UNIT I STRATEGY AND PROCESS

Conceptual framework for strategic management,

the Concept of Strategy
Strategy Formation Process
– Stakeholders in business
– Vision, Mission and Purpose
– Business definition,
-Objectives and Goals
- Corporate Governance and Social responsibility
- -case study
 BOOKS FOLLOWED
• 1. Hill. Strategic Management : An Integrated
approach, 2009 Edition Wiley (2012).
• 2. John A.Parnell. Strategic Management,
Theory and practice Biztantra (2012).
• 3. Azhar Kazmi, Strategic Management and
Business Policy, 3rd Edition, Tata McGraw
Hill, 2008.
 Strategic Management – Definition

Art & science of formulating, implementing,

and evaluating, cross-functional decisions that
enable an organization to achieve its objectives
CONCEPTUAL STRATEGIC MANAGEMENT FRAMEWORK
CONCEPTUAL STRATEGIC MANAGEMENT FRAMEWORK

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CONCEPTUAL STRATEGIC MANAGEMENT FRAMEWORK

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 Basic Concepts of Strategic Management

Basic Elements of the Strategic Management Process

 ENVIRONMENTAL SCANNING
• Environmental scanning is the process of
monitoring, evaluation, and disseminating
information from external and internal
environments –to key people in the firm.
EXTERNAL:
Opportunities and threats
• Societal – general environment –
• Industry analysis- task environment
 INTERNAL
• Strengths and weaknesses:
• Culture: Values, beliefs and expectations
• Structure: Chain of command
• Resources: Assets, skills
• Knowledge and competencies.
 STRATEGY FORMULATION
Developing long range plan:
• Vision: It is what the organisation wants to become
in future.
• Mission: It is the purpose or reason for the
organisation’s existence.
• Objectives: These are decision rules which enable
management to guide and measure the firm’s
performance
• Strategies: Means by which long-term objectives
are achieved
• Policies: Broad guidelines for better decision
making.
Strategy Implementation

Programs
Budgets
Procedures
 Policies
• Means by which annual objectives will be
achieved
Eg:
3M: Researchers should spend 15% of their time
working on something other than their primary
project.
GE: Must be no1 or no.2 wherever it competes.
Programs:
• Activities needed to accomplish a plan
• BMW: increase production efficiency by 5%
• Shorten new model development time[60 to 30 mts]
—reduce production time from 1 year to 6 months–
build atleast two vehicles in each plant.
Budgets: Cost of the programs
• GE: $8 billion to invest in new jet engine
technology-regional jet planes
• Got 3$ billion contract from China-new fleet of 500
regional jets for Beiging Olympics
Procedures: Sequence of steps needed to do the job.
Strategy Evaluation
And Control

Internal Review
External Review
Performance Metrics
Corrective Actions
 Concept of Strategy
• A course of action aimed at ensuring that the
firm will achieve its objectives by matching its
internal resources and skills with the
environmental opportunities and risks it faces
• In essence, the strategic plan is a company’s
game plan.
• Means by which long-term objectives are
achieved
 Levels of Strategy

Corporate
Head Office
Corporate
Strategy

Business
Division A Division B
Strategy

R&D R&D
Functional
Strategies HR HR

Finance Finance

Production Production
Marketing/Sales Marketin
Ch 1 -16
g/Sales
CHARACTERISTI CORPORATE BUSINESS FUNCTIONAL
CS STRATEGY STRATEGY STRATEGY
SCOPE Entire SBU or single Functional area
organization business
company
SOURCE AND Board of Corporate SBU or single
MOTIVATION/ directors/CEO strategy business
DIRECTION company
strategy

Responsibility Top level Top level SBU Functional level

corporate managers/Singl managers
managers e business
managers
Time Horizon Long-term Medium to long Short to long
term term
Specificity General Concrete and Action and
STRATEGY FORMATION PROCESS

• Strategy formation is the development of long

range plans of a company in order to gain
effective and efficient business procedure.
 STRATEGY FORMATION PROCESS
1. Setting organisation’s objectives:
• Set long term objectives
2. Evaluating the organisational environment:
• Evaluate the general economic and industrial environment
in which the organisation operates
3. Setting quantitative targets:
• Fix the quantitative target values for achieving
organisational objectives
4. Aiming in context with the divisional plans:
• Contributions made by each department or division or
product category is identified –strategic planning
5. Performance analysis:
• Discovering and analsying the gap between the planned or
desired performance
6. Choice of strategy:
• The best course of action is chosen after swot.
 Stakeholders
 Stakeholders are groups of people who have
an interest in a business organisation
Types of Stakeholder
 Owners (Internal)

 Shareholders (Internal)

 Managers (Internal)

 Staff or employees (Internal)

 Customers (External)

 Suppliers (External)

 Community (External)

 Government (External)
 CLASSIFICATION OF STAKEHOLDERS
1. Capital-market stakeholders:
Stockholders/shareholders and lenders both
expect a firm to preserve and enhance the
wealth they have entrusted to it.
1. Product market stakeholders: Product
market stakeholders [customers, suppliers,
host communities and unions] share few
common interests. However, all four group
benefit as firms engage in competitive
battles.
3. Organisational stakeholders:
• Employees – the firm’s organisational
stakeholders – expect the firm to provide a
dynamic, stimulating and rewarding work
environment.
ROLE OF STAKEHOLDERS IN STRATEGIC BUSINESS
1. Voting and decision making:
• Stakeholders like board of directors may vote to
elect management on the corporate structure
of the business.
2. Managing positions:
• Stakeholders can hold significant management
positions where they may report directly to the
president, CEO or chief financial officer.
3. Social and environmental responsibilities:
• managing strategy are doing little to harm
society and the environment.
4. Corporate conscience:
• Large stakeholders are generally high profile
investors.
• They monitor the company’s outsourcing
activities and globalisation initiatives,
5. Project planning:
• Identification of the project’s objective
• Specification of required project resources
and their allocation.
Vision
Vision statement answers the question:
“What do we want to become?”

Mission:
Mission statement answers the question:
“What is our business?”
 Missions vs. Strategic Visions

• A mission statement • A strategic vision

focuses on current concerns a firm’s future
business activities business path
– Businesses) – The kind of company
company is in now it is trying to become
– Customer needs – Customer needs to be
currently being satisfied in the
served future
 Products
Customers Services Markets

Technology
Mission
Employees
Elements
Survival
Growth
Public Profit
Image Philosophy
Self-Concept
 Components of Mission
• Components of mission and corresponding questions
to be answered:

• Customers:
– “Who are the firm’s customers?”

• Products or services:
– “What are the firm's major products or services?”
 Components of Mission
• Markets:
– “Geographically, where does the firm compete?”
• Technology:
– “Is the firm technologically current?”
• Concern for survival, growth, and profitability:
– “Is the firm committed to growth and financial
soundness?”
• Philosophy:
– “What are the basic beliefs, values, aspirations,
and ethical priorities of the firm?”
 Components of Mission
• Self-concept:
– “What is the firm’s distinctive competence or
major competitive advantage?”
• Concern for public image:
– “Is the firm responsive to social, community,
and environmental concerns?”
• Concern for employees:
– “Are employees a valuable asset of the firm?”
 PepsiCo Mission Statement
PepsiCo’s mission is to increase the value of our
shareholders’ investment. We do this through
sales growth, cost controls, and wise investment
resources. We believe our commercial success
depends upon offering quality and value to our
consumers and customers; providing products
that are safe, wholesome, economically efficient
and environmentally sound; and providing a fair
return to our investors while adhering to the
highest standards of integrity.
 Ben & Jerry’s Mission Statement
Ben & Jerry’s mission is to make, distribute and sell
the finest quality all-natural ice cream and related
products in a wide variety of innovative flavors
made from Vermont dairy products. To operate
the Company on a sound financial basis of
profitable growth, increasing value for our
shareholders, and creating career opportunities
and financial rewards for our employees. To
operate the Company in a way that actively
recognizes the central role that business plays in
the structure of society by initiating innovative
ways to improve the quality of life of a broad
community—local, national and international.
 Mission Statement Evaluation Matrix

Concern for
Survival, Concern for Concern for
Custo Products Growth, Public Image Employees
TEAM mers Services Markets Profitability Technology Philosophy Self-Concept
 PURPOSE
• An organisation’s purpose is the primary and
basic reason for its existence.
• Purpose is internal reasoning and relates to
internal environment
• It describes what an organisation is and why it
exists.
• Purpose is mainly for its own employees.
Customer Orientation and Business Definition

•Framework
for Defining the
Business
– Consumer-oriented
versus
Product-oriented
business definition
 Definition of Business

Business is an organization engaged in

producing goods and services to make a profit.
BEXIMCO Pharma, Unilever are goods
producing firms.
Hotels, banks, universities are service producing
firms.
Benefits of Strategic Management

1. Identification of opportunities
2. Objective view of management problems
3. Improved coordination & control
4. Minimizes adverse conditions & changes
5. Decisions that better support objectives
 Benefits of Strategic Management

6. Effective allocation of time & resources

7. Internal communication among personnel
8. Integration of individual behaviors
9. Clarify individual responsibilities
10. Encourage forward thinking
 Objectives
Objectives are decision rules which enable
management to guide and measure the firm’s
performance towards its purpose.
 Types of Objectives
Financial Objectives Strategic Objectives
Outcomes focused on
Outcomes focused on improving long-term,
improving financial competitive business
performance position
 PROCESS OF SETTING OBJECTIVES
1. Classifying objectives:
• Major and derivative goals
• Long range
• Short range
2. Reasonableness and consistency:
• Selected objectives must represent hopes or wishes
but must be reasonable and attainable.
3. Areas of objectives:
• 8 areas in which objectives of performance and
results have to be set:
• Market standing, innovation, productivity, physical
and financial resources, profitability, manager
performance and development, workers’
performance and attitudes, public responsibility.
4. Realistic and practical:
• Realistic objectives based on measured
expectations must be set
5. Balancing of short-range and long-range
objectives:
• Short range objectives must be identified for
realisation of long range objectives.
6. Change of adjustments:
• Dynamic business environment makes the
company objectives dynamic in nature.
 Examples:
Financial Objectives-Strategic Objectives

• Increase earnings by 15% annually • A bigger market share

• Increase dividends per share by 5% • Higher product quality than rivals
per year • Lower costs relative to key
competitors
• Increase net profit margins from 2% • Broader product line than rivals
to 4% • A stronger reputation with customers
• A rising stock price (outperform the than rivals
earlier one) • Better customer service than rivals
• A more diversified revenue base • Recognition as a leader in technology
• Wider geographic coverage than rivals
 GOALS
Goals provide the fundamental standard for
measuring performance to attain the end
objective
They represent a future state or an outcome of
the effort put in now.
Features
“SMART”
• Specific (clear)
• Measurable (Quantifiable)
• Achievable (within capabilities)
• Realistic (fits company’s mission and vision)
• Time bound (know when it’s done)
 Types Of Goals
• Official goals – described in the annual report,
they serve the purpose of the public relations
value.
• Operative goals – what the company is
attempting to do - focus attention, reduce
uncertainity, provide choices.
• Operational goals – to supervise the performance
of the company.
 Corporate Governance`

Corporate Governance
It is defined as the system by which
companies are directed and controlled.
 PRINCIPLES OF CORPORATE GOVERNANCE
1. Transparency and disclosure:
• Disclosure about company’s policies, decisions, and
actions.
2. Fairness:
• Respect the rights of shareholders and enable
shareholders to exercise their rights.
3. Responsibility and accountability:
• True accountability towards stakeholders leads to
wealth maximisation, investor’s confidence, corporate
image building and market capitalisation.
4. Trusteeship:
• It is the responsibility to ensure equity, namely, the
rights of all shareholders, large or small is protected.
5. Empowerment:
• It refers to increasing the spiritual, political,
social, educational, gender or economic
strength of individuals and communities.
6. Controls:
• Appropriate checks and balances
7. Ethical Corporate citizenship:
• Responsibility to set exemplary standards of
ethical behaviour.
 THEORIES IN CORPORATE
GOVERNANCE
AGENCY THEORY: Analyzing and resolving
two problems that occur in relationships
between principals [owners/shareholders and
their agents [top mgt]
Agency Problem –
–Objectives of owners & agents in conflict
–Difficult for owners to verify agent
performance
Risk Sharing Problem –
–Owners & agents risk assessment in conflict
 Stewardship Theory

Executives more motivated to act in best

interest of the corporation than their own
self-interests.
Theory that over time, senior executives
tend to view corporation as extension of
selves.
 Agency Theory versus Stewardship Theory

Stewardship
Agency Theory
 SOCIAL RESPONSIBILITY
• Corporate social responsibility is a form of
corporate self-regulation integrated into a
business model.
• Social responsibility is the personal obligation of
every one as he acts for his own interests to
assure that the rights and legitimate interests of
all others are not affected.
 Four Perspectives of Social Responsibility
Type of Societal
Responsibility Expectation Explanations

Economic Required by society Be profitable. Make sound strategic

decisions. Provide adequate and
attractive returns on investment.

Legal Required by society Obey all laws and regulations.

Fulfill all contractual obligations.
Honor warranties and guarantees.

Ethical Expected by society Avoid questionable practices

Respond to spirit as well as letter of law.
Assume law is floor of behavior and
operate above minimum required.
Do what is right, fair, and just.

Philanthropic Desired/expected Be a good corporate citizen.

by society Give back. Improve quality of life overall.
 Social Responsibility Strategies

• A continuum of possible strategies based on the organization’s

tendency to be socially responsible or responsive.

Reaction Defense Accommodation Proaction

Do Nothing Do Much
Social Responsibility Strategies (cont’d)
• Reaction
– An approach to corporate social responsibility that
includes an organization denying responsibility for
its actions.
• Defense
– Organizations that pursue a defense strategy
respond to social challenges only when it is
necessary to defend their current position.
• Accommodation
– An approach to corporate social responsibility that
adapts to public policy in doing more than the
minimum required.
• Proaction
– An approach to corporate social responsibility that
includes behaviors that improve society.
– Organizations that assume a proaction strategy
subscribe to the notion of social responsiveness.
 EXAMPLES FOR SOCIAL
RESPONSIBILITY
Areas of social responsibility:
• Pollution control
• Health and hygiene
• Training and self-help
• Philanthropic activities
• Tata Group
Tata Group in India has a range of CSR projects,
most of which are community improvement
programs. For example, it is a leading provider of
maternal and child health services, family
planning, and has provided 98 percent
immunization in Jamshedpur.
• Tata Group also has an organized relief program in
case of natural disasters, including long-term
treatment and rebuilding efforts.
• Infosys

In 1996, the company created the Infosys

Foundation as a not-for-profit trust to which it
contributes up to 1 percent of profits after tax
every year.

Moreover, the Education and Research

Department at Infosys also works with employee
volunteers on community development projects.
• Mahindra & Mahindra

The K. C. Mahindra Education Trust undertakes a

number of education plans, which make a
difference to the lives of worthy students. The
Trust has provided more than Rs. 7.5 crore in the
form of grants, scholarships and loans. It
promotes education mostly by the way of
scholarships.