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Amity School of Business

Business Policy and

Strategic Management

Vivek Ahuja

BBA Batch 2008-11

Semester VI

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Introduction to Strategy and Planning

Evolution of Strategic Management

Concepts of Corporate Strategy Patterns of Strategy Development

Phases in Strategic Management Process.

Module 1

Introduction

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Strategy

The word strategy has entered in the field of management from

militarywhere it refers to apply the forces against an enemy to win

a war. Originally, the word strategy has been derived from Greek

word strategos which means generalship. The word was used

first time around 400 BC.

The word strategy means the art of the general to fight in war.

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The dictionary meaning of strategy is,

the art of so moving or disposing

the instrument of warfare as to impose upon

enemy, the place time and conditions for fighting

by one self.

Strategy

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Strategy in ManagementIn management, the concept of strategy is taken in more broader terms.

Strategy is the unified, comprehensive and integrated plan that relates

the strategic advantage of the firm to the challenges of the environment

and is designed to ensure that basic objectives of the enterprise are

achieved through proper implementation process.

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Strategy in Management

It lays stress on the following:

Unified, comprehensive and integrated plan.

Strategic advantage is related to challenges of environment.

Proper implementation ensures achievement of basic

objectives.

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Importance of Strategy

An organization is considered efficient and operationally effective if it is

characterized by coordination between objectives and strategies.

Strategy helps the organization to meet its uncertain situations with due

diligence.

Without a strategy, the organization is like a ship without a rudder. It is like a

tramp, which has no particular destination to go to. Without an appropriate

strategy effectively implemented, the future is always dark and hence, more

are the chances ofbusiness failure.

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Planning What is Planning?

Planning as a process involves the determination of future course ofaction, that is why an action, what action, how to take action, and whento take action. These why, what, how, and when are related withdifferent aspects of planning process.

Whyof action reveals that action has some objectives or the end

result which an organization wants to achieveWhatof action specifies the activities to be undertaken

Howand Whengenerate various policies, programs, procedures, andother related elements.

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Planning is the selection and relating of facts and

making and using of assumptions regarding the

future in the visualization and formalization of

proposed activities believed necessary to achievedesired result.

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AOL/Time Warner- the worlds first Internet

Powered media and communications company

In Jan 2001, the Federal Communications Commission in the USA

approved a $105 billion merger ofAOL, the worlds largest ISP, with Time

Warnerthe media and entertainment empire.

The merger clearly changed the direction of the business, its intended

long-term position in the industry and had far-ranging implications on

most parts of the business in terms of priorities and how the

organization would function.

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As business analysts said, the merger was a significant proof of the rate

at which the sectors of computing, telecommunications, media and

entertainment were converging and would impact greatly the

competitors in these sectors and their customers and potential

consumers.

Time Warner's Gerald Levin, left, and AOL's Steve Case

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Nature of Strategy

Long- term direction The AOL / Time Warner merger set the new company on the path as a

multimedia giant.

Competitive advantage

The AOL / Time Warner merger was justified in terms of providingcontent to an Internet Service Provider and giving a new distribution

route to the content provider. Scope of an organizations activities

In the AOL / Time Warner case, broadening the scope of activities wasa major reason behind merger.

Strategic fit

It is developing strategy by identifying opportunities in the businessenvironment and adapting resources and competences so as to takeadvantage of these.

In the fast moving media and IT world, customers sought for valueproviders who can provide a range of services through complementarychannels and this opportunity was clearly optimized upon by AOLTime Warner merger.

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Nature of Strategy

Strategy development by stretch Stretch is the leverage of the resources and competences of anorganization to provide competitive advantage and / or yield newopportunities.

Require major resource changes

AOL/ Time Warner had to redraft their resource allocation to enter

markets with no tradition of subscription and where piracy isprevalent.

Affect operational decisions

The merger required a whole set of decisions at the operational level,setting up of new structures and management controls, humanresource policies and practices.

Strategy gets affected by stakeholders The strategy also gets affected by values and expectations of those

who have power in and around the organization.

In the merger though AOL could control everything, it wasconstrained by regulatory authorities and lobby groups (includingperformers)-both in US and Europe, and the ability to persuade both

the sets of shareholders that the deal made commercial sense.

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14

The leading edge of strategy: fit or stretch

ASPECT OF STRATEGY ENVIRONMENT-LEDFIT

RESOURCE-LEDSTRETCH

Underlying basis of

strategy

Strategic fit between

market opportunities

and organizations

resources

Leverage of resources to

improve value for

money

Competitive advantage

through

Correct positioning

Differentiation directed

by market need

Differentiation based on

competences suited to

or creating market need

How small playerssurvive

Find and defend a niche Change the rules of thegame

Risk-reduction through Portfolio of

products/businesses

Portfolio of

competences

Corporate centre invests

in

Strategies of business

units or subsidiaries

Core competences

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Strategic Advantage

Picture of the DAY

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STRATEGIC MANAGEMENT

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The top management of an organization is concerned with selection of a

course of action from among different alternatives to meet the

organizational objectives. The process by which objectives are formulated

and achieved is known as Strategic Managementand Strategyacts as

the means to achieve the objective. Strategy is the grand design or an

overall plan which an organization chooses in order to move or

react towards the set objectives by using its resources.

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Four Paradigm shifts (Hofer)

First phase mid 1930s

Second phase 1930s and 1940s

Third phase 1960s

Fourth phase 1980s present

Evolution of Strategic Management

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First Phase

The first phase that can be traced back to the mid 1930 s, rested on the

paradigm of ad-hoc policy making. The need for policy making arose due to

the nature of American business firms in that period. The firms, which

commenced operations with a single product line catering to a unique set of

customers in a limited geographical area expanded in one or all of these

three dimensions. Policy making became the prime responsibility of

erstwhile entrepreneurs, who later assumed the role of senior management.

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Second Phase

Due to the increasing environmental changes in the 1930s and 1940s in

the U.S., planned policy formulation replaced ad-hoc policy making. Based

on this second paradigm, the emphasis shifted to the integration of

functional areas in a rapidly changing environment.

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Third Phase

Increasingly complexity and accelerating changes in the environment made

the planned policy paradigm irrelevant since the needs of the businesses

could no longer be served by policy-making and functional area integration

alone. By the 1960s, there was a demand for a critical look at the basic

concept of business and its relationship with the environment. The concept

of Strategy satisfied this requirement and the third phase, based on strategy

paradigm, emerged in the early sixties.

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Fourth Paradigm

The current thinking that emerged in the eighties is based on the fourth

paradigm of strategic management. The initial focus of Strategic

Management was on the intersection of two broad fields of enquiry: the

strategic process of business firms and the responsibilities of the general

management.

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The Risk of Strategic Drift

Phase 1

Incremental

Change

Phase 2

Flux

Phase 3 / 4

Transformational

Change or Demise

1

2

3

4

5AmountofChange

Time

Environmental change

Strategic change

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Patters of Strategy Development

Incremental

Flux

Transformational

Demise

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Strategy Development in Environmental

ContextsEnvironmental conditions

Simple Complex

Static

Dynamic

Historical Analysis

Forecasting

Scenario Planning

Decentralized

Planning

Experience &

Learning

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Strategic Planning in Practice

For strategic planning to work, managers need to

take not of current & future competitive

environment

To forecast how the future may look like Scenario

Planning can be used

Operating managers can be involved (Decentralized

Planning)

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Involves formulating plans for whatif scenarios about the future

Some scenarios are Optimistic & some are Pessimistic

Managers are asked to prepare strategies to cope up with eachscenario

A set of indicators is chosen, and the indicators are used assignposts to track trends and identify the probability that anyparticular scenario will come to pass

As a result of scenario planning, organizations might pursue onedominant strategy, but make investments that will payoff of otherscenarios come to fore

Helps managers understand the environment, thinking strategically& generating strategic options

Pushes managers to think outside the box

Scenario Planning

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Identify DifferentPossible Futures

Hedge your bets byPreparing for

Other scenariosAnd..

Invest in onePlan, but

Formulate Plans toDeal with those

Futures

Switch strategy if

Tracking of signpostsShows alternative

Scenarios becomingMore likely

Scenario Planning

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Scenario Planning Example: Royal Dutch Shell

Using scenario planning since the 1980s

Today it uses two main scenarios to refine its strategicplanning

Dynamics as usual gradual shift from carbon fuels torenewable energy

The spirit of the coming age looks at the possibility that atechnological revolution will lead to a rapid shift to new energysources

Shell is making investments that will ensure profitability ofwhichever scenario comes to pass, and it is carefullytracking technological and market trends for signs ofwhich scenario is becoming more likely over time

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Decentralized Planning

Strategic planning process is generally top

managements responsibility in companies

They may not have understanding of the

operating realities

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Levels of Strategy

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Amity School of BusinessA Companys

Strategy Making Hierarchy Overall strategyA collection of strategic initiatives and actions devised by the managers

and key employees up and down the whole organizational hierarchy

Crafting a strategy involves answers to the following hows:

How to out compete rivals

How to respond to changing market conditions

How to develop needed competencies

How to achieve strategic and financial objectives

In a diversified multi-business companies strategy making involves levels ofstrategy involving different facets ofcompanys overall strategy

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Corporate Strategy consisting of

Initiatives company use to establish in different

businesses

Approaches that are pursued to boost the combined

performance

Usually reviewed and approved by Board of Directors

A CompanysStrategy Making Hierarchy

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Strategy Making Hierarchy

Business Strategy

Actions and approaches crafted to produce success in a

specific line of business

Crafting response to changing environment

Responsibility of Business Head

Seeing that lower level strategies are well matched with overall

business strategy Getting major business level strategic moves approved by

Corporate level officers

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Strategy Making Hierarchy

Functional area Strategy & Operating Strategies

Actions, approaches and practices employed to manage key activitieswithin a business

Strategic initiatives for key operating units (plants, distributioncenters, geographic units)

Specific operating activities with strategic significance (advertisingcampaigns, supply chain related activities)

Add detail and completeness to functional and overall businessstrategies

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Example of Jet Airways

Entry of low cost carriers changed the face of industry

Jet Airways started facing stiff competition from Air Deccan, Spice Jet &

Kingfisher

Market share went down from 57% to 32%

Set up a new Corporate strategy:

Regaining and expanding its market share by entering and operating in

the LOW COST and a VALUE BASED CARRIER arena as well

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In order to give a definite shape to the corporate strategy, a business level

strategy was implemented:

the TAKEOVER of Air Sahara by Jet Airways and renaming it to form

JETLITE

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Jets management made various changes in the operation strategies of

the airline

No tickets at throw away prices

Jetlite was to take on Tier II and Tier III cities

New schedule for other tier II cities

Cost cutting by slashing employee numbers and better negotiation with

suppliers

Single cabin carriers

Improvement in aircraft utilization hours

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Example of Vodafone

Corporate Level Strategy:

Focus:

Deliver High performance in controlled businesses

Maximize shareholder returns in affiliates Leverage measurable synergy benefits from scale and

scope

Outperform acquisition business cases

Vodafone wanted to enter the Indian market in2006-2007

Gartner had figured that customer base in India woulddouble by 2010

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Business Unit Strategy

Acquired Hutchison Essar Limited and divested in

Bharti Airtel

Example of Vodafone

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Example of Vodafone

Operational & Functional Strategies: Investing in Rural India by network sharing with other

providers

Cutting costs through: Infrastructure sharing deal with Idea and Bharti Creation ofIndusTowers

Redefining the logo

High level of cost and time discipline

Customer value enhancement Target areas: Mobile data, Enterprise and Broadband

Technology upgradation

CSR Group Supply chain, Group Marketing, Employment

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Intended &

Emergent Strategies

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Strategy As An Emergent Process

Criticism of Formal Planning:

Unpredictability of Real World

Autonomous Action: Strategy making by lower

level managers

Serendipity and Strategy

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Planned Strategy

UnrealizedStrategy

EmergentStrategy

Realized Strategy

Deliberate Strategy

SerendipityAutonomousAction by LowerLevel by

Managers

UnplannedShift by TopLevel

Managers

UnpredictedChange

Mintzbergs Model of Strategy Development

Emergent and Deliberate Strategies

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Amity School of BusinessIntended &

Emergent Strategies

A companys realized strategy is the product Planned strategies that are actually put into action and

Any unplanned strategies

Many Planned strategies not implemented because ofunpredicted changes in the environment

Emergent strategies are unplanned responses to unforeseencircumstances Arise from:

Autonomous action by individual managers,

fateful discoveries,

unplanned strategic shift by top level managers when environmentchanges

Sometimes emergent strategies are more successful than theplanned ones

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Strategy Making in an Unpredictable World

Environment is uncertain, complex &

ambiguous

Small changes may have large & unpredictable

impact rendering strategic planning useless

Premium on being able to respond quickly &

alter strategies

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Strategy Making in an Unpredictable World

Example:

Dramatic rise of Google (pay per click model)

disrupted the online advertising industry

Microsofts MSN network & Yahoo had to changetheir strategies rapidly

Both came out with their search engines

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Amity School of BusinessAutonomous Action:

Strategy making by lower level managers

Too much importance to Top level management

Many important strategic decisions are initiated by lower

level managers

Out of their own initiatives lower level managers come up

with newer strategies and then lobby top managers for

resources

Helpful for established companies in responding to

paradigm shifts in industry Top-level management sometimes have inertia

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Amity School of BusinessAutonomous Action:

Strategy making by lower level managers

Example #1 Original prototype of Microsofts Xbox was prepared by four lowerlevel engineering employees on their own initiative

They convinced top level managers for the commercialization of theXbox

Example #2 Starbucks also sells music CDs at many of its outlets

Sales of those outlets with CDs are generally higher Idea came into being when Tim Jones, a stores manager started bring his

own music compilations

He started getting requests from customers for copies of those CDs

Jones suggested the CEO, Howard Schultz that Starbucks should sell itsown music

Since then, Starbucks has also moved into music downloading, wherecustomers can burn their CDs while in the store

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Amity School of BusinessSerendipity & Strategy

Examples of accidental events abound that

help push companies in new & profitable

directions

Some companies miss these opportunities

because serendipitous discoveries do not fall

in line with their prior strategies

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Amity School of BusinessSerendipity & Strategy

Example #1 Richard G. Drew invented one of the most practical items

to be found in any home or office: transparent adhesivetape in 3M

Initially it had adhesives only along the edges

Was used in painting cars with two tones

During the Great Depression, people became creative withit and found hundreds of its use

Example #2 A century ago, the telegraph company turned down an

opportunity to purchase rights to the invention onAlexander Graham Bell!

d d

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Emergent Strategies

Example: Entry of Honda into US motorcycle market in 1959

Honda executives (from Japan) focused on selling 250-cc &350-cc machines

Sales were sluggish

Honda executives themselves were using 50-cc bikes &were attracting attention

They got a call from Sears & other stores

Honda launched those bikes By 1964 one out of two motorcycles sold in US was a

Honda

d d &

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Emergent Strategies

Example (Contd.) Credit should be given to Honda for recognizing the

strength of the emergent strategy & for pursuing it

Management need to recognize: Strategies can take root wherever people have the capacity

to learn

Process of emergence; ability to judge the worth

Whether emergent strategies fits companies needs &

capabilities Emergent strategies are a function of corporate culture &

controls put in place

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Phases in StrategicManagement

Process

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MISSION & OBJECTIVES

GENERAL ENVIRONMENT

INDUSTRY & INTERNATIONAL

ENVIRONMENT

INTERNAL FACTORS

GENERIC STRATEGY ALTERNATIVES

STRATEGY VARIATIONS

STRATEGY CHOICE

RESOURCE STRUCTURE

POLICY, PLANS & ADMINISTRATION

EVALUATION & CONTROL

FEEDBACK

Analysis &

Diagnosis

Choice

Implementation

To determine

mission, goals

and values of

firm and key

decision makers

O & T

S & W

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Model of Strategic Management ProcessCompany Mission and Social Responsibility

External Environment

Remote / Industry / OperatingInternal AnalysisPossible?

Desired?

Strategic Analysis and Choice

Long Term Objectives Generic and grand strategies

Short-term objectives;

reward system

Functional tactics Policies that empower

action

Restructuring, reengineering, and refocusing the organization

Strategic control and continuous improvement

Feedback

Feedback

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Thank You

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