding about how the process has to proceed. At the same time, there needs to be a comprehension of how the various elements on themes are interconnected. Effective Management of Change in Complex Situations
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Implementation almost always creates the need to manage change
in complex organizational context. Many of these areas of change are behavioural in nature and are therefore, multifaceted and messy in nature. For instance, leadership style changes required to implement different kinds of strategies or the cultural changes to be brought about to facilitate new strategy implementation are intricate matters that call for careful handling. No wonder, managers often fail to manage these complex organizational issues satisfactorily, creating conditions for a suboptimal implementation of strategies.
7.6 INTERRELATIONSHIP OF FORMULATION AND IMPLEMENTATION

In real life, the formulation and implementation processes are intertwined. Two types of linkages exist between these two phases of strategic management as shown in figure 7.2. The forward linkages deal with the impact of the formulations on implementation, while the backward linkages are concerned with the impact in the opposite direction. The forward linkage is stronger and is therefore, shown in a bigger sized arrow as compared to the backward linkage.
S tr a te g y F o r m u la tio n (T h o u g h t) S tra te g y Im p le m e n ta tio n (A c tio n )
Fig. 7.2 : Two-way linkage between formulation and implementation of strategy
Forward Linkages The different elements in strategy formulation, starting with the various constituents of strategic indent through environmental and organizational appraisal, strategic alternatives, strategic analysis and choice to the strategic plan, determine the course that on organization adopts for itself. With the formulation of new strategies, or reformulation leading to modified strategies, many change have to be effected within the organization. For instance, the organizational structure has to undergo a change in the light of the requirement of the modified or new strategy. The style of leadership has to be adapted to the formulation of strategies. A whole lot of the changes have to be undertaken in operationalising the formulated strategies. Clearly, the strategies
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formulated provide the direction for implementation. In this way,
the formulation of strategies has forward linkages with their implementation. Backward Linkages Just as implementation is determined by the formulation of strategies, the formulation process is also affected by factors related with implementation. Organizations tend to adopt strategies, which can be implemented with the help of the present structure of resource, combined with same additional efforts. Such incremental changes, over a period of time, take the organization from where it is to where it whishes to be. It is to be noted that while strategy formulation is primarily an entrepreneurial activity, based on strategic decision - making, the implementation of strategy is mainly an administrative task, based on strategic as well as operational decision- making. Looked at from another angle, formulation is a managerial task requiring analysis and thinking, while implementation primarily rests an action and doing. Formulation and implementation of strategies operate in an interactive manner where both feed up on each other in a two way relationship. formulation The and forward and backward creates linkages a between inter implementation dynamic
connection, the nature of which keeps changing according to the emerging circumstances.
7.7 A MODEL OF STRATEGY IMPLEMENTATION

Figure 7.3 presents a model of strategy implementation that attempts to capture the major themes in strategy implementation and the activities that make up each theme. The forward linkage from strategic plan guide the implementation process and connects it to the preceding phase of strategy formulation. The feedback flowing in reverse from the following step of strategy evaluation and control moves through the implementation phase and goes back to strategy formulation establishing the backward linkage.
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A c ti v a t in g S tra te g ie s P ro je c t I m p le m e n ta tio n
M a n a g in g C hange
A c h ie v in g E ffe c tiv e n e s s
S tru c tu ra l I m p le m e n ta tio n L e a d e r s h ip I m p le m e n ta tio n B e h a v io u ra l I m p le m e n ta tio n
F u n c tio n a l I m p le m e n ta tio n E v a lu a tio n & C o n tro l O p e r a tio n a l I m p le m e n ta tio n
S tra te g ic P la n
P ro c e d u ra l I m p le m e n ta tio n
R eso u rc e A llo c a t io n
Feed B ack
Fig. 7.3 : A model of strategy implementation
7.7.1 Major themes in Strategy Implementation

The model of strategy implementation depits three major themes: 1. Activating strategies The theme of activating strategies serves to prepare the ground for managerial tasks and activities of strategy implementation. We have identified three sets of activities under this theme and we believe to be relevant allocation. 2. Managing change The next theme is the core of strategy implementation and deals with managing change in complex situations. We have identified three sets of activities under this theme that should enable us the cover most of the major implementation tasks: structural implementation, leadership implementation and behavioural implementation. 3. Achieving effectiveness The last theme in strategy implementation is the outcome of the process. This theme will cover two sets activities of functional and operational implementation. for Indian organization. The3se are and project resource implementation, procedural implementation
7.8 STRUCTURAL IMPLEMENTATION

We usually conceive of an organization structure as a chart consisting of boxes in which the name of positions or designations of personnel are written in a hierarchical order, along with the depiction of the relationship that exists between the various position. To a strategist an organization structure is not only a chart but much more.
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7.8.1 What is Structure?

From a strategy implementation standpoint an
structure is the arrangement of tasks and subtasks required to
Strategic Implementationorganization Structural & Functional Implementation
implement a strategy. The diagrammatical representation structure could be an organization Chart, but a chart shows only the 'skeleton'. The 'flesh and blood' that makes an organization alive is the several administrative mechanisms, such as controls, that support the structure. All these cannot be depicted on a chart. But a strategist has to grapple with the complexities of creating the structure, making it work, redesigning when required and implementing changes that will keep the structure relevant to the need of the strategists that have to be implemented. An organization structure specifies three key components that are enumerated below: 1. It identifies the formal reporting relationships, including the number of levels in the hierarchy and the span of control of managers. 2. 3. It specifies the grouping of individuals into department and of departments into the total organization. It consists of design of systems to ensure effective communication, coordination and integration of efforts across departments. The first two components constitute the structural framework, which is the vertical structure created through the process of differentiation that involves cross functional information systems and teamwork. Figure 7.4 shows these structures -
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V e r t ic a l s tr u c tu r e d o m in a n t : S p e c ia lis e d ta s k s H ie r a rc h y o f a u th o r ity R u le s a n d r e g u la tio n s V e r tic a l c o m m u n ic a tio n a n d f o r m a l r e p o r tin g sy ste m C e n tr a lis e d d e c is io n m a k in g E m p h a sis o n e ffic ie n c y
H o r iz o n t a l s t r u c t u r e d o m in a n t : S h a re d ta sk s F le x ib le a u th o r ity F e w ru le s a n d re g u la tio n s H o r iz o n ta l c o m m u n ic a tio n a n d s h a rin g o f in fo r m a tio n D e c e n tr a liz e d d e c is io n m a k in g E m p h a s is o n le a r n in g
Fig. 7.4 : Vertical and horizontal structures
The vertical structure is designed primarily for exceeding control by superiors over subordinates, work in the organization. The horizontal structure is designed for coordination and collaboration of work among peers in the organization. Typically, the vertical structure will have these
characteristics: Specialized tasks Hierarchy of authority Rules and regulations Vertical communication and formal reporting system Centralized decision making Emphasis on efficiency
The horizontal structure will have these characteristics: Shared tasks Flexible authority Horizontal communication and sharing of information Decentralized decision making Emphasis on learning
7.8.2 Structure and Strategy

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The
prescription
for
consciously
matching
the
organization
structure to the particular needs and requirements of strategy has
Strategic Implementationrisen out of research done by chandler, who proposed the idea that Structural & Functional structure follows strategy. Implementation
D e te r m in e STRATEG Y STRATEG Y
A ffe c ts
Fig. 7.5 : Interrelationship of structure and strategy
Figure 7.5, present a two way relationship of structure and strategy. Note the emphasis is on the forward relationship, form structure to strategy. This means that strategy determines the structure in a major way. It does this by providing the necessary infrastructure and administrative mechanisms that enable implementation of the chosen strategy. The structure conversely impacts the strategy, but to a lesser extent. The structure once established might support or preclude the selection of some types of strategies and thereby, affect the strategic choice. Ideally, the structure of an organization should be such that it enables a smooth implementation of the chosen strategies, supports operational flexibility to improvise and revamp as implementation moves on and facilitates the choice of future strategies. The two way relationship between strategy and structure helps us to understand what structural implementation is. It is the process of matching the structure of an organization with its chosen strategy. Figure 7.6 shows why structure implementation is needed. When an organization implements a new or revised strategic plan, then new or modified strategies are put in place. The implementation of these strategies starts taking place. As they are implemented, managers notice mismatches that occur owing to a variety of reasons. For instance, the administrative mechanisms in the organization may not be relevant to the strategies being implemented on interdepartmental, conflicts may arise. As a consequence of these mismatches, the performance declines, leading to a reduction in effectiveness. When the structure is changed appropriately so as to resolve the problems, performance improve, leading to better effectiveness. This cyclical process goes on as new strategies are
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implemented.
S tr a te g ic p la n is im p le m e n te d New s tr a te g ie s p u t in p la c e im p le m e n ta t io n of new s tr a te g ie s M is m a tc h e s occur
P e r fo r m a n c e im p r o v e s
S tr u c tu r e is c h a n g e d
E ffe c t iv e n e s s is r e d u c e d
P e r fo r m a n c e d e c lin e s
Fig. 7.6 : Why is structural implementation needed?
Further to the 'structure follows strategy' prescription by chandler, the theory of organization structure was extended by child to include environment and effectiveness in the sequences to pinpoint the nature of choice that strategists make. He says that managerial choice occurs at the interface of environment and strategy, which then determines the structure. This could be understood by the fact that greater is the environmental complexity and uncertainly the higher may be the intricacy and elaborateness of the organization structure. This is understandable, since a more elaborate and intricate organizational arrangement within, would be required to respond to complex and uncertain environmental conditions outsides. The relationship between strategy and structure is spanned by environment in one direction and effectiveness in the other, as we can see in figure 7.7.
E n v ir o n m e n t
S tr a te g y
S tr u c tu r e
E f fe c t iv e n e s s
Fig. 7.7 : Environment, strategy, structure, and effectiveness [ 104 ]
Structure implementation is more concerned with the match that
should exist between strategy and structure. In other words, a
Strategic Implementationparticular strategy creates special requirements that should be Structural & Functional fulfilled by the structure if it does not, then the structure will have Implementation
to be redesigned. What shape the structure should take if a particular strategy to be implemented successfully is difficult to answer. But here again, theory offers alternatives. One such alternative is to link structure to the stage of development that an organization exists in at a given point of time.
7.9 TYPES OF ORGANIZATION STRUCTURE

There are several types of structures that are found in organizations. Here some major types of structures are described, with special emphasis on there appropriateness for the different types of strategies.
7.9.1 Entrepreneurial Structure

The entrepreneurial structure, shown in figure 7.8, is the most elementary form of structure and is appropriate for an organization that is owned by one person. A small scale industrial unit, a small proprietary concern on a mini-service outlet may exhibit the characteristics organizations which are based on an entrepreneurial structure. Typically, these organization are single business, product, or service firms that serve local markets. The owner managers looks often all decision, whether they are day-to-day, operational matters or of a strategies nature.
Owner-Manager
Employees
Fig. 7.8 : Entrepreneurial Structure
The advantages that the entrepreneurial structure offers are Quick decision making, as power is centralized. Timely response to environmental changes Informal and simple organization systems
The disadvantage of entrepreneurial structure Excessive reliance on owner -manager and so proves to be demanding for the owner manager.
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May
divert
attention
of
owner
manager
to
day-to
day
operational matters and ignore strategic decisions. Increasingly inadequate for future requirements if volume of business expands.
7.9.2 Functional Structure

As the volume of business expands, the entrepreneurial structure may outlive its usefulness. The need arises for specialized skills and delegation of authority to managers who can look after the different functional areas. A typical functional structure is shown in figure 7.9. The functional structure seeks to distribute decision making and operational authority along functional lines.
C h ie f E x e c u tiv e O ff ic e r
P u b li c R e la t i o n s
Legal
F in a n c e
M a r k e tin g
H u m a n R e s o u rc e M anagem ent
P r o d u c t io n
Fig. 7.9 : Functional Structure
The advantages that a functional structure offers are: Efficient distribution of work through specialization. Delegation of day-to-day operational functions Providing time for the top management to focus on strategic decision. The disadvantages of a functional structure are: Creates difficulty in coordination among different functional areas. Creates specialists which results in narrow specialization, often at the cost of the overall benefit of the organization. Leads to function and line staffs conflicts.
7.9.3 Divisional Structure

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The structural needs of expansion and growth are satisfied by the
functional structure but only up to a limit. There comes a time in
Strategic Implementationthe life of organization when growth and increasing complexity in Structural & Functional terms of geographic expansion, market segmentation and Implementation
diversification make the functional structure inadequate. Some form of divisional structure is necessary to deal with such situations. A divisional structure is shown in figure 7.10. Basically, work is divided on the basis of product lines, types of customers served or geographic area covered, and then, separate divisions or groups operate.
C h ie f E x e c u tiv e O ffic e r
are
created
and
placed
under
the
divisional
level
management. Within divisions, the functional structure may still
C o r p o ra te F in a n c e
C o r p o ra te L e g a l/P R
G e n e ra l M a n a g e r D iv is io n A
G e n e ra l M a n a g e r D iv is io n B
M a r k e tin g
M a r k e tin g
O p e r a tio n
O p e r a tio n
Fig. 7.10 : Divisional Structure
The advantage that a divisional structure offers are Enables grouping of functions required for the performance of activities related to a division. Generates quick response to environmental changes affecting the business of different division. Enables the top management to focus on strategic matters.
The disadvantage of divisional structure are Problems in the allocation of resource and corporate overhead costs, particularly if the business and corporate objectives are ill-defined. Inconsistency arising fro the sharing of authority between the corporate and divisional levels.
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Policies in consistencies between the different divisions.
7.9.4 SBU Structure

A strategic business unit (SBU) has been defined by sharkline as any part of business organization which is treated separately for strategic management purposes. When organizations face difficulty in managing division operations due to increasing diversity, size and number of divisions, it becomes difficult for the top management to exercise strategic control. Hence, the concept of SBU is helpful in creating an SBU organizational structure. Conceptually, an SBU is 'a discrete element of the business serving specific product makers with readily identifiable competitors and for which strategic planning can be conducted'. Essentially, SBUs can be created by adding another level of management in a divisional structure after the divisions have been grouped under a divisional top management authority on the basis of common strategic interest. The advantage that the SBU organizational structure offers are Establishes coordination between division having common strategic interests. Facilitates strategic management and control of large, diverse organizations. Fixes accountability at the level of distinct business units..
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C h ie f E x e c u tiv e O f f ic e r
G ro u p H ead SBU 1
D iv is io n A
D iv i s i o n A
D iv is io n A
D iv i s io n A
D iv is io n A
D iv is io n A
D iv i s i o n A
D iv is io n A
D iv is io n A
Fig. 7.11 : SBU organizational Structure
The disadvantage of the SBU organizational structure are There are too many different SBUs to handly effectively in large, diverse organization. Difficulty in assigning responsibility and defining autonomy for SBU heads. Addition of another layer of management between corporate and divisional management.
7.9.5 Matrix Structure

In large organization, there is often a need to work on major products or project each of which is strategically significant. The result is the requirement of a matrix type of organization structure. Figure 7.12 illustrates a matrix structure. Essentially, such a type of structure is created by assigning functional specialists from different areas form a group or team and report to a team leader. Simultaneously, they may also work in their respective department. Once the project is completed, the team members revert to their parent departments.
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C h ie f E x e c u t iv e O ffic e r
F in a n c e
M a r k e t in g
O p e r a t io in
P ro je c t M anager A
F u n c t io n a l S p e c ia lis t
P ro je c t M anager B
P ro je c t M anager C
Fig. 7.12 : Matrix organizational structure
The advantage that the matrix structure offers are : Allows individual specialists to be assigned where their talent is most needed. Fosters creativity because of pooling of diverse talents. Provide good exposure to specialists in general management. The disadvantages of the matrix structure are: Dual accountability creates confusion and difficulty for
individual team members. Requires a high level of vertical and horizontal combination. Shared authority may create communication problems
7.9.6 Network Structure

Figure 7.13, illustrates a network structure. The structure is highly decentralised and the organised around customer groups or geographical regions. Rather than being located in one place, the business functions are scattered far and wide. The network structure is most suited to organisations that face a continually changing environments, requiring quick response, high level of adaptability and strong innovation skills.
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P r o je c t g r o u p M s tr u c tu r e
R e g io n A s tr u c tu r e
F u n c tio n X s tr u c tu r e
C o r p o ra te H e a d q u a rte r
R e g io n B s tr u c tu r e
F u n c tio n y s tr u c tu r e
P r o je c t N s tr u c tu r e
Figure 7.13 Network organisational structure
The advantages that the network structure offers are: High level of flexibility to change structural arrangements in line with business requirements. Permits concentration on core competencies of the firm. Adaptability to cope with rapid environmental change.
The disadvantage of network structure are: Loss of control and lack of coordination as there are several partners. Risks of over specialisation as most tasks are performed by others. High costs as duplication of resources could exist.
7.10 FUNCTIONAL IMPLEMENTATION

Functional strategies are carried out through is done functional through implementation. Functional implementation
functional plans and policies in different functional areas. Let us now firstly understand the concept of functional strategies.
7.10.1 Functional Strategies

Functional strategy deals with a relatively restricted plan designed to achieve objectives in specific functional area, allocation of resources among different operations within that functional area and coordination among different functional areas for optimal
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contribution to the achievement of the business and corporate-level objectives. Functional strategies are derived from business and corporate strategies and are implemented through functional implementation. A key task of strategy implementation is to align or fit the activities and capabilities of an organisation with its strategies. Strategies operate at different levels and there has to be congruence and coordination among the strategies. Such congruence is the vertical fit then, there has to be congruence and coordination, among different activities taking place at the same level. This is the horizontal fit. Figure 7.14 shows the nature of vertical and horizontal fit and how they exist in the frame work of strategies.
C o r p o ra te - lv e l s tr a te g ie s
B u s in e s s - lv e l s tr a te g ie s
F u n c tio n a l- lv e l s tr a te g ie s
M a r k e tin g p la n s a n d p o lic ie s
F in a n c ia l p la n s a n d p o lic ie s
O p e r a tio n s p la n s a n d p o lic ie s
H um an re s o u rc e m anagem ent p la n s a n d p o lic e s
I n fo r m a t io n m anagem ent p la n s p o lic ie s
V e r tic a l f it
H o r iz o n ta l fit
Figure 7.14 Vertical and horizontal fit
7.10.2 Functional Plans and Policies

For effective functional implementation, strategists have to provide directions to functional managers regarding the plans and policies to be adopted. In fact, the effectiveness of strategic management depends critically on the manner in which strategies are implemented. We now see the nature of functional plans and policies, why they are needed and how they are developed.
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Strategic ImplementationFunctional strategies defined in terms of functional plans and Structural & Functional Implementation
7.10.2.1 Nature of Functional Plans and Policies
policies- plans or tactics to implement business strategies-are made within the guidelines set at higher levels. Plans are made to select a course of action while policies are required to act as guidelines to action. Functional plans and policies, therefore, are in the nature of tactics to make a strategy work.
Functional managers need guidance from the corporate and business strategies in order to make decisions. Functional plans tell the functional managers what has to be done while functional policies state how the plans are to be implemented.
7.10.2.2 Need for Functional Plans and Policies

Glueek suggests five reasons why functional plans and policies are needed. Functional plans and policies are developed to ensure that: (1) The strategic decisions are implemented by all the parts of an organisation. (2) There is a basis available for controlling activities in the different functional areas of business. (3) The time spend by functional managers in decision-making is reduced as plans lay down clearly what is to be done and policies provide the discretionary framework within which decisions need to be taken. (4) Similar situations occurring in different functional areas are handled in a consistent manner by the functional managers. (5) Coordination across the different functions takes place where necessary.
7.10.2.3 Development of Functional Plans and Policies

The development of functional plans and policies is aimed at making the strategies formulated at the top management level, practically feasible at the functional level. Strategy need to be segregated into viable functional plans and policies that are compatible with each other, thereby augmenting the horizontal fit. In this way, strategies can be implemented by the functional managers. The process of development of functional plans and policies may range from the formal to informal. Larger and more complex organisations may have several hundred policies related to every major aspect. Many of these policies could have been
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formulated through the formal process and laid down in company manuals and documents. Smaller organisations with simpler businesses may operate with a few policies, most of which would be informal and understood rather than written down. The process of development of functional plans and policieswhether formal or informal-is similar to that for strategy formulation. Environmental factors relevant to each functional area have an impact on the choice of plans and policies. Organisational plans and policies affect the choice of functional plans and policies. Finally, the actual process of choice is influenced by objective as well as subjective factors. Functional plans and policies affect and are affected by, the resource allocation decisions. Figure 7.15, clearly shows the configuration of functional plans and policies.
In te g ra tio n o f f u n c t i o n a l p la n s a n d p o lic ie s
I n te g r a tio n o f f u n c tio n a l p la n s a n d p o lic ie s
In te g r a tio n o f f u n c t io n a l p la n s a n d p o li c i e s In te g r a tio n o f f u n c tio n a l p la n s a n d p o lic ie s In te g r a tio n o f f u n c tio n a l p la n s a n d p o lic ie s
I n te g r a tio n o f f u n c tio n a l p la n s a n d p o lic ie s
Figure 7.15 The configuration of functional plans and policies
7.11 SUMMARY
Strategy Implementation concerns the managerial exercise of putting a freshly of chosen strategy strategy into place. The five characteristics implementation are: action
orientation, comprehensive in scope, demanding varied skills, wide range involvement and integrated process. 7-S of Mckinsey are strategy, structure, systems, style, staff, shared valued and skills. Strategy implementation is much more difficult than strategy formulation. There are several barriers to implementing strategies and many means to overcome these barriers. Two major suggestions for effective strategy implementation are
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adopting a clear model of strategy implementation and
Strategic ImplementationTwo types of linkages exist between two phases of strategic Structural & Functional Implementation
effective management of change in complex situations.
management. The forward linkages deal with the impact of the concerned with the impact in the opposite directions.
formulation on implementation while the backward linkages are
The model of strategy implementation is based on three major themes of activating strategies, managing change and achieving effectiveness. Structure in the context of strategic management is the way in which tasks and sub-tasks required to implement a strategy are arranged. Organisation structure is distinguished into vertical and horizontal structures. Six major types of structures are entrepreneurial, functional, divisional, SUB, matrix and network. Functional strategies are defined in terms of functional plans and policies, which are the plans or tactics to implement business strategies. Plans are made to select a course of action while policies are required to act as guidelines to action.
7.12 KEYWORDS
(1) Policies : Broad, precedent-setting decisions that guide or substitute for repetitive or time-sensitive managerial decision making. (2) Strategic business unit : An adaptation of the divisional structure in which various divisions or parts of the divisions are grouped together based on some common strategic elements, usually linked to distinct product/market differences. (3) Implementation : putting plan into action. (4) Plan : Blue print of idea.
7.13 QUESTIONS
(1) Describe the characteristics of strategy implementation to highlight its essential nature. (2) Enumerate the major barriers to strategy implementation. (3) Explain Mckinsey 7-S framework. (4) Suggest the means to overcome the barriers to strategy implementation. (5) Discuss the major themes in strategy implementation. (6) Describe the manner in which structural mechanisms operate in an organisation. (7) Describe the various types of structures.
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(8) How does strategy affect structures? (9) Distinguish between vertical and horizontal structures. (10) Why does the need for functional plans and policies arise? (11) How does the development of functional plans and policies take place?
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UNIT-8
STRATEGIC EVALUATION AND CONTROL
Strategic Evaluation and Control
Learning Objectives After the end of this Unit the readers will be able to understand(1) Nature and importance of strategic evaluation and control. (2) Process of strategic evaluation and control. (3) Role of participants in evaluation. (4) The barriers to evaluation and the requirements for effective evaluation. (5) Qualitative and Quantitative criteria for evaluation. (6) Four types of strategic control. (7) Role of Reward System in Evaluation. Unit Structure 8.1 Introduction 8.2 Nature of strategic evaluation and control 8.3 Evaluation and control process 8.4 Importance of strategic evaluation 8.5 Participants in strategic evaluation 8.6 Barriers in evaluation 8.7 Requirement for effective evaluation 8.8 Criteria for evaluation 8.8.1 8.8.2 Quantitative criteria Qualitative criteria
8.9 Strategic control 8.10 Types of strategic control 8.10.1 Premise Control 8.10.2 Strategic surveillance 8.10.3 Special alert control 8.10.4 Implementation control 8.11 The Reward System 8.12 Summary 8.13 Keywords 8.14 Questions
8.1 INTRODUCTION
Strategic control in an organization is similar to what the steering is
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in a ship. The concept of steering is at the heart of cybernetics, which is literally derived from the grade word for a steersman. Steering keeps a ship, for instance, stables on its course. A control system aims towards the goal, and can sense when it is on course to attain it. It can also sense when it is on course not to attain the goal, and act accordingly. This information is fed to the decisionmakers, so that the organizations behaviour and/or context can be modified. Strategic control system offer a framework for tackling, evaluating, rewarding and reorienting the functioning of the business units. In both industrial as well as emerging markets, these systems have become very important for early detection and prevention of corporate scandals, corruptions, and accounting irregularities. Strategic control involves the monitoring and evaluation of plans, activities, and results, with a view towards future action, providing a warning signal through diagnosis of data, and triggering appropriate interventions.
8.2 NATURE OF STRATEGIC EVALUATION AND CONTROL

Evaluation of strategy is that phase of the strategic management process in which managers try to assure that the strategic choice is properly implemented and is meeting the objectives of the enterprise. We now assume that the infrastructure is in place. A plan to carry out the chosen strategy has been specified and activities have been assigned to the organization resources have been provided for doing these tasks and policies have been developed and communicated as also the leadership system and style have been formed so that the climate is geared to the strategy and its plans. There are also several other crutial components of an effective administrative system. (a) These components are needed to make sure that all other elements work properly. A follow-through on strategy and its implementation requires a control system an appropriate reward system an effective information system which provides managers with an accurate complete feedback in time so that they can act on data. The evaluation system is also needed as a way to recycle the
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feedback as an input for new strategic planning and as a means for
double-checking that the strategic choice is consistent appropriate workable
(b) The ways, in which sub systems perform their tasks, use resources and interpret policy give meaning to the intended strategy. SBU and functional managers quite often have a fairly large range of discretion in interpreting policy and using resources. They may, in fact, work against an intended strategy. We might call this behaviour a "sin of commission". Further, to the extent that these managers are protecting "their sub system", new strategies or policies might never be considered. This would be tagged a "sin of ommission". For instance, if a manager fails to forward information that is potentially damaging to the unit, a failing strategy might continue to be pursued. New alternatives would not be considered. Similarly, a manager may decided not to forward a proposal which is thought to run counter to the desires of top management even though the idea may be a potentially useful alternative. So, the omissions and commissions of managers directly and indirectly affect the strategy of the organization as reflected in its action. (c) Control and evaluation of processes help strategists monitor the progress of a plan. They seek to answer a number of questions, such as: Are the decisions made consistent with the policy? Are there sufficient resources to get the job done? Are the resources being used wisely? Are events in the environment occurring as anticipated? Are goals and targets-both short-term and long-term-being net? Should we proceed with the plan as we have formulated it?
(d) In terms of our gap analysis approach, we want to determine whether the gaps between the expected results and the ideal outcomes are being closed; and we want to know if any internal or external changes in the plan might alter our expectations regarding these gaps. The evaluation process should alert us to these conditions so that corrective action can be taken-getting back on track, changing the track or changing our beliefs about the gaps and the objectives. In other words, unless evaluation and control are integrated with a plan, strategic planning may be little more
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than a pious hope rather than a means of achieving the desired future.
8.3 EVALUATION AND CONTROL PROCESS

Through the evaluation and control process, corporate activities and performance results are monitored so that actual performance can be compared with desired performance. The process provides the feedback necessary for management to evaluate the results and take corrective action, as needed. This process can be viewed as a five-step feedback model, as depicted in figure 8.1.
1 D e te r m in e W h a t to m e a s u re 2 3 M e a su re a c tu a l p e rfo rm a c e . 4 D oes N o p e rfo rm a n c e m a tc h s ta n d ard s?
Yes
5 Take c o rre c tiv e a c tio n .
STO P
Figure 8.1 Evaluation and Control Process
(1) Determine what to measure Top managers and operational managers must specify
implementation process and results to be monitored and evaluated. The processes and results must be measurable in a reasonably objective and consistent manner. The focus should be on the most significant elements in a process-the ones that account for the highest proportion of expense on the greatest number of problems. Measurements must be found for all important areas regardless of difficulty. (2) Establish standards of performance Standards used to measure performance are detailed expressions of strategic objectives. They are measures of acceptable performance results. Each standard usually includes a tolerance range, which defines any acceptable derivations. Standards can be set not only for final output, but also for intermediate stages of production output. (3) Measure actual performance Measurements must be made at predetermined times. (4) Compare actual performance with the standard
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If the actual performance results are within the desired tolerance
range, the measurement process stops here. (5) Take corrective action If the actual results fall outside the desired tolerance range, action must be taken to correct the derivation. The action must not only correct the deviation, but also prevent its recurrence. The following issues must be resolved: Is the deviation only a chance fluctuation? Are the processes being carried out incorrectly? Are the processes appropriate for achieving the desired standard? Top management is often better at the first two steps of the control model than they are in the last three follow-through steps. The tendency to establish a control system and then delegate the implementation to others may lead to unfortunate results.
8.4 IMPORTANCE OF STRATEGIC EVALUATION

The importance of strategic evaluation lies in the manager's ability to coordinate the tasks performed by individual managers-and also groups, division or SBUs - through control of performance. In the absence of coordinating and controlling mechanisms, individuals managers may pursue goals which are inconsistent with the overall objectives of the department, division, SBU or the whole organisation. Besides the basic reason of coordinating tasks there could be several other motives for strategic evaluation as described below: Need for feedback, Appraisal and Reward
There is a need within an organisation to receive feedback on current performance so that appraisal can be done and good performance rewarded. This is essential for the motivation of employees. Check on the validity of strategic choice
Strategic evaluation helps to keep a check on the validity of a strategic choice. An ongoing process of evaluation would, infact, provide feedback on the continued relevance of the strategic choice made during the formulation phase. This is due to efficacy of strategic evaluation to determine the effectiveness of strategy. Congruence between decisions and intended strategy
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During the course of strategy implementation, managers are required to take scores of decision. Strategic evaluation can help to assess whether the is decisions due to match the the intended nature strategy of any requirements. This inherent
administrative system which leaves some amount of discretion in the hands of managers. In the absence of such evaluation managers discretion. Successful culmination of the strategic management would not explicitly know how to exercise such
process Strategic evaluation, through its process of control, feedback, rewards and review helps in successful culmination of the strategic management process. Creating inputs for New strategic planning
Lately the process of strategic evaluation provides a considerable amount of information and experience to strategists that can be useful for new strategic planning. In addition to the obvious reasons described above, there are certain other and not-so-obvious, reasons why mangers use strategic evaluation and control. These are: Using control systems to overcome resistance to change. Communicating new strategic agenda Ensuring continuing attention to new strategic initiatives. Formalising beliefs Setting boundaries on acceptable strategic behaviour. Motivating discussions Debates about strategic uncertainties
8.5 PARTICIPANTS IN STRATEGIC EVALUATION

It is important to know who are the participants and what role they play in strategic evaluation and control. This will answer the question: who evaluates the strategy and how they do it? Going beyond the role of evaluators, we are also interested in knowing who are the ones that are appraised and how they help in strategic evaluation. Theoretically, all internal and external stakeholders are participants in strategic evaluation and control but the major ones have a more
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direct interest and stake. We describe below the role of the major
participants in strategic evaluation and control. Every organisaton is ultimately responsible to its shareholders: ownes, lenders and public in the case of private companies and the government in the public sector companies. The role of stakeholders, in practice, however is limited. This is especially true of the general public where the individual holding is too small to be of any effective value in strategic evaluation. Lenders such as financial institutions and banks which have equity stake, are typically concerned about the security and returns on their shareholding rather than in a long-term assessment of strategic success. The government, through its different agencies, does play a significant role in strategic evaluation and control of public sector companies. The Bord of Directors enact a formal role of reviewing and screening executive decisions in the light of their environmental, business and organisational implications. In this way, the Board is required to perform the functions of strategic evaluation in more generalised terms. But there is a lot of variation among Indian companies in the way in which the board may perform its control functions. In some companies, the Board may have the real authority to oversee strategic evaluation while in others, its authority may be usurped by others like the chief executive or a higher de facto authority such as the family council in the case of family-owned companies, the headquarters in the case of MNC subsidiaries or the controlling ministry in the case of public sector companies chief Executives are ultimately responsible for all the administrative aspects of strategic evaluation and control. Ideally, a chief executive should not sit in judgement over the performance of the organisation under his or her control. Rather, the chief executive should be evaluated on the basis of organisaton's performance and the long-term value created. This leads to the question of who should evaluate the chief executive. Normally, the evaluation of a person should be done by an individual or a group to whom he reports. In most cases, the CEO would be evaluated by the board of directors as it is also responsible for the selection, compensation and termination of the CEO. This is the reason why it is so important to have an independent board. In cases where the chief executive is accountable to no one in particular, it is difficult to allocate the responsibility apart from relying on self evaluation. The SBU or profit centre heads may be involved in performance evaluation at their levels and may facilitate evaluation by corporate-level executives.
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Financial controllers, company secretaries and external and internal auditors from the group of persons who are primarily responsible for operational control based on financial analysis, budgeting and reporting. Audit and executive committee, set up by the Board or the chief executive, may be charged with the responsibility of continuous screening of performance. The corporate planning staff or department may also be involved in a supporting role for strategic evaluation. Middle-Level Managers may participate in strategic evaluation and control as providers of information and feedback, as well as recipients of directions from above to take corrective action. In the manner described above, there are several participants in the process of strategic evaluation and control and each of them plays a different role.
8.6 BARRIERS IN EVALUATION

Their are five major types of barriers in evaluation: The limits of control Difficulties in measurement Resistance to evaluation Tendency to rely on short-term assessment Relying of efficiency versus effectiveness
We describe the barriers and also suggest the means to deal with them. (1) Limits of Controls By its very nature, any control mechanism presents the dilemma of too much versus too less control. It is never an easy tasks for strategists to decide the limits of control. Too much control many impair the ability of managers, adversely affect initiative and creativity difficulties and in create unnecessary impediments to efficient use of performance. On the other hand, too less control may create coordination, encourage indiscriminate managerial discretion and make the strategic evaluation process inefficient and redundant. Experience is a great teacher which could help create a balance between too much and too less control. (2) Difficulties in Measurement
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The process of evaluation is fraught with dangers of difficulties in measurement. These mainly relate to the reliability and validity of measurement techniques used for evaluation, lack of quantifiable objectives or performance standards and the inability of the information system to provide timely and valid information. The solution lies in using reliable and validated measurement systems and standardised procedures for measurement, quantification of objectives as far as possible and enhancement of the quality of information system. (3) Resistance to Evaluation The evaluation process involves controlling the behaviour of individuals and, like any similar organisational mechanism, is likely to be resisted by managers. Such resistance can be reduced by open communication between the participants in the evaluation process. (4) Short - termism Managers often tends to rely on short-term implications of activates and try to measure the immediate results. Often, the long-term impact of performance on strategy and the extended effect of strategy on performance are ignored. This is so since immediate assessment seems to be the easy way out and taking into account the long-term implications may seen as too tedious. Obviously, a change of emphasis on achieving long-term results rather than short-term gains can help to correct this bias. (5) Relying on efficiency versus effectiveness It is instructive to remember that efficiency is 'doing the things right' while effectiveness is 'Doing the right things'. Measuring wrong parameters may lead to a situation where the right type of performance does not rewarded. In fact, sometimes performance that does not really contribute to the achievement of objectives may be rewarded is assessed on the basis of efficiency alone. The solution lies in creating a sharp focus on effectiveness as opposed to efficiency.
8.7 REQUIREMENT FOR EFFECTIVE EVALUATION

The basic issue in all evaluation needs to be that control should be dictated by strategy. There needs to be a vertical fit between the strategy requirements and the evaluation and control exercised over performance. The guidelines below are suggested in order to make control effective.
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Control should involve only the minimum amount of information as too much information tends to clutter up the control system and creates confusion. There should be balanced emphasis on the level of complexity of the process of strategic evaluation itself. Too complex a system of evaluation may make it difficult to implement while a simplistic system may be in adequate.
Control system monitor only managerial activities and results even if the evaluation is difficult to perform. Controls should be timely so that corrective action can be taken quickly. Long-term and short-term controls should be used so that a balanced approach to evaluation can be adopted. Controls should aim at pinpointing exceptions as nitpicking does not results in effective evaluation. The '80:20 principle' where 20 percent of the activities result in 80 percent of achievement, needs to be emphasised.
Reward
of
meeting
or
exceeding
standards
should
be
emphasised so that managers are motivated to perform. Excessive emphasis on penalties tends to pressurise the managers to accentuate efficiency rather than effectiveness.
8.8 CRITERIA FOR EVALUATION

It is not easy to choose the factors upon which to focus the evaluation. Evaluations can be based on objective and subjective factors. Different criteria may be appropriate depending on the purpose for the evaluation. Evaluation is typically assumed to be an after-the fact or real-time method of detecting whether the content of strategy is working or has worked. Quantitative measurement is quite appropriate here along with subjective judgments. But qualitative assessment can also be done to address the question will it work? A qualitative check of the strategic management process can be done before the fact of activating plans for change. Let's examine these two approaches separately.
8.8.1 Quantitative Criteria

In attempting to evaluate the effectiveness of corporate-strategy quantitatively, an organization can evaluate its performance on various quantitative factors such as net profit, stock price, divident rates, earning per share, return on capital, return on equity, market share, growth in sales, days lost per employee as a result of strikes,
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production costs and efficiency, distribution costs and efficiency,
employee turnover, absenteeism and satisfaction indices. The list is long and many other factors could be included. Which factors should be used? Establishing the standards and tolerance limits is not as easy as one might expect. We need to first define the critical success factors - the factors which are most important to the strategy and is being successful in the business. Then the factors and the developed plans need to be stated in terms of specific measures by which you can judge whether a success factor is being attained. There are no magic numbers to assign evaluation factors to. But outside assessments can help executives evaluate their performance and, thus, their strategic performance in an other than qualitative manner. Techniques such as sensitivity test, risk analysis, the use of outcome matrices, the use of models and simulations can help managers evaluate results and the strategies. Another approach is to ask "experts" which firms are the most successful. This is a subjective approach. Measurement comparisons become more difficult when more than one criteria are used to measure success. For example, efficiency and effectiveness can be measured on a number of dimensions. Efficiency isn't too hard to judge. However, a number of problems are involved in the measurement effectiveness: Suitability of criteria: A criterion emphasized at one point may not be valid later on. Time: Do we evaluate short run or long-run effectiveness? Precision and Variety of measurement: Not all measures are easy to compute and there are different ways of computing measures. It is a lot easier to measure success when a company shows consistent results on most of the measures in most years. In fact, research indicates that there is a high inter-correlation among organizational variables. If a firm is a "winner" on three measures, chances are it is a winner on all measures.
8.8.2 Qualitative Criteria

Subjective assessments of the environmental assumptions should be included with the quantitative measures of performance to be sure that the strategy is resting on safe ground. But the criteria here tend to be more appropriate for examining a plan in its entirety before the organization is asked to charge direction or put a strategy into effect. A series of qualitative questions can be
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developed for each of the three criteria. The basic questions are whether the integrated and comprehensive objectives, strategies and plans are consistent, appropriate and workable. (A) Consistency Is the comprehensive integrated plan consistent with the
objectives, environmental assumptions and internal conditions? 1. Objectives: Will the plan probably close the gaps of importance to us? Are the standards of performance linked to critical success factors? Are there mutually inconsistent objective where we have made trade-off decisions? Are the goal trade-offs consistent without real priorities? 2. Environmental Assumptions: Are we making an adaptive response to critical changes that we might anticipate? Will the plan full exploit domestic and also international opportunities? Does it mitigate threats? Are R & D and production consistent with technological or supplier development? Have staff policies taken into consideration governmental changes? 3. Internal Conditions: Are the policies, resource allocations, organizational structure and the administrative system co-ordinate with one with one another? Is there an integrated pattern of implementation which fits the strategy and develops needed competitive advantages? Does the strategy rely on weaknesses or do anything to reduce them? Are performance-evaluation criteria and rewards tied to the policies we want to reinforce? (B) Appropriateness Is the comprehensive integrated plan appropriate, given our resource capabilities, risk preference and time horizon? 4. Resource Capabilities: Are critical resources in place? If not, does the plan provide for obtaining them when needed? Are the total available resources appropriate for what we want to accomplish? 5. Risk Preference: Does the strategy entail unnecessary risk? Is the degree of risk acceptable to top management? Is it too high or too low? Are we "betting the entire company"? Is that necessary? Does the plan depend on internal resources whose continued existence is not assured? Does it depend on environmental assumptions about which we are very uncertain? 6. Time Horizon: Are the objectives stated in terms of an
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appropriate time for achievement? Is rapid expansion appropriate,
given our capabilities? Have we committed resources for a sufficient period so that the strategy will have a chance to work? Are we making changes at frequent intervals or taking drastic leaps or making steady sustained progress? (C) Workability Is the comprehensive integrated plan feasible and stimulating? 7. Feasibility: Does the plan overtax our resources and
management capabilities? Does it create unsolvable sub-problems? Is the strategy identifiable and clear? Is the strategy reasonable? Will there be unintended consequences that we can avoid? 8. Stimulation: Will managers be committed to making the strategy work? Is there a consensus among the executives that the plan will work? Are reward-systems designed to encourage effort in the desired directions? Are the personal aspirations of key strategists taken into consideration so that they may be involved in decisions about the strategy?
8.9 STRATEGIC CONTROL

The control of strategy can be characterized as a form of "steering control". As time elapses between the initial implementation of a strategy and achievement of its intended results, investments are made and numerous projects and actions are undertaken to implement the strategy. Also, during that time, changes are taking place in both the environmental situation and the firm's internal situation. Strategic controls are necessary to steer the firm through these events they must provide the basis for adapting the firm's strategic actions and directions in response to these developments and changes.
8.10 TYPES OF STRATEGIC CONTROL

The four basis types of strategic control are: (1) Premise control (2) Strategic surveillance (3) Special alert control (4) Implementation control
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S t r a t e g i c S u r v e ill a n c e
P re m is e C o n tro l
S p e c ia l A le r t C o n tr o l Im p le m e n ta tio n C o n tro l
S tra te g y F o rm u la tio n T im e 1 T im e 2
S tr a t e g y Im p le m e n ta tio n
Figure 8.2 Four Types of Strategic Control Table 8.1 : Characteristics of the Four types of Strategic Control Types of Strategic Control Basic Characteristics Objects of control Premise Control Implementatio n Control Strategic Surveillance Potential threats and opportunities related to the strategy Low Special Alert Control Occurrence of recognizable but unlikely events High
Planning Key strategic premises thrusts and and milestones projections High High
Degree of focusing Data acquisition: Formalization Centralization Use with: Environmental factors Industry factors Strategyspecific factors Companyspecific factors
Medium Low
High Medium
Low Low
High High
Yes Yes No No
Seldom Seldom Yes Yes
Yes Yes Seldom Seldom
Yes Yes Yes Seldom
8.10.1 Premise Control

Every strategy is based on certain planning premise-assumptions or
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predictions. Premise control is designed to check systematically and
continuously whether the premises on which the strategy is based are still valid. If a vital premise is no longer valid, the strategy may have to be changed. The sooner an invalid premise can be recognized and rejected, the better are the chances that an acceptable shift in the strategy can be devised.
8.10.2 Strategic Surveillance

By their nature, premise controls are focused controls; strategic surveillance, however, is unfocused. Strategic surveillance is designed to monitor a broad range of events inside and outside the firm that are likely to affect the course of its strategy. The basic idea behind strategic information surveillance may be is that important by a yet unanticipated uncovered general
monitoring of multiple information sources.
8.10.3 Special Alert Control

Another type of strategic control, really a subset of the other three, is special alert control. A special alert control is the thorough, and often rapid, reconsideration of the firm's strategy because of a sudden, unexpected event.
8.10.4 Implementation Control

Strategy implementation takes place as a series of steps, programs, investments, and moves that occur over an extended time. Special programs are undertaken. Functional areas initiate strategy related activities. Key people are added or reassigned. Resources are mobilized. In other words, managers implement strategy by converting broad plans into the concrete, incremental actions and results of specific units and individuals. Implementation control is the type of strategic control that must be exercised as those events unfold. Implementation control is designed to access whether the over-all strategy should be changed in light of the results associated with the incremental actions that implement the overall strategy.
8.11 THE REWARD SYSTEM

Organizations design and operate their reward systems on the basis of the appraisal of performance of individuals. The appraisal system performs the critical role of evaluating managerial performance in the light of organisational objectives. The appraisal system actually evaluates performance and so, is a part of the wider control system. Its significant role in evaluation, however, is to be acknowledged. When the performance of managers is appraised, it is their contribution to the organisational objectives that is sought
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to be measured. In practice, it is difficult to differentiate strictly between the performance of individuals and that of the organisational units they belong to. Thus the achievement of a department or a profit centre is the sum total, or even more, synergistically, of the individual performance of managers and employees in that department or profit centre. The evaluation the actual performance and provides the basis for the control system of work. The relevance of reward systems of strategy implementation can be seen from the fact they are to be linked to the control system at one end and to motivation at the others. The central role of the motivation system is to induce strategically desirable behaviour so that mangers are encouraged to work towards the achievement of organisational objectives. The motivation systems play a significant role in ensuring that deviations do not occur, or if they do, then they are corrected by the means of rewards and penalties.
8.12 SUMMARY
The nature of strategic evaluation is judgmental. Through evaluation, strategists can adjudge whether their strategy is in consonance with the environment and whether the performance to tasks would lead to the achievement of objectives. Strategic evaluation and control tests the effectiveness of the strategy. The importance of evaluation lies in its ability to control strategy implementation and performance. The reasons for its importance are several: need for feedback, appraisal and reward; check on the validity of strategic choice; congruence between decisions and intended planning. There are various participants in evaluation including the strategy; successful culmination of the strategic management process and creating inputs for new strategic
shareholders, board of directions, CEOs, SBU heads, financial controller and audit committees. The board of directions and the CEOs enact the central role while the other participants play a supportive role. Because evaluation involves an assessment of performance, certain barriers can be expected. Five major types of barriers in evaluation are: the limits of control, difficulties in measurement, resistance to evaluation, tendency to rely on short-term assessment and relying on efficiency instead of an effectiveness. Effective evaluation can take place through observing certain
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guidelines for control. Criteria for evaluation can be categorized on
two parts: qualitative criteria and quantitative criteria. Strategic controls are intended to steer the company towards its long-term strategic goals under uncertain, and often changing circumstances. Premise controls, strategic surveillance, special alert controls and implementing controls are types of strategic control. All four types are designed to meet top management's needs to track the strategy as it is being implemented, to detect underlying problems, and to make necessary adjustments. Reward systems helps develop and motivate personnel to receive rewards on the basis of performance appraisal.
8.13 KEYWORDS
(1) Feedback: The analysis of post-implementation results that can be used to enhance future decision making. (2) Strategic control: Tracking a strategy as it is being implemented, detecting problems or changes in its underlying premises, and making necessary adjustments. (3) Premise control: Management process of systematically and continuously checking to determine whether premises upon which the strategy is based are still valid. (4) Strategy surveillance: Management efforts to monitor a broad range of events inside and more often outside the firm that are likely to affect the course of its strategy over time. (5) Special alert control: Management actions undertaken to thoroughly, and often very rapidly, consider a firm's strategy because of a sudden unexpected event. (6) Implementation of results control: Management the efforts designed actions to assess whether the overall strategy should be changed in light associated with incremental that implement the overall strategy.
8.14 QUESTIONS
(1) "Sins of omission and commission are two reasons why organisations establish control and evaluation mechanisms as part of strategic management," Explain this statement. (2) Why is strategic evaluation important to organisations? (3) Highlight the role that the board of directions and the CEOs play in strategic evaluation. (4) What types of barriers are commonly faced during evaluation? How can these be avoided? (5) Diagrammatically explain the evaluation and control process.
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(6) Explain various types of strategic control. (7) Briefly review the role of reward system in strategic evaluation.
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Table of Contents
STRATEGIC MANAGEMENT
UNIT-1 CONCEPT OF STRATEGY UNIT-2 PROCESS OF STRATEGIC MANAGEMENT UNIT-3 ROLE OF STRATEGISTS-MISSION, PURPOSE, OBJECTIVE UNIT-4 ENVIRONMENT COMPONENTS - APPRAISING AND SCANNING CAPABILITY FACTORS UNIT-5 STRATEGIC ALTERNATIVE & CHOICE UNIT-6 GRAND STRATEGIC PLAN UNIT-7 STRATEGIC IMPLEMENTATION-STRUCTURAL AND FUNCTIONAL IMPLEMENTATION UNIT-8 STRATEGIC EVALUATION AND CONTROL 111-127 88-110 76-87 66-75 40-65 27-39 13-26 1-12
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Strategy

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Strategic Management

1.2 THE CONCEPT OF STRATEGY

put to severe test. It has emerged as a critical input to

1.3 LEVELS OF STRATEGY

Figure 1.1 Levels of Strategy

1.3.1 Corporate Strategy

1.3.2 Business Strategy

1.3.3 Functional Strategy

1.4 STRATEGY FORMULATION

1.5 STRATEGY IMPLEMENTATION

1.6 STRATEGIC DECISION-MAKING

1.6.1 What makes a Decision strategic

1.6.2 Issues in Strategic Decision-Making

1.6.3 Various Theories of Decision-Making

consequences of all the possible choices, puts these consequences

factor in decision-making and individual versus group decision-

Explain the concept of strategy.

2. Describe the different levels at which strategy operates. How is

PROCESS OF STRATEGIC MANAGEMENT

Strategic Management is a stream of decisions and actions which

Process of Strategy Management

2.2 HOW HAS STRATEGIC MANAGEMENT EVOLVED?

2.3 CONCEPT OF STRATEGIC MANAGEMENT

Process of Strategy Management

2.4 FORMALITY IN STRATEGIC MANAGEMENT

2.5 THE STRATEGY MAKERS

Process of Strategy Management

2.6 BENEFITS OF STRATEGIC MANAGEMENT

improves their understanding of the productivity rewards

2.7 RISKS OF STRATEGIC MANAGEMENT

2.8 STRATEGIC MANAGEMENT PROCESS

more detailed processess than less formal planners of similar size.

Process of Strategy Management

2.8.1 Phases in Strategic Management Process

2.8.2 Elements in Strategic Management Process

Process of Strategy Management

2.8.3 Model of Strategic Management Process

Strategic Intent Vision Mission Business definition Business model Objective

technologies. organization period. These

organization state what is to be achieved in a given time objectives yardsticks

implementing 6. The last

Process of Strategy Management

2.9 USERS OF STRATEGIC MANAGEMENT

2.9.1 Strategic Management of Hospitals

2.9.2 Strategic Management of Colleges and University

2.9.3 Strategic Management of Arts Organization

Strategy : Large-sale, future oriented plans for interacting with

Process of Strategy Management

UNIT-3 ROLE OF STRATEGISTSMISSION, PURPOSE, OBJECTIVE

Role of Strategists Mission, Purpose, Objective

3.2 STRATEGIC INTENT

3.3.1 The Nature of Vision

3.3.2 Defining Vision

3.3.3 The Benefits of having a vision

3.3.4 What a vision should and shouldn't be:

Role of Strategists Mission, Purpose, Objective

3.3.5 The process of Envisioning

Core values Core purpose

Figure 3.1 The process of envisioning

Long-term audacious goal Vivid description of achievement

3.4.1 Defining Mission

3.4.2 Characteristics of a Mission statement

Role of Strategists Mission, Purpose, Objective