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Introduction to Strategic Management

Chapter Overview:

1.1. Business Policy:

a) Business policy, as defined by Christensen and others, is “the study of the

functions and responsibilities of senior management, the crucial problems that
affect success in the total enterprise, and the decisions that determine the direction
of the organization and shape its future.
b) It presents a framework for understanding strategic decision making in an
organization. Such a framework enables a manager to prepare for handling
general management responsibilities effectively.
1.2. Management

a) An organization becomes a unified functioning system when management

systematically mobilises and utilises the diverse resources efficiently and effectively.
The survival and success of an organization depends to a large extent on the
competence and character of its management. Managementhas to also facilitate
organizational change and adaptation for effective interaction with the
environment.
b) It is used with reference to a key group in an organization in-charge of its affairs.
In relation to an organization, management is the chief organ entrusted with the
task of making it a purposeful and productive entity, by undertaking the task of
bringing together and integrating the disorganised resources of manpower, money,
materials, and technology into a functioning whole.

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Introduction to Strategic Management

c) The term ‘Management’ is also used with reference to a set of interrelated functions
and processes carried out by the management of an organization (the key group of
individuals mentioned in point (a) to attain its objectives. These functions
include Planning, Organising, Directing, Staffing and Control. The
d) Management is an influence process to make things happen, to gaincommand over
phenomena, to induce and direct events and people in a particular manner.
Influence is backed by power, competence, knowledgeand resources. Managers
formulate organizational goals, values and strategies, to cope with, to adapt and
to adjust themselves with the behaviour and changes in the environment.

1.3. Strategy:
a) A typical dictionary defines the word ‘strategy’ as something that has to do with
war and ways to win over enemy.
b) Where a policy is a thought process, it talks about what shouldbe done in a
particular situation, or what should be the reaction to a given circumstance, the
strategy part of it explains the real actions. Strategy talks abouthow the policy
would be followed. For example, the policy of an organization could be to not drop their
prices to fight competition. The strategy could be to give more quantity for the same price or
give some other product as a freebie to attract customers without dropping their price.
c) A long range blueprint of an organization’s desired image, direction and
destination, i.e., what it wants to be, what it wants todo and where it wants to go.

d) As per William F. Glueck: A unified, comprehensive and integrated plan designed

to assure that the basic objectives of the enterprise are achieved.
e) Strategy provides an integrated framework for the top management to search for,
evaluate and exploit beneficial opportunities, to perceive and meet potential
threats and crisis, to make full use of resources and strengths, and to offset
corporate weaknesses.
f) Strategies are formulated at Corporate , Divisional and Functional Levels.
g) Strategy is partly proactive and partly reactive: A company’s strategy is typically
a blend of:
- Proactive actions on the part of managers to improve the company’s market
position and financial performance.
- Reactions to unanticipated developments and fresh market conditions in the
dynamic business environment.

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Introduction to Strategic Management

1.4. Strategic Management:

a) In a hyper competitive marketplace, companies can operate successfully by

creating and delivering superior value to target customers and also learning how
to adapt to a continuously changing business environment. So, to meet changing
conditions in their industries, companies need to be farsighted and visionary, and
must develop long-term strategies. Strategic planning, an important component
of strategic management, involves developing a strategy to meet competition and
ensure long-term survival and growth of the company. The overall objectives of
strategic management are two fold:
- To create competitive advantage (something unique and valued by the customer), so
that the company can outperform the competitors in order to have dominance over
the market.
- To guide the company successfully through all changes in the environment. That is
to react in the right manner.
b) It refers to the managerial process of developing a strategic vision, setting
objectives, crafting a strategy, implementing and evaluating the strategy, and finally
initiating corrective adjustments were deemed appropriate. The process does not
end, it keeps going on in a cyclic manner.
c) It involves developing the company’s vision, environmental scanning (both external
and internal), strategy formulation, strategyimplementation and evaluation and
control.
d) It emphasizes themonitoring and evaluation of external opportunities and threats
in the light of a company’s strengths and weaknesses and designing strategies for
the survival and growth of the company.
Importance of Strategic Management :

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 Gives a direction to the company to move ahead.It helps define the goals and
mission. It helps management to define realistic objectives and goals which are in
line with the vision of the company.
 Helps organizations to be proactive instead ofreactive in shaping its future.
Organizations are able to analyse and take actions instead of being mere
spectators. Thereby they are able to control their own destiny in a better manner.
It helps them in working within vagaries of environment and shaping it, instead
of getting carried away by its turbulence or uncertainties.

 Provides frameworks for all major decisions of an enterprise such as decisions on

businesses, products, markets, manufacturing facilities, investments and
organizational structure. It provides better guidance to entire organization on
the crucial point - what it is trying to achieve.
 Seeks to prepare the organization to face the futureand act as pathfinder to
various business opportunities. Organizations areable to identify the available
opportunities and identify ways and means to reach them.
 Serves as a corporate defence mechanism against mistakes and pitfalls. It helps
organizations to avoid costly mistakes in product market choices or investments.
 Enhance the longevity of the business. With the state of competition and dynamic
environment it may be challenging for organizations to survive in the long run. It
helps the organization to take a clear stand in the related industry and makes
sure that it is not just surviving on luck. Actions over expectations is what
strategic management ensures.
 Helps the organization to develop certain corecompetencies and competitive
advantages that would facilitate assist in its fight for survival and growth.

Limitations of Strategic Management:

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 Environment is highly complex and turbulent. It is difficult to understand the

complex environment and exactly pinpoint how it will shape-up in future.The
organizational estimate about its future shape may awfully go wrong and
jeopardise all strategic plans. The environment affects as the organization has to
deal with suppliers, customers, governments and other external factors. Thus,
relying on a business strategy blindly could go absolutely wrong if the
environment is turbulent. For example, German Motor company bought a huge
international car brand in recently to growstrategically and were quite confident of the
synergy benefit they would getfrom the deal. However, the pandemic shut down
almost all automotive businesses around the world. So, strategy cannot overcome
a turbulent environment.
 It is a time-consuming process. Organizations spend alot of time in preparing,
communicating the strategies that may impede daily operations and negatively
impact the routine business. Planning and strategizing are important but putting
them in action is where the actual success lies. For students, planning and
strategizing what to study, from where and at what time of the day to study,
consumes so much of our actual study time that by the time we have to study, we
are almost exhausted. Similarly in business if way too much time is spent on
planningand formulating, then it might not be as fruitful.
 It is a costly process. It adds a lotof expenses to an organization. Expert strategic
planners need to be engaged, efforts are made for analysis of external and internal
environments devise strategies and properly implement. These can be really costly
for organizations with limited resources particularly when small and medium
organization create strategies to compete. It requires experts and these experts are
costly resources. Thus, the process requires good amount of funds to be spent.
 In a competitive scenario, where all organizations are trying to move strategically,
it is difficult to clearly estimate the competitive responses to a firm’s strategies. For
example, it is quite difficult to gauge the strategic planning of competitors because most
of these decisions are taken withinclosed doors by the top management.

1.5. Strategic Levels in Organization:

A typical large organization is a multi-divisional organization that competes in several

different businesses. It has separate self-contained divisions to manage each of these
businesses. For example, Patanjali has healthcare, FMCG, Organic Foods, Medicinal Oils and

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Herbs, and various businesses. It has separate divisions which work within themselves to
sustain each of these businesses.

Generally, there are three main levels of management:

 Corporate level
 Business level
 Functional level
General managers are found at the first two of these levels, but their strategic rolesdiffer
depending on their sphere of responsibility.

Corporate Level: The corporate level of management consists of the Chief Executive
Officer (CEO), other senior executives, the board of directors, and corporate staff. These
individuals participate in strategic decision making within the organization. The role
of corporate-level managers is to oversee the development of strategies for the whole

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organization. This role includes defining the mission and goals of the organization,
determining what businesses it should be in, allocating resources among the different
businesses, formulating and implementing strategies that span individual businesses,
and providing leadership for the organization as a whole.
For example, Godrej is active in a wide range of businesses, including soaps, insecticides, edible
oil, furniture, Information Technology, and real estate. The main strategic responsibilities of
its Group Chairman, Adi Godrej, are setting overall strategic objectives, allocating
resources among the different business areas, deciding whether the firm should divest
itself of any of its businesses, and determining whether it should acquire any new
ones. In other words, it is up toAdi Godrej and other senior executives to develop
strategies that span individual businesses and building and managing the corporate
portfolio of businesses to maximize corporate profitability. However, it is not their
specific responsibility to develop strategies for competing in the individual business
areas, such as financial services. The development of such strategies is the
responsibility of those in charge of different businesses called business level managers.
In simple words, corporate level managers provide an organization level view of strategy
and what they want to achieve, but it is on the business level managersto ensure
that or their particular business, the one they are responsible for.
Besides overseeing resource allocation and managing the divestment and acquisition
processes, corporate-level managers provide a link between thepeople who oversee
the strategic development of a firm and those who own it (the shareholders).
Corporate-level managers, and particularly the CEO, can be viewed as the guardians of
shareholders’ welfare. It is their responsibility to ensure that the corporate and
business strategies of the company are consistent with maximizing shareholders’
wealth. If they are not, then ultimately the CEO is likely to be held accountable by the
shareholders.
As we now know, a strategic business unit is a self-contained division (with its own
functions - For example, finance, purchasing, production, and marketing departments) that
provides a product or service for a particular market. The principal general manager at
the business level, or the business-level manager, isthe head of the division. The
strategic role of these managers is to translate the general statements of direction and
intent that come from the corporate level into concrete strategies for individual
businesses. Thus, whereas corporate-level managers are concerned with strategies that
span individual businesses, business- level managers are concerned with strategies that
are specific to a particular business.

Functional-level managers are responsible for the specific business functions or

operations (human resources, purchasing, product development, customer service, and
so on) that constitute a company or one of its divisions. Thus, a functional manager’s
sphere of responsibility is generally confined to one organizational activity, whereas
general managers oversee the operation of a whole company or division. Although
they are not responsible for the overall performance of the organization, functional
managers nevertheless have a major strategic role: to develop functional strategies in
their area that help fulfill the strategic objectives set by business- and corporate-level
general managers.
Functional managers provide most of the information that makes it possible for business-
and corporate-level general managers to formulate realistic and attainable strategies.
Indeed, because they are closer to the customer than thetypical general manager is,
functional managers themselves may generate important ideas that subsequently may
become major strategies for the company. Thus, it is important for general managers to

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listen closely to the ideas of their functional managers. An equally great responsibility
for managers at the operational level is strategy implementation: the execution of
corporate and business-level plans.
Strategic Business Units: An organization is divided into a number of segments that
work together to bringa particular product or service to the market. If a company
provides several and/or different kinds of products or services, it often duplicates
these functions and creates a series of self-contained divisions (each of which contain
its own setof functions) to manage each different product or service. The general
managers of these divisions then become responsible for their particular product line.
The overriding concern of the divisional managers is healthy growth of their divisions.
They are responsible for deciding how to create a competitive advantage and achieve
higher profitability with the resources and capital they have at their disposal. Such
divisions are called Strategic Business Units (SBUs).

1.6. Strategic Management in Different Organizations:

a) The strategic management process is being used effectively by countless non-

profit governmental organizations. Many non-profit and governmental
organizations outperform private firms and corporations on innovation,
motivation, productivity, and human relations.
b) Compared to for-profit firms, non-profit and governmental organizations often
function as a monopoly, produce a product or service that offers little or no
measurability of performance, and are totally dependent on outside financing.
They thus face a challenge in getting the right amount of funds to keep
functioning because the profits are not the motive. Especially for these
organizations, strategic management provides an excellent vehicle for developing
and justifying requests for financial support. Example – Medical organizations,
Educational Institutions, Government Agencies and departments etc.

Test Your knowledge:

Q1. Health Well-now is a Delhi based charitable organization promoting healthy

lifestyle amongst the office-goers. It organizes free of cost programmes to encourage
and guide office-goers on matters related to stress relief, yoga, exercises, healthy diet,
weight management, work-life balance and so on. Many business organizations and
resident welfare associations are taking services of Health Wellnow in Delhi and
adjoining areas and make financial contributions toits cause. The Health Wellnow is
able to generate sufficient funds to meet its routine expenses.
How far strategic management is relevant for Health Wellnow? Discuss.

Q2. Do Good Group’ is a not-for-profit organization based in northern India working

towards childcare. The group educates people towards immunization, sanitationand
works in coordination with local hospitals or medical centers. Recently, a new
team has taken over the management of its activities. Explain whether tools ofstrategic
Management are relevant for the group.
Q3. Yummy Foods and Tasty Foods are successfully competing in the business of
ready to eat snacks in Patna. Yummy has been pioneer in introducing innovative
products. These products will give them good sale. However, Tasty Foods will introduce
similar products in reaction to the products introduced by the Yummy Foods taking
away the advantage gained by the former.
Discuss the strategic approach of the two companies. Which is superior?

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Q4. Helpbuddy is a not-for-profit organization providing medical facilities to poor and

needy at highly affordable costs. The organization is dependent on Government grants
and donations to manage its affairs. Mayank who is running the organization, believes
in taking things as they come and will change the level of activities based on the funds
available.
Do you think Mayank is right in taking things as they come? What will you advise him?
Q5. Ramesh Sharma has fifteen stores selling consumer durables in Delhi Region. Four
of these stores were opened in last three years. He believes in managing strategically
and enjoyed significant sales of refrigerator, televisions, washing machines, air
conditioners and like till four years back. With shift to the purchasesto online stores,
the sales of his stores came down to about seventy per cent inlast four years.
Analyse the position of Ramesh Sharma in light of limitations of strategic management.
Q6. Kamal Sweets Corner, a very popular sweets shop in Ranchi, was facing tough
competition from branded stores of packaged sweets and imported goods. The owners
realised that their business reduced by 50% in the last six months, and this created a
stressful business environment for them. To find a solution, theyconsulted a business
consultant in practice to help them develop a strategy tofight competition and
sustain their century old family business. The business consultant advised them to
innovate a new snack for the public and market it as a traditional snack of the region.
The owners liked the idea and developed a newsnack called Dahi Samosa, which
very quickly became popular amongst the public and it helped regain the lost business
of Kamal Sweets Corner.
One of the very crucial importance of strategic management was used by the business
consultant to help the owners of Kamal Sweets Corner. Which one couldit be? Also,
was this strategy Reactive or Proactive? According to you which ismore beneficial in
general parlance?
Q7. Dharam Singh, the procurement department head of Cyclix, a mountain biking
equipment company, was recently promoted to look after sales department along with
procurement department. His seniors at the corporate level have always liked his way
of leadership and are assures that he would ensure the implementation of policies and
strategies to the best of his capacity but have never involved him in decision making for
the company.
Do you think this is the right approach? Validate your answer with logical
reasoning around management levels and decision making.
Q8. ABC Limited is in a wide range of businesses which include apparels, lifestyle
products, furniture, real estate and electrical products. The company is looking to hire
a suitable Chief Executive Officer. Consider yourself as the HR consultant forABC
limited. You have been assigned the task to enlist the activities involved withthe
role of the Chief Executive Officer. Name the strategic level that this role belongs to
and enlist the activities associated with it

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