33 Strategic Management

R. Swaranalatha

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Introduction

 

There were two CEO’s of the textile industry, travelling together to a resort at Masinagudi for attending the business conference. They enjoyed the lustrous greenery and bountiful nature on their way. As they trekked towards deep into the woods, they encountered a bison, which started to chase them violently. Immediately, the first company CEO took off his bag and was preparing to run swiftly. The second CEO commented, ‘Sir, you can’t out beat the bison and run’. The first CEO responded, ‘Yes, I can’t outrun the bison, but I can surely outrun you’. This story symbolises the significance of strategic management, which is to beat competition and achieve competitive advantage.

 

Strategic Management assumes significant importance for competitive business enterprises today. Last two decades has witnessed plethora of changes in the world of business.The business world today is quite different and distinct from the business world yesterday. Tremendous changes have taken place in the last three decades, which has made the business environment much more volatile, complex, challenging and difficult to deal with.

 

Reasons for Strategic Management

With dynamic business environment, the strategic management has occupied a pivotal position towards the success of business performance. The reasons for phenomenal growth and importance of strategic management is due to the following factors like

  • changing business policy,
  • Government regulations, *shift in demographic patterns, *technological advancements,
  • Customer empowerment, *diversifying markets, *e-business revolution,
  • global business outlook,
  • need for innovative products and services
  • recession in economy,
  • Cost escalation
  • and scarce resources etc.

The business enterprises are fine-tuned to gear up and be receptive to these changes in the business scenario and manage them business successfully.

 

Strategic management is concerned with planning, decision making and implementing actions, which determines an individual firm to excel, survive or exit the business, , by making the best use of a firms’ resources in the dynamic environment.

 

For Example

  • LENOVO, the Chinese computer giant, acquired IBM in China.
  • Tata Nano newly launched the new version of NANO, which is quite efficient and Comfortable.
  • LG Electronics India Ltd. (LGIL) signed a MOU with Maharashtra government to expand manufacturing facility at Pune for rs.900 Crores.
  • Bharat Heavy Electricals Limited (BHEL) is now planning to expand its range to 800 MW super critical power projects.
  • The oil based corporate, Essar Group sold its holding and exited Vodafone.
  • Tata steel entered a joint venture agreement with Iranian mines and minerals industries development and Renovation organisation
  • In May 2011, IT firm iGATE completed its acquisition of its midsized rival, Patni Computers for an estimated 1.2 billion dollars.
  • Hyderabad-based GVK Power in September 2011, bought out Australia’s Hancock Coal for about 1.26 billion dollars. This acquisition includes a majority of the coal resources, railway line and port infrastructure of Hancock Coal, along with the option for long term coal supply contracts around the world.
  • The Ruias’ flagship company for its oil business, Essar Energy completed its 350 million dollar acquisition of the UK based Stanlow Refinery of Shell in August 2011.
  • In June 2011, the Aditya Birla Group announced its completion of acquiring US based Columbian Chemicals, a 100 year old carbon black maker company for an estimated 875 million dollars. This will make the Aditya Birla Group one of the largest carbon black maker companies in the world, doubling its production capacity instantly.
  • Asian paints signed a deal with Ess Ess Bathroom products Pvt Ltd to acquire its front end sales business for an undisclosed sum in May, 2014.
  • The seven year old Bangalore based domestic e-retailer, Flipkart acquired the online fashion portal for an undisclosed amount in May 2014.
  • Sun Pharmaceutical Industries Limited, bought the Ranbaxy Laboratories in December, 2014.

 

These examples illustrate how organisations react to environment and adopt suitable course of action to manage their business successfully. Decisions regarding up gradation of product mix, acquisition, mergers, joint ventures, diversification, etc., are taken by top level management. Strategic management deals with long term decisions taken by top level management, which gives overall direction to the firm for achieving its goals and objectives.

 

Business environment has become more volatile and this has kindled the strategic thinking at all levels of business organisation.

 

Strategic Management supports the organisation to plan business strategies and implement them successfully, in order to fulfil the organisational goals and objectives.

 

It paves the way for the firm to gain competitive advantage and face the tough global competition.

 

Therefore, the ultimate purpose of strategic management is to help the organisation increase performance through improved effectiveness, efficiency and flexibility.

 

Strategy:

 

The term ‘strategy’ is derived from the Greek word “StratAgos” meaning ‘the art of the general’. It is the art of employing all elements of your resources to accomplish your objectives.

 

Glueck defines strategy as a unified,comprehensive and integrated plan relating the strategic advantages of the firm to the challenges of the environment.

 

It is meant  to ensure that the basic objectives of the business firm are fulfilled.

 

Alfred Chandler defines strategy as the determination of the basic, long term goals and objectives of the business firm and the adoption of the courses of action and the allocation of resources necessary for achieving those goals.

 

Stanford Research Institute, USA, states that a strategy is the way, in which a firm, reacting to its environment, deploys its principal resources and marshalls its main efforts in pursuit of its purpose.

 

Michael Porter has defined strategy as the “creation of a unique and value position involving a different set of activities, and thus, a company that is strategically positioned performs different set of activities from its rivals or performs similar activities in different way.

 

Hence, strategy is the process of translating perceived opportunity into successful outcomes, by means of purposive action sustained over a significant period of time.

 

It is goal directed, long term plan of action,meant tofulfil organisational goals and objectives, taking into account the firm’s key strengths, weakness, environmental threats and opportunities.

 

Strategy is illustrated as

Features of Strategy

 

  • Strategy is a long term plan oriented toward future to achieve the organisational goals and objectives.
  • Strategy leads to a solution, aimed at actions to fight the problems or challenging and difficult business situations.
  • Strategy is pro-active and anticipates changes and yields out measures to overcome them.
  • Strategy is concerned with efficient allocation of all resources in an optimum way to maximise the efficiency and productivity in the business firm.

Strategy and Tactics

 

  • Strategy is a long term plan while tactics is a short term plan developed in the organisation.
  • Strategy is formulated by the top-level management while tactics are framed by lower level management staff.
  • Strategy formulation requires careful thought process, intuitions, analysis and risky decisions, while tactics are relatively less important and information needed for its formulation is taken from accounting details and statistical sources.

Levels of Strategy

 

Strategy operates at different levels

 

1. Corporate strategy

 

It is the top level decision making and covers decisions dealing with the objectives of the firm, acquisition and allocation of resources and co-ordination of strategies of various strategic business units(SBU) for optimal performance. The nature of strategic decisions are value-oriented, conceptual and future oriented.

 

2. Business strategy

 

It operates at each SBU level, wherein each SBU formulates its own strategy to achieve its goals and objectives within the purview of its resource availability and business environment.

 

3. Functional strategy

 

It involves decision making at each functional department and activities involved in it. They are tactical decisions, which are supported by corporate and business strategy. Risk involved is less and has short time horizon to achieve the goals and objectives. They have low flexibility but high adaptability.

 

4. Operational strategy

 

These are the bottom most level of strategy, which involves actions relating to various sub-functions of a major department. This is the stage where the strategies formulated are actually implemented with the support of operational work force.

Characteristics of Strategic management

 

1.  Futurity

 

It involves anticipating the future events and changes in the business and preparing to change through proper plan of action.

 

2.  Long range impact

 

It deals with analysing the changes in the business over long run and planning to assess the impact of those changes on business and implementing suitable strategies to deal with changes.

 

3.  Iterative process

 

Regular and continuous feedback from implementing the planned strategies can help in assessing the impact and then taking suitable follow-up actions

 

4.  Systematic and Rational

 

Strategic management involves logicalthinking, carefulanalysis and systematic procedure to design strategies and implement them.

 

5.  Integrated function

 

It serves as a key stone for integrating all the functions and activities in the business and facilitating better communication and co-ordination of individual or group activities in the firm.

 

6.  High involvement

 

As strategies are long term and future oriented, dedicated commitment among the workforce is ensured to implement the strategies successfully and achieving organisational goals and objectives. It is basically the responsibility of the top level management to design the strategy and its implementation is supported by the bottom level workforce.

 

7.  Competitive advantage

 

It helps to develop and establish valuable assets for the firm and skills among the workforce, in such a manner that they are superior to their competitors. It aims to produce quality products or services, capable of satisfying customers better.

 

8. Adaptive function

 

Adaptive nature of strategic management supports the organisation in keeping in tune with the changing business environment.

 

Tasks of Strategic management

 

The strategic management process can be described by a number of tasks to be undertaken by the organisation. The success of the strategic management process lies in carrying out these tasks successfully and effficiently.

 

The five tasks of strategic management are

 

  1. Evolve business goals, by formulating its mission and vision in terms of the expectations of the stake-holders.
  2. Set objectives that are achievable in view of changing external factors that include regulation, competition, technology and customers.
  3. Evolve and develop a competitive strategy to achieve the mission.
  4. Create an effective organisational structure and arrange the resources to successfully carry out the strategy.
  5. Evaluate the percformance so that necessary corrective measures can be taken to keep it on track to achieve the goals and objectives.

These five tasks are finely detailed in steps as

  • Prepare Vision & Mission statement
  • Conduct an external analysis
  • Take up internal appraisal
  • Identify strategic issues
  • Establish strategic objectives -Formulate strategic plan
  • Implement the plan using required staff and resources availability
  • monitor and evaluate the process
  • and take corrective actions based on the feedback.

Strategists

 

Those individuals in the organisation, who are familiar with the business environment and design suitable strategies, needed for achieving organisational goals and objectives are called strategists. These people may be corporate planning staff, senior managers, SBU level executives, middle level managers, executive assistants, and outside consultants.

 

In an organisation, the strategists include all the people who influence an organisation’s overall strategies, like the Board of Directors, the CEO, various managers, business consultants financial investors and even those in middle management positions.

 

The duty of the strategists is to view organisation as a whole, to understand the business situations and difficulties and to make strategic decisions in the purview of the management philosophy, business environment and efficient utilisation of organisational resources.

 

Benefits of Strategic management

  1. It allows the business organisation to be pro-active rather than reactive in planning for the future.
  2. It provides the firm to set clear goals and direction for the individual employee to focus, direct their efforts and strive for achieving organisational goals and objectives.
  3. It leads to competitive advantage for the firm and makes the firm successful in its business through improving the organisational efficiency and effectiveness.
  4. It improves the morale and motivation among employees and directs their efforts towards achieving organisational goals and objectives.
  5. It results in financial benefits to the organisations in the form of increased profits.
  6. It helps to overcome environmental risks and uncertainty by anticipating changes and taking corrective actions.

Limitations of Strategic management

 

  1. It requires complete and continuous scanning of the business environment, which is very difficult and time- consuming process. Timely and continuous monitoring of business factors is a laborious task.
  2. If it does not provide contingency plans for meeting any unforeseen situations in the business, it will fail to produce desired results.
  3. It is not always possible to make correct forecasts, especially on a long-term basis.
  4. It fails to deliver the expected outcome, if the workforce is not properly motivated and committed to changes in the business environment.
  5. It ardently requires the participation from all levels of the organisation and a seamless alignment of individual actions with the organisations’ strategy to fulfil organisational goals and objectives.

 

Strategic Management Process

 

Strategic Management process is based on the belief that organisations should continually monitor internal and external events and trends, so that timely changes can be made, as and when needed.

 

Strategic management process should aim at basically answering four questions

 

Strategic Management Processis basically the domain of top-level management and the process involves four basic components.

1. Environmental Scanning / Strategic analysis

 

It involves analysing internal and external factors in the business environment that may affect the organisation and its ability to pursue a given course of action.

 

It enables us to identify and understand the firm’s strength, weakness, potential opportunities and threats that will influence the business performance.

 

It helps to make informed strategic choices about the future of the organisation.

 

This analysis involves appraising the

 

a.Micro environment / internal environment

 

The analysis of the internal environment of an organisation like itscompany business policy, nature of customers, workforce, competitors, suppliers, investors, marketing intermediaries, government departments, etc., serves to pinpoint the strengths and weakness of the organisation.

 

It will help to identify the unique skills and resources that give an opportunity for the organisation to improve its competencies and performance.

 

It results in competitiveadvantage, leading to superior efficiency, superior quality, superiorinnovation and superior customer responsiveness.

 

For example, the competitive advantage of Reliance lies in its vast financial resources, technological up gradation, talented workforce and diversification of business.

 

b. Macro environment / external environment

 

The analysis of the external factors- political, economic, socio-cultural, technological, legal and ecological or natural factors will help to primarily identify the strategic opportunities and threats in the organisation’s operating environment.

 

This comprehensive analysis is known as SWOT analysis, which will support in providing a realistic understanding of the organisation in relationship to its environment.

 

2. Strategic formulation / Strategic Planning

 

It involves making strategic decisions concerning the organisation’s mission, philosophy, objectives, policies and methods of achieving organisational objectives.

 

Formulating the strategy is an important step to enhance organisational performance and building competitive advantage.

 

It results in the formulation of a strategic plan, which is a standard document specifying, who is responsible for the overall implementation of the plan and for achieving the slated organisational goals and objectives.

 

3. Strategy Implementation

 

It is concerned with putting the organisation’s planned strategy into action.

 

It involves making a variety of managerial decisions that involve changes in the type of organisational structure, the type and source of information systems, leadership ‘fit’ and the type of control mechanism that should be employed while implementing the strategy, resource planning, etc.

 

It also requires managing the strategic change and cultural aspects of the organisation.

 

According to Galbraith and Kazanjian, the strategy implementation is the most difficult element of the strategic process. Unless it is implemented properly and effectively, even the most innovative and well formulated strategy will create little benefit for the organisation.

 

Thus, Strategy implementation calls for the union and synchronisation of the principle internal elements of the organisation such as technology, structure, leadership, human resources, information and control systems and so on.

 

4.Strategy Evaluation & Control

 

It is concerned with evaluating the implemented strategies, to check ifthe outcome of the strategy has enabled to achieve the organisational objectives.

 

It involves comparing the predicted results to the actual results. The deviations if any, are monitored and corrective actions are taken. Thus, the progress of the implemented strategy is monitored to check if it is carried out successfully.

 

Hence, strategic management process is dynamic and continuous, requiring change as and when needed.

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References:

  1. Nitish Sengupta & Chandan.J.S., “Strategic Management-Contemporary Concepts and Cases, First Edition, Vision Books, New Delhi, 2003.
  2. Gupta, Gollakota & Srinivasan, “Business Policy and Strategic Management-Concepts and Applications”, Prentice Hall of India, 2005.
  3. Prasad.L.M.,  “Strategic  Management”,  Fifth  edition,  Sultan  Chand  &  Sons, New Delhi, 2008.
  4. L.M.Prasad, “Strategic Management”, Sultan Chand & Sons, New Delhi, 2010.
  5. M.Jeyarathinam, “Strategic Management”, Himalaya Publishing House, Fourth Edition, 2012.