Strategic Management

Before learning SM one should know what exactly is business? Various laureates have defined business in
different contexts. The term business as defined in income-tax act may not be the same as defined by
economist. So there are various ways in which one can define the term business. Some may say it involves
activity of trading, it can be said that business is someone’s profession; some refer business as particular
entity. Two conclusions drawn by Peter Drucker are:-
1. Business is created and managed by people.
2. Business cannot be explained in terms of profits alone. Profit maximization is qualified with long-
term objectives like wealth maximization, goodwill, etc

Business Objectives –
What is an Objective?
Objective is something which you want to achieve. So business objective is a position which business wants
to achieve.

1 Survival

4 Efficiency

Business Objectives 2 Stability

5 Profitability

3 Growth
Elements of Environment

Economy

Supplier Political

Competitor Technology

Customer Demographic
Micro Macro
Environment Environment
Market Government

Organization Legal

Intermediaries Global

Legal

Analysis of Environment:-

Porter’s Five Forces Model

New
Entrants

Rivals

DOCOMO N Idea

Supplier FIRM Customer

Substitutes
 Business Policy and Strategic Management

Business Policy – It is a study of functions and responsibilities of senior management, crucial problems that
affect success in total enterprise, and the decisions that determine direction of organization and shape its
future.

Management – This term can be used in two contexts:-

1. In relation to an organization, management is the chief organ entrusted with task of making it a
purposeful and productive entity
2. It also refers to set of interrelated functions and processes.

Management refers to an integrated set of functions and process designed to initiate and unify group
effort in a meaningful manner directed towards pursuing certain goals. It is in this context we will study
Strategic Management later.

Management is an influence process to make things happen, to gain command over phenomenon, to
induce and direct events and people in particular manner.

Strategy
Strategy seeks to relate the goals of the organization to the means of achieving the. A company’s
strategy is the game plan management is using to stake out market position, conduct its operations, attract
its customers, and compete successfully.

William F. Glueck defined strategy as “A unified, comprehensive and integrated plan designed to
assure that basic objectives of enterprise are achieved”.

Characters of corporate strategy:-

1. Long – term in nature, though is valid for short term and has short term implications too.
2. Strategy is action oriented and more specific than objectives
3. Multipronged and integrated
4. Flexible and dynamic
5. Formulated at top management level, sub strategies formulated by middle and lower level
managers
6. Meant to cope up with competitive and complex setting
7. Flows out goals and objectives of enterprise
8. Provides unified criterion for managers in function of decision making.
 Strategies provide an integral framework for management to negotiate its way through a complex and
turbulent external environment. Strategy can never be perfect, flawless and optimal. It is in the very nature
of strategy that it is flexible and pragmatic. However in sound strategy allowances for possible
miscalculations and unanticipated events are made.

Following are GSA (Gen Strategic Alter):

Stability

Expansion

General Strategic
Alternatives
Retrenchment

Combination

Stability Strategies – It is not a ‘do nothing’ strategy. It involves keeping track of new developments to
ensure that the strategy continues to make sense. This strategy is typical for mature business
organizations.

Expansion Strategies – Expansion strategy is implemented by redefining the business by adding the scope
of business, substantially increase in efforts of the current business. Expansion includes diversifying,
acquiring and merging businesses.

Diversification is defined as entry into new products or product lines, new services or new markets
involving substantially different skills, technology and knowledge. The reason for diversification lies in its
synergistic advantage. It may be possible to improve sale and profit of existing products by adding suitably
related or new products, because of linkages in technology and / or in markets
Acquisition and merger with an existing concern is an attractive and tempting proposition in the sense that
it circumvents the time, risk and skills involved in screening internal growth opportunities, seizing them and
building up necessary resource base required to materialize growth.

Retrenchment Strategy – Retrenchment becomes necessary for coping especially with hostile and adverse
situations in the environment and when any other strategy is likely to be suicidal. Retreat is not always a
bad proposition to save the enterprise’s vital interests, to minimize the adverse effect of advancing forces.

Step Chart

Stage 1 Stage 2 Stage 3 Stage 4

reduce - More severe : 1. sale of some

1. Cap n rev Slash- 1. Withdrawing manufacturing
1. Stock Level from some facilities
Expenditure
2. manufacturing marginal markets 2. sale of individual
2. Advt products
3. R&D level 2. Withdrawal of
3. retirement from
4. ee welfare 3. plant maintain some brands
production or
4. div to 3. Winding some
5. execu perk mkting
shs-holders branch offices 4. offering itself for
6. new admin
5. int on deposits 4. abolishing some sale
block
executive posts.

Combination Strategies – Firm may adopt combination of any of the above to suit particular situation. E.g.
For some organizations, strategy by diversification may call for retrenchment for some obsolete product
lines etc.