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Page 1: Strategic Management - Jaipur National Universityjnujprdistance.com/assets/lms/LMS JNU/MBA/MBA - International Business... · 6.1.1 Nature of Strategy Implementation ... 6.5 Resource

Strategic Management

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This book is a part of the course by Jaipur National University, Jaipur.This book contains the course content for Strategic Management.

JNU, JaipurFirst Edition 2013

The content in the book is copyright of JNU. All rights reserved.No part of the content may in any form or by any electronic, mechanical, photocopying, recording, or any other means be reproduced, stored in a retrieval system or be broadcast or transmitted without the prior permission of the publisher.

JNU makes reasonable endeavours to ensure content is current and accurate. JNU reserves the right to alter the content whenever the need arises, and to vary it at any time without prior notice.

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Index

ContentI. ...................................................................... II

List of FiguresII. .......................................................VIII

List of TablesIII. ...........................................................IX

AbbreviationsIV. .......................................................... X

Case StudyV. .............................................................. 137

BibliographyVI. ......................................................... 142

Self Assessment AnswersVII. ................................... 145

Book at a Glance

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Contents

Chapter I ....................................................................................................................................................... 1Introduction to Business policy ................................................................................................................... 1Aim ................................................................................................................................................................ 1Objectives ...................................................................................................................................................... 1Learning outcomes ......................................................................................................................................... 11.1 Introduction to Business Policy .............................................................................................................. 21.2 Evolution of Business Policy as a Discipline .......................................................................................... 2 1.2.1 The Genesis of Business Day ................................................................................................. 2 1.2.2 Evolution based on Managerial Practices ................................................................................ 2 1.2.3 Historical Perspective of the Evolution of Business Policy .................................................... 2 1.2.4 Pointers to the Future ............................................................................................................... 31.3 Meaning of Business Policy ..................................................................................................................... 3 1.3.1 Definitions ............................................................................................................................... 3 1.3.2 Need of Business Policy .......................................................................................................... 3 1.3.3 Essentials of a Good Business Policy ...................................................................................... 4 1.3.4 Role of Business Policy ........................................................................................................... 4 1.3.5 Different Types of Business Policy .......................................................................................... 5 1.3.6 Strategic Business Unit ( SBU) ............................................................................................... 71.4 Importance of Business Policy ................................................................................................................. 7 1.4.1 For Learning the Course .......................................................................................................... 7 1.4.2 For Understanding the Business Environment ........................................................................ 8 1.4.3 For Understanding the Organisation ........................................................................................ 8 1.4.4 For Personal Development ....................................................................................................... 81.5 Purpose of Business Policy ...................................................................................................................... 81.6 Objectives of Business Policy .................................................................................................................. 9 1.6.1 In Terms of Knowledge ........................................................................................................... 9 1.6.2 In Terms of Skills ................................................................................................................... 10 1.6.3 In terms of Attitude ................................................................................................................ 10Summary ......................................................................................................................................................11References ....................................................................................................................................................11Recommended Reading ..............................................................................................................................11Self Assessment ........................................................................................................................................... 12

Chapter II ................................................................................................................................................... 14An Overview of Strategy Management .................................................................................................... 14Aim .............................................................................................................................................................. 14Objectives .................................................................................................................................................... 14Learning outcomes ....................................................................................................................................... 142.1 An Overview of Strategy Management ................................................................................................. 15 2.1.1 Definition of Strategy ............................................................................................................ 15 2.1.2 Types of Strategy ................................................................................................................... 15 2.1.3 Organisation and Strategy ...................................................................................................... 16 2.1.4 Forms of Strategy ................................................................................................................... 17 2.1.5 Strategic Environment ........................................................................................................... 19 2.1.6 Meaning of Strategy Management ......................................................................................... 19 2.1.7 Strategic Management Process .............................................................................................. 20 2.1.8 Facets of Strategic Management ............................................................................................ 212.2 Strategic Decision Making Process ....................................................................................................... 222.3 Functional Strategic Decisions .............................................................................................................. 23 2.3.1 Financial Decisions ................................................................................................................ 24 2.3.2 Marketing Decisions .............................................................................................................. 24 2.3.3 Production and Operations Decisions .................................................................................... 24 2.3.4 Pricing Decisions ................................................................................................................... 24

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2.3.5 Distribution Decisions ........................................................................................................... 242.4 Strategic Planning .................................................................................................................................. 25 2.4.1 Dimensions of Planning ......................................................................................................... 25 2.4.2 Strategic Planning and Control .............................................................................................. 25 2.4.3 Strategic Choice ..................................................................................................................... 25 2.4.4 Strategic Forecasting .............................................................................................................. 262.5 Levels of Strategic Management ........................................................................................................... 272.6 Strategic Audit : Aid to Decision Making .............................................................................................. 272.7 Globalisation and Environmental Sustainability: Challenges to Strategic Management ...................... 28 2.7.1 Impact of Globalisation ........................................................................................................ 28 2.7.2 Impact of Environmental Sustainability ................................................................................ 29Summary ..................................................................................................................................................... 30References ................................................................................................................................................... 30Recommended Reading ............................................................................................................................. 31Self Assessment ........................................................................................................................................... 32

Chapter III .................................................................................................................................................. 34Hierarchy of Strategic Intent ................................................................................................................. 34Aim .............................................................................................................................................................. 34Objectives .................................................................................................................................................... 34Learning outcome ........................................................................................................................................ 343.1 Introduction to Strategic Intent .............................................................................................................. 35 3.1.1 Concept of Stretch, Leverage and Fit .................................................................................... 35 3.1.2 Hierarchy of Strategic Intent .................................................................................................. 353.2 Vision ..................................................................................................................................................... 35 3.2.1 Definitions of Vision .............................................................................................................. 36 3.2.2 Benefits of Vision .................................................................................................................. 36 3.2.3 Process of Envisioning ........................................................................................................... 36 3.2.4 Characteristics of Vision ....................................................................................................... 363.3 Mission ................................................................................................................................................... 36 3.3.1 Need of Mission ..................................................................................................................... 37 3.3.2 Usefulness of Mission ............................................................................................................ 37 3.3.3 Formulating Mission .............................................................................................................. 37 3.3.4 Characteristics of Mission Statement .................................................................................... 37 3.3.5 Elements of an Ideal Mission Statement ................................................................................ 38 3.3.6 Newest Trends in Mission Components ................................................................................ 39 3.3.7 Difference between Vision and Mission ................................................................................ 403.4 Business Definition ................................................................................................................................ 40 3.4.1 Dimensions of Business Definition ....................................................................................... 40 3.4.2 Levels at which Business could be Defined .......................................................................... 403.5 Business Model ...................................................................................................................................... 413.6 Goal and Objectives ............................................................................................................................... 41 3.6.1 Importance of Objectives ....................................................................................................... 41 3.6.2 Roles of Objectives ................................................................................................................ 41 3.6.3 Characteristics of Objectives ................................................................................................ 42 3.6.4 Issues in Objective-Setting ................................................................................................... 42 3.6.5 Types of Objectives ................................................................................................................ 43 3.6.6 Areas in Objectives ................................................................................................................ 43 3.6.7 How are Objectives Formulated? ......................................................................................... 44 3.6.8 Importance of Goal Setting ................................................................................................... 44 3.6.9 Balance Scorecard in Objective Settings ............................................................................... 45Summary ..................................................................................................................................................... 48References ................................................................................................................................................... 48Recommended Reading ............................................................................................................................. 48Self Assessment ........................................................................................................................................... 49

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Chapter IV .................................................................................................................................................. 51Strategy Formulation and Planning ......................................................................................................... 51Aim .............................................................................................................................................................. 51Objectives .................................................................................................................................................... 51Learning outcome ........................................................................................................................................ 514.1 Introduction to Strategy Formulation ..................................................................................................... 524.2 Steps in Strategy Formulation Process .................................................................................................. 524.3 Formulation of Strategy ......................................................................................................................... 53 4.3.1 Strategy Formulation in Large Company or Organisation .................................................... 53 4.3.2 Strategy Formulation in the SME .......................................................................................... 53 4.3.3 Basis of Strategy Formulation ............................................................................................... 544.4 Strategic Planning .................................................................................................................................. 56 4.4.1 Differences between Operational Planning and Strategic Planning ..................................... 564.5 Strategic Planning Process ..................................................................................................................... 574.6 Corporate Level Strategy ....................................................................................................................... 58 4.6.1 Stability Strategies ................................................................................................................ 58 4.6.2 Growth Strategies .................................................................................................................. 59 4.6.3 Expansion Strategies .............................................................................................................. 59 4.6.4 Merger Strategy ..................................................................................................................... 59 4.6.5 Takeovers or Acquisitions Strategy ....................................................................................... 60 4.6.6 Retrenchment Strategies ........................................................................................................ 61 4.6.7 Portfolio Restructuring .......................................................................................................... 614.7 Strategic Planning in MNE’s (Multinational Enterprises) ..................................................................... 61 4.7.1 Types of MNE’s ..................................................................................................................... 62 4.7.2 Planning Needs of MNE’s ..................................................................................................... 62 4.7.3 Planning Focus of MNE’s ...................................................................................................... 63 4.7.4 Planning Modes of MNE’s .................................................................................................... 64 4.7.5 MNE’s Planning in Practice ................................................................................................... 65 4.7.6 Subsidiary Development Path ................................................................................................ 66 4.7.7 Pitfalls in Planning ................................................................................................................. 67Summary ..................................................................................................................................................... 69References ................................................................................................................................................... 69Recommended Reading ............................................................................................................................. 70Self Assessment ........................................................................................................................................... 71

Chapter V .................................................................................................................................................... 73Strategic Analysis and Choice ................................................................................................................... 73Aim .............................................................................................................................................................. 73Objectives .................................................................................................................................................... 73Learning outcome ........................................................................................................................................ 735.1 Introduction - Strategic Choice .............................................................................................................. 74 5.1.1 Choice Process ....................................................................................................................... 74 5.1.2 Process of Strategic Choice ................................................................................................... 76 5.1.3 Balanced Scorecard ................................................................................................................ 765.2 Strategy Analysis ................................................................................................................................... 78 5.2.1 Tools and Techniques for Strategy Analysis .......................................................................... 78 5.2.2 Corporate Portfolio Analysis ................................................................................................. 79 5.2.3 SWOT Analysis ..................................................................................................................... 79 5.2.4 Experience Curve Analysis .................................................................................................... 80 5.2.5 Life Cycle Analysis ................................................................................................................ 81 5.2.6 Industry Analysis ................................................................................................................... 81 5.2.7 Strategic Groups Analysis ...................................................................................................... 83 5.2.8 Competitor Analysis .............................................................................................................. 83

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Summary ..................................................................................................................................................... 85References ................................................................................................................................................... 85Recommended Reading ............................................................................................................................. 86Self Assessment ........................................................................................................................................... 87

Chapter VI .................................................................................................................................................. 89Strategy Implementation ........................................................................................................................... 89Aim .............................................................................................................................................................. 89Objectives .................................................................................................................................................... 89Learning outcomes ....................................................................................................................................... 896.1 Introduction ........................................................................................................................................... 90 6.1.1 Nature of Strategy Implementation ........................................................................................ 90 6.1.2 Issues in Strategy Implementation ........................................................................................ 91 6.1.3 Barriers to Strategy Implementation ...................................................................................... 91 6.1.4 Interrelationship between Formulation and Implementation of Strategy .............................. 926.2 A Model of Strategy Implementation ..................................................................................................... 92 6.2.1 Major Themes in Strategy Implementation .......................................................................... 93 6.2.2 Theme of Activating Strategy ................................................................................................ 93 6.2.3 Theme of Managing Change .................................................................................................. 94 6.2.4 Theme of Achieving Effectiveness ....................................................................................... 946.3 Project Implementation .......................................................................................................................... 95 6.3.1 Projects and Project Management .......................................................................................... 95 6.3.2 Project Management and Strategy Implementation ............................................................... 956.4 Procedural Implementation .................................................................................................................... 96 6.4.1 Regulatory Mechanism in India ............................................................................................. 96 6.4.2 Procedural Implementation in Action .................................................................................... 976.5 Resource Allocation ............................................................................................................................... 97 6.5.1 Strategic Budgeting ................................................................................................................ 97 6.5.2 Aligning Resource Allocation to Strategy ............................................................................. 98 6.5.3 Factors Affecting Resource Allocation .................................................................................. 99 6.5.4 Difficulties in Resource Allocation ........................................................................................ 99Summary ................................................................................................................................................... 100References ................................................................................................................................................. 100Recommended Reading ........................................................................................................................... 101Self Assessment ......................................................................................................................................... 102

Chapter VII .............................................................................................................................................. 104Functional and Operational Implementation ........................................................................................ 104Aim ............................................................................................................................................................ 104Objectives .................................................................................................................................................. 104Learning outcomes ..................................................................................................................................... 1047.1 Introduction to Functional Strategies ................................................................................................... 105 7.1.1 Vertical Fit ............................................................................................................................ 105 7.1.2 Horizontal Fit ....................................................................................................................... 1057.2 Functional Plans and Policies .............................................................................................................. 105 7.2.1 Nature of Functional Plans and Policies .............................................................................. 105 7.2.2 Need for Functional Plans and Policies ............................................................................... 106 7.2.3 Development of Functional Plans and Policies ................................................................... 1067.3 Financial Plans and Policies ................................................................................................................. 106 7.3.1 Sources of Funds .................................................................................................................. 107 7.3.2 Usage of Funds .................................................................................................................... 107 7.3.3 Management of Funds ......................................................................................................... 1077.4 Marketing Plans and Policies ............................................................................................................... 107 7.4.1 Product ................................................................................................................................. 108 7.4.2 Pricing .................................................................................................................................. 108

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7.4.3 Place ..................................................................................................................................... 108 7.4.4 Promotion ............................................................................................................................. 108 7.4.5 Integrative and Systemic Factors ......................................................................................... 1087.5 Operations Plans and Policies .............................................................................................................. 109 7.5.1 Production System ............................................................................................................... 109 7.5.2 Operations Planning and Control ......................................................................................... 109 7.5.3 Research and development .................................................................................................. 1097.6 Personnel Plans and Policies .................................................................................................................110 7.6.1 Personnel System ..................................................................................................................110 7.6.2 Organisational and Employee Characteristics ......................................................................110 7.6.3 Industrial Relations ...............................................................................................................1107.7 Information Management Plans and Policies .......................................................................................111 7.7.1 Factors related to Acquisition and Retention of Information ...............................................111 7.7.2 Factors related to Processing and Synthesis of Information .................................................111 7.7.3 Factors related to Retrieval and Usage of Information .........................................................111 7.7.4 Factors related to Transmission and Dissemination .............................................................111 7.7.5 Integrative, Systematic and Supportive Factors ...................................................................1127.8 Integration of Functional Plans and Policies ........................................................................................112 7.8.1 Consideration in Integration ................................................................................................113 7.8.2 Mechanism to Integrate Functional Plans and Policies ........................................................1137.9 Operational Implementation .................................................................................................................113 7.9.1 Operational Effectiveness .....................................................................................................114 7.9.2 Areas of Operational Effectiveness .......................................................................................114 7.9.3 Productivity ...........................................................................................................................114 7.9.4 Processes ...............................................................................................................................115 7.9.5 People ....................................................................................................................................115 7.9.6 Pace .......................................................................................................................................115 7.9.7 Choice of Operational Implementation Practices .................................................................115 7.9.8 Applying Operational Implementation Practices ..................................................................116Summary ....................................................................................................................................................117References ..................................................................................................................................................117Recommended Reading ............................................................................................................................118Self Assessment ..........................................................................................................................................119

Chapter VIII ............................................................................................................................................. 121Strategy Evaluation and Control ............................................................................................................ 121Aim ............................................................................................................................................................ 121Objectives .................................................................................................................................................. 121Learning outcomes ..................................................................................................................................... 1218.1 An Overview and nature of Strategic Evaluation and Control ............................................................ 122 8.1.1 Importance of Strategic Evaluation ..................................................................................... 122 8.1.2 Participants in Strategic Evaluation ..................................................................................... 122 8.1.3 Barriers in Evaluation .......................................................................................................... 123 8.1.4 Requirements for Effective Evaluation ................................................................................ 123 8.1.5 Characteristics of an Effective Evaluation Strategy ............................................................ 1238.2 Strategic Control .................................................................................................................................. 123 8.2.1 Purpose of Strategic Control ................................................................................................ 124 8.2.2 Types of Strategic Control ................................................................................................... 124 8.2.3 Operational Control ............................................................................................................. 124 8.2.4 Difference between Strategic Control and Operational Control .......................................... 1258.3 Techniques of Strategic Evaluation and Control .................................................................................. 125 8.3.1 Evaluation Techniques for Strategic Control ....................................................................... 125 8.3.2 Evaluation Techniques for Operational Control .................................................................. 126 8.3.3 Special Purpose Techniques ................................................................................................. 126 8.3.4 Auditing Techniques ............................................................................................................ 127

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8.4 Process of Strategic Control ................................................................................................................. 127 8.4.1 Steps in Process of Strategic Control ................................................................................... 127 8.4.2 Managing Strategic Control ................................................................................................. 130 8.4.3 Successful Maintenance of Strategic Control ...................................................................... 1308.5 Role of Organisational Systems in Evaluation .................................................................................... 132 8.5.1 Role of Information System ................................................................................................. 132 8.5.2 Role of Control System ........................................................................................................ 132 8.5.3 Role of Reward System ....................................................................................................... 132Summary ................................................................................................................................................... 134References ................................................................................................................................................. 134Recommended Reading ........................................................................................................................... 134Self Assessment ......................................................................................................................................... 135

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List of Figures

Fig. 1.1 Types of business policy ................................................................................................................... 5Fig. 1.2 Purpose of business policy ............................................................................................................... 9Fig. 2.1 Flat structure ................................................................................................................................... 17Fig. 2.2 Increasing use of technology .......................................................................................................... 17Fig. 2.3 Functional form .............................................................................................................................. 18Fig. 2.4 A modern version of the multi-divisional organisation .................................................................. 18Fig. 2.5 Matrix form ..................................................................................................................................... 19Fig. 2.6 Facets of strategic management ...................................................................................................... 22Fig. 2.7 Strategic decision-making process ................................................................................................. 23Fig. 3.1 Hierarchy of strategic intent ........................................................................................................... 35Fig. 3.2 Contents of ideal mission statements .............................................................................................. 38Fig. 3.3Dimensions of business definition ................................................................................................... 40Fig. 3.4 Types of objectives ......................................................................................................................... 43Fig. 3.5 Areas of setting objectives .............................................................................................................. 44Fig. 3.6 The 'Cause and Effect' relationships among the four perspectives ................................................. 46Fig. 3.7 The balance scorecard model.......................................................................................................... 46Fig. 4.1 Steps in strategy formulation .......................................................................................................... 52Fig. 4.2 Different kinds of grand strategic alternatives................................................................................ 58Fig. 5.1 Strategic choice process .................................................................................................................. 74Fig. 5.2 Gap analysis .................................................................................................................................... 74Fig. 5.3 Balanced scorecard ......................................................................................................................... 77Fig. 5.4 SWOT matrix ................................................................................................................................. 80Fig. 5.5 Porter’s five forces model of competition in an industry ............................................................... 81Fig. 6.1 A model of strategy implementation ............................................................................................... 92Fig. 6.2 The pyramid of strategy activation ................................................................................................. 93Fig. 6.3 Strategy implementation through project management .................................................................. 96Fig. 6.4 Making of a strategic budget .......................................................................................................... 98Fig. 7.1 The configuration of functional plans and policies ...................................................................... 106Fig. 7.2 Integration of functional plans and policies ..................................................................................112Fig. 7.3 The framework of strategy implementation ..................................................................................114Fig. 8.1 Four interrelated organisational variables .................................................................................... 131

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List of Tables

Table 2.1 Strategic management process ..................................................................................................... 21Table 2.2 Characteristics of dimension ........................................................................................................ 25Table 3.1 Difference between vision and mission ....................................................................................... 40Table 3.2 Examples of strategic and financial objectives ............................................................................ 43Table 4.1 Differences between operational planning and strategic planning .............................................. 57Table 4.2 Evolution of structure and strategy .............................................................................................. 63Table 4.3 Planning evolution ....................................................................................................................... 64Table 4.4 Planning modes ............................................................................................................................ 64Table 4.5 Subsidiary involvement ................................................................................................................ 65Table 4.6 Long range planning .................................................................................................................... 66Table 4.7 Subsidiary development path ....................................................................................................... 67Table 8.1 Differences between strategic control and operational control .................................................. 125

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Abbreviations

AACSB - American Assembly of Collegiate Schools of BusinessBCG - Boston Consulting GroupBI - Business IntelligenceCEO - ChiefExecutiveOfficerCPM - Critical Path MethodCRM - Customer Relationship ManagementDWC - Days of Working CapitalERP - Enterprise Resource PlanningEVA - Economic Value AddedFMCG - Fast Moving Consumer GoodsHPCL - Hindustan Petroleum Corporation Ltd.MBO - Management by ObjectivesMDF - Multi-divisional FormMNE’s - Multinational EnterprisesMoEF’s - Ministry of Environment and ForestsMoU - Memorandum of UnderstandingMRTP - Monopolies and Restrictive Trade PracticesPERT - Programmed Evaluation and Review TechniquePOS - Points of SaleRETREAT - Retreat for Environmental Awareness and TrainingRFID - RadioFrequencyIdentificationROI - Return on InvestmentSBU - Strategic Business UnitSCM - Supply Chain ManagementSEBI - Securities and Exchange Board of IndiaSWOT - Strengths, Weaknesses, Opportunities and ThreatsTERI - Tata Energy Research Institute

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Chapter I

Introduction to Business policy

Aim

The aim of this chapter is to:

introduce the concept of business policy•

explain the nature of business policy•

discuss the purpose and objectives of business policy•

Objectives

The objectives of this chapter are to:

identify the essentials of good business policy•

classify the types of business policies•

describe the term ‘strategic business unit’•

Learning outcomes

At the end of this chapter, you will be able to:

explain the role of business policy•

understand the evolution of business policy•

comprehend th• e importance of business policy

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1.1 Introduction to Business PolicyBusiness policy is a predetermined course of action, which is established to provide a guide toward accepted business strategies and objectives. Policies identify the key activities and provide a general strategy to decision-makers on how to handle issues as they arise. This is accomplished by providing the reader with limits and a choice of alternatives that can be used to “guide” their decision making process as they attempt to overcome problems.

1.2 Evolution of Business Policy as a DisciplineBusiness policy is a mandatory course, which is usually included in a typical management studies curriculum. Almost all management education programmes offered by the universities and management institutes in India include a business policy course.

1.2.1 The Genesis of Business DayThe origin of business policy can be tracked back to 1911, when the Harvard Business School introduced an integrative course in management aimed at providing general management capability. This course was based on case studies, which had been in use at the School for instructional purposes since 1908.

The actual movement for introducing business policy in the curriculum of business schools came with the publication of two reports in 1959. The Gordon and Howell report, sponsored by the Ford Foundation, had recommended a capstone course of business policy, which would give students an opportunity to pull together what they have learned intheseparatebusinessfieldsandutilisethisknowledgeintheanalysisofcomplexbusinessproblems.ThePiersonreport that has published simultaneously had made similar recommendations.

In 1969 the American Assembly of Collegiate Schools of Business (AACSB), a regulatory body for business schools, made the course of business policy a mandatory requirement for the purpose of recognition. In the last two decades, business policy has become an integral part of management education curriculum. The practice of including business policy in the management curriculum has spread from the US, to other parts of the world. The contents of the course, teaching methodology and so on, vary from institution to institution. The term ‘Business Policy’ has been used traditionally, though new titles such as strategic management, corporate strategy and policy and so on are now used extensively for the course.

1.2.2 Evolution based on Managerial PracticesStarting from day-to-day planning in earlier times, managers recently tried to anticipate the future through the preparation of budgets and by using control systems like capital budgeting and management by objectives. However, as these techniques were unable to emphasise the role of the future adequately, long-range planning came into use. But, soon, long-range planning was replaced by strategic planning, and later by strategic management- a term that is currently being used to describe the process of strategic decision-making. Strategic management forms the theoretical framework for business policy courses today.

1.2.3 Historical Perspective of the Evolution of Business PolicyThe evolution of business policy was viewed in terms of four paradigms shifts. These shifts can be considered as fouroverlappingphasesinthedevelopmentofthesubjectofbusinesspolicy.Thefirstphasecanbetracedbacktothe mid 1930s, rested on the paradigm of ad hoc policy making. The need for policy making arose due to the nature oftheAmericanfirmsofthatperiod.Thefirms,whichhadoriginallycommencedoperationsinasingleproductlinecatering to a unique set of customers in a limited geographical area, expanded in one or all of these three dimensions. Informal control and coordination became partially irrelevant as expansion took place and the need to integrate policies to guide managerial action. Policy making became the prime responsibility of erstwhile entrepreneurs who later assumed the role of senior management.

Due to the increasing environmental changes in the 1930s and 40s in the US, 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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Increasing complexity and accelerating changes in the environment made the planned policy paradigm irrelevant since, the needs of a business could no longer be served by policy making and functional area integration only. By the 1960s, there was a demand for a critical look at the basic concept of business and its relationship to the environment.Theconceptofstrategysatisfiedthisrequirementandthethirdphase,basedonastrategyparadigm,emerged in the early sixties. The current thinking, which emerged in eighties, is based on the fourth paradigm of strategicmanagement.Theinitialfocusofstrategicmanagementwasontheintersectionoftwobroadfieldsofenquiry:thestrategicprocessesofbusinessfirmsandtheresponsibilitiesofgeneralmanagement.

1.2.4 Pointers to the FutureTheresolutionofstrategicissuesthataffectthefutureofabusinessfirmhasbeenacontinualendeavourinthesubject of business policy. The endeavour is based on the development of strategic thinking. The general principles undergirdingstrategicthinkinghavebeenthefocusoftheeffortsofresearchersandacademiciansinthefieldofbusiness policy.

The direction in which strategic management is moving can be anticipated from an emerging comprehensive approach of management of discontinuous change, which takes account of psychological, sociological, political and systematic characteristics of complex organisations.

With the emergence of futuristic organisations, the demands on business policy are expected to rise tremendously. Responding to the need for evolving new approaches to the teaching of business policy, the AACSB no longer insists on the provision of just one course in this area. Now there is an emerging trend to have several courses, such as, the theory of strategy, competitive strategy, industry dynamics and so on in the curriculum.

1.3 Meaning of Business PolicyAccording to William F Glueck:“Development from business policy arose from the use of planning techniques by managers. Starting from day-to-day planning in earlier times, managers tried to anticipate the future through preparation of budgets and using control systems like capital budgeting and management by objectives. With the inability of these techniques to adequately emphasise the role of the future, long range planning came to be used. Soon, Long range planning was replaced by strategic planning, and latter by strategic management: a term that is currently used to describe the process of strategic decision making”.

1.3.1 DefinitionsManyotherexpertsdefinebusinesspolicyasfollows:

Terry, George:• “A business policy in an implied overall guide setting up boundaries that supply the general limits and direction in which managerial action will take place”Rodgers, David C.:• “A business policy is one which focuses attention on the strategic allocation of scarce resources:human,financial,physical,orintangible.Conceptuallyspeaking,strategyisthedirectionofsuchresource allocation while planning is the timing of allocation”.Hickman C.R.: • “Business policy is a device which is used to execute the alternate solution to the second plan”A general definition:• It is a principle or a group of related principles, along with their consequent rules of action thatprovideforthesuccessfulachievementofspecificorganisationorbusinessobjectives.

1.3.2 Need of Business PolicyBusiness policies tend to serve as precedents and, thus, reduce the repetitive rethinking of all the factors of individual decisions by saving time. Policies aid in coordination, if a member of individuals are guided by the same policies, they can predict more accurately the actions and decisions of others.

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Policy provides the stability in the organisation, a certainty of action is assured even though the top management •may change. The policies continue and this continuity promotes stability in the organisation and, thus, reduces frustrations of members.Clearpoliciesencouragedefiniteindividualdecisions.Eachfunctionalmangerhasclearunderstandingofthe•range policy within the organisation, which helpful to make decision and, thus, feel less uncertain as to whether he\she can give answers to subordinates without “getting into trouble”.Policies clearly specify routes towards the related goals of the organisation. Policies serve as a standard or •measuring yard for performance evaluation in the organisation. Soundpolicieshelptobuildupemployeeenthusiasmandloyaltyfortheorganisation.Thisisspecificallytrue•whentheyreflectestablishedprinciplesoffairplayandjusticeandwhentheyhelppeopletoknowthatwithinan organisation.Theysetupthepatternofbehaviourandpermittoparticipantstoplanwithagreaterdegreeofconfidenceand•lead to better co-operation in the organisation.Policies are monitored and controlled, which guides for delegated decision-making. • They seek to ensure consistency and uniformity in decisions relating to problems that recur frequently and under similar. But not identical circumstances.Policieswithclarity,relevanceandreasonablenessenableafirmtomaketheoptimumutilisationofscarce•availableresourcesand,thereby,bringaboutanefficientlevelofoperations,whichleadtominimisationofwastage.Corporate policies always build-up an image of the business in the eyes of the public and this brings in more •reputation,goodwill,saleandprofitssothatmoreandmoreactsofsocialresponsibilitiesmaybeundertakenby organisation.Proper administration and implementation of policies that encourage initiative in the employees is necessary. •It will encourage the employees to act with full responsibility, within the framework of the orgainsational policies. This naturally improves the working environment like very good-labour management relations within the organisation.

1.3.3 Essentials of a Good Business PolicyA good business policy require following things:

A good business policy should be based on objectives of the business.•It should be able to relate the objectives to physical factors and company personnel.•It must be prepared on facts and sound judgement.•It should be able to expect uncertainties in the future.•It must be in conformity with the government rules.•It should be made in accordance with the ethics and social responsibility of business.•It should be easy to understand and simple to follow.•It must assist and help top level management in framing rules and regulations for the organisations.•It should be feasible to implement.•Aflexibleandstablepolicyshouldbeinconformitywiththeorganisationalgoals.•

1.3.4 Role of Business PolicyA sound business policy makes the contribution in the following aspects:

Objectives:• A business policy plays a vital role in formulation of the objectives of the business. Objectives and policies are interrelated.Linkage between physical factors and personnel:• A business policy relates the objectives to physical factors and company personnel. Thus, employees and physical factors will work on the basis of business policy.

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Communication:• A good policy is easy to communicate with all categories of the organisation. It can be supplementary to overall corporate planning.Comprehensiveness:• Business policy gives comprehensiveness to achieve organisational goals.

1.3.5 Different Types of Business PolicyThe different types of business policy are:

On the basis of level of management

On the basis of functional areas

On the basis of expression

Fig. 1.1 Types of business policy

On the basis of level of managementBusinesspoliciesareframedatdifferentlevelsofthemanagement,andclassifiedasgivenbelow.

Top management level:• These policies are derived from the top management for planning and decision making. The top management principally comprises of the board of directors, chairman, vice president, managing director, general manager and so on, and the top management frames the policies by themselves and it is, therefore, responsible for these. These people are the ultimate level of authority in the operation of the enterprise. The policymakersplantosettheobjectives,definethegoals,establishthepolicies,seethatthesepoliciesareputinto effect and judge the results.Thetopmanagementpoliciesinvolvesthelongrangeproductselectionextentofitsdiversification,acquisitionsand mergers of two or more units, spin-offs-their nature, extent and liability-sales forecasting, sizing the enterprise, process of selection, machine selection, determining site, location and needs of the plant, decisions regarding investment of available resources in capital and human research development, settlement of problems of executives regarding their promotion, transfer, retirement and so on, and accomplishment of the organisation objectives.Middle level management policies: • These policies are the outcome of the deliberations taken by executives at the upper middle and middle level. The upper middle management consists of the head of the personnel administrationdepartment likeproductionmanager, salesmanager,marketingmanager,financialmanager,deputygeneralmanagerandassistantmanagerandsoon,theirexecutivesareresponsibleforresearch,finance,accounting, marketing and so on.

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They lay down the policies regarding the establishment of organisation, selection of the best-suited executives, staff and employees to carry out the plans, installation of proper departments, designing of operating policies and operating routines, deciding processes, methods and techniques of production which explore new markets and decisions about channels of distribution for assignment of duties to each department and to each individual, who are deciding about source of manpower, resources and their selection, deciding about wage, salary and incentiveplans for them,obtainnecessaryfinances, controllingcosts and solvingproblemsof actual salesactivities and so on.Lower level management policies:• The lower level management people are men and women who have direct supervisionovertheworkingforceinoffice,factory,salesfield,andotherareasofactivityoftheorganisation.They are directly related to the accomplishment of the task for the small sub-divisions of the whole enterprise. They chalk out policies or the assignment of the jobs to the best suited persons in the organisation. The lower level management policies guidelines of the provision of adequate tools, raw materials, training of the workers, issuing of orders, maintenance of quality, improving working conditions, morale, maintaining discipline and controlling absenteeism and so on.Operating Force Policies• : These are the rules or a code for doing the job which enrich the performance of a particular worker. These are usually written down in the notebooks of the organisation. Operating policies emphasises how long each job work should take time, what tricks of the trade are required, and what quality feature are emphasised.

On the basis of functional areas Onthebasisoffunctionalareas,businesspoliciesmaybeclassifiedasproductionpolicies,marketingandsalespolicesfinancialpoliciesandhumanresourcedevelopmentpolicies.

Production Department Policies:• Production policies are framed and concerned with the following issues: The product to be produced (product line, type of product) �The type of technology, processes, equipment and tools, to be used. �Theselectionoffactory\office\plantsite,location,andlayout. �The decisions regarding the scale of production. �Making of production budgets, manufacturing costs and deciding about total cost and cost of installation �and its maintenance.The selecting of junior executives. �Inventory control �Collective bargaining and labour relations �Organisation and co-ordination of their activities �Selection of systems of quality, cost production control. �Production policies are the basic determinants of the total policy making procedure. �

Marketing and Sales Department policies:• These policies relate to policies in market analysis, business law, display, salesmanship and advertising and so on, i.e. they are concerned with total process of marketing, which covering both ‘product mix’ and ‘market mix’. The product mix includes decisions regarding the type, quantity and quality of product design, contents shape, methods and techniques of production and so on.Financial Department Policies: • Financial policies may be regarded as the most important business policies of the organisation. It depends on the entire success and failure of a business unit of the organisation. Properly andcarefulframedfinancialpolicieshelpineffectiveutilisationoftheresourcelikemen,machine,market,method,materialsandlongtermsurvivalof thebusinesswhile improperframedfinancialpoliciesruin thebusiness activities of an organisation.Human Resource Development Department Policy:• Personal policy are concerned with human resource utilisation, its recruitments and selection, source of supply, training of employment, training of the employees at whole cost; the promotion and transfer policy, the issues regarding compensation to the employees, wage incentiveandotherperks,benefitsandservicesandsoon.

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On the basis of expression Onthebasisofexpression,policymaybeclassifiedintoexpresspolicies,oralpoliciesandwrittenpolicies.

Express Policy:• Express policies are those policies, which expressed in terms in clear words either orally or in writing. Oral Policies:• Oral policies are those, which are issued or stated by the management in terms of word of mouth to their subordinates. Such policies are generally adopted when an organisation is small and face-to-face communication is desired. Since they are direct, they are more effective and, hence, can be understood easily and implementedsmoothly.Theyaremoreflexibleandcanbeadjustedasperdifferentorganisationalconditions.Written Policy:• Written policies are those, which are normally, put in black and white, and stated in clear terms so that persons whom they are addressed to understand it easily. For putting the policies in written, much care has to be taken. However, written policies cannot be easily changed and perfect secrecy, when desired cannot bemaintained.Further,writingofgoodpoliciesneedsfluencyinEnglishthateverypersondoesnotpossess.Even then, in all large organisations, written policies are a rule rather than exception.

1.3.6 Strategic Business Unit ( SBU)Strategic Business Unit (SBU) is ‘any part of a business organisation which is treated separately for strategic managementpurposes.’Whenorganisationsfacedifficultyinmanagingdivisionaloperationsduetoanincreasingdiversity,sizeandnumberofdivisions,itbecomedifficultforthetopmanagementtoexercisestrategiccontrol.SBUisanorganisationofdiversifiedbusinesses,multi-product,multi-service,multi-divisionalisedfirms.Theheadof each SBU is its chief executive. If the company is structured and based on modern principles of organisation, like autonomy, responsibility and empowerment, corporate strategies encourage the SBU level chief executives in formulating their strategies.

SBU plays a vital role in strategic management. The chief of SBU performs the role similar to that of managing director and attempts to achieve the best results in the business units within the facilities and resources provided, autonomy and freedom sanctioned and under the overall guidelines of the corporate objectives and policies. SBU is encouraged to start new ventures, or the SBU itself may be a new venture established within the present corporation.

1.4 Importance of Business PolicyBusiness policy is important as a course in the management curriculum and as a component of executive development programmes for middle-level managers who are preparing to move up to the senior management level. A study of businesspolicyfulfilstheneedsofmanagementstudentsaswellasthoseofmiddle-levelmanagers.

1.4.1 For Learning the CourseBusiness policy seeks to integrate the knowledge and experience gained in various functional areas of management. It enables the learner to understand and make sense of the complex interaction that takes place between different functional areas.

Business policy deals with the constraints and complexities of real-life businesses. In contrast, the functional area coursesarebasedonastructured,specialisedandwell-developedbodyofknowledge,resultingfromasimplificationof the complex overall tasks and responsibilities of the management.

To develop a theoretical structure of its own, business policy cuts across the narrow functional boundaries and draws upon a variety of sources viz.other courses in the management curriculum and a wide variety of disciplines, like economics, sociology, political science, and so on. Through this business policy offers a very broad perspective to its students.

Business policy makes the study and practice of management more meaningful as one can view business decision-making in its proper perspective.

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1.4.2 For Understanding the Business EnvironmentIrrespective of the level of management a person belongs to, business policy helps to create an understanding of how policies are formulated. This helps in creating an appreciation of the complexities of the environment that the senior management faces in policy formulation.

By gaining an understanding of the business environment, managers become more receptive to the ideas and suggestions of the senior management. Such an attitude on the part of the management makes the task of policy implementation simpler.

When they become capable of relating environmental changes to policy changes within an organisation, managers feel themselves to be a part of a greater design.

1.4.3 For Understanding the OrganisationBusiness policy presents a basic framework for understanding strategic decision-making while a person is at the middle level of management. Such a framework, combined with the experience gained while working in a specialised functional area, enables a person to make preparations for handling general management responsibilities.

Businesspolicybringsthebenefitofyearsofdistilledexperienceinstrategicdecision-makingtotheorganisationand also to its managers.

An understanding of business policy may also lead to an improvement in job performance. As a middle-level manager, a person is enabled to understand the linkage between the different subunits of an organisation and how aparticularsubunitfitsintotheoverallpicture.

1.4.4 For Personal DevelopmentA study of business policy offers considerable scope for personal development. It is a fact of organisational life that the different subunits within an organisation have a varying value and importance at different times. It often happens that a company, which has followed a production-orientation as a matter of policy, gradually shifts its emphasis to marketing, maybe due to increasing competition. An understanding of business policy enables the executives to avail an opportunity or avoid a risk with regard to career planning and development.

While making a career choice, the study of business policy provides an adequate grounding for understanding the macro factors and their impact at the micro level. By gaining an understanding of such an impact, an executive is better placed to identify the growth areas.

Business policy offers a unique perspective to executives to understand the senior management’s viewpoint. With such an understanding the chances are that a proposal made by an executive will be appreciated by senior managers.

The importance of business policy stems from the fact that it offers advantages to an executive from multiple sources.Apartfromtheintangiblebenefits,anexecutivegainsanunderstandingofthebusinessenvironmentandthe organisation. Such an understanding can help considerably in career planning and development.

1.5 Purpose of Business PolicyA business policy course seeks to integrate the knowledge gained in various functional areas so as to develop a generalist approach in management students. Such an approach is helpful in viewing organisational problems in their totality.

The viewpoint adopted in business policy is different from that adopted in functional area courses. A course in business policy helps in understanding a business as a system consisting of a number of sub-systems. Any action taken in one sub-system has an impact on other sub-systems, and on the system as a whole. It is very essential for the top management in any organisation to adopt a systems approach for decision-making.

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The problem of declining sales volume is apparently a marketing problem. Declining sales volume may be due to arisinglevelofcompetition, inefficientdistribution,faultysalespromotion, inappropriaterecruitmentpolicies,misdirected training, inadequate sales promotion, limited commission to sales personnel, falling quality standards, a decrease in the variety of products offered, out-dated design, and so on. A problem, which apparently seems to be a marketing problem, may be due to factors not necessarily within the control of marketing department. A solution totheproblemwouldnecessitatetransgressingtheartificialboundariesbetweenthefunctionalareas,eachofwhichis looked after by a team of specialists. The purpose of business policy can be summarised as:

To integrate the knowledge gained in various functional areas of management.

To adopt a generalist approach towards problem-solving.

To understand the complex inter-linkages operating within an organisation through the use of a systems approach to decision-making and relating these to changes taking

place in the external environment.

Fig. 1.2 Purpose of business policy

1.6 Objectives of Business PolicyThe objectives of the business policy have been stated by authors in terms of knowledge, skills and attitudes. These objectives can be derived from the purpose of business policy.

1.6.1 In Terms of KnowledgeObjectives of business policy in terms of knowledge are listed below:

The learners of business policy have to understand the various concepts involved. Many of these concepts, like, •strategy, policies, plans and programmes are encountered in the functional area courses too. It is imperative to understandtheseconceptsspecificallyinthecontextofbusinesspolicy.Knowledge of the external and internal environment and how it affects the functioning of an organisation is vital •to the understanding of business policy. Through the tools of analysis and diagnosis, a learner can understand theenvironmentinwhichafirmoperates.Informationabouttheenvironmenthelpsinthedeterminationofthemission,objectivesandstrategiesofafirm.•The learner appreciates the manner in which strategy is formulated. The implementation of a strategy is a complex issue and is invariably themost difficult part of strategic•management. Through the knowledge gained from business policy, the learner will be able to visualise how the implementation of strategic management can take place.To learn that the problems in real-life business are unique and so are the solutions, is an enlightening experience •for the learners. The knowledge component of such an experience stresses the general approach, to be adopted in problem-solving and decision-making. With a generalised approach, it is possible to deal with a wide variety of situations. The development of this approach is an important objective to be achieved in terms of knowledge.

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Tosurvey the literatureand learnabout the research takingplace in thefieldofbusinesspolicy isalsoan•important knowledge objective.

1.6.2 In Terms of SkillsObjectives of business policy in terms of skills are listed below:

The attainment of knowledge will lead to the development of skills through its application. Such an application •can take place by an analysis of case studies and their interpretation, and by an analysis of the business events taking place around us.The study of business policy should enable a student to develop analytical ability and use it to understand the •situation in a given case.Further, the study of business policy should lead to the skill of identifying the factors relevant in decision •making. The analysis of the strengths and weaknesses of an organisation, the threats and opportunities present in the environment, and the suggestion of appropriate strategies and policies form the core content of general management decision-making.The above objectives, in terms of skills, increase the mental ability of the learners and enable them to link theory •with practice. Such ability is important in managerial decision-making where a large number of factors have to be considered at once to suggest appropriate action.As a part of business policy study, case analysis leads to the development of oral as well as written communication •skills.

1.6.3 In terms of AttitudeObjectives of business policy in terms of attitude are listed below:

The attainment of the knowledge and skill objectives should lead to the inculcation of an appropriate attitude •among the learners. The most important attitude that develops through this is that of a generalist, which enables the learners to approach and assess a situation from all possible angles.By acting in a comprehensive manner, a generalist is able to function under conditions of partial ignorance by •using their judgement and intuition. Experience has shown that managers, especially in the area of long-range planning, have to work with incomplete information. A specialist would tend to postpone a decision under such conditions but a generalist would go ahead with whatever information is available. For a general manager, information and suggestions are important and he /she must possess a liberal attitude and •be receptive to new ideas. Dogmatism with regard to techniques should be replaced with a practical approach to decision-making for problem-solving. It is important to have the attitude to ‘go beyond and think’ while facing a problematic situation. Developing •a creative and innovative attitude is the hallmark of a general manager who refuses to be bound by precedents and stereotyped decisions.

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SummaryBusiness policy is a predetermined course of action which is established to provide a guide toward accepted •business strategies and objectives.The origins of business policy can be tracked back to 1911, when the Harvard Business School introduced an •integrative course in management aimed at providing general management capability.The actual movement for introducing business policy in the curriculum of business schools came with the •publication of two reports in 1959: The Gordon and Howell report and The Pierson report.In 1969 the American Assembly of Collegiate Schools of Business (AACSB), a regulatory body for business •schools, made the course of business policy a mandatory requirement for the purpose of recognition.Theresolutionofstrategicissuesthataffectthefutureofabusinessfirmhasbeenacontinualendeavourinthe•subject of business policy. This endeavour is based on the development of strategic thinking.Businesspolicyhasbeendefinedas“aprincipleoragroupofrelatedprinciples,alongwiththeirconsequent•rulesofactionthatprovideforthesuccessfulachievementofspecificorganisationorbusinessobjectives”.Business policies clearly specify routes towards the related goals of the organisation. Policies serve as a standard •or measuring yard for evaluation performance in the organisation. The different types of business policy depends on the basis of level of management; on the basis of functional •areas; and on the basis of expression.Strategic Business Unit (SBU) is ‘any part of a business organisation which is treated separately for strategic •managementpurposes.’SBUisanorganisationofdiversifiedbusinesses,multi-product,multi-service,multi-divisionalisedfirms.Business policy is important as a course in the management curriculum and as a component of executive •development programmes for middle-level managers who are preparing to move up to the senior management level. A business policy course seeks to integrate the knowledge gained in various functional areas so as to develop a •generalist approach in management students. Such an approach is helpful in viewing organisational problems in their totality.

ReferencesWheelen, T. and Hunger, J., 2009. • Concepts in Strategic Management & Business Policy, 12th ed., Prentice Hall.Owens, R., 1954• . Introduction to business policy. R.D.Irwin.courseonline3000, 2007. • Strategic Management-Part 1 to 7 [Video Online] Available at: <http://www.youtube.com/watch?v=5_Uu1f0tSak>. [Accessed 7 August 2011].DrDragseth, 2008. • Business Policy: Week 1 [Video Online] Available at: <http://www.youtube.com/watch?v=RRVU1Uf64RA>. [Accessed 7 August 2011].oppapers .com, 2011. • Introduce To Business policy [Online] Available at: <http://www.oppapers.com/essays/Introduction-To-Business-Policy/482365>. [Accessed 7 August 2011].Hiriyappa, B.2011. • Business Policy and Strategic Management [Online] Available at: <http://www.scribd.com/doc/31524796/isbn-978-1448604333-Business-Policy-and-Strategic-Management>. [Accessed 7 August 2011].

Recommended ReadingSekhar, G., 2010. • Business Policy and Strategic Management. I.K.International Publishing House Pvt. Ltd.Kazmi, A., 2002. • Business Policy and Strategic Management, 3rd ed., Tata Mcgraw-Hill.Luffman, G. and Sanderson, S., 1991. • Business Policy: An Analytical Introduction, 2nd ed., Blackwell Pub.

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Self Assessment______________________policies may be regarded as the most important policies of an organisation.1.

Financiala. Businessb. Productionc. Demandd.

Match the following:2.

1. Express policies A. These are the policies, which are normally, put in black and white and stated in clear terms so that persons whom they are addressed to easily understand them.

2. Oral policies B. These are the policies, which expressed in clear words either orally or in writing.

3. Written policies C.Isdefinedasaprincipleoragroupofrelatedprinciples,alongwiththeir

consequentrulesofactionthatprovideforthesuccessfulachievementofspecificorganisation or business objectives.

4. Business policy D. These are the policies, which are issued or stated by the management verbally to their subordinates.

1-A, 2-D, 3-B, 4-Ca. 1-D, 2-B, 3-A, 4-Cb. 1-D, 2-B, 3-C, 4-Ac. 1-B, 2-D, 3-A, 4-Cd.

Which of the following statements is false?3. Business policy is a mandatory course which is usually included in a typical management studies a. curriculum. Strategic management forms the practical framework for business policy courses today.b. Theresolutionofstrategicissuesthataffectthefutureofabusinessfirmhasbeenacontinualendeavourinc. the subject of business policy. Sound policies help to build up employee enthusiasm and loyalty for the organisation.d.

Business policy presents a basic framework for understanding strategic _____________ while a person is at 4. the middle level of management.

policiesa. issuesb. decision-makingc. managementd.

The_______levelmanagementpeoplehavedirectsupervisionovertheworkingforceinoffice,factory,sales5. field,andotherareasofactivityoftheorganisation.

topa. middleb. lowerc. operationald.

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Which of the following statements is true?6. A good business policy should be based on ethics of business.a. Business policy must be able to assist and help lower level management in framing rules and regulations b. for the organisations.Business policy should be made in accordance with the ethics and social responsibility of business.c. Business policy should be able to expect certainties in the future.d.

Which of the following are the rules or codes for doing the job, which enrich a particular workers 7. performance?

Operational force policiesa. Written policiesb. Oral policiesc. Express policiesd.

__________________is a part of a business organisation, which is treated separately for strategic management 8. purposes.

Strategic Management (SM)a. Strategic Business Unit (SBU)b. Strategic Policy (SP)c. Strategic Planning (SP)d.

Policies are monitored and controlled in the organisation, which guides for ___________ decision-making.9. delegateda. individualb. flexiblec. efficientd.

____________policies always build-up an image of the business in the eyes of the public which brings in more 10. reputation and goodwill.

Businessa. Strategicb. Corporatec. Organisationald.

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Chapter II

An Overview of Strategy Management

Aim

The aim of this chapter is to:

introduce the term ‘strategy’•

describe the strategic decision making process•

explain strategic planning•

Objectives

The objectives of this chapter are to:

describe functional strategic decisions•

explain the type of strategies•

explicate the levels of strategic management•

Learning outcomes

At the end of this chapter, you will be able to:

discuss strategic choice and strategic forecasting•

understand globalisation and environmental sustainability•

com• prehend the facets of strategic management

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2.1 An Overview of Strategy ManagementThe word strategy came from the Greek word ‘strategos’, which means a general. At that time, strategy literally meant the art and science of directing military forces. Today, strategy is used in business to describe how an organisation achievesitsobjectives.Strategicmanagementmaybedefinedasasystematicapproachtopositioningthebusinessin relation to its environment to ensure continued success and offer security from surprises. Strategic managers should always aim at achieving pre-determined goals of the organisation.

2.1.1 Definition of StrategyStrategyisdefinedas“aunified,comprehensiveandintegratedplandesignedtoassurethatthebasicobjectiveofthe enterprise is achieved” According to Ansoff, “Strategyisaruleformakingdecisions”.Definitionsbyotherauthors are given below.

Alfred D. Chandler• :“Strategycanbedefinedasthedeterminationofthebasiclong-termgoalsandobjectivesof an enterprise and the adoption of courses of action and the allocation of resources necessary for carrying out these goals”.Kenichi Ohame• : “Strategy is the way in which a corporate endeavours to differentiate itself positively from its competitors, using its relative strengths to better satisfy customer needs”.William F. Glueck• : “Strategic management is a stream of decisions and actions which leads to the development of an effective strategy, which helps to achieve corporate objectives”.

2.1.2 Types of StrategyStrategycanbebroadlyclassifiedintothreetypesnamely:

Corporate Strategy•Corporate Competitive Strategy•Operational Strategy•

Corporate strategyCorporate strategy is concerned with broad issues, such as, which types of business the company should be in. It explains overall direction, in terms of its general attitude toward growth and the management of its various business andproductlines.Strategieshaveanimportantroletoplayhere.Corporatestrategiesmayfitwithinmaincategoriesof stability, growth and retrenchment.

Corporate strategy is the way in which corporate endeavours differentiate itself positively from its competitors, using its relative strengths to better satisfy customer needs.

Corporate strategy applies to large companies, which are divided into a number of discrete and fairly autonomous units. Holding companies are the best examples of corporate strategy, in which a number of companies are grouped together,usuallyforfinancialreasons,suchastheefficientallocationofcapitalandinvestment.

Corporate strategy of an organisation is a concept expressed or implied by the organisations leader for:The long-term objectives. •The broad constraints and policies either self-imposed by the leader or accepted by him from his superiors that •currently restrict the scope of organisation activities.The current set of plans and near-term goals that have been adopted in their expectations of contributing to the •achievement of organisation objectives.

The corporate strategic manager should always aim at achieving pre-determined goals of the organisation. Further, organisations have to work with brevity and variety. Thoughts should become actions. Actions will lead to results. Result-oriented action is the need of the hour.

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Corporate strategy has two main aspects:Formulation of strategy:• Strategy formulation is “the process of deciding on objectives, changes in objectives, the resources used to attain these objectives and the policies that are to govern the acquisition, use and disposition of resources”. Formulation of strategy involves decision-making by corporate management that help in the following aspects:

Objectives, goals and aim of organisation can be determined. �Preparation of long-term and short-term plans to achieve aim and goals. �

Strategy implementation:• The decisions of organisations, which are based on formulated strategies, should be implemented in proper manner. These decisions primarily comprise of administrative polices regarding resources, structure and performance measurement. The essence of strategy implementation may be said to lie in the choice of organisational structure, organisational process and pattern of leadership appropriate for accomplishing the chosen strategy.

Corporate competitive strategyBusiness policy deals with how strategic business units compete in different markets. This occurs at the business unit levelorproductlevel.Thesestrategiesinfluencetheallocationofresourcestotheseunits.ThisallocationmaybebasedontheattractivenessofthemarketsinwhichStrategicBusinessUnits(SBU)operateandthefirm’scompetitivestrengths.Businessstrategiesmayfitwithintheoverallcategoriesofcompetitiveorcomparativestrategies.

Operational strategyOperational strategy explains about functional level contribution to corporate and business strategies. These types of strategiesrequirevariousfunctionaldecisionslikefinancial,marketing,humanresourcemanagementandsoon.

2.1.3 Organisation and StrategyWhile organising a matter of decision-making we decide to arrange the people, jobs, and positions that are available tomeetmanagement’sneeds.Thetask,thetechnology,andourknowledgeofwhathasworkedhaveinfluencedour choice of organisational design. The classic theorists, Taylor, Fayol and Weber contributed to the architectural perspective on organisations by focusing in their structural attributes:

SizeNumber of personnel, output, resources, or capacity provides measures of an organisation of an organisation’s size. As organisations grow there is a greater need to regain the coordination that could be accomplished informally in a small group, and there is a tendency for division of labour with more and more specialists and departments. To achieve greater coordination, layers of management may be added to create hierarchy.

As hierarchy increases power to lower managers. Decentralisation can occur as lower level managers assume decision-making, but to retain some degree of standard operational procedures, the organisation relies on written policies and procedures. This formalisation of organisation rules helps to maintain order across the growing organisation and ensures conformity and continuity in practices.

Also with growth, organisations begin to divide the work into ordered units that perform specialised work. Increased specialisation of work into departments is term differentiation. The extent to which an organisation is departmentalised, divisionalised, and hierarchically layered characterises the organisation’s complexity.

Span of controlSpan of control has interesting implications for work, how work is performed, and the organisational structure. A narrow span of control describes a low number of workers under a manager. The structure that is created is tall, or mechanistic. The tall pyramid structure is created by the hierarchical layering required to maintain a low manager-to-employee ratio. The tight supervision inherent in the mechanistic structure is characteristic of bureaucracy. Work is performed under tight controls, little variability of tasks is permitted, and there is high specialisation or departmentalisation.

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Flat (Organic) Structure

Span of Control = 4Number of Employees = 14

Fig. 2.1 Flat structure(Source: Satya Sekhar, G. V., 2009. Business Policy and Strategic Management, I. K. Publishers)

Whenamanageroverseasalargenumberofemployees,thehighspanofcontrolproducesaflatorganisationcalledorganicstructure.Theflatpyramidisacharacteristicoforganisationswithlowhierarchy,withlargernumberofemployees per manager means that workers have more autonomy to perform their tasks.

TechnologyThe technology of how work is to be performed affects how the work is organised. For instance: if the work is creative, such as research and development, creativity is required and the organisation is not formalised, division of labour is not clear, and decision-making is highly decentralised.

Technologycanbeclassifiedas:•custom �mass production �continuous production �

Successfulfirmsmatchedtheirtechnologybasewiththestructuraltype.Lowleveltechnology(custom)requiresanorganic structure; mass production that combines labour resources with machines requires mechanistic structures; and, high level technology is matched with an organic structure.

Hie

rarc

hySp

an o

f con

trol

Custom (Job Order)

Continuous process

Mass production

Increasing Use of Technology

Fig. 2.2 Increasing use of technology(Source: Satya Sekhar, G. V., 2009. Business Policy and Strategic Management, I. K. Publishers)

2.1.4 Forms of StrategyThe forms of strategy are discussed below.

Functional formThis simple form is organised around a division of labour into specialised functions that interrelate to create, deliver and manage a product. This form is often characterised as organising inputs for transformation into a single output.

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Functional (Unitary) Form

Departments or Functional Units

Fig. 2.3 Functional form(Source: Satya Sekhar, G. V., 2009. Business Policy and Strategic Management, I. K. Publishers)

Multi-divisional form (MDF) The MDF structure organises businesses under headquarters that functions as banker, strategist and coordinator for multiple business units. This form is often characterised as organising by outputs. The theoretical problem with MDF is that once functional resources are decentralised to strategic business units, they are controlled and managed bydivisionmanagers,notbycorporateheadquarters.Therefore,adiversifiedcorporationmaymanagebusinessesas decentralised under the MDF organisation.

Board of directors

ChiefExecutiveOfficer(CEO)

Chief Finance

Officer(CFO)

Cor

pora

te

Hea

dqua

rters

Bus

ines

s U

nits

Division Manager

Functional activities are organised as

departments

Functional activities are organised as

departments

Functional activities are organised as

departments

Division Manager Division Manager

Chief Operations

Officer(COO)

Chief Marketing Officer

Corporate HRM Officer

Corporate Purchasing Officer

Chief Information Officer(CIO)

Fig. 2.4 A modern version of the multi-divisional organisation(Source: Satya Sekhar, G. V., 2009. Business Policy and Strategic Management, I. K. Publishers)

Matrix formTo retain direct control of each business unit’s functions, the matrix form has been suggested by some theorists andhasbeenembracedbyafewcorporations.Asshowninthefollowingfigure,thereisaproblemwiththematrixform:amanagerlocatedwithinadivisionhastwolinesofreporting.Afirstlinemanagerreportstothecorporateproduct manager and to the corporate functional manager.

This,inreality,createsconflictsaswellastakestimetoworkunderthisform.Mostfirmsarenotwillingtoinvestso much time in training, and the matrix is often adopted by businesses. The exception is international businesses. Foraglobalfirmtheabilitytoorganisearound geographical markets is an advantage.

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Matrix Organisational Form

Functional Divisions

Second-level Managers report to• aFirst-LineManagerforFunctionand• afirst-LineManagerforProduct/Market

Prod

uct o

f Mar

ket D

ivis

ions

Fig. 2.5 Matrix form(Source: Satya Sekhar, G. V., 2009. Business Policy and Strategic Management, I. K. Publishers)

2.1.5 Strategic EnvironmentThe environment represents factors outside the organisation to which management reacts. There is a simple correlation between environment and structure: organic structures are found in changing environments; mechanistic structures are found in static environments. The interpretation of this relationship is that in dynamic environments, such as in the software development industry, organisations need to promote creativity and interpersonal communication for problem solving. Industries, such as textile manufacturing, have static environments, not much innovation and not many changes to the way the product is made, and have mechanistic structures. Tall hierarchical structures afford the controls necessary to manufacture a product that is well understood.

The mechanism that connects the organisation to its environment is important as it helps us understand why and how organisational structures respond to the changes in external forces.

2.1.6 Meaning of Strategy ManagementStrategic management is that set of managerial decisions and actions that determine the long-run performance of a corporation. It includes environmental observation, strategic planning, formulation, implementation, evaluation and control. Strategic mission consists of a long-term vision of what an organisation seeks to do and what kind of organisationitintendstobecome.Developmentoforganisationcompletelyrestsontheefficiencyofthedecision-makers. They have to take decisions based on present policies for achievement of future goals. Strategic management always concentrate on the anticipated aim. Future is uncertain therefore, strategic decisions are always incomplete and are sometimes based on hypothetical information.

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2.1.7 Strategic Management ProcessStrategic management process consists of nine steps as given below:

Step 1: Agreement on the process

Thefirst step in the strategicmanagement process is to getagreement—not only to carry out the process but also to get agreement on how and when and by whom it will be carried out. Since the strategic management process is not a one-shot exercise, commitment to the long haul is vital; without commitment, the exercise will be sterile and likely regarded as a waste of time.

Step 2: Identification and clarification of the organisation’s mission, objectives and current strategies

Once an organisation has agreed to engage in a strategic process, thefirsttaskistodeterminewhatandwheretheorganisationis.Clarification of themission, objectives, and strategies isfundamental to initiation of the strategic process. It amounts to a statement of where the organisation is, what it does and how it goes about its business. It should also help clarify which policies or demands can be facilitated by the organisation and which will be impeded.

Step 3: Identification of the organisation’s internal strengths and weaknesses

One way to examine these is to look at the organisation’s resourcebase.Analysisofresourcesbyitselfisnotsufficient;the organisation must also look at its task performance. This will give a better idea of how the organisation’s resources are organised and how effectively those resources are put to use. An organisation may well have excellent research skills, but if its primary tasks are in service delivery, then such skills may be more a weakness than strength. Such skills may well be quite useful if the organisation should need to make changes in order to be more compatible with its environment.

Step 4: Assessment of threats and opportunities in the external environment

While there is frequently a tendency on the part of managers to focus on the internal dimensions of the organisation, policy change and the often volatile nature of politics in countries undergoing major policy changes requires conscious exploration of the environment outside the organisation. Political, economic, social,andtechnologicalchangeswillinfluencethedirectionand shape of an organisation’s policies and objectives. An important factor in the organisation’s external environment is its bureaucratic and institutional setting.

Step 5: Identification of key constituents and stakeholders, their expectations and resources

The expectations and demands of constituents are key ingredients for decisions about what an organisation will do and how it goes about carrying out its tasks. Stakeholders or constituents are thosewhohaveadirectinterestinandarecapableofinfluencingin some measure the outcomes or actions of the organisation.

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Step 6: Identification of key strategic issues

Strategic issues are the principal problems that must be dealt with effectively or the organisation can expect undesirable results. The effective treatment of strategic issues can signify fundamental change in how the organisation goes about its business. Such issuesmay generate conflictwithin theorganisation since their resolution will produce winners and losers both internally and externally. The organisation must be preparedtodealwiththatconflict.

Step 7: Design, analysis, and selection of strategy alternatives and options to manage issues

Once issuesandproblemshavebeen identified,strategies tosolve thoseproblemsneed to be identified.Generally,morethanoneoptionfordealingwiththeproblemwillbeidentified;then options must be examined for their comparative viability, feasibility, and desirability.

Step 8: Implementation of the strategy

Implementation of a strategy is not an automatic process; therearetwomajorpartstotheprocess.Thefirststepisthedevelopment of an action plan, which is a statement of what, who, when, and how the actions necessary to carry out the strategy will be done. Performance goals and objectives will alsobespecified.Muchoftheinformationneededtodevelopthe action plan will have been generated in Step 7. The second part of implementation consists of actions aimed at marshalling and applying resources.

Step 9: Monitoring and review of performance

Strategic management assumes continual change. Therefore, mechanisms must be developed for monitoring and analysing the performance of the organisation with respect to achieving the goals and objectives set in the action plan. The monitoring process should be continuous, regular, and capable of feeding into the decision- making process. The manager should develop controlmechanismstogaugetheefficiencyofresourcesusedand impact mechanisms to gauge the effectiveness of its actions. Finally, it is vital that the monitoring process be timely and usable.

Table 2.1 Strategic management process

2.1.8 Facets of Strategic ManagementThefivefacetsofstrategicmanagementare:

Goal-setting:• Goal-settingenablestoarticulatethevision,identifywhatneedstobeaccomplished,defineshortand long-term objectives, and relate them to what the organisation needs to do. A mission statement summarises purpose and goals in terms easily understood by both staff and external stakeholders.Analysis:• Analysis guides us to collect and consider information so that we fully understand the situation. Assess external environments and internal situations to identify the strengths and weaknesses of the organisation and the opportunities and threats we seek to reach our goals.Strategy formation:• Todetermineastrategy,wereflect,prioritise,developoptions,andmakedecisions.Reviewthe results of the analyses, identify the issues that you and your implementing partners need to address, and prioritise them in terms of their urgency and magnitude. Use these results to design alternative strategies and plans that to address the key strategic issues.

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Strategic implementation:• To implement the strategy, assemble the necessary resources and apply them. Put the chosen plans into practice, organise the resources and committments necessary for moving ahead, tap existing capacity and build new capacity, and seek to achieve results.Strategy Monitoring:• Monitoring allows us to check our progress toward achieving our goal and assess whether any changes in the environment necessitate alterations to the strategy. Modify plans and actions to adjust to the impact of changes in the operating environment. Effective monitoring allows us to react and anticipate. Monitoring also feeds back into analysis, strategy design, and implementation in the immediate term and into goal-setting over the longer term.

Goal-setting

Analysis

Strategy formation

Strategy Implementation

Strategy Monitoring

Strategic Management

Fig. 2.6 Facets of strategic management(Source: Scribner, S., Introduction to Strategic management)

2.2 Strategic Decision Making ProcessDecision making is one of the primary responsibilities of a manager. The quality of a manager’s decision is important for two principal reasons:

First, it directly affects their career opportunities, rewards, and job satisfaction.•Secondly, managerial decisions contribute to the success or failure of an organisation.•

Decision-making is a means to an end. It entails identifying and choosing alternative solutions that lead to a desired state of effects. The process begins with a problem and ends when a solution is chosen. Managerial decision-making dependson‘strategicplanning’.Itmaybedefinedasasystematicapproachtoformulatestrategiesforpositioningthe business in relation to its environment to ensure continued success and offer security. While no approach can guarantee continuous success and offer security, an integrated approach to strategy formulation, involving all levels of management, can go some way in this direction.

The purpose of strategic decision-making is to develop strategies by which an organisation will be able to achieve its objectives. The time horizon for strategic decisions tends to be fairly long, so that fundamental shifts in the organisation may be made. Strategic decisions do not have to occur on a periodic cycle as other management activities.

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Evaluate current performance results

Examine and evaluate the current:•Mission•Objectives•Strategies•Policies

Review corporate governance:•Boardof Directors•TopMan agement

Scan and Assess External Environment:•Natural•Societal•Task

Analyse external factors:•Opportuni ties•Threats

Select strategic factors (SWOT) in light of current situation

Scan and assess internal environment:•Structure•Culture•Resources

Analyse internal factors•Strengths•Weak nesses

Strategy formulation

steps 1-6

1(a) 1(b)

4(a) 4(b)

5(a)

3(a) 3(b)

2

Fig. 2.7 Strategic decision-making process(Source: Satya Sekhar, G. V., 2009. Business Policy and Strategic Management, I. K. Publishers)

Types of decisionsProgrammed decisions:• Programmed decisions tend to be repetitive and routine. Through time and experience, organisationsdevelopspecificproceduresforhandlingthesedecisions.Habitandstandardoperatingproceduresare the most frequently used techniques for making these decisions.Non- Programmed decisions:• These are novel and unstructured. Hence, there are no cut dried procedures for dealing with problems at hand. These decisions lead to important consequences. To solve non-programmed decisions, managers tend to rely on judgement, intuition and creativity.

2.3 Functional Strategic DecisionsManagement means doing things and getting things done by others. It is concerned with objectives, policies, procedures strategies and so on. Management consists of the following important stages:

Planning:• It is a stage of ‘Strategic formulation’. Strategic formulation includes forecasting, formulating objectives, policies and goals.Organising:• It is the strategy implementation process. It includes all those managerial activities that result in a structure of task, authority and responsibility relationship.Directing:• It also comes under strategy implementation process. Directing involves efforts directed towards shaping human behaviour. It includes: leadership, communication, motivation, morale, organisational change and so on.Staffing:• Recruitment of staff is an important function. Manpower is required to implement strategies.Controlling:• Controlling refers to all those activities directed towards assuring that actual results are consistent with planned targets.

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2.3.1 Financial DecisionsFinancial decision, investment decision and dividend decisions are major considerations in determining the capability oftheentity.Financialplansandpoliciesofanorganisationarerelatedtorecurringfinancialplansandpolicieslikeplanning for funds, raising of funds, allocation of funds, allocation of income, and monitoring of funds.

2.3.2 Marketing DecisionsEfficiencyinproductlaunchingandsuccessofproductinthemarketcanbetreatedasameasureforperformanceofmarketingmanagement.Marketingisallaboutfindingoutwhatconsumerswant,thenplanninganddevelopinga product or services to satisfy them. Plans and policies are based on four important elements of marketing:

Product•Distribution•Promotion•Pricing•

2.3.3 Production and Operations DecisionsProduct planning is important for business decisions. Market research and analysis trends provide a good indication of the future market changes. Therefore, successful business must rely upon the very close relationship of marketing tospecifiedrequirementsandengineeringdesignandprovidefeaturesandfacilitieswithinthetechnologicalart,andthemanufacturingfunctiontoproduceataspecifiedvolumeandcost.Alltheproductmixelementsshouldbecarefully considered before the product actually goes into commercial production.

2.3.4 Pricing DecisionsPricelevelofbusinessgoodsaremorestablethanthoseofconsumergoods.Mostofthefirmsfollowthepricingobjectives such as the rate of return on the capital invested, meeting competition and so on. The various factors considered are grouped under the 3 “C” of pricing:

Customer demand:• It is a vital factor in any market. The price of a product ultimately depends on the value the consumer gets from the product.Competition:• It generally sets a limit on the price. It is this fact that compels the manufactures to revise price.Cost:• Thisisthelimitingfactorbelowwhichnoonecanfixtheprice.

2.3.5 Distribution DecisionsAfter deciding the price, a manufacturer has to decide the channel through which his goods are to be moved to the buyers. The three major types of middlemen in the business are:

Manufacturers and sales agents•Manufacturers,salesbranchesandsalesoffices•Manufacturers, regional distributors, wholesalers and retailers•

A manufacturer is guided by “four Cs” in selecting the channel of distribution:Customer buying habits•Coverage of geographical area•Cost of getting product to the market•Control over the channel and sales efforts•

The essential element required here is quick delivery, which could be offered only through this arrangement.

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2.4 Strategic PlanningStrategicplanningmaybedefinedasasystematicapproachtoformulatestrategiesforpositioningthebusinessin relation to its environment to ensure continued success and offer security from surprises. Strategic planning is that set of managerial decisions and actions that determines the long-run performance of a corporation. Strategic mission consists of a long-term vision of what an organisation seeks to do and what kind of organisation it intends to become.

2.4.1 Dimensions of Planning

Role of CEO:• Strategic plan relate with various functional levels of an organisation. Hence, it is necessary that these decisions must be made in consultation with the CEO.Preparation of budget:• Strategic plans involve budget allocation to various aspects of a decision. Budget may be allocated to various sectors of production.Future development:• Strategicplansareusuallyexpectedtohaveasignificantimpactonfutureprosperityofthe organisation.Orientation:• Strategic planning should keep in view the competition existing in the market. Environment:• Plansarealwaysinfluencedbybusinessenvironment.Theremaybeexternalorinternalfactorsthatinfluencebusiness.Risk:• Strategic plans mostly face the problem of risk; they should have risk-bearing capacity.

2.4.2 Strategic Planning and ControlStrategic planning is referred to the strategies for the achievement of organisational development. Strategic control is continuous evaluation of implementing strategies at various stages. The strategic planning and control are usually the responsibility of top management team such as the Board of Directors. It involves three dimensions namely:

Strategic•Tactical•Operational control•

The characteristics of these three dimensions are illustrated in the following table.

Characteristic Strategic Tactical Operational

Time frameAggregationScopeLevel of organisationComplexityRisk

Long-termHighBroadHighHighHigh

Medium-termModerateMediumMiddleModerateModerate

Short-termLowNarrowLowLowLow

Table 2.2 Characteristics of dimension

2.4.3 Strategic ChoiceStrategicchoiceisnothingbutselectionofthebeststrategy.Itcanbedefinedas‘thedecisionstoselectfromamongthe grand strategies considered, the strategy which will best meet the enterprise’s objectives. The decision involves focusing on a few alternatives, considering the selection factors, evaluating the alternatives against criteria, and making actual choice’.

Vital steps for strategic choiceAlternatives:• First step is the determination of alternatives for the problems of the organisation. The strategist shouldalwaystrytofindallpossiblealternativesandselectthebestones.

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Selection factors:• Secondstepistofindselectionfactors.Thesewillhelptoanalyseandexaminealternatives.These factors can be objective or subjective.Evaluation:• After selection of factors, applying these to alternatives is an important step. Evaluation process reduces the burden of the strategist while selecting the strategy.Making strategic choice:• Thefinaldecisionmakingstepisinaccordancewiththeconditionsoftheorganisation,after a clear analysis and evaluation of choices. A plan of action is made, which describes strategies to be adopted by the organisation.

Crucial considerationsMission:• ‘Mission’isthepurposeforwhichanorganisationisestablished.Thefirststepofstrategicchoicedependsonwell-definedmissionstatement.Themissionmaybedescribedasthescopeoftheoperationinterms of nature of business.Objectives:• Objectives are defined as ends,which an organisation seeks to achieve by its existence andoperation. Goals:• Goalsarespecificandtime-basedpointsofmeasurement.Generally,goalsaredeterminedbytheownerof the business organisation.Policies:• The process of strategic choice sometimes encompasses the formulation of important policies. Policies help to ensure that all units of an organisation operate under the same rules. They also facilitate coordination and communication between various organisational units. Environment:• Businessenvironmentisalwaysaninfluencingfactorfordecision-making.Theremaybeexternalorinternalfactorsthatinfluencebusiness.Formulation of strategies:• Strategies can be formulated after diagnosing the environment. Each strategy with suitable sub-strategies and alternative strategies should be available to top management.SWOT analysis:• Every organisation should go through SWOT analysis. It is important tool for evaluating organisational capabilities. This is necessary for making strategic choice.Financial consideration:• The strategist should evaluate each strategy after implementing them.

2.4.4 Strategic ForecastingExpecting future strategies for a business is called ‘strategic forecasting’. This estimate is made considering various factors like controllable and non-controllable, and present and anticipated market conditions. Accurate forecasting isessentialforafirmtoenableittoproducetherequiredquantitiesattherighttime,andarrangewellinadvancefor the various factors of production. It gives reliable information, and estimation of future business. It is a based on mathematical law of probability. Forecasting depends upon the nature of the business.

Factors involved in strategic forecasting are as follows:Time factor:• Forecasting can be done for short-term as well as long-term. Level factor:• Strategic forecasting may be undertaken at three different levels.

Macro level: � It is concerned with business conditions over the whole economy.Industry level: � Prepared by different industries.Firm level: � Firm level forecasting is the most important from managerial view point.

General or specific purpose factor: • Thefirmmayfindeithergeneralorspecificforecastingorbothusefulaccording to its requirement.Product:• Forecasting varies according to the type of product i.e. new product or existing product or well established product.Nature of the product:• Goodsareclassifiedintoconsumergoodsandproducergoods.Businessforaproductwill be mainly dependent on nature of the product. Forecasting methods for producer goods and consumer goods will differ accordingly.

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Competition:• While forecasting, market situation and the product position in a particular market should be analysed.Consumer behaviour:• What people think about the future, their own personal prospects and about products andbrandsarevitalfactorsforfirmsandindustries.

Advantages of strategic forecastingAnalysing:• Businessanalysisisthefirstandforemostapplicationofstrategicforecasting.Priceofaproductisthekeyfactorwhichinfluencesbusinessfortheproduct.Apartfromprice,thereareseveralotherfactorswhichinfluencebusinessfortheproductlikeincome,taste,preferences,consumerbehaviourandsoon.Estimation of supply:• By making strategic forecasting of a business, one can understand the needs of business. Capital outlay:• Capital outlay is to ascertain the investment requirements for the organisation. Strategic forecasting includes the responsibility of determining capital requirements for business.Market conditions:• Several market conditions like monopoly, oligopoly and monopolistic competition always exist in the market. Competitive market conditions vary according to the nature of product and the number of sellers in the market.Price of a product:• Cost-volume-profitanalysisisanimportanttooltoanalysecosttodeterminetargetprofitfor the organisation. Firm can decide appropriate price for the product on the basis of forecasting.Advertising policy:• Forecasting helps the management and it has to act as adviser to the management. It can advise about advertising policy, as it is necessary for product promotion.Market segmentation:• The strategist can be an adviser to the marketing department. Feasibility report:• The reports of forecasting help in the preparation of feasibility reports. These reports can beclassifiedintothreetypes:technicalfeasibility,operationalfeasibilityandeconomicfeasibility.

2.5 Levels of Strategic ManagementThe levels of strategic management can be divided into three categories:

Corporate-level management:• Itconsistsofboardofdirectors,chiefexecutiveofficer,andseniorexecutivesresponsibleforstafffunctionssuchasplanning,finance,humanresources,legal,andgeneraladministration.The corporate CEO is the chief strategist responsible for the success of the total enterprise. In that capacity he or shedeterminesthefirm’soverallstrategicdirection:thebusinessesinwhichthefirmwillcompete,thebusinessofwhichitwilldivestitself,thelong-termobjectivesthefirmwillpursue,andthedistinctivecompetenciesitwill develop and share among its businesses.Business-level management:• It consists of general manager of that business unit, functional managers, and staff specialists. The business unit CEO is the chief strategist for that particular business and is responsible foritssuccess.Mutli-businessfirmsgenerallyallowsufficientfreedomtothebusiness-levelCEPinstrategyformulation and implementation in exchange for business unit performance.Functional-level management: • It consists of a functional head to whom subordinate manager reports. Functional heads are responsible pertaining to their function. For example, the head of marketing would decide what strategy shouldbeemployedtoachievethefirm’smarketinggoalof,say,increasedbrandawareness.Functionalstrategies,thus,focusontheoperationalcompetenciesnecessarytosupportafirm’sbusiness-levelandcorporatelevel.

2.6 Strategic Audit : Aid to Decision MakingThe strategic decision-making process is put into action through a technique known as the strategic audit. A strategic audit provides a checklist of questions, by area or issue that enables a systematic analysis necessary for various corporate functions and activities.

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Note that the numbered primary headings in the audit are the same as the numbered blocks in the strategic decision-makingprocessasshowninthefigure2.7.Beginningwithanevaluationofcurrentperformance,theauditcontinueswith environmental scanning, strategy formulation, and strategy implementation, and it concludes with evaluation and control. A strategic audit is type of management audit, and is extremely useful as a diagnostic tool to pinpoint corporate world-wide problem areas and to highlight organisational strengths and weaknesses. It can help determine why a certain area is creating problems for a corporation and help generate solutions to the problem.

A strategic audit is not an all-inclusive list, but it presents many of the critical questions needed for a detailed strategic analysis of any business corporation.

2.7 Globalisation and Environmental Sustainability: Challenges to Strategic ManagementNot too long ago, a business corporation could be successful by focusing only on making, and selling goods and services within its international boundaries. International considerations were minimal. During the 1960s, for example, most U.S. companies organised themselves around a number of product divisions that made and sold goods only in the United States. All manufacturing and sales outside the United States were typically managed through one international division.

Similarly, until the later part of the 20thcentury,abusinessfirmcouldbeverysuccessfulwithoutbeingenvironmentallysensitive. Companies dumped their waste products in nearby streams and freely pollute the air with smoke containing noxious gases.

Responding to complaints, government eventually passed laws restricting the freedom to pollute the environment. Lawsuits forced companies to stop old practices. Until the dawn of the 21st century, most executives considered pollution abatement measures to be a cost of business that should be either minimised. Rather than clean up a polluting manufacturing site, they often closed the plant and moved manufacturing offshore to a developing nation with fewer environmental restrictions.

2.7.1 Impact of Globalisation Globalisation, the integrated internationalisation of markets and corporations, has changed the way modern corporations do business. The world-wide availability of the internet and supply-chain logistical improvements, such as containerised shipping, means that companies can now locate anywhere and work with multiple partners to serve any market. To reach economies of scale necessary to achieve the low costs, and, thus, the low prices, needed to be competitive, companies are now thinking of a global market instead of national markets. Instead of using one international division to manage everything outside the home country, large corporations are now using matrix structures in which product units are interwoven with country or regional units. International assignments are now considered key for anyone interested in reaching top management.

As more industries become global, strategic management is becoming an increasingly important way to keep track of international developments, and position a company for long-term competitive advantage. For example, General Electric moved a major research and development lab for its medical systems division from Japan to China in order to learn more about developing economies.

Recently, pharmaceutical companies have also started eying India as a means for gaining long-term competitive advantage. Indian companies can reap huge cost savings and as a result pharma companies relieve some pressure on developing new drugs to replace the older ones.

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2.7.2 Impact of Environmental SustainabilityEnvironment sustainability refers to the use of business practices to reduce a company’s impact on natural and physical environment.

India’sfirstevereco-friendlybuildingistheResourceEfficientTERIRetreatforEnvironmentalAwarenessandTraining (RETREAT) located in Gurgoan. A complex of Tata Energy Research Institute (TERI) is powered by renewable energy system, which uses waste biomass and solar radiation as a sources of energy. It also boasts the firstsolarroofinIndia.

Climate change is playing a growing role in these companies’ business decisions. The effects of climate change on industries and companies throughout the world can be grouped into six categories of risks: regulatory, supply chain, product and technology, litigation, reputation, and physical.

Regulatory risk:• Most of the companies of the world are already subjected to Kyoto Protocol, which requires the developed countries to reduce carbon dioxide and other greenhouse gases by an average of 6% from 1990 levels by 2012. The European Union has an emissions trading program, which allows companies that emit greenhouse gases beyond a certain point to buy additional allowances from other companies whose emissions are lower than the prescribed limit. Companies can also earn credits toward their emissions by investing in emissionsabatementprojectsoutsidetheirownfirms.Supply chain risk:• Suppliers will be increasingly vulnerable to government regulations—leading to higher component and energy costs as they pass along increasing carbon-related costs to their customers. Global supply chainwillbeatriskfromanincreasingintensityofmajorstormsandflooding.Highersealevelsresultingfromthe melting of polar ice will create problems for seaports. China, where much of the world’s manufacturing is currently being outsourced, is becoming concerned with environmental degradation. The increasing scarcity of fossil-basedfuelisalreadyshootingupthetransportationcostssignificantly.Product and technology risk: • Environmentalsustainabilitycanbeaprerequisitetoprofitablegrowth.Forgrowth, worldwide investments in sustainable energy more than doubled to $70.9 billion from 2004 to 2006. Carbon-friendly products using new technologies are becoming increasing popular with customers. Those automobile companies, for example, that were quick to introduce hybrid or alternative energy cars gained a competitive advantage.Litigation risk: • Companiesthatgeneratesignificantcarbonemissionsfacethethreatoflawsuitssimilartothosein the tobacco, pharmaceutical, and building supplies industries. India looses around 4% of its gross domestic product as a result of environmental damage. The ministry of Environment and Forests (MoEFs) recognises the need to strike a balance between development and protecting the environment. As a result government passes the Environment Protection Act 1986 to increase the power of ministries. Reputation risk:• A company’s impact on the environment can heavily affect its overall reputation. It is found that in some sectors the value of a company’s brand could be at risk because of negative perceptions related to climate change. In contrast, a company with a good record of environmental sustainability may create a competitive advantage in terms of attracting and keeping loyal consumers, employees and investors. Physical risk:• Thedirectriskposedbyclimatechangeincludesthephysicaleffectsofdroughts,floods,storms,andrisingsealevels.AverageArctictemperatureshaverisenfourtofivedegreesFahrenheitinthepast50years,leading to melting glaciers and sea levels rising one inch over decade. Industries most likely to be affected are insurance,agriculture,fishing,forestry,realestate,andtourism.Physicalriskcanalsoaffectotherindustries,such as oil and gas, through higher insurance premiums paid on facilities in vulnerable areas.

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SummaryStrategicmanagementmaybedefinedasasystematicapproachtopositioningthebusinessinrelationtoits•environment to ensure continued success and offer security from surprises.Strategyisdefinedas“aunified,comprehensiveandintegratedplandesignedtoassurethatthebasicobjective•of the enterprise is achieved”.Strategycanbebroadlyclassifiedintothreetypesnamely;corporatestrategy,corporatecompetitivestrategy,•and operational strategyCorporate strategy is the way in which corporate endeavours to differentiate itself positively from its competitors, •using its relative strengths to better satisfy customer needs.Business policy deals with how strategic business units compete in different markets.•Operational strategy explains about functional level contribution to corporate and business strategies. •There are three forms of strategy namely: functional, multi-divisional and matrix form.•The Multi-divisional form (MDF) structure organises businesses under a headquarter that functions as banker, •strategist, and coordinator for multiple business units. This form is often characterised as organising by outputs.To retain direct control of each business unit’s functions, the matrix form has been suggested by some theorists •and has been embraced by a few corporations.The facets of strategic management are goal-setting, analysis, strategy formation, strategic implementation, •and strategic monitoring.The quality of a manager’s decision is important for two principal reasons. First, it directly affects their career •opportunities, rewards, and job satisfaction, and secondly, managerial decisions contribute to the success or failure of an organisation.Management consists of the following important stages: planning, organising, directing, staffing, and •controllingPlans and policies of an organisation are based on four important elements of marketing: product, distribution, •promotion, and pricingStrategicplanningmaybedefinedasasystematicapproachtoformulatestrategiesforpositioningthebusiness•in relation to its environment to ensure continued success and offer security from surprises. The strategic decision-making process is put into action through a technique known as the strategic audit. •Environment sustainability refers to the use of business practices to reduce a company’s impact on natural and •physical environment.

ReferencesNetwork3E, 2010. • The essence of strategy - Michael Porter [Video Online] Available at: <http://www.youtube.com/watch?v=u6zv3dLGx0c&feature=related >. [Accessed 11 September 2011].London School of Business and Finance online Course. • Strategic planning [Video Online] Available at: <http://freevideolectures.com/Course/2747/Strategic-Planning/11>. [Accessed 11 September 2011].Kozami, A, 2006. Buisness policy and strategic management, 2nd ed., Tata McGtaw-Hill.•Parthasarthy, R., 2008. Fundamentals of Strategic Management. Himal Impressions.•oup.com. • What is Strategic Management? [Online] Available at: <http://www.oup.com/uk/orc/bin/9780199216468/haberberg_ch02.pdf>. [Accessed 12 September 2011].media.wiley.com. • Strategic Management [Online] Available at: <http://media.wiley.com/product_data/excerpt/70/EHEP0007/EHEP000770.pdf>. [Accessed 12 September 2011].

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Recommended ReadingWheelen, T. and Hunger, J., 2010. • Strategic Management and Business Policy, 12th ed., Dorling Kindersley (India) Pvt. Ltd.Sekhar, G., 2010. • Business Policy and Strategic Management. I.K.International Publishing House Pvt. Ltd.Pearce, J. and Robinson, R., 2008. • Strategic Management, 10th ed., Tata McGraw-Hill.

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Self AssessmentOperational strategy explains about ___________ level contribution to corporate and business strategies.1.

functionala. strategicb. operationalc. competitived.

____________policy deals with how strategic business units compete in different markets.2. Companya. Organisationb. Productionc. Businessd.

Which of the following statements is false?3. Corporatestrategiesmayfitwithinmaincategoriesofstability,growthandretrenchment.a. Strategic control is a continuous evaluation of implementing strategies at various stages. b. Strategic planning is that set of managerial decisions and actions that determines the short-run performance c. of a corporation.Price level of business goods are more stable than those of consumer goods.d.

Which of the following strategy is applies to large companies, which are divided into a number of discrete and 4. fairly autonomous units?

Competitivea. Corporateb. Globalc. Businessd.

Competitive market conditions vary according to the nature of _______and the number of sellers in the 5. market.

companya. productb. pricec. demandd.

Which of the following statements is true?6. Strategic plans involve budget allocation to various aspects of a decision.a. Strategic planning should keep in view the demand existing in the market.b. Marketingisallaboutfindingoutwhatcompanieswant,thenplanninganddevelopingaproductorservicesc. to satisfy them. To solve programmed decisions, managers tend to rely on judgement, intuition and creativity.d.

__________ sustainability refers to the use of business practices to reduce a company’s impact on natural and 7. physical environment.

Legala. Environmentb. Pollutionc. Corporated.

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Match the following.8.

1. Functional form of strategy A. It iss a structure which organises businesses under a headquarter that

functions as banker, strategist, and coordinator for multiple business units.

2. The Multi-divisional form of organisation

B. It is a set of managerial decisions and actions that determines the long-run performance of a corporation.

3. Strategic planning C.Itcanbedefinedasthedecisionstoselectfromamongthegrand

strategies considered, the strategy which will best meet the enterprise’s objectives.

4. Strategic choiceD. This is a simple form, which is organised around a division of labour

into specialised functions that interrelate to create, deliver and manage a product.

1-D, 2-C, 3-B, 4-Aa. 1-A, 2-D, 3-B, 4-Cb. 1-B, 2-A, 3-D, 4-Cc. 1-D, 2-A, 3-B, 4-Cd.

A narrow span of control describes a _______number of workers under a manager.9. largea. lowb. minimumc. maximumd.

Whenamanageroverseasalargenumberofemployees,thehighspanofcontrolproducesaflatorganisation10. called ________structure.

weaka. bigb. organicc. feasibled.

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Chapter III

Hierarchy of Strategic Intent

Aim

The aim of this chapter is to:

definetheconceptofstrategicintent•

introduce the hierarchy of strategic intent•

explain the term ‘vision’ and ‘mission’•

Objectives

The objectives of this chapter are to:

enlist the elements of an ideal mission statement•

elucidate business model•

explain the objective setting tool called ‘balanced scorecard’•

Learning outcome

At the end of this chapter, you will be able to:

comprehend the issues in objective setting•

differenciate between mission and vision•

discuss• the process of envisioning

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3.1 Introduction to Strategic IntentThe strategic intent refers to the purpose of the organisation. Setting of organisational vision, mission and objectives is the starting point of strategy formulation. The organisations strive to achieve the end results which are ‘vision’, ‘mission’, ‘purpose’, ‘objective’, ‘goals’, ‘targets’ and so on. The hierarchy of strategic intent lays the foundation for the strategic management of any organisation. The strategic intent makes clear what an organisation stands for. Itisreflectedthroughvision,mission,businessdefinitionandobjectives.

Vision serves the purpose of stating what an organisation wishes to achieve in long run. The process of assigning a part of a mission to a particular department and then further sub dividing the assignment among sections and individuals creates a hierarchy of objectives. The objectives of the sub unit contribute to the objectives of the larger unitofwhichitisapart.Fromstrategyformulationpointofview,anorganisationmustdefine‘why’itexists,‘how’itjustifiesthatexistence,and‘when’itjustifiesthereasonsforthatexistence.Theanswerstothesequestionslieintheorganisation’smission,businessdefinition,objectivesandgoals.Thesetermsbecomethebaseforstrategicdecisions and actions.

3.1.1 Concept of Stretch, Leverage and FitConceptofstretch,leverageandfitaredescribedbelow.

Stretch: • Itisamisfitbetweenresourcesandaspirations.Leverage: • It refers to concentrating, accumulating, complementing, conserving, and recovering resources in such a manner that the meagre resource base is stretched to meet the aspirations that an organisation dares to have.Fit: • It means“positioningthefirmbymatchingitsorganisationalresourcestoitsenvironment”.

3.1.2 Hierarchy of Strategic IntentThespecificrelationshipbetweenthelong-termandshort-termintentionsisdescribedinthehierarchyofstrategicintent.

Vision

Mission

Goals

Objectives

Plans

Most integrative Fewest in number

Greatest in numberMostspecific

Fig. 3.1 Hierarchy of strategic intent(Source: Gupta, V., Gollakota, K.and Srinivasan,R., 2007. 2nd ed., PHI Learning Pvt. Ltd.)

3.2 VisionThe vision of the organisation refers to the broad category of long-term intentions that the organisation wishes to pursue. It is broad, all inclusive, and futuristic. As the word ‘vision’ suggests, it is an image of how the organisation sees itself. It is in most cases, a dream; the aspirations the organisation holds for its future; a mental image of the futurestate.Itmightthereforebedifficultfortheorganisationtoactuallyachieveitsvisioneveninlong-term,butit provides the direction and energy to work towards it.

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Avisionisoftenexpressedinauniquewaytocombinecompetitiveinfluencesinawaythatdirectsafirmtopursuearevolutionarystrategy.Avisionstatementpresentsthefirm’sstrategicintentthatfocusestheenergiesandresourcesof the company on achieving a desirable future.

3.2.1 Definitions of VisionKotterdefines itas“descriptionofsomething(anorganisation,corporateculture,abusiness,a technology,anactivity) in the future”.

El-Namaki considers it as a “mental perception of the kind of environment an individual, or an organisation, aspires to create within a broad time horizon and the underlying conditions for the actualisation of this perception”.

3.2.2 Benefits of VisionThebenefitsaccruingtoanorganisationhavingavisionare:

Good visions are inspiring and exhilarating. Visions represent a discontinuity, a step function and a jump ahead •so that the company knows what it is to be.Good visions help in the creation of a common identity, and a shared sense of purpose. They are competitive, •original and unique. They make sense in the market place as they are practical.Good visions foster risk-taking and experimentation. They represent integrity; they are truly genuine and can •beusedforthebenefitofpeople.

3.2.3 Process of EnvisioningTheprocessofenvisioningisadifficultone.Awell-conceivedvisionconsistsoftwomajorcomponentswhicharegiven below.

Core ideology:• Itdefines theenduringcharacterofanorganisation that remainsunchangeableas itpassesthrough the vicissitudes of vector, such as, technology, competition, or management fads. The core ideology rests on the core values and core purposes.Envisioned future:• It also consists of two components: a 10-30 years audacious goal, and a vivid description of what it will be like to achieve that goal. The process of envisioning is indeed fascinating.

3.2.4 Characteristics of Vision The characteristics of vision are:

Shared view:• A vision statement is developed through sharing views across an organisation. However, the founder will have a powerful impact on others.Convincing nature:• A vision statement should be able to convince others in the organisation.Reflect new realities:• A vision statement should recognise the complexity of changing business trends, and it shouldbeabletoreflectnewrealities.

3.3 MissionAn organisation’s mission is the purpose for the organisation’s existence. A well conceived mission statement definesthefundamentalanduniquepurposethatsetsacompanyapartfromotherfirmsofitstypeandidentifiesthescope of the company’s operations in terms of products offered and markets served. A mission statement promotes a sense of shared expectations in employees and communicates a public image to important stakeholder groups in the company’s task environment.

Missionisdefinedasan“essentialpurposeoftheorganisation,concerningparticularlywhyitisinexistence,thenature of the businesses it is in, and the customers it seeks to serve and satisfy”.

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3.3.1 Need of MissionThe mission statement is a message designed to be inclusive of the expectations of all stakeholders for the company’s performance over the long run. The executives and board who prepare the mission statement attempt to provide a unifying purpose for the company that will provide a basis for strategic objective setting and decision making.

3.3.2 Usefulness of MissionMission is an important component of strategic intent. Mission serves the following purposes:

Shaping of vision: • Mission tangibilises vision of an organisation. Remember that vision is a dream or a set ofbroadaspirations;itdoesnotspecifyhowafirmwillachieveitsvision.Thisjobisdonebythemissionstatement.Provide guidelines for formulating objectives and goals:• Functional objectives and goals are drawn from the mission. Thus, mission plays a pivotal role in integrating the roles of top management with that of the functional management. This is achieved by tangibilising vision on one hand and providing guidelines to formulate functional goals and objectives on the other.Unanimity of purpose:• Mission ensures unanimity of purpose within an organisation. Mission integrates the roles of top management with the functional management; this results in unanimity of purpose within an organisation.Allocation of resources:• Mission helps people identify their goals with the organisational goals within the organisational resources.

3.3.3 Formulating MissionTheprocessofdefiningthecompanymissionforaspecificbusinesscanperhapsbebestunderstoodbythinkingabout the business at its inception. The typical business begins with the beliefs, desires, and aspirations of a single entrepreneur. Such an owner-manager’s sense of mission usually is based on the following fundamental beliefs:

Theproductorserviceofthebusinesscanprovidebenefitsatleastequaltoitsprice.•Theproductorservicecansatisfyacustomerneedofspecificmarketsegmentsthatiscurrentlynotbeingmet•adequately.The technology that is to be used in production will provide a cost- and quality-competitive product or •service.Withhardworkandthesupportofothers,thebusinesscannotonlysurvivebutalsogrowandbeprofitable.•Themanagementphilosophyofthebusinesswillresultinafavourablepublicimageandwillprovidefinancial•and psychological rewards for those who are willing to invest their labour and money in helping the business to succeed.The entrepreneur’s self-concept of the business can be communicated to and adopted by employees and •stockholders.

3.3.4 Characteristics of Mission StatementOrganisations legitimise themselves by performing some function that is valued by society. A mission statement definesthebasicreasonfortheexistenceofthatorganisation.Inordertobeeffective,amissionstatementshouldpossess the following seven characteristics:

It should be feasible:• A mission should always aim high but it should not be an impossible statement. It should berealisticandachievable-itsfollowersmustfindittobecredible.It should be precise:• A mission statement should not be so narrow as to restrict the organisation’s activities nor should it be too broad to make itself meaningless.It should be clear:• A mission should be clear enough to lead to action. It should not be a high-sounding set of platitudes meant for publicity purposes. Many organisations do adopt such statements but probably they do so for emphasising their identity and character.It should be motivating:• A mission statement should be motivating for members of the organisation and of society, and they feel it worthwhile working for such an organisation or being its customers.

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It should be distinctive:• A mission statement which is indiscriminate is likely to have little impact. For instance, ifallscootermanufacturersdefinedtheirmissioninasimilarfashion,therewouldnotbemuchofadifferenceamongthem.Butifonedefinesthestatementas'scootersthatwouldprovidevalueformoneyforyearstocome'then it will create an distinctive impression in the public mind.It should indicate major components of strategy:• A mission statement, along with the organisational purpose should indicate the major components of the strategy to be adopted. It should indicate how objectives are to be accomplished:• Besides indicating the broad strategies to be adopted a mission statement should also provide clues regarding the manner in which the objectives are to be accomplished.

3.3.5 Elements of an Ideal Mission StatementAnidealmissionstatementofanyfirmshouldhavethefollowingelementsinit:

Products or services it would like to offer:• Missionshouldbroadlyincludetheproductsorservicesthefirmwould like to offer. For instance mission statement of BHEL is “To be an Indian multinational engineering enterpriseproviding totalbusinesssolutions throughqualityproducts,systemsandservices in thefieldsofenergy, industry, transportation, infrastructure and other potential areas”.Customers it desires to serve:• It should include the buyers or users of the products or services it would offer, for example: doctors, researchers, patients, students and so on.Markets it desires to cater to:• Itshouldstatethegeographicalterritoriesafirmwoulddesiretoservice.Technology it would adopt:• It consists of a broad description of production techniques or a mention of technology that is suited to the availability of manpower or technology that is environment friendly.Concern for survival:• Itreflectstheeconomicmotiveofthefirm;somefirmsexhibitadesireforprofitsquicklyorinshort-term,andsomefirm’sexhibittheirdesiretobeprofitableinthelong-term.Philosophy it would adhere to:• Itisthereflectionofbasicbeliefsandvaluesthatguidethepeopleinconductofthefirm’sbusiness.Self concept:• Itdescribeswhatthefirmis.Forexample,afirmmayliketostatethatitisamulti-locational,large in size, multi-product and so on.Concern for public image:• Itshowsafirm’sconcernforitsstakeholderssuchasstockholders,employees,suppliers, communities or society at large.

'Markets

Technology

Concern for survival

Philosophy

Self concept

Concern for public image

Customer it desires to serve

Products MISSION

Fig. 3.2 Contents of ideal mission statements(Source: Phadtare, M., 2011. Strategic Management Concepts and Cases. PHI Learning Private Limited.)

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3.3.6 Newest Trends in Mission ComponentsRecently, three issues have become so prominent in the strategic planning for organisations that they are increasingly becoming integral part for the development and revisions of mission statements:

sensitivity to consumer wants•concern for quality•statements of company vision•

Consumer: A focus on customer satisfaction causes managers to realise the importance of providing quality customer service.Strongcustomerserviceinitiativeshaveledsomefirmstogaincompetitiveadvantagesinthemarketplace.Hence, many corporations have made the customer service initiative a key component of their corporate mission.

Quality: Management experts fostered a worldwide emphasis on quality in manufacturing. They have summarised their approach in 14 points:

Create constancy of purpose.•Adopt the new philosophy.•Cease dependence on mass inspection to achieve quality.•End the practice of awarding business on price tag alone. Instead, minimise total cost, often accomplished by •working with a single supplier.Improve constantly the system of production and service.•Institute training on the job.•Institute leadership.•Drive out fear.•Break down barriers between departments.•Eliminate slogans, exhortations, and numerical targets.•Eliminate work standards and management by objective.•Remove barriers that rob workers, engineers, and managers of their right to pride of workmanship.•Institute vigorous program of education and self-improvement.•Put everyone in the company to work to accomplish the transformation.•

Vision statement: A company vision statement is sometimes developed to express the aspirations of the executive leadership.Avisionstatementpresents thefirm’sstrategic intent thatfocuses theenergiesandresourcesof thecompany on achieving a desirable future. A vision is often expressed as a unique way to combine competitive influencesinawaythatdirectsafirmpursuearevolutionarystrategy.

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3.3.7 Difference between Vision and MissionFollowing table tabulates the differences between vision and mission of an organisation.

Vision Mission

Category of intentions that are broad, all •inclusive and forward thinkingStatesaspirationsforthefirmwithoutstating•the means to achieve themDream, little hazy or intangible•Guides in formulation of mission•Futuristic in nature•

Mission is the fundamental, unique purpose •thatsetsabusinessapartfromotherfirmsofitstypeandidentifiesthescopeofitsoperations in product and market terms.It states how it would achieve the vision of •thefirm.Clear, tangibalises vision•Guidesinformulationofbusinessdefinition,•goals and objectivesCurrent in nature•

Table 3.1 Difference between vision and mission(Source: Phadtare, M., 2011. Strategic Management Concepts and Cases. PHI Learning Private Limited.)

3.4 Business DefinitionBusinessdefinitionalongwithobjectivesandgoalscontributestoconcretisethemissionofanenterprise.Businessdefinitiongivesclarityofthoughtwhileformulatinggrandstrategies.“Businessofanenterpriseisdefinedbywhatneeds it is trying to satisfy, which customer group it is targeting, and which technologies and competencies it uses andactivitiesitperforms”.Businessdefinitioncaptureswhat,whoseandhow,i.e.,whatneeds,whoseneedsandhow to service the needs. It is advisable to specify ‘what, whose and how’ in broader connotations without losing focus. This will help include newer ‘what’ whose and how’ that would emerge tomorrow.

3.4.1 Dimensions of Business DefinitionTherearethreedimensionsofbusinessdefinitionnamely,

Customer groups which are created according to the identity of customers.•Customer functions are based on what the products or services provide for the customers.•Alternative technologies describe the manner in which a particular function can be performed for a customer.•

Customer functions

Customer group Alternative technologies

Fig. 3.3Dimensions of business definition(Source: Phadtare, M., 2011. Strategic Management Concepts and Cases. PHI Learning Private Limited.)

3.4.2 Levels at which Business could be DefinedBusinesscanbedefinedatthecorporateandSBUlevel.Asingle-businessfirmisactiveinjustonearea,soitsbusinessdefinitionissimple.Alargeconglomerate,operatinginseveralbusinesses,wouldhaveaseparatebusinessdefinitionforeachofitsbusinesses.

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Atthecorporatelevel,thebusinessdefinitionwillconcernitselfwiththewidermeaningofcustomergroups,customerfunctionsandalternativetechnologies.Ahighlydiversifiedcompanyorganisedonadivisionalbasiscouldbenefitbyhavingabusinessdefinitioncoveringallthethreedimensions.EachdivisioncouldagainhaveamoreaccuratebusinessdefinitionattheSBU-level.

3.5 Business ModelBusinessmodelcanbedefinedas“arepresentationofafirm’sunderlyingcorelogicandstrategicchoicesforcreatingand capturing value within a value network”.

Business models have an intimate relationship with the strategy of an organisation. Strategies result in choices; a business model can be used to help analyse and communicate these strategic choices. Companies in the same industry, competing with each other, can rely on different models as a matter of strategic choice. For instance, Tata ConsultancyServicesadoptsatraditionalfixed-price,fixed-timebusinessmodel,wherepaymentsbytheclientsare based on time related milestones.

From the abstraction that strategies actually are, business models are down-to-earth prescriptions to implement the strategies. The following example illustrates the concept of business model and its relations to an organisation’s strategies.

Bharti Airtel’s business strategy is to differentiate itself in India’s highly competitive communication’s environment by ensuring customer delight through personalised customer service and accomplishing this through a highly cost-effective model. It implemented this business model through a strategic alliance with Nortel India that hosts contact centreservicesforsubscriberstoBharti’smobileservices,aswellasthebroadbandandfixed-lineservice.Bydoingso, Bharti frees itself from the day-to-day responsibilities associated with operating, maintaining and evolving it contact centre network, to focus on its core business.

Nortel earns revenue on a par call basis or on a ‘pay as you go’ business model and foresees opportunities of offering call centre services to other clients. Enhancing customer service, thus, becomes a value proposition that seeks to differentiate Bharti from other telecommunication service providers in the competitive Indian market.

3.6 Goal and ObjectivesGoals denote what an organisation hopes to accomplish in future. They represent the future state or outcome of effort putinnow.Abroadcategoryoffinancialandnon-financialissuesareaddressedbythegoalsthatafirmsets.

Objectivesaretheendsthatspecificallystatehowthegoalsshallbeachieved.Theyareconcreteandspecificincontrastto goals that are generalised. In this manner, objectives make the goals operational. While goals may be qualitative, objectivestendtobemainlyquantitativeinspecification.Thiswaytheyaremeasurableandcomparable.

3.6.1 Importance of ObjectivesThe managers should use objectives to guide their organisations and it can also be used for the following:

decision making•increasingorganisationalefficiency•performance appraisal•

3.6.2 Roles of ObjectivesObjectives play an important role in strategic management. The various facets of such a role are described below:

Objectives define the organisation’s relationship with its environment:• By stating its objectives, an organisation commits itself to what it has to achieve for its employees, customers and the society at large.Objectives help an organisation pursue its vision and mission: • Bydefining the long-termposition thatan organisation wishes to attain and the short-term targets to be achieved, objectives help an organisation in pursuing its vision and mission.

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Objectives provide the basis for strategic decision-making:• By directing the attention of strategists to those areas where strategic decisions need to be taken, objectives lead to desirable standards of behaviour and, in this manner, help to coordinate strategic decision-making.Objectives provide the standards for performance appraisal:• By stating targets to be achieved in a given time period and the measures to be adopted to achieve them, objectives lay down the standards against which organisational as well as individual performance could be judged. In the absence of objectives, an organisation wouldhavenoclearanddefinitebasisforevaluatingitsperformance.

3.6.3 Characteristics of Objectives Objectives, as measures of organisational behaviour and performance, should posses certain desirable characteristics in order to be effective. The seven characteristics of objectives are as such:

Objectives should be understandable.•Theyshouldbeconcreteandspecific.•They should be related to a time frame.•They should be measurable and controllable.•They should be challenging.•Different objectives should correlate with each other.•They should be set within constraints.•

3.6.4 Issues in Objective-Setting There are many issues which have a bearing on different levels of objective-setting. Few of such issues are discussed below:

Specificity:• Objectivesmaybestatedatdifferentlevelsofspecificity.Atoneextreme,theymightbeverybroadlystatedasgoals,whileattheother,theymightbespecificallystatedastargets.Theissueofspecificityisresolvedthroughstatingobjectivesatdifferentlevelsandprefixingtermssuchascorporate,generalandparticularsothey serve the needs of performance and its evaluation.Multiplicity:• Since objectives deal with a number of performance areas, a variety of them have to be formulated to cover all aspects of the functioning of an organisation. No organisation operates on the basis of a single or a few objectives. The issue of multiplicity deals with different types of objectives with respect to organisational levels, importance, ends functions and nature.Periodicity:• Objectives are formulated for different time periods. It is possible to set long-term, medium-term and short-term objectives. Long-term objectives are, by nature, less certain and are, therefore stated in general terms.Short-termobjectives,ontheotherhand,arerelativelymorecertain,specificandcomprehensive.Onelong-term objective may result in several short-term objectives; many short-term objectives converge to form a long-term objective.Verifiability:• Eachobjectivehastobetestedonthebasisofitsverifiability.Onlyverifiableobjectivescanbemeaningfullyusedinstrategicmanagement.Theissueofverifiabilitycouldberesolvedthroughthejudicioususe of a combination of quantitative and qualitative objectives.Reality:• Itisacommonobservationthatorganisationstendtohavetwosetsofobjectives:officialandoperative.Officialobjectivesarethosewhichtheorganisationsprofesstoattain,whileoperativeobjectivesarethosewhichthe organisation seek to attain in reality.Quality:• Objectives may be both good as well as bad. The quality of an objective can be judged on the basis of itscapabilitytoprovideaspecificdirectionandtangiblebasisforevaluatingperformance.

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3.6.5 Types of ObjectivesObjectivesmaybeclassifiedonthebasisoftimeframeandnatureasshowninthefigurebelow.

Type of objective

Time-based Nature-based

Short-term Long-term Financial Strategic

Fig. 3.4 Types of objectives(Source: Phadtare, M., 2011. Strategic Management Concepts and Cases. PHI Learning Private Limited.)

Short-term and long-term objectives: • Short-term objectives have a time frame of 3 months to on year; long-term objectives have a time frame of 3 to 5 years. Short-term objectives should be logically consistent. There must be congruence between the two types of objectives, and short-term objectives should serve as stair stepstowardtheachievementoflong-termanddefinethepaceatwhichtopmanagementwantstoprogress. Forinstance,afirmwantstobecomeamarketleaderfromitsexistingpositionofmarketfollowerwithinatimeframeof3years.Themarketshareoftheleaderis38%whilethatofthisfirmis25%.Itisclearthatthisincrease of 13% has to be achieved in steps as it would be impossible to bridge this gap during the third year. Themarketingdepartmentwouldsuggesttheplanas7%inthefirstyear,4%inthesecondyearand2%inthelast year. Financial and strategic objectives:• Strategicobjectivesofafirmareobjectivesthatarecompetitionfocusedandaimedtodislodgethebestplayerinitsindustry.Whileitishighlyadvisablethatafirmshouldhavebothfinancialandstrategicobjectives,situationsdoarisewhereinafirmhastostrikeatrade-offbetweenfinancialandstrategicobjectives.Thetablebelowshowssomeexamplesoffinancialandstrategicobjectives.

Strategic objectives Financial objectivesBigger market share, new segments1. Differentiation2. Cost rationalisation, improve supply chain, 3. electronic commerce

Growth in turn-over1. Better margins2. Higher return on investment3.

Table 3.2 Examples of strategic and financial objectives

3.6.6 Areas in ObjectivesThe objectives may be set in the following areas:

Market position:• Itlooksintohowafirmshouldstandrelativetoitscompetitors.Innovation:• Afirmshouldidentifytheareasofinnovationanddecidemetricssayforprocessimprovement,alternative materials, new product launching, improved technology, innovation in selling.Productivity:• Improve the output level to resource used ratio.Resource allocation:• Afirmshouldspecifywhatresourcesaretobeacquiredinwhatquantities.Itmuststriveto acquire these resources at optimum costs.Profitability:• Profitintermsofreturnoninvestment(ROI).Managerial performance and development:• The quality of performance and the rate of improvement; this is critical for success especially in service business.

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Worker performance and attitude:• It focuses on performance at job, a positive feeling about work and an inclination to commit to the organisational vision.Social responsibility: • It contributes to the welfare of community society and so on.

Innovation

Productivity

Resource acquisition

Profitability

Managerial performance and development

Worker performance and attitude

Social responsibility

Market position OBJECTIVE

Fig. 3.5 Areas of setting objectives(Source: Phadtare, M., 2011. Strategic Management Concepts and Cases. PHI Learning Private Limited.)

3.6.7 How are Objectives Formulated?The factors that should be considered for objective setting are mentioned below.

The forces in the environment:• These take into account all the interests, sometimes coinciding but often conflicting,ofdifferentstakeholdersinanorganisation.Eachgroupofstakeholdershasclaims,whichhaveto be considered while setting objectives. It is important to note that the interests of the various stake-holders may change from time to time, necessitating a corresponding shift in the importance attached to different objectives.Realities of the enterprise’s resources and internal power relationships:• This means that objective are dependent on the resources capability of a company as well as the relative decisional power that different groups of strategists wield with respect to each other in sharing those resources. A dominant group of strategists such as the board of directors may wield considerable power so as to set objectives in consonance with their respective views.Value system of top executives:• This has an impact on the corporate philosophy that organisations adopt with regard to strategic management in general and objectives in particular. Values, as an enduring set of beliefs, shape perceptions about what is good or bad, desirable or undesirable.Awareness in management of the past objectives of the firm:• Awareness of the past objectives may lead the organisation to a choice of objectives that has been in the past due to different reasons.

Keeping in view the four factors described above, it is observed that objective-setting is a complex task, which is based on consensus-building and has no beginning or end. Vision and mission provide a ‘common thread’ to bind togetherthedifferentaspectsoftheobjective-settingprocess,byprovidingaspecificdirectionalongwhichtheorganisation can move.

3.6.8 Importance of Goal Setting Importance of goal setting is discussed below.

Goals will decide the targets of the employees in the organisation.•Goals are necessary to increase productivity.•Goals play a vital role in decision-making—quantitative as well as qualitative.•Goals will give direction for strategic planning for the better future.•

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Goals perform an integrating function by linking different organisations.•Achievement of the organisation can be enhanced through setting of goals.•Goals and objectives also constitute as a source for legitimacy.•Goals can be formed as a base for long-term as well as short-term objectives.•Multipleobjectivesareusefultoachievethesolegoalofprofitmaximisation.•

3.6.9 Balance Scorecard in Objective SettingsThe long-term success of any organisation is determined by the capabilities and the competencies it has developed. One of the tools for organisational appraisal that is gaining immense popularity is the Balanced Scorecard, developed by Robert S Kaplan and David P Norton in 1992. This innovative tool is unique in two ways compared to the traditional performance measurement tools. The two ways are:

Itconsidersthefinancialindicesaswellthenon-financialonesindeterminingthecorporateperformancelevel•andIt is not just a performance measurement tool but is also a performance management system.•

The aim of the balanced scorecard is to direct, help manage and change in support of the longer-term strategy in ordertomanageperformance.Thescorecardreflectswhatthecompanyandthestrategiesareallabout.Itactsasa catalyst for bringing in the ‘change’ element within the organisation. This tool is a comprehensive framework, which considers the following perspectives and tries to get answers to the following questions:

Financial Perspective - How do we look at shareholders?•Customer Perspective - How should we appear to our customers?•Internal Business Processes Perspective - What must we excel at?•Learning and Growth Perspective - Can we continue to improve and create value?•

Thetoolhasgivenstressontheotherareas,whicharerequiredto‘balance’thefinancialperspectiveinordertogeta total view about the organisational performance and improve the same. The framework tries to bring a balance and linkage between the following:

Financial and the Non-Financial indicators•Tangible and the Intangible measures•Internal and the External aspects •Leading and the Lagging indicators•

The four perspectives: Cause and effect relationship The four perspectives as mentioned above are highly interlinked. There is a logical connection between them. It canbeexplainedas,“ifanorganisationfocusesonthelearningandthegrowthaspect,itisdefinitelygoingtoleadto better business processes”.

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Learning and growth

Better processes

Increased customer value

Improvedfinancialperformance

Fig. 3.6 The 'Cause and Effect' relationships among the four perspectives(Source: 6 Balanced Scored A Strategic Management Tool. PDF)

This in turn would be followed by increased customer value by producing better products, which ultimately gives risetoimprovedfinancialperformance.

Financial “To succeed financially,howwe should appear to our shareholders?”

Internal business processes “To satisfy our shareholders and customers, what business processes must we excel at?”

Learning and growth “To achieve our vision, how will we sustain our ability to change and improve?”

Customer “To achieve our values, how should we appear to our customer?”

Vision and

Strategy

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Fig. 3.7 The balance scorecard model(Source: 6 Balanced Scored A Strategic Management Tool. PDF)

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Hence, from the aforesaid model, it is clear that the following are to be done so as to utilise the balanced scorecard as a strategic management tool:

The major objectives are to be set for each of the perspectives.•Measures of performance are required to be identifiedunder eachof theobjectiveswhichwouldhelp the•organisation to realise the goals set under each of the perspectives. These would act as parameters to measure the progress towards the objectives.Thenextimportantstepisthesettingofspecifictargetsaroundeachoftheidentifiedkeyareas,whichwould•act as a benchmark for performance appraisal. Hence, a performance measurement system is build around these critical factors. Any deviation in attaining the results should raise a red signal to the management, which would investigate the reasons for the deviation and rectify the same.The appropriate strategies and the action plans that are to be taken in the various activities should be decided so •that it is clear as to how the organisation has decided to pursue the pre-decided goals. Because of this reason, the balanced scorecard is often referred to as a blueprint of the company strategies.

Advantages of using the balanced scorecardThis tool is being used by several organisations throughout the world because of certain advantages this scorecard has been able to deliver, which are cited below:

It translates vision and strategy into action.•Itdefinesthestrategiclinkagestointegrateperformanceacrossorganisations.•It communicates the objectives and measures to a business unit.•It aligns the strategic initiatives in order to attain the long-term goals.•It aligns everyone within an organisation so that all employees understand how they support the strategy.•It provides a basis for compensation for performance.•The scorecard provides a feedback to the senior management if the strategy is working.•

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SummaryStretchis“amisfitbetweenresourcesandaspirations”.•Leverage refers to concentrating, accumulating, complementing, conserving, and recovering resources in such •a manner that the meagre resource base is stretched to meet the aspirations that an organisation dares to have.Fitmeans“positioningthefirmbymatchingitsorganisationalresourcestoitsenvironment”.•The vision of the organisation refers to the broad category of long-term intentions that the organisation wishes •to pursue. Visionisdefinedas“mentalperceptionofthekindofenvironmentanindividual,oranorganisation,aspiresto•create within a broad time horizon and the underlying conditions for the actualisation of this perception”.Vision consists of two components: core ideology and envisioned future.•Thecharacteristicsofvisionare:sharedview,convincingnature,andreflectnewrealities•Missionisdefinedas“essentialpurposeoftheorganisation,concerningparticularlywhyitisinexistence,the•nature of the businesses it is in, and the customers it seeks to serve and satisfy”.Mission is an important component of strategic intent and its purpose is to shape the vision, provide guidelines •for formulating objectives and goals, unanimity of purpose, and allocation of resources.Businessofanenterpriseisdefinedbywhatneedsitistryingtosatisfy,whichcustomergroupitistargeting,•and by the technologies and competencies it uses and activities it performsThe three dimensions of business definition are: customer groups, customer functions and alternative •technologiesBusinessmodelcanbedefinedas“arepresentationofafirm’sunderlyingcorelogicandstrategicchoicesfor•creating and capturing value within a value network”.Goals denote what an organisation hopes to accomplish in a future period of time. •Balanced Scorecard is one of the tools which is used for organisational appraisal.•

Referencesvirtualstrategist, 2008. • How to Write a Mission Statement [Video Online] Available at: <http://www.youtube.com/watch?v=XtyCt83JLNY&feature=related>. [Accessed 14 September 2011].bizaccelerator, 2010. • What’s the Difference Between Mission and Vision? [Video Online] Available at: <http://www.youtube.com/watch?v=b2MyaR0gMo0&feature=related>. [Accessed 14 September 2011].Sekhar, G., 2010. • Business Policy and Strategic Management. I.K. International Publishing House Pvt. Ltd.•Kozami, A., 2006. • Business Policy and Strategic Management, 2nd ed., Tata McGraw-Hill Publishing Company Limited.Sinha, A., 2006. • BALANCED SCORECARD : A STRATEGIC MANAGEMENT TOOL [PDF] Available at: <http://vidyasagar.ac.in/journal/Commerce/6%20Balanced%20Scorecard%20%20A%20Strategic%20Management%20Tool.pdf> . [Accessed 14 September 2011].Prahalad, C. and Hamel, G., 1989. • Strategic Intent[PDF]Availableat:<http://www3.uma.pt/filipejmsousa/ge/Hamel%20and%20Prahalad,%201989.pdf>. [Accessed 14 September 2011].

Recommended ReadingWheelen, T. and Hunger, J., 2010. • Strategic Management and Business Policy, 12th ed., Dorling Kindersley (India) Pvt. Ltd.Phadtare, M., 2011. • Strategic Management Concepts and Cases. PHI Learning Private Limited.Pearce, J. and Robinson, R., 2008. • Strategic Management, 10th ed., Tata McGraw-Hill.

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Self AssessmentAvisionstatementpresentsthefirm’s__________thatfocusestheenergiesandresourcesofthecompanyon1. achieving a desirable future.

strategic choicea. strategic policyb. strategic intentc. strategic managementd.

The strategic intent refers to the __________of the organisation.2. businessa. purposeb. resourcesc. cultured.

Which of the following statements is false?3. Mission ensures unanimity of purpose within an organisation.a. Organisations legitimise themselves by performing some function that is valued by society. b. A focus on customer satisfaction causes managers to realise the importance of providing quality customer c. service.Businessdefinitiongivesambiguousofthoughtwhileformulatinggrandstrategies.d.

Which of the following has the aim to “help manage and change in support of the longer-term strategy in order 4. to manage performance”?

Missiona. Balance scorecardb. Visionc. Core ideologyd.

Objectivesaretheendsthatstatespecificallyhowthe________shallbeachieved.5. targetsa. goalsb. profitsc. missiond.

Which of the following statements is true?6. Good visions help in the creation of a common identity and a shared sense of purpose.a. A focus on customer turnover causes managers to realise the importance of providing quality customer b. service. Amissionstatementpresentsthefirm’sstrategicintentthatfocusestheenergiesandresourcesofthecompanyc. on achieving a desirable future. Strategydefinitionalongwithobjectivesandgoalscontributestoconcretisethemissiononanenterprise.d.

Businessdefinitionalongwithobjectivesandgoalscontributestoconcretisethe_________onanenterprise.7. missiona. visionb. objectivesc. goalsd.

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Strategicobjectivesofafirmareobjectivesthatare_________focusedandaimedtodislodgethebestplayer8. in its industry.

businessa. strategyb. competitionc. productd.

Whichofthefollowingcanbedefinedas“arepresentationofafirm’sunderlyingcorelogicandstrategicchoices9. for creating and capturing value within a value network”?

Leveragea. Strategic intentb. business modelc. businessdefinitiond.

Match the following.10.

Fit 1. A. Refers to the broad category of long-term intentions that the organisation wishes to pursue.

Stretch 2. B.Itmeanspositioningthefirmbymatchingitsorganisationalresourcestoitsenvironment.

Leverage 3. C.Isdefinedasamisfitbetweenresourcesandaspirations.

Vision 4. D. Refers to concentrating, accumulating, complementing, conserving, and

recovering resources in such a manner that the meagre resource base is stretched to meet the aspirations that an organisation dares to have.

1-B, 2-C, 3-D, 4-Aa. 1-A, 2-C, 3-D, 4-Bb. 1-C, 2-B, 3-D, 4-Ac. 1-D, 2-C, 3-B, 4-Ad.

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Chapter IV

Strategy Formulation and Planning

Aim

The aim of this chapter is to:

definetheconceptofstrategyformulation•

explain the process of strategic planning•

introduce the corporate level strategy•

Objectives

The objectives of this chapter are to:

differentiate between operational planning and strategic planning•

explain the basis of strategy formulation•

explicate the type of multinational enterprises (MNE’s)•

Learning outcome

At the end of this chapter, you will be able to:

enlist the types of corporate level strategy•

understand the pitfalls in strategic planning•

comprehend the • strategy formulation process

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4.1 Introduction to Strategy FormulationStrategyformulationproducesaclearsetofrecommendationswithsupportingjustificationthatrevisethemissionand objectives of the organisation, and supply the strategies for accomplishing them. In formulation, we are trying to modify the current objectives and strategies in ways to make the organisation more successful. This includes trying to create “sustainable” competitive advantages, although most competitive advantages are eroded steadily by the efforts of competitors.

A good recommendation should be: effective in solving the stated problem(s)•practical (can be implemented in this situation, with the resources available)•feasible within a reasonable time frame •cost-effective•not overly disruptive•acceptable to key “stakeholders” in the organisation•

4.2 Steps in Strategy Formulation ProcessThe process of strategy formulation basically involves six main steps. Though these steps do not follow a rigid chronological order, they are very rational and can be easily followed in this order.

Setting Organisations’ objectives

Evaluating the Organisational Environment

Setting Quantitative Targets

Aiming in context with the divisional plans

Performance Analysis

Choice of Strategy

Fig. 4.1 Steps in strategy formulation

Step 1: Setting organisation's objectivesThe key component of any strategy statement is to set the long-term objectives of the organisation. It is known that strategy is generally a medium for realisation of organisational objectives. Objectives stress the state of being there whereasstrategystressesupontheprocessofreachingthere.Strategyincludesboththefixationofobjectivesaswell the medium to be used to realise those objectives. Thus, strategy is a wider term, which believes in the manner of deployment of resources so as to achieve the objectives.

Whilefixingtheorganisationalobjectives,itisessentialthatthefactors,whichinfluencetheselectionofobjectivesmustbeanalysedbeforetheselectionofobjectives.Oncetheobjectivesandthefactorsinfluencingstrategicdecisionshave been determined, it is easy to take strategic decisions.

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Step 2: Evaluating the organisational environmentThe next step is to evaluate the general economic and industrial environment in which the organisation operates. This includes a review of the organisations competitive position. It is essential to conduct a qualitative and quantitative review of an organisation's existing product line. The purpose of such a review is to make sure that the factors important for competitive success in the market can be discovered so that the management can identify their own strengths and weaknesses as well as their competitors’ strengths and weaknesses. After identifying its strengths and weaknesses, an organisation must keep a track of competitors’ moves and actions so as to discover probable opportunities of threats to its market or supply sources.

Step 3: Setting quantitative targetsInthisstep,anorganisationmustpracticallyfixthequantitativetargetvaluesforsomeoftheorganisationalobjectives.The idea behind this is to compare with long term customers, so as to evaluate the contribution that might be made by various product zones or operating departments.

Step 4: Aiming in context with the divisional plansIn this step, the contributions made by each department or division or product category within the organisation is identified and, accordingly, strategic planning is done for each sub-unit.This requires a careful analysis ofmacroeconomic trends.

Step 5: Performance analysisPerformance analysis includes discovering and analysing the gap between the planned or desired performance. A critical evaluation of the organisations past performance, present condition and the desired future conditions must be donebytheorganisation.Thiscriticalevaluationidentifiesthedegreeofgapthatpersistsbetweentheactualrealityand the long-term aspirations of the organisation. An attempt is made by the organisation to estimate its probable future condition if the current trends persist.

Step 6: Choice of strategyThis is the ultimate step in strategy formulation. The best course of action is actually chosen after considering organisational goals, organisational strengths, potential and limitations as well as the external opportunities.

4.3 Formulation of StrategyStrategy formulation is second phase of strategy management. Discussed below is the strategy formulation for large companies as well as small and medium enterprises.

4.3.1 Strategy Formulation in Large Company or OrganisationIt may be convenient to divide strategy formulation in the large company into two inter-related components. These components are:

Corporate strategy:• It deals with issues of strategic management at the level of the enterprise as a whole. Such issues will include the basic character, capability, and competence of the enterprise; the direction in which it should develop its activity; the nature of its internal architecture, governance and structure; and the nature of its relationships with its sector, its competitors, and the wider environment.Business strategy:• Bythistheenterpriseestablishesstrategiesforspecificbusinessororganisationalactivities,specificsectorsandmarkets,andspecificdivisionsorbusinessunitsintowhichoperationsareallocated.

4.3.2 Strategy Formulation in the SMEStrategy formulation in the small to medium sized enterprise or SME is unlikely to differentiate corporate and business strategy. The corporate strategy of the enterprise is its business strategy, at least until the SME grows to a sufficientsizetohavetothinkaboutissuesofcorporatedevelopmentandexternalrelationships.

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4.3.3 Basis of Strategy FormulationThe basis of strategy formulation is done under following headings:

the forced or self-imposed•the required•the rationalistic•the deliberate•the logically incremented•the emergent and the opportunistic•

Forced or Self-Imposed Strategies Strategies may be forced on enterprise decision-makers or of necessity imposed upon them (self-imposed) as a result of the internal or external conditions described below.

Internal conditions: • These are are for instance characterised by: Asignificantlackofleadershipexpertiseandmanagerialcontinuity,oranunsustainableturnoverofsenior �managerial staff, or an unclear strategic intent and direction, or excessive “short-termism”. Asignificantlackofeffectivestrategicmanagementcapabilityorcompetence. �Asignificantlevelofinstitutionalweakness,orlackofcapabilityorcompetence. �Asignificantlackofcompetitiveadvantage. �Anenforcedrecognitionoftheneedforsignificantenterprisechange,asinconditionsofinadequatevalue �generation (or actual value loss), operational crisis, re-centralisation, or “turnaround”.

Example:Limitationsonstrategicchoicepredicatedbyalackofthenecessarytechnological,operational,financialor managerial capacity and competence. The enterprise is simply not capable of doing certain things. Shortages of financemayinparticularforcerequiretheself-impositionofcertainstrategylimitationsonthefirm.Unavoidable external conditions or threats that are characterised for instance by:

Significantmarketorenvironmentaldevelopmentandchange. �Significantchangeinprevailingcompetitionpolicy,competitivecontext,competitivestrategy,orcompetitive �conditions. Significanttechnologicalchangeortheemergenceofthetechnological“discontinuities”. �Pressure from environmentalist, “single interest” groups. �Determined or aggressive political behaviour; perhaps leading to Legislative or regulatory developments and �change;ortosignificantchangeinprevailingmacrolevelfiscalandeconomicmanagement;ortochangein prevailing social, consumer behaviour, cultural, or ethical contexts. For example, external and legislative pressures for environmentally responsible behaviour. Enterprise �management may be forced by legislation to adopt environmentally responsible policies; or instead may consider that external perceptions of unethical behaviour would be highly damaging to the market reputation of the company.

Required strategies A particular choice of strategies or strategic decision may be perceived to be required; require to be self-imposed, for instance. As a result of a perceived need for consistency with the enterprise’s capability and competence, choice of mission, strategic intent, purpose, perspective and objectives as described above; and as a result of the need to meet the requirements of its shareholders or its stakeholders.

As a result of the choice of position and positioning within the relevant external, market, operational, or �competitive environments. As a result of the choice of competition strategies or ploys. �

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Because of the prevailing organisational attitudes to risk aversion and uncertainty avoidance. Strategic �choice might vary on a continuum from highly risk averse and short-termist at one extreme, to the risk maximisation of the highly opportunistic entrepreneur at the other.Becauseoftheeffectorinfluenceofprevailingcriticalsuccessfactors,limitingfactors,orcontingencies �and constraints to which the enterprise is subject, or with which it must deal. As a result of the need to use power or to undertake political behaviour. �Becauseofthecharacterandinfluenceofenterprisevalues,valueset,andculture. �Because of prevailing perceptions of the issues and influence of ethics, environmentalism, and social �responsibility.Because of the need to bring about adaptation in reacting to changing internal or external conditions. �

Example: Shareholder corporations may select a variety of strategies whose objective is to meet stockholder expectations over any particular number of years. These strategies will cover the generation of the appropriate financialreturns.Theywillalsoaimtocreateaninstitutionalreputationforbeingawareoftheneedconsistentlytomeetthewiderdemandsofthefinancialcommunity.Theywilldeveloptheabilitytocommunicatewithshareholdersandfinancialinstitutionsinamanner,whichmosteffectivelysupportsthefulfilmentofthestewardshipobligationstheyperceivetoberequiredofthemasrecipientsofinvestmentfinance.

Rationalistic approaches to strategy formulation Rationalistic strategy formulation implies a planned, systematic, and centralised approach where,

thechiefexecutiveofficer(CEO)orpresidentoftheorganisation,andhisorhercolleaguesatthe“corporate �centre” are dominant forces in the process of strategic management. strategic and business plans tend to be “handed down” (or “thrown over the wall”) from the corporate centre �to subordinates for implementation. Subordinates may be consulted but their lack of status or their lack of relevant information precludes them from detailed participation in the process of strategy formulation and strategic decision-making.

This approach is sometimes described as “corporate planning” or “strategic planning”. Rationalistic approaches to strategy formulation are characteristic of traditional French management style.

Deliberate approaches to strategy formulation Under this approach, there is an attempt to realise strategies exactly as intended because management perceives that:

the enterprise can formulate precise intentions and unambiguous objectives. •organisationalstaffandresourcescanbeshapedexactlyto“fit”therealisationoftheseobjectives(thatis,they•can be led and managed so as to be totally congruent with them). external environmental or competitive forces are unlikely to be able to distort any of the processes of strategy •formulation, implementation and realisation.

Example : The widespread use of acquisition and takeover as a strategy for market share protection, business growth,anddiversification.ThisstrategyhasdominatedthethinkingofboardroomsinAnglo-Saxoncompaniesduring recent decades. A takeover is made. It is then up to others to make it work. If it is unsuccessful then that is afaultofimplementation.Therearechancesthatitmayhavebeenabadideainthefirstplace,withnosynergieslikely between the parties to the acquisition, however, hard one tries to develop them.

Logically incremental approaches to strategy formulation Strategy is described under this heading as evolving on a dynamic basis over time in response to the internal and external contingencies that emerge to confront the enterprise. Strategy evolves in response to what decision makers perceive to be the best course or choice of action at the time. Strategies may for the time be consistent with enterprise mission or objectives. Or instead, mission, strategic intent, and enterprise objectives may themselves be adapted on an evolutionary basis to meet new challenges that are emerging to confront the organisation.

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Logical incrementalism is a step-by-step approach to strategy formulation. The approach recognises the existence of:

the risk, uncertainty, inconsistency, and unpredictability of the event characteristics. �limitations on forecasting capability and foresight. �theneedforflexibilityofresponsetochangingcircumstances,andthenecessitytobepreparedtochange �directions. The existence of multiple (and potentially inconsistent) values and goals; and the potential impact on strategic �choice of internal bargaining processes, internal negotiation, management power plays, and organisational politics.

The strategy involves forces of such great number, strength and combinatory powers that one cannot predict events in aprobabilisticsense.Hence,logicdictatesthatoneproceedsflexiblyandexperimentallyfrombroadconceptstowardsspecificcommitments,makingthelatterconcreteaslateaspossibleinordertonarrowthebandsofuncertaintyandtobenefitfromthebestavailableinformation.Thisistheprocessof“logicalincrementalism”.

Emergent and opportunistic approaches to strategy formulation Strategic choices and strategic moves may be contingent upon the corporate and business opportunities that emerge and become available to the enterprise. The use of an emergent or an opportunistic approach to the strategic management process implies that the organisation continuously scans the business and market environment for emergingopportunities;andasaconsequencemaintainsaflexibleresourcebaseandanagilecapability(forinstanceby making use of external sub-contracting, or the outsourcing of operational, manufacturing or service activities) suchthattheenterprisecanquicklyadjusttotakeadvantageofthoseopportunitiesitfindsattractive.

Example: Former Second World War pilots suddenly found in late 1940s and early 1950s that transport planes being sold off cheaply by the military could be converted to carry European holiday makers to sunshine destinations, such as, Spain or Italy. Thus, was the air package tour industry born from an opportunity seized by airmen turned entrepreneurs.

4.4 Strategic PlanningStrategic planninghas become a very important part of the topmanagement function due to the influence ofexternal environmental factors and systems approach to the business management. Long range strategic planning is a systematic approach to decision-making about issues, which are fundamental and of crucial importance to its continuing long term effectiveness. Long range strategy is designed to provide information about an organisation’s vision, mission, purpose, direction and objectives.

Strategic planStrategic plan provides a means to deal explicitly and systematically with matters of fundamental importance. Strategic plan is, “the process of selecting an organisation’s goals, determining the policies and strategic programmes necessarytoachievespecificobjectivesen-routetothegoalsandestablishingthemethodsnecessarytoassurethatthe policies and strategic programmes are achieved.” Thus, business planning is derived from strategic planning and strategy.

Planning at lower levels is called operational planning. It focuses on present operations and its prime concern is efficiencyratherthaneffectiveness.

4.4.1 Differences between Operational Planning and Strategic PlanningThe differences between operational planning and strategic planning are presented in the table below. It is clear from the table that there is a great deal of difference between strategic planning and operational implementation planning.

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Operational planning Strategic planningFocus Operational problems Long term, survival and developmentalObjectives Presentprofit FutureprofitConstraints Present resources, environment Future resources, environmentRewards Efficiency,stability Development of future potentialInformation Present business Future opportunitiesOrganisation Bureaucratic/stable Entrepreneurial/flexibleLeadership Conservative Inspires radical changes

Problem-solving Relies on past experience,Low risk Anticipates,findsnewapproaches,Highrisk

Table 4.1 Differences between operational planning and strategic planning

4.5 Strategic Planning ProcessThe steps involved in strategic planning process are as follows:

Establishing verifiable goals or set of goals to be achieved:• The business plan is based on the enterprise objectives. These objectives are mostly formulated by the top management, the values and beliefs ·held by the topmanagementarereflectedinthesegoals.Establishing planning premises:• Planning premises means assumptions about the future on the basis of, which the ultimately formulated. Planning premises include:

Internal and external premises: � Internal premises include sales forecasts, policies and programmes of the organisation, capital investment, managerial competency, human resource skills, and other organisational resources. External premises include general business and economic environment, technological changes, Government policies and regulations, population growth, political stability, and social factors. Tangible and intangible premises: � Thepremiseswhichcanbequantifiablearecalledtangiblepremises.The tangible premises include population growth, product demand, past sales, capital invested and the like. The intangible premises are those which cannot be measured quantitatively. These premises include political factors, social factors, technological factors, natural factors and so on. Controllable and non controllable premises: � Some factors are controllable and some are uncontrollable. Business plans are to bemodified and sometimes reformulateddue to the presenceof and interactionof uncontrollable premises. Uncontrollable premises include strikes, lockouts, wars natural calamities, emergency situations and so on. Controllable premises include company’s labour policy, investment policy, advertising policy, level of technology competency of managerial personnel, quality of human resources, andavailabilityoffinancialresourcesandsoon.

Deciding the planning period: • After formulating planning premises and long-term goals, the manager have to decide the length of business plan period. The plan of the period should be based on the nature of the business, thevisionandmissionofthecompany.Otherfactors,whichinfluencetheplanningperiodareleadtimeinthedevelopment of a new idea business/product, time required to get back the original investment and the length of commitments already made.Finding alternative courses of action:• After formulating the business plans, the top-level management should findoutthealternativecoursesofactionsavailableinordertoaccomplishthecompany’smission.Forexample,availability of alternative technologies, alternative sources of capital, highly skilled employees abroad, and so on.Evaluating the alternative plans and selecting a course of action:• The management has to evaluate the available courses of action through SWOT analysis (Strengths. Weaknesses, Opportunities and Threats) and rank the alternatives. After ranking the alternatives, the management has to select the best business plan. Developing derivative plans:• The management after selecting the best business plan, should formulate the other policies and plans, which are the sub plans to the main plan. Management should involve and consult the lower level managers while formulating the derivative plans.

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Implementation of the business plans:• After the development and selection of the plans and derivative plans, management has to take initiative to implement the business plan. Measuring and controlling:• After the business plan is put into action, the management has to measure the progress of the plan and compare it with the standards, observe the deviations, if any, and correct the deviations.

4.6 Corporate Level StrategyAfter analysing the environment and assessing the internal environment, the next step in the strategic planning process is to develop strategic alternatives to help the organisation in achieving its objectives. Different kinds of strategicalternativesarepresentedinthefigurebelow.Strategicalternativesrevolvearoundthequestionwhethertocontinue or change the current business enterprise orimprovetheefficiencyandeffectivenesswithwhichthefirmachieves its corporate objectives in its chosen business sector. The four grand strategies are: stability, expansion, retrenchment and combination of these three strategies.

KINDS OF GRAND STRATEGIES

Stability Strategy• Maintenanceof Status Quo• Sustainable growth

• Internalgrowth• Concentration strategies• Mergers• Takeover/ Acquisition• Horizontal Integration• Conglomerate diversification• Verticalintegration• Jointventures

• Turnaround• Captivecompany• Transformation• Divestment• Liquidation

Portfolio restructuring

Growth Strategies

Retrenchment strategies

Restructuring strategies

Fig. 4.2 Different kinds of grand strategic alternatives

4.6.1 Stability Strategies Somefirmsadoptstabilitystrategyinsteadofusinggrowthstrategies.Firmsattempttomaintaintheirsize,levelofproduction and sales, serving almost the same customer groups, performing the same customer functions, produces withsametechnologiesandoperatethecurrentlinesofbusiness.Thesefirmsdonotattempttogroweitherthroughincreased sales or through the development of new products or markets. This strategy can be of two types:

Maintenance of status quo• : Firms adopt this strategy to maintain the same level of operations. Small business firmsdesiresatisfactorylevelofoperationsratherthangrowth.Sustainable Growth:• Slowgrowthismoredesiredratherthanmaintenanceofstatusquo.Infact,itisverydifficultto maintain status quo. Therefore, a sustainable growth strategy is more optimistic than the zero growth.

Reasons for adopting stability strategiesFirms adopt the stability strategies due to the following reasons:

Managersofsmallbusinessdesireasatisfactorylevelofprofitsratherthanincreasedprofits.•Maintenance of status quo involves less risk than a more growth strategy. •Change of any form may disrupt the current working relationships and the consequences may be detrimental •to the organisation.

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Changemayupsetthesmoothoperationsandresultinpoorperformanceespecially,ifthefirmconsidersitself•successful with the present level of operations.Changing operations to pursue a more aggressive growth strategy usually requires an increased investment and •managerial support. Firms, which cannot provide resources, may continue with the stability strategy. Some executives maintain with the stability strategy due to inertia for change. •

Despite these reasons for adopting stability strategy, there is a danger of pursuing the stability strategy. The danger is that theenvironmentmaychangeandcausethefirmor itsproduct lineobsolete.Hence,firmsplantoadoptgrowth strategies.

4.6.2 Growth StrategiesOrganisationsmayselectagrowthstrategytoincreasetheirprofits,salesand/ormarketshare.Theyalsopursuegrowthstrategytoreducecostofproductionperunit.Growthstrategiesinvolveasignificantincreaseinperformanceobjectives.Thesestrategiesareadoptedwhenfirmsremarkablybroadensthescopeoftheircustomergroups,customerfunctions and alternative technologies either singly or in combination with each other.

4.6.3 Expansion StrategiesInternalgrowthisachievedbyincreasingthefirm’sproductioncapacity,employeesandsales.Somefirmspreferthisstrategytothestrategyofexternalgrowthasinternalgrowthpreservestheirefficiency,qualityandimageunlikein external growth.

Firmspursue concentration strategies to growwhile remaining relatively simple.The total efforts of thefirmare concentrated on a limited combination of customer groups, customer functions, alternate technologies and products.

AdvantagesAfirmcangainacompetitiveadvantagebyconcentratingonaspecifictechnology,productormarket.Firmspursuingthis strategy are frequently able to identify new developments and trends within the industry and respond to them.

ProblemsThere are certain potential problems of concentration strategies. Some of them are mentioned below.

One of the greatest problems is the risk associated with putting “all the corporate eggs in one basket.” •Theintroductionofsubstituteproductsmayalsobeverydetrimentaltoafirmfollowingaconcentrationstrategy.•Substituteproductscanmakeafirm’sproductobsoleteparticularlywhenthefirmconcentratesononlyoneproduct or product line. Company pursuing concentration strategy may also be affected by disruption in the supply of essential and •crucial raw material. Sometimes, the market segment becomes unattractive owing to limited growth opportunities, substitute products •orabsenceofessentialresourceavailability.Insuchacase,afirmpursuingaconcentrationstrategymaybecomelocked into an area of business and become unable to move into another line of business.

4.6.4 Merger StrategyManyfirmsprefertogrowthroughmergers.Combinationoftwoormorefirmsisknownasamerger.Whenthefirmsofsimilarobjectivesandsimilarstrategiescombineintoonefirm,suchcombinationsarecalledmergers.“Amerger is a combination of two or more businesses in which one acquires the assets and liabilities of the other in exchange for stock or cash or both. Companies are dissolved and assets and liabilities are combined and new stock is issued.” Mergers can take place within one nation or across nations.

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Types of mergersMergerscanbeclassifiedintothefollowingtypes:

Horizontal mergers:• Horizontalmergersarecombinationsoffirmsengagedinthesamebusiness.Vertical mergers:• Vertica1mergersarecombinationofdifferentfirmsengagedinactivitiescomplimentarytoeachotherlikesupplyofrawmaterials,productionofgoodsandmarketing.Forexample,combinationoffirmengaged in mining of iron ore, and iron and steel company. Concentric mergers:• Concentricmergersarecombinationoffirmsrelatedtoeachotherintermsofcustomergroupsorcustomerfunctionsoralternativetechnologies.Forexample,combinationoffirmsproducingtelevisions,washing machines, and kitchen appliances. Conglomerate mergers:• Conglomeratemergersarethecombinationoffirmsunrelatedtoeachotherintermsof customer groups, customer functions and alternative technologies. For example, combination of a publishing company and an automobile company.

Advantages of mergerMergers as growth strategy are more popular in many countries. There are certain advantages of mergers for both thebuyingandsellingfirms.Theseadvantagesinclude:

Thefirmaftermergerwillenjoytheeconomiesoflargescaleoperations.•Thefirmaftermergercanutilisethefundstothemaximumextentandgetthebenefitofprofitgrowth.•Thefirmwillbeinapositiontodiversifytheactivities,increasethelevelofoperationsandlevelofprofits.•Themoreeffectiveandefficientutilisationofresourceswillresultinhigherproductivity.Revivalofsickunits•and avoidance of mortality of loss making organisation can be possible through merger.Entrepreneursoftenfinditeasytobuyanexistingfirmwithestablishedmarketsratherthanestablishinganew•company.

Disadvantages of mergerThepsychologicalproblemsofthetopmanagementofthemergingfirmsaftermergermayresultindisbanding•of merger. Negativeattitudeoftheseniorpartnertowardsthejuniorfirmmayresultinthefailureofthemerger.•Executivesofacquiredfirmmaygetlowstatus,lowlevelauthorityandpower.•Researchstudiesfindthattheperformanceandprofitabilityofcombinedfirmstendtodeclinecomparedwith•thatofthemergingfirmsbeforemerger.The mergers will lead to concentration of economic power, monopolistic conditions and, thereby, resulting in •political issues, higher prices, and restricted supply, black marketing and so on.

4.6.5 Takeovers or Acquisitions StrategySometimesfirmswanttogrowthroughthestrategyoftakeoveroracquisition.Takeover(oracquisition)isdefinedas,“theattempt(oftensprungasasurprise)ofonefirmtoacquireownershiporcontroloveranotherfirmagainstthewishes of the latter’s management (and purchase some of its stakeholders).” But, in practice, takeovers can be hostile (againstthewishesoftheacquiredfirm)orfriendly(throughmutualconsentofbuyerandsellerlikeinmerger).Takeover strategy is currently the most popular strategy in India, particularly after the economic liberationsation.

Advantages of takeovers Takeovers ensure management accountability.•Takeovers provide easy growth opportunities.•They create mobility of resources from one activity to another activity. •They avoid gestation periods and problems involved in new projects. •They provide the chance of survival to the sick units and provide alternatives to the disinvestment strategy. •

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Disadvantages of takeoversProfessionalisation of management may be replaced by money power. •Takeovers do not create any real assets to the society. •They result in monopoly and concentration of economic power. •They are detrimental to the society. •Interests of the minority shareholders are not protected. •

4.6.6 Retrenchment StrategiesThethirdmajorclassofstrategicalternativesavailabletoafirmisretrenchmentstrategies.Growthstrategiesandstabilitystrategiesaregenerallyadoptedbyfirmsthatareinsatisfactorycompetitivepositions.But,whenafirm’sposition is disappointing or, at the extreme, when its survival is at stake, then retrenchment strategies may be appropriate. Retrenchment strategies include turnaround strategies, captive company strategy, divestment strategy, transformation strategy and liquidation strategy.

Reasons for adopting retrenchment strategies:Asstatedearlier,thefirm’spoorperformanceisthemajorreasonforadoptingretrenchmentstrategies.Tobespecific,thereasonsinclude:

Prevalence of poor economic conditions.•Competitivepressuresmayalsocausefirmstocurtailtheiroperations.•Operatingandproductioninefficienciesmayalsocausefirmstopursueretrenchmentstrategies.•Inabilityofthefirmtoimplementlatesttechnologycausedbytechnologicalrevolution.•The company is not doing well or perceives itself as doing poorly.•The company has not met its objectives and there is pressure from shareholders, customers or others to improve •performance. Theexternalenvironmentposesthreatsandinternalstrengthsareinsufficienttofacethethreats.•Betteropportunitiesintheenvironmentareperceivedinotherareaofbusiness/othermarketswhereafirm’s•strengths can be utilised.

4.6.7 Portfolio RestructuringThis strategy is the combination of stability, growth and retrenchment strategies. Combination strategies may involve implementation of two or more strategies. In some cases, particularly during the periods of rapid environmental change, adoption of combination strategy would be necessary. Firms may liquidate one unit, develop another unit andallow the thirdunit to survive simultaneously to improve theefficiencyof thebusinessandmaximise theprofitability.

Oncethecompany’sprofitabilityissatisfactory,itmayadoptgrowthstrategy.Thisstrategyiscommonforlargescaleorganisationswithmultipleunits,diversifiedproductsandnationalorglobalmarkets.Combinationofsurvival,growth and retrenchment strategies may be either simultaneous or sequential. This strategy is also called portfolio restructuring strategy as it is the mix and percentage make up of the different types of businesses in the portfolio. It involves both divestment and acquisition/takeover.

4.7 Strategic Planning in MNE’s (Multinational Enterprises)Strategic planning is an important tool used by the MNE’s for meeting their strategic objectives, expansions, and so on. The planning concept changes with the change in the stage of development of an MNE. The focus accordingly, maychangefrompurelyfinancialplanningtostrategicplanning. The planning process depends on various factors. There are some differences in the planning pattern of the MNE’s of different country origins. However, one can identify the kind of relationship that exists between the parent company and subsidiaries’ in as far as planning is concerned. In spite of instituting a formal planning process, many MNE’s are prone to pitfalls.

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One of the major concerns in strategic planning is environmental volatility. Different industries are affected by different factors with varying intensity. This necessitates an MNE to identify the scope of environment scanning and the appropriate mode of collection of information.

4.7.1 Types of MNE’sMostoftheMNE’saremulti-plantfirms.TheMNE’strytomakefulluseof(special)`firm-specificadvantages’,which are usually intangible, viz., technology know-how, management and marketing skills. They create an “internal” marketbyestablishingpropertyrightsovertheirspecificadvantages.Thefirmspecificadvantageshelptheminoffsetting additional costs and risks, which are associated with foreign operations. We will appreciate that a multi-nationalfirm,comparedtoalocalfirm,incurscertaininherentdisadvantages,whichariseduetonaturalmarketimperfections or uncertainties. It has to incur additional costs (i.e., transaction costs to obtain or collect information about overseas markets) and risks from cross-cultural operations. The MNE’s attempt to minimise transaction costs by theprocessofinternalisation,i.e.bysettinguptheirofficesorunitsorbytransferringtheirownpeopleabroad.

In this way, they try to extend their own direct operations rather than simply use the external market. Many intermediate product markets, particularly for types of knowledge and expertise embodied in patents and human capital,aredifficulttoorganiseandcostlytouse.Insuchcasesthefirmhasan-incentivetocreateinternalmarketswhenevertransactioncanbecarriedoutmoreefficientlywithinthefirmthanthroughexternalmarket.

Thecreationofaninternalmarketpermitsthefirmtotransformanintangiblepieceofresearchintoavaluablepropertyspecifictothefirm.Thefirmcanexploititsadvantageinallavailablemarketsandstillkeeptheuseoftheinformationinternaltothefirminordertorecoupitsinternalexpenditureonresearchandknowledgegeneration.

The internalisation process may result in three types of the MNE’s namely:

Horizontally integrated MNE’sThehorizontallyintegratedMNE’shavefirmspecificadvantagesintechnologicalknow-how,management,skillsand marketing know-how. Such an MNE tries to maintain and utilise its unique advantages as a competent edge overotherMNE’sintheglobalmarkets.MostoftheseMNE’sexploittheirfirmspecificadvantagestoovercomethemarket imperfection such as buyer or market uncertainties through internalisation. Such MNE’s expand horizontally. This kind of phenomenon is observed in pharmaceutical industries.

Vertically integrated MNE’s The second type of MNE’s are vertically integrated, examples of these can be found in oil and mineral industries. Firms in these industries try to establish control and minimise transaction costs. For example, in oil industry, an MNEmaytrytointegratefromextractiontotransportationtorefininganddistributionofoil.Thiscreatesinternalmarket within the MNE.

Diversified MNE’sThethirdtypeoftheMNE'sarediversifiedMNE's,whicharediversifiedintodifferentproducts.Theadvantagestothe MNE’s arise from utilising the market imperfections in terms of information cost and government regulations in different countries, reducing its cost of information and search cost.

4.7.2 Planning Needs of MNE’sThe planning needs of the MNE’s may differ among different types of companies. One can differentiate on the basis of two criteria:

stages of growth on the basis of products•management style (whether it is broad or ‘narrow in scope)•

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Threestageshavebeenidentifiedinthegrowth-evolutionororganisationstructureandstrategy,whicharepresentedin table below.

Stage Structure Strategy

IIIIII

FunctionalProductDivisional

Single product lineRelated product lineUnrelated product line

Table 4.2 Evolution of structure and strategy

The emphasis under these stages may vary. It may be either narrow or broad in scope for the corporate planning. One can classify Polaroid company-being at stage I, and narrow in scope. For instance, Proctor and Gamble has •diversifiedfromitsbasicsoapanddetergentsintorelatedconsumergoods.Thus,itcanbesaidthatthecompanyhas moved to stage II from narrow to broad category. ColgatePalmolive,whichismuchdiversifiedandhasabroadmanagementstyle,isatstageIII.Dependingupon•the company’s emphasis, narrow or broad, different kinds of planning approaches are required. If one takes a narrow scope management under different stages, the traditional planning model may be alright at stage I. The emphasis will be on functional planning. The planning is budget oriented. InstageII,when-anMNEdiversifiesintomorethanoneproduct,aspecialistinstafffunctionsisrequiredin•theplanningprocess.InstageIIIthespecialistwilldominateintheplanningprocessofdiversification.In contrast to this, in broad scope management there will be an additional role for “Generalist style” in all the •stages of development. The main, difference between the narrow and broad scope planning is the receptivity to change.Thelatteracceptsthehighriskindiversificationandassociatedactivities.

ThelocationofanMNEontheplanningmatrixpreparedonthebasisofthestageanddegreeofdiversificationwilldetermine the type of corporate planning needs. Accordingly, the planners with appropriate training and orientation havetobeassignedwiththetaskinthecorporateplanningfunction.Themismatchmayresultineither̀ over-killing’by creating a new planning department or in lack of creative planning due to a traditionalist being appointed when actually a specialist is required.

4.7.3 Planning Focus of MNE’sPlanning focus can be analysed in terms of types, time horizon and formality. The basic orientation of the MNE’s canbeclassifiedintothreegroupsasmentionedbelow:

Strategy unit programming:• Strategic planning involves overall missions, objectives, goals and, policies. It identifiesstrengthsandweaknessesofthecompanyvis-à-vismacro-environmentandthetimehorizonis5-10years.Business unit programming:• Business unit planning unit programming deals with selected strategic business units. It may include market selection, product planning, and marketing strategies. The time horizon is 1-3 years.Operations planning:• It is mainly concerned with short term operational activities. Depending on the organisational set up and the nature of planning, one can classify planning focus into four phases of planning evolution as given below.

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Phase Objective Plan orientation Plan attribute

I

II

III

IV

Meet budget

Predict Future

Think strategically

Create future

Financial planning

Forecast based planningExternally oriented planning

Strategic Management

Annual budgets, Functional focus

Multi year budgets Thorough situation analysis and competitive assessmentWell-definedstrategicframeworkstrategicallyfocused organisation. Supportive value system and climate.

Table 4.3 Planning evolution

4.7.4 Planning Modes of MNE’sOne way to view strategic planning process is to look at the structural relationship in a large organisation between the user and the planner. Corporations have tried various ways to tackle the issue of agency in a complex organisation. They have attempted structural or cultural solutions as control mechanisms. The structural solutions have resulted in multi-divisional structure in a large and diverse corporation. Here, an attempt is made to divide the corporation into manageable units and assign responsibility and accountability toeachunit.Theculturalsolutionassumessharedvaluesandgoals.Thecorporationtriestogrowonasetof`coreskills’, and invest heavily in socialising the members. The principals are those who receive, review and approve plans, monitor and reward the performance. The agents are those who prepare, propose and implement plans and manage the business. In a large organisation, normally those managers who prepare plans will know more than the managers who have the authority to revise or approve.

Due to their superior information, the former, who are a sort of agents can avoid or defeat control by the latter. There are two dimensions in this agency relationship between the principals and those who prepare plans: shared values and skills and experience, and information asymmetry. Based on this thinking the planning modes have been classifiedintofivetypesshowninthetablebelow.

Modes Agents Shared ValuesLeader driven planning L HCulture driven planning H HLine driven planning M MNumber driven planning H LStaff driven planning L L

Table 4.4 Planning modesHere,L= LowH= HighM= Medium

Most of the companies, which depend on the leader-founder have in fact, one-system corporation. Whenever the leader-founder is replaced by a professional manager(s), the company may move either to culture driven or line driven management. The culture driven planning is mostly observed when the product and geographically diverse requirements have a major centre of gravity in terms of goals, skills and values of the company.

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IBM has a single centre of gravity under worldwide design, manufacturing and’ marketing computer systems. Similarly, 3M regards itself in bonding and coating packages, Proctor and Gamble in market development and distribution of consumer packages. These companies have created a culture driven planning, and their plans are simple and action oriented. All this has created a functional culture supported by tangible means of promotion and reward systems. Here, culture predominates over plans or budgets.

Line-driven planning:• In line-driven planning, attempts to specify some key requirements such as legitimacy-and credibility of numbers, relative information plans between agents and principals, small set of corporate valuesandunifyingthemesastheremaybediversityinthesocialcontextandinthegeographicdiversificationof the MNE’s.Theincentivesystemshavetobeadaptiveandflexible.Thistypeofplanningdependsonlinemanagers for both strategic thinking and implementation.Number-driven planning:• WhentheMNE’sdiversifyintodifferentfields,bothproductandgeographicallybasedcontrol through the planning process becomes long and detailed. The management tries to control the different activities of its subsidiaries through numbers. The number-driven planning is based on two premises:

belief in market control �control by incentives �

Strategic business units (SBU’s) are set up, and their performance is monitored through quantitative indicators, suchasmarketshare,ROIandcashflows.Insomeconcentratedindustries,therecouldbealaggedresponsefrom the market. Staff-driven planning: • It normally means top-down planning with corporate planners playing an active role. A great deal of information is accumulated to control and catch the line people. The line personnel start thinking that their fate depends on their ability to control pressure from the headquarters. This results in a cat and mouse chase between the staff planners and the line managers. Though a corporation may have a fancy for planning with scenarios, the actual events may bring many surprises.

4.7.5 MNE’s Planning in PracticeBecause of the nature of growth and the complexity involved in the multinational operations, strategic planning has become almost inevitable. Several studies reveal that there has been tendency on the part of more and more MNE’s, after 1970s, to resort to strategic planning. Table 4.5, based on some research studies, gives a comparative view of long range planning adopted by American, German and Japanese companies.

American German Japanese

Nature of communication •FormalAd hocInformation exchange•ExtensiveOne-way from HQ

8119

4258

5446

3367

5050

3466

Table 4.5 Subsidiary involvement

Though the sample size is limited to a few MNE’s and their various subsidiaries, it indicates that both American and German companies have a strategic planning of 3-5 years at the headquarters. It was found that only 72 per cent of the Japanese companies have yearly resorted to strategic planning and the rest of the Japanese companies worked on the ad hoc planning by the headquarters. The strategic planning of 3-5 years for subsidiaries is more prevalent in the American companies than in the German and Japanese. While German companies mostly emphasise mostly on yearly operational planning, Japanese companies adopt both yearly and ad hoc planning of subsidiaries.

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Sample size: HQ.Sub.

924

743

1422

PlanningHeadquarters3-5 years 100 100 72Yearly -- -- 14Ad hoc -- -- 14Subsidiaries3-5 years 46 33 18Yearly 16 63 46Ad hoc 38 4 36

Table 4.6 Long range planning

Of the same sample, the nature of subsidiary involvement in strategic planning is given in the above table. The table indicates the nature of communication between the headquarters and subsidiaries. Communication is more frequent and more prevalent among the American the MNE’s than the German or Japanese. German and Japanese subsidiaries adopt ad hoc informal communication in the planning process.

In terms of the extent of information exchange, the majority of communication in all the three countries consists of one way communication from the headquarters to the subsidiaries. This indicates that the MNE’s from all the three countries, i.e., the US, Germany and Japan use strategic long-range planning and environmental scanning for the integration and coordination of their global activities. As such, communications are very much headquarters-oriented. The subsidiaries have a marginal role in determining the goals are target-setting of their operations.

4.7.6 Subsidiary Development PathThe strategic planning at subsidiary level helps MNE’s to localise the global strategy according to the local market conditions. Here, one has to differentiate between the subsidiary operating as an autonomous functioning unit and amerebranchwithnoautonomy.Thelattermoreorlessisaforeignaffiliate,andismeanttoworkasapublicrelationsoffice(maybetoappeasethelocalgovernment).Itwillbea`papersubsidiary’.

If it is an autonomous business entity, it would act to localise the global strategy of’ its parent company. It can also maximise the subsidiary’s added value to the parent company. Strategic planning process would try to provide a forum for the development of subsidiaries consistent with the company’s global mission, objectives and culture. It willbuilduptheconfidenceofthelocalmanagementandalsohelptheminaligningtheirplans,goalsandactivitiesfor the common viable purpose.

Localisation of global strategyMany MNE’s have attempted to adapt the differences in market segments. This has been done by Microsoft Corporation, which allows its European subsidiaries to develop their own strategy to meet the local needs. This may maximisethesubsidiaries’addedvalue.Thefirmlooksafterthesubsidiary,anditsplansaredesignedtocomplementthe global strategy. The subsidiary’s added value is planned to increase in several functional areas.

Growth and development of the subsidiaries The growth of the subsidiary can be measured in terms of the sales volume, asset volume or number of the employees. Thegrowthofasubsidiarycanbeclassifiedintothreestages.Therelationshipofthesubsidiarywiththeparentcompanywoulddependuponthestageatwhichthesubsidiaryfindsitself.Inotherwordstherelationshipwouldcorrespond to the stage of growth. Table 4.7 summarises the three growth stages and the corresponding subsidiary culture.

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In the initial stages, subsidiary is concerned with the product and sales of the products. As it grows in the market, it may develop the mentality to act as a branch to the MNE. Once this happens, there is the likelihood of the subsidiary becoming a self-contained business where planning, control and management become integral parts of the subsidiary.Subsequently, the subsidiary’s dependence on the parent company may diminish.

Growth stage Subsidiary culture

ChildhoodAdolescenceAdulthood

Product and sales mentalityBranch mentalitySelf-contained business mentality

Table 4.7 Subsidiary development path

In the initial stages, the planning effort is that of top-down from the headquarters to the subsidiaries. As the subsidiary matures, it increases its autonomy in planning it's future business. This was the basis of the Digital European Headquarters in Geneva where it has been decentralised since early 1980s. Involving the subsidiaries in strategic planningbytheheadquartersincreasestheconfidenceofthesubsidiarymanagersintheoverallglobalstrategy.Proctor and Gamble have started using this approach in recent years.

Similarly, Colgate has created a global market. The parent company is involved more in giving the direction, setting global vision, and allocating the company’s resources and capabilities, while encouraging entrepreneurship among its foreign subsidiaries. Finally, strategic planning also gives the subsidiary the means to integrate its plan with corporate plans and goals to accomplish its purpose.

4.7.7 Pitfalls in PlanningTherearesomecriticalpitfallsinstrategicplanning,whichhavebeenclassifiedintofourkeycategoriesasgivenbelow:

Pitfalls in getting started. •Pitfalls related to misunderstanding the nature of long range planning. •Pitfalls in doing long-range planning. •

Managerial involvement �Process of planning �Credibility of result �

Pitfalls in using long range plans At each stage of the process, there are several pitfalls in multinational long range planning. There are some pitfalls, which are considered less important depending on whether the company can easily avoid, or whether they have a limited negative impact on the effectiveness. Such pitfalls relate to assumptions about planning that it is

hard or

easy, or that techniques are not useful. However, these pitfalls can be easily overcome.

According to the survey, the major pitfall is that top management becomes so engrossed in current problems that itspendsinsufficienttimeonlongrangeplanning,andtheprocessbecomesdiscreditedamongthemanagersandstaff. This may have the greatest negative impact on planning effectiveness.

Ten important pitfalls in planning are as under:Engrossed in current problems •Delegation to a planner •Developing suitable company goals •Climate (resistant to planning) •Lack of involvement •

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Assuming planning as separate from the management process •Not using plans as standards for performance •Failure to review by top management with other levels •Failure to locate the planner in the hierarchy •Failure to understand the nature of planning by the top management •

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SummaryStrategy formulationproduces a clear setof recommendations,with supporting justification, that revise as•necessary the mission and objectives of the organisation, and supply the strategies for accomplishing them. Strategy formulation process involves six steps: setting organisations’ objectives, evaluating the organisational •environment, setting quantitative targets, aiming in context with the divisional plans, performance analysis, and choice of strategy.Strategy formulation in large companies is divided into two interrelated components and these are: corporate •strategy, and business strategy.Strategy formulation in the small to medium sized enterprise or SME is unlikely to differentiate corporate and •business strategy. The basis of strategy formulation in the small and medium enterprises is done under following headings: the •forced or self-imposed, the required, the rationalistic, the deliberate, the logically incremented, and he emergent and the opportunistic.Strategicplanninghasbecomeaveryimportantpartofthetopmanagementfunctionduetotheinfluenceof•external environment till factors and systems approach to the business management. Strategic plan is, “the process of selecting an organisation’s goals, determining the policies and strategic •programmesnecessarytoachievespecificobjectivesen-routetothegoalsandestablishingthemethodsnecessaryto assure that the policies and strategic programmes are achieved.” Strategic planningprocess involves the following steps: establishingverifiable goals or set of goals to be•achieved,establishingplanningpremises,decidingtheplanningperiod,findingalternativecoursesofaction,evaluating the alternative plans and selecting a course of action, developing derivative plans, implementation of the business plans, and measuring and controlling.Strategic planning is an important tool used by the MNE’s for meeting their strategic objectives, expansions, •and so on. The internalisation process may result in three types of the MNE’s namely: horizontally integrated MNE’s, •verticallyintegratedMNE’s,anddiversifiedMNE’s.The planning needs of the MNE’s may differ among different types of companies. One can differentiate on the •basis of two criteria: stages of growth on the basis of products, and management style (whether it is broad or ‘narrow in scope).Planning focus can be analysed in terms of types, time horizon and formality. The basic orientation of the •MNE’scanbeclassifiedintothreegroupsnamely:strategyunitprogramming,businessunitprogramming,and operations planning.

ReferencesMorden, T., 2007. • Principles of Strategic Management. Ashgate Publishing Group.Lawrie, G., 2004. • Strategic performance management. Emerald Group Publishing.managementstudyguide.com. • Steps in Strategy Formulation Process [Online] Available at: <http://www.managementstudyguide.com/strategy-formulation-process.htm>. [Accessed 16 September 2011].Heller, I., 2008. • The Benefits of Strategic Planning [Video Online] Available at: <http://www.youtube.com/watch?v=Gu2ImfIjN7o&feature=related>. [Accessed 16 September 2011].Michael, 2008. • Strategic Planning Model Video Online] Available at: <http://www.youtube.com/watch?v=QkWZrNLic-s&feature=related>. [Accessed 16 September 2011].Shapiro, J. • Strategic Planning [Online] Available at: <http://www.civicus.org/new/media/Strategic%20Planning.pdf>. [Accessed 16 September 2011].

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Recommended ReadingSubha, P., 2010. • Strategic Management. Global Media.Hill, C., 2008• . Strategic Management: An Integrated Approach, 2nd ed., John Wiley and Sons Ltd.Alkhafaji, A., 2003. • Strategic Management: Formulation, Implementation, and Control in a Dynamic Environment (Promotional Management). Routledge.

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Self AssessmentTheplanningpremiseswhichcanbequantifiablearecalled__________.1.

intangible premisesa. controllable premisesb. tangible premisesc. productive premisesd.

Strategic planning at lower levels in an organisation is called ___________planning.2. operationala. businessb. productionc. verticald.

Which of the following statements is false?3. Strategy formulation in the small to medium sized enterprise or SME is likely to differentiate corporate and a. business strategy. Performance analysis includes discovering and analysing the gap between the planned or desired b. performance.Rationalistic strategy formulation implies a planned, systematic, and centralised approach.c. Logical incrementalism is a step-by-step approach to strategy formulation.d.

Which of the following provides a means to deal explicitly and systematically with matters of fundamental 4. importance?

Corporate strategya. Strategic planb. Strategic formulationc. Merger strategyd.

The key component of any strategy statement is to set the _______objectives of the organisation.5. organisation’sa. businessb. productionc. long-termd.

Which of the following statements is true?6. The intangible premises include population growth, product demand, past sales, capital invested and the a. likeThe plan of the period should be based on the nature of the business, the vision and mission of the b. company. Smallbusinessfirmsdesiresatisfactorylevelofoperationsratherthanprofit.c. Externalgrowthisachievedthroughincreasingthefirm’sproductioncapacity,employeesandsales.d.

Which of the following strategy is the combination of stability, growth and retrenchment strategies?7. Portfolioa. Acquisitionb. Expansionc. Mergerd.

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___________planning normally means top-down planning with corporate planners playing an active role.8. Long-terma. Verticalb. Horizontalc. Staff-drivend.

____________planning depends on line managers for both strategic thinking and implementation.9. Leader drivena. Culture drivenb. Number drivenc. Line drivend.

Match the following:10.

Horizontal mergers 1. A.Thesemergers are combinationof differentfirms engaged in activities

complimentary to each other like supply of raw materials, production of goods and marketing.

Conglomerate mergers 2. B.Thesemergersarecombinationoffirmsrelatedtoeachotherintermsofcustomer groups or customer functions or alternative technologies.

Vertica1 mergers 3. C.Thesemergersarecombinationsoffirmsengagedinthesamebusiness.

Concentric mergers 4. D.Thesemergersarethecombinationoffirmsunrelatedtoeachotherintermsof customer groups, customer functions and alternative technologies.

1-D, 2-C, 3-A, 4-Ba. 1-C, 2-A, 3-D, 4-Bb. 1-C, 2-D, 3-A, 4-Bc. 1-D, 2-C, 3-B, 4-Ad.

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Chapter V

Strategic Analysis and Choice

Aim

The aim of this chapter is to:

introduce the concept of strategic choice•

definestrategicanalysis•

explain the process of strategic choice•

Objectives

The objectives of this chapter are to:

explain the tools and techniques for strategic analysis•

describe SWOT analysis•

explicate life cycle analysis•

Learning outcome

At the end of this chapter, you will be able to:

understand corporate portfolio analysis•

discuss industry analysis•

comprehend st• rategic group analysis

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5.1 Introduction - Strategic ChoiceEach strategy is marked by risk and limitation depending upon environmental analysis and organisational appraisal. Choice of a strategy involves an understanding of choice mechanism and issues involved in it. Strategic choice is defined“astheprocessofselectingthebeststrategyoutofallavailablestrategies”.

5.1.1 Choice ProcessChoice process involves decision making process, which includes steps discussed below.

Focusing on strategic

alternatives

Evaluating strategic

alternatives

Considering decision factors

Objective factors

Subjective factors

Choice of strategy

Fig. 5.1 Strategic choice process(Source: Dr. Jeyarathnam. Strategic Management, Himalaya Publishing House)

Step 1: Focusing on strategic alternativesTheoreticallythisstepinvolvesidentificationofallalternatives.Inpractice,managersconsiderthosealternativeswhich are relevant and feasible. Hence, the number of alternatives are restricted.

Gap analysis: In gap analysis, the strategist examines what the organisation wants to achieve (desired performance) and what it has really achieved (actual performance). The gap between the two positions constitutes the background for various alternatives and diagnosis. The gap between what is desired and what is achieved widens as the time passes if no strategy is adopted.

Perf

orm

ance

Present Performance

Desired Performance

Performance gap

T1 T2Time

Fig. 5.2 Gap analysis(Source: Dr. Jeyarathnam. Strategic Management, Himalaya Publishing House)

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Step 2: Evaluation of strategic alternatives and considering decisions factorsThe next step is to assess the pros and cons of various alternatives and their suitability. Portfolio analysis is one such tool, which is popularly used in order to evaluate strategic alternatives. The information collected for SWOT analysis serves as a basis for portfolio analysis. Portfolio analysis is a two dimensional technique.

Portfolio planning:• Thepurposeofportfoliotechniquesistohelptopofficersofdiversifiedcorporationstobetter manage their portfolio of businesses. BCG Matrix is one such portfolio technique.BCG matrix:• BCG growth matrix developed by Boston Consulting Group has two dimensions namely, market growth rate and relative market share. The main objective of BCG matrix is to help top management to identify thecashflowrequirementsofdifferentbusinessesintheirportfolio.ConstructionofaBCGmatrixinvolvesthree steps.

Dividing the company into strategic business units (SBU) and assessing the long-term prospects of each. �Comparing SBU’s against each other by means of a matrix that indicates the relative prospects of each. �Developing strategic objectives with respect to each SBU. �

Corporate parenting:• In corporate parenting, the corporate headquarters tries to get synergy among business units by allocating resources, transferring critical skills and capabilities among various units and coordinating the activities of shared units in order to attain economies of scope.

Inportfolioanalysis,attractivenessofindustriesandcashflowofmatureunitsthatcouldbedivertedtonew �productlines,investmentopportunitiesandfinancialaspectsarestudied.Thescopeofcorporateparentingis much more than that of portfolio analysis.In multi business company’s corporate parenting enables the headquarters to focus on core competencies �andtriestocreatevalueamongvariousbusinessunitsbyestablishingrelationshipandagoodfitbetweenneedsandopportunitiesofunitsandresourcesandcapabilitieswithinthefirm.

Step 3: Strategic choiceThechoiceof a strategy is influencedbyvarietyof factors.These factorsmaybe classified as subjective andobjective factors.

Step 4: Objective factorsThey are grouped into two categories such as environmental factors and organisational factors. Environmental factors include volatility of environment, input supply from environment and powerful stakeholders. Organisational factorstobeconsideredareorganisation’smission,thestrategicintent,itsbusinessdefinitionanditsstrengthsandweaknesses.

Step 5: Subjective factors Varioussubjectivefactorsareclassifiedasunder:

Organisation’s past strategies:• When huge investments have been committed to strategies adopted in previous period, they prove to be a stumbling block for the organisation to take a new direction and the strategists become ultimately responsible for the results.Personal factors: • Thevaluesystemoftopmanagementinfluencesthetypeofstrategypursuedbyorganisation.Thepersonalpreferenceofdecisionmakersagain influences thechoiceofstrategy.For instance,DhirubaiAmbani’s desire to be number one business group has brought Reliance to a prominent place.Attitude to risks:• The attractiveness of a strategy is closely related to the risks embedded into it. Risk in a strategy is said to be high when the assets to be committed and the period of time the assets will be locked up for achieving the strategy are very high and lengthy. Firms which are involved in global operations, the risks are very high due to the variation among countries in terms of customs, regulations and resources.Awrongdecisionislikelytokillthecompany.Studieshavepointedoutthatsmallfirmstakemoreriskandmanyinnovationsoccurinsmallfirmscomparedtoestablishedcorporationsmanagedbyprofessionals.Jointstockcompaniesownedbydiversifiedgroupsoftenfacetheriskofbeingtakenoverbyacquisitionhungrycompetitors whenever the share price falls. So they take all efforts to maintain the price.

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Internal political consideration:• Politics is a universal phenomenon and no organisations can escape from politics. The term politics means ‘exercise of power’. Depending on the power relationship within organisation, several groups of individuals exercise influence upon strategic decision.Consequently coalition building,lobbying and bargaining takes place within organisations. Whenever power is divided among several decision groups,bargainingtakesplace.Perceptionofrisksonthepartofdifferentgroupsagaininfluencesthechoiceof strategy. Analysisoffactsanddifferentorganisationalvariablesarefilteredthroughtheperceptionofmanagers’attitudesdependinguponthegroupstheybelongto.Sothechoiceisheavilyinfluencedbythepoliticalbehaviourofmanagers and their groups.Pressure from stakeholders:• Thekeystakeholdersexertinfluenceonstrategicalternative.Employeespressurefor fair wages and job security; creditors require prompt payment of loans; Government and other interest groups expect thefirmtotakeupsocialresponsibilityactivities;Shareholderswantperiodicaldividends.Strategicmanagers should pose the four crucial questions in this regard.

How this alternative is going to affect stakeholders? �Howmuchofwantsofeachstakeholderislikelytobefulfilledwiththischoice? �Ifitisnotfulfilled,whatwilltheydo? �What is the probability that they will do? �

Strategists choose strategies in such a way that the external pressures are minimised and the stakeholders support is gained.

5.1.2 Process of Strategic ChoiceStrategic choice involves evaluation of the pros and cons of each strategic alternative and selection of the best alternative. Three techniques are used in the process of strategy selection, namely,

Devil’s advocateDevil’s advocate has got its origin in the medieval Roman Catholic Church practice, which scrutinised impostors so that they will not be canonised as saints. Devil’s advocate in strategic decision making is responsible for identifying potential pitfalls and problems in a proposed strategic alternative by making a formal presentation.

Dialectical enquiry Dialectical enquiry involves making two proposals with contrasting assumptions for each strategic alternative. The merits and demerits of the proposal will be argued by advocates before the key decision makers. Finally, one alternative will emerge viable for implementation.

Strategy shadow committee A strategy shadow committee consists of members drawn below executive level. They serve the committee for two years. They inspect all materials and attend all meetings of executive strategy. The members generate views regarding constraints faced by management. Their report is submitted to Board of Directors.

5.1.3 Balanced ScorecardBalanced scorecard has been proposed and popularised by Robert S. Kaplan and David P.Norton. It is a performance measurement tool, which “provides executives with a comprehensive framework that translates a company’s strategic objectives into coherent set of performance measures”. It is a management system, which can motivate breakthrough improvements in critical areas such as product, process, customer and market development. The scorecard consists of four different perspectives such as:

Financial perspective •Customer perspective•Internal business perspective•Innovation and learning perspective •

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Thesemeasures,accordingtoNortonandKaplan,aresuperiortotraditionalfinancialindicators.Thescorecard’smeasures are closely related to organisation’s strategic objectives and competitive demands. The managers are expected to select a few critical indicators within each of the four perspectives, which are supposed to focus on strategicvision.Thetraditionalfinancialstatementsarepost-mortemreportswhereasthescorecardfunctionslikethe “cornerstone of a company’s current and future success”.

“Thebalanced scorecard can serve as a focalpoint for theorganisation’s efforts, definingandcommunicatingpriorities to managers, employees, investors and even customers. Balanced scorecard cannot be used in general for anybusinessoranyindustry.Itshouldbe“customisedonthebasisofafirm’smission,strategy,technologyandculture”.Ituniquelycombinesmanagementandmeasurementinorganisations.Thefiveelementsofstrategyare:

Services that surpass customer’s expectation•High level of customer satisfaction•Continuous improvement of safety equipment reliability, responsiveness and cost effectiveness•High quality employees•Realisation of shareholder expectation•

These elements of strategy are converted to strategic objectives.

Financial PerspectiveReturn-on-capital-employedCashflowProjectprofitabilityProfitforecastreliabilitySales backlog

Internal Business perspectiveHours with customers on new workTender success rateReworkSafety incident indexProject performance indexProject closeout cycle

Customer perspectivePricing Index Tie II customersCustomer ranking surveyCustomer satisfaction indexMarket share Business segment, Tier I customers, key accounts

Innovation and learningperspective% Revenue from new servicesRate of improvement indexStaff attitude surveyEmployee suggestionsRevenue per employee

Fig. 5.3 Balanced scorecard(Source: Dr. Jeyarathnam. Strategic Management, Himalaya Publishing House)

Balanced scorecard in Indian companiesThestudyhasbeenconductedamong53Indianfirmsandthisstudyconcludesthatthereislikelytobegreateracceptance of the balanced scorecard as a strategic management and performance measurement tool. The standard costingtechniquehasbeenwidelyusedbycorporateIndia.Twentythreeoutof53respondentfirmshaveadoptedbalanced scorecard as a performance management tool.

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Someofthereasonsforadoptingbalancedscorecardamongthefirmsareinitiatingchangeprocessintheorganisations,broadeningoftheperformancemeasures,facilitatingtheintegrationofbusinessplanswithfinancialplans,translatingcorporate vision and strategy into integrated set of objectives and measures, benchmarking and making visible trade off between growth and short term improvements for implementation of balanced scorecard in corporate India.

The companies consider environmental and social perspectives and employee’s perspectives in addition to the •usualfiveperspectives.Thestudyunitsmeasurecustomerperspectivesandcustomersatisfactionintermsofquality, delivery schedule, service, corporate image, brand, percentage of sales from new products, responsive after sales service and the number of customer suggestions as important key performance indicators. The study units measure internal business perspectives in terms of number of defects per million, stock •out percentage, new products introduction interval, distribution reach and cycle time, as key performance indicators. The sample units have measured innovation and growth perspectives in terms of market share, growth in market •share, percentage of sales to new customers, developing raw material substitutes, vendor development, reduction in cycle time and growth rate in knowledge assets.ThefinancialperspectivehasbeenstudiedbyrespondentfirmsintermsofROI,daysofworkingcapital(DWC),•cashflow,economicvalueadded,currentratioandgrowthrateintangibleassetsaskeyperformanceindicator.The shareholders perspective has been measured in terms of EVA as key performance indicator. Themainproblemsfacedbythecompaniesarepertainingtothedifficultiesinassigningweightagetodifferent•perspectives and establishing cause and effect relationship towards that. Again assigning weightage to different measures within the perspectives also poses problems for the study units.

Theimplementationofbalancedscorecardasaperformancemeasurementtoolhasledtotheidentificationofcostreduction opportunities in the organisation, which has resulted in the improvement of bottom-line. The standard costing technique has been widely used by corporate India. The sales volume and selling price variance, material price andmaterial usagevariance, expense centre budgets, brand revenue andprofit centre and transfer pricemechanismaretoolsusedbythefirms.

5.2 Strategy AnalysisStrategic analysis is part of overall management process, which is concerned with attempts to understand the strategic position of the organisation, to consider environmental happenings and judge how these happenings can affect the organisation. It also considers the organisation’s strengths and weaknesses with respects to the natural happenings and assesses the feelings of the stakeholders. Strategic analysis actually helps to form a picture of the factorsthatinfluencetheorganisationsothatitcanbeinformedofthestrategicchoiceelementoftheoverallstrategicmanagement process. The three factors in strategic analysis are:

environment •values and objective •resources•

Strategies analysis largely involves making subjective decisions based on objective information. It seeks to determine alternativecourseofactionthatcouldbestenablethefirmtoachieveitsmissionandobjectives.Thefirm’spresentstrategies, objectives, and mission, coupled with the external and internal audit information, provide a basis for generating and evaluating feasible alternative strategies.

5.2.1 Tools and Techniques for Strategy AnalysisStrategic analysis is a dynamic area of strategic management where new tools and techniques are continually being developed, often replacing some of the older techniques.

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Informationtechnologyhasprovidedthebenefitofhavingready-madestrategicplanningsoftwarethatprovidesspreadsheets and templates for data, various types of reports and plan formats.

There are myriad tools and techniques to perform strategic analysis. Environmental appraisal, for instance, uses the techniques of forecasting, SWOT analysis and scenario-writing. Organisational appraisal is done by internal, comparativeandcomprehensiveanalysisusingtechniquessuchasfinancialandnon-financialanalysis,valuechainanalysis, benchmarking and balanced scorecard.

Strategic analysis can be done at two levels: the corporate level•the business level•

Corporate-level strategic analysis focuses on techniques for analysing businesses under the same corporate umbrella. Business-level strategic analysis focuses on individual businesses under the corporate umbrella from the perspective of the industry to which each of those businesses belong and on the unique competitive situations they face in their respective industries.

5.2.2 Corporate Portfolio AnalysisCorporateportfolioanalysiscouldbedefinedasasetoftechniquesthathelpstrategistsintakingstrategicdecisionswithregardtoindividualproductsorbusinessesinafirm’sportfolio.Itisprimarilyusedforcompetitiveanalysisandstrategicplanninginmulti-productandmultibusinessfirms.Theymayalsobeusedinlessdiversifiedfirms,if these consist of a main business and other minor complementary interests. The main advantages in adopting a portfolioapproachinamulti-product;multi-businessfirmisthatresourcescouldbetargetedatthecorporatelevelto those businesses that possess the greatest potential for creating competitive advantage.

Corporate portfolio techniques evolved during the mid-1960s and several of these soon became quite popular. During the 1970s, there arose a tendency to discredit the techniques when it was realised that the assumptions underlying them did not always hold good. Currently, however, it is accepted that these techniques are useful, not as being purely prescriptive, but as an important and decisive part of a set of criteria—normative as well as descriptive—that assist strategists in exercising a strategic choice.

There are number of techniques that could be considered as corporate portfolio analysis techniques. Among them we have the Boston Consulting Group (BCG), General Electric’s Nine-cell, Hofer’s Product-Market Evolution, Directional Policy and the Strategic position and Action Evaluation Matrices.

5.2.3 SWOT AnalysisEvery organisation is a part of an industry. Almost all organisations face competition, either directly or indirectly. Thus, the industry and competition are vital considerations in making a strategic choice. The industry provides the context in which an organisation operates, while competitors vie for the same set of customers by offering more or less identical products. Apart from the external forces that are present in the industry and in the competitor analyses, it is useful to look inward and perform a SWOT analysis.

Organisations perform SWOT analysis to understand their internal and external environments. SWOT, which is the acronym for strengths, weaknesses, opportunities and threats, is also known as WOTS-UP or TOWS analysis. An effective organisational strategy, therefore, is one that capitalises on the opportunities through the use of strengths and neutralises the threats by minimising the impact of weaknesses, to achieve pre-determined objectives.

A simple application of the SWOT analysis technique involves these steps:Setting the objectives of the organisation or its unit.•Identifying its strengths, weaknesses, opportunities and threats.•Asking these four questions:•

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How do we maximise our strengths? �How do we minimise our weaknesses? �How do we capitalise on the opportunities in our external environment? �How do we protect ourselves from threats in our external environment? �

Recommending strategies that will optimise the answers from four questions•

The SWOT analysis is usually done with a help of a template in the form of a four-cell matrix, each cell of the matrix representing the strengths, weaknesses, opportunities and threats. The analysis for preparing the SWOT matrix could bedonebyagroupofmanagersinaworkshopsession.AtypicalSWOTmatrixisshowninthefigurebelow.

Strengths WeaknessI

N

T

E

R

N

A

L

• Getssupportfromsociety• Familyisavailable• Availabilityofforeigninvestmentcapital• Existenceofcooperationwithother

institutions from within the country as well as from aboard

• Existenceofprogramtrainingtodevelopemployee’s skills

• Completeofmachineprocessingandhighcapacity

• Handmadesilkproducts

• Fluctuationofsilkwormquality• Irrigationnotpossibleatfarmer’sside• Cocoonvolumeproductionisstilllower• Limitationoffunds• Availabilityofexpertiseinmarketingare

still low

Opportunities ThreatsEXTERNAL

• Interestoffarmerstosericultureishigh• Improvementinsilkwormeggsthrough

government research or university• Existenceoftrainingoffersfromlocal

government and all donors• Availablemarketforsellingfreshcocoons• Theopeningofshowroomofclothsutrain

trade centre• Artlesssilkclothdevelopmentbecomethe

home made batik silk cloth

• Farmerknowledgeislow• Monopolyofsilkeggsproductionfrom

government• Cheapercocoonsfromothercountries• Thelowerpriceofsyntheticsilk-like

fabrics• Theimage,formingofsociety’sopinion

about product and level of silk softness

Fig. 5.4 SWOT matrix

5.2.4 Experience Curve AnalysisTheexperiencecurveisbasedonthecommonlyobservedphenomenonthatunitcostdeclinesasafirmaccumulatesexperienceintermsofthecumulativevolumeofproduction.Theimplicationisthatlargerfirmsinanindustrywouldtend to have lower unit costs as compared to small companies, thereby gaining a competitive cost advantage. An experience curve results from a variety of factors such as; learning effects, economies of scale, product redesign and technological improvements in production.

According to the experience effects theory, if a business produces and sells more units than its competitors, it should also be honing its ability to produce them better than its competitors. By producing better means that the products are ofabetterqualityandarealsoproducedatalowercomparativecost.Inthismanner,abeneficial,self-perpetuatingcycle brings in more sales to the experienced producer.

The concept of experience curve is relevant for a number of areas in strategic management. For instance, the experiencecurveisconsideredtobeabarrierfornewfirmscontemplatingentryinanindustry.

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5.2.5 Life Cycle AnalysisLifecycle is a conceptual model that suggests that products, markets, businesses and industries evolve through sequential stages of introduction, growth, maturity, and decline.

The main advantage of the life cycle concept is that it can be used to diagnose a portfolio of products in order to establish the stage at which each of them exists. Particular attention is to be paid on the businesses that are in the declining stage. Depending on the diagnosis, the appropriate strategic choice could be made. A combination of strategies like selective harvesting, retrenchment and so on may be adopted for declining businesses.

Thelifecycleconceptprovidesausefulframeworkforanalysisofbusiness-levelstrategies.Thebenefitofthelifecycle concept lies in its ability to provide strategists a convenient method of devising a broad approach to business strategy formulation on the basis of the understanding the stage of life cycle a business is in at a particular point of time. Lifecycle concept is not to be used as a guide for 'when a change occurs in the life cycle' rather it is useful to 'what changes might occur over a period of time with regard to the market conditions'.

5.2.6 Industry AnalysisAnindustryisdefinedasagroupofcompaniesofferingproductsandservicesthatareclosesubstitutesofeachother.Close substitutes are those products and services that satisfy the same basic customer needs. Michael E. Porter has made immense contribution in the development of the ideas of industry and competitor analysis and their relevance to the formulation of competitive strategies.

ThefiveforcesframeworkdevelopedbyMichaelPorteristhemostwidelyknowntoolforanalysingthecompetitiveenvironment, which helps in explaining how forces in the competitive environment shape strategies and affect performance.Theframeworkasshowninthefigurebelowsuggeststhattherearecompetitiveforcesotherthandirect rivals, which shape up the competitive environment. These competitive forces are as follows:

The rivalry among competitors in the industry•The potential entrants•The substitute products•The bargaining power of suppliers•The bargaining power of buyers•

Potential entrants

Threat of new entrants

Industry competitors

Buyers

Substitutes

Suppliers

Threat of substitute products

or services

Bargaining power of suppliers

Bargaining power of buyers

Rivalry among existingfirms

Fig. 5.5 Porter’s five forces model of competition in an industry(Source: http://www.referenceforbusiness.com/management/images/eom_0005_0001_0_img0142.jpg)

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However,thesefiveforcesarenotindependentofeachother.Pressuresfromonedirectioncantriggeroffchangesin another, which is capable of shifting sources of competition.

Threat of new entrantsEntryofafirminamarketisseenasathreattotheestablishedfirmsinthatmarket.Thecompetitivepositionoftheestablishedfirmsisaffectedbecausetheentrantsmayaddnewproductioncapacityoritmayaffecttheirmarketshares.Theymayalsobringadditionalresourceswiththem,whichmayforcetheexistingfirmstoinvestmorethanbefore.Altogetherthesituationbecomesdifficultfortheexistingfirmsifnotthreateningalwaysand,therefore,theyresort to raising barriers to entry. These barriers are intended to discourage new entrants and this may be done by organisations, in one or more ways, as discussed below:

economies of scale•learning or experience effect•cost disadvantage independent of scale•brandbenefits•capital requirements•switching costs•access to distribution channel•anticipated growth•

Bargaining power of suppliersBusinessorganisationshavealargedependencyonsuppliersandthelatterinfluencetheirprofitpotentialsignificantly.Suppliers’ decisions on prices, quality of goods and services and other terms and conditions of delivery and payments havesignificantimpactontheprofittrendsofanindustry.However,suppliers’abilitytodoallthesedependsonthebargaining power over buyers. Suppliers’ bargaining power would normally depend on:

importance of the buyer to the supplier group•importance of the supplier’s product to buyers•greater concentration among suppliers than among buyers•high switching costs for buyers•credible threat of forward integration by supp•

Bargaining power of customersCustomers with a stronger bargaining power relative to their suppliers may force supply prices down or demand better quality for the same price and may demand more favourable terms of business. For instance, there will always be a difference in the bargaining power between an individuals buying different construction material like cement, steel or bricks and a real estate builder buying them for the number of properties he may have been building over so many years. Few of the following facts attach greater power to buyers:

undifferentiated or standard supplies•customer’s price sensitivity•accurate information about the cost structure of suppliers•greater concentration in buyer’s industry than in supplier’s industry and•relatively large volume purchase•credible threat of backward integration by buyers•

Threat of substitutesOftenfirmsinanindustryfacecompetitionfromoutsideindustryproducts,whichmaybeclosesubstitutesofeachother. For example, with the new technologies in place now the electronic publishing is the direct substitutes of the textspublishedinprint.Similarly,newspapersfindtheirclosestsubstitutesintheironlineversion,thoughitmaybe a smart strategic move to position them as complementary products.

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However, the competitive pressure, which any industry may face, depends primarily on three factors:whether the substitutes available are attractively priced•whether buyers view substitutes available as satisfactory in terms of their quality and performance•how easily buyers can switch to substitutes•

Generally it is observed that the availability and acceptability of substitutes determine an upper price limit to a product. When relative prices of the product in question rise above that of the substitute products, customers tend to switch away from them.

Competitive rivalryThe level of rivalry is low in a perfectly competitive market where there are large number of buyers and sellers, and the product is uniform for everyone. Same is true for a monopoly market where there is only one player and thetypeofproductisalsoone.Howeverincaseofoligopolyormonopolisticcompetition,whereyouwillfindfewplayers and the market conditions allow them to differentiate their products and services, competition if found to befierce.Fewofthefollowingfactorsexplainthelevelofrivalry:

the stability of environment•the life expectancy of competitive advantage•characteristics of the strategies pursued by competitors•

Lower threats to entry or a higher possibility for substitutes have the potential of increasing rivalry. A lower engagement between suppliers will result into a lesser rivalry. So will be the effect when buyers face higher switching costs. In an overall assessment, two critical observations regarding rivalry can be made here.

First a powerful competitive strategy employed by one rival can greatly intensify the competitive pressure on •other rivals. Second, the frequency and rigor with which rivals use any or all competitive weapons at their disposal can be •amajordeterminantofwhetherthecompetitivepressuresassociatedwithrivalryarecutthroat,fierce,strong,moderate or weak.

The purpose of an industry analysis, in the context of strategic choice, is to determine the industry attractiveness andtounderstandthestructureanddynamicsoftheindustrywithaviewtofindingoutthecontinuedrelevancetostrategicalternativesthataretherebeforeafirm.Usingthefiveforcesmodelofindustrycompetition,afirmcananalyse its critical strengths and weaknesses, its position within the industry, the areas where strategic changes may yieldthemaximumprofitsandthesignificantopportunitiesandthreats.

5.2.7 Strategic Groups AnalysisStrategicgroupsareconceptuallydefinedclustersofcompetitorsthatsharesimilarstrategiesand,therefore,competemoredirectlywithoneanother thanwithotherfirms in the same industry.Strategicgroupanalysis serves thepurpose of identifying the strategic groups and then analysing the industry from the viewpoint of the differences inthebusinessstrategiesemployed.Thisfacilitatesthedirectcomparisonamongthegroupoffirmsthatcompetedirectly with each other.

Strategicgroupanalysisidentifiesandclassifiesthefirmsonabasisthatreallymatters. Industry and competitor analysisbecomemeaningfulwhendoneonthebasisofstrategicgroupsidentification.

5.2.8 Competitor AnalysisCompetitoranalysisdealswiththeactionsandreactionsofindividualfirmswithinanindustryorstrategicgroup.It becomes especially important in the case of oligopolistic industries where there are a few powerful competitors and each needs to keep track of the strategic moves of the others.

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The purpose of conducting a competitor analysis is to:determine each competitors’ probable reaction to the industry and environmental changes•anticipatetheresponseofeachcompetitortothelikelystrategicmovesbytheotherfirms•developaprofileofthenatureandsuccessofthepossiblestrategicchangeseachcompetitormightundertake•

Components of competitor analysis are:future goals of competitor•current strategy of competitor•key assumptions made by competitor•capabilities of competitor•

Competitor analysis is important because competitive forces shape the strategies adopted by rivals and because these strategiesofrivalsfirms,shapethecompetitiveforces.Itisusefulforafirmifittakestheresultsofthecompetitoranalysis into account while exercising a strategic choice.

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SummaryStrategicchoiceisdefined“astheprocessofselectingthebeststrategyoutofallavailablestrategies”.•Choice process choice involves decision making process and it includes various steps: focussing on strategic •alternatives, evaluating strategic alternatives, considering decision factors, objective factors, subjective factors, and strategic choiceStrategic choice involves evaluation of the pros and cons of each strategic alternative and selection of the •best alternative. Three techniques are used in the process of selection of a strategy namely: Devil’s Advocate, Dialectical Enquiry, and Strategy Shadow Committee Balanced score card is a performance measurement tool, which “provides executives with a comprehensive •framework that translates a company’s strategic objectives into coherent set of performance measures”. Strategic analysis is part of overall management process, which is concerned with attempts to understand the •strategic position of the organisation, to consider goings-on in the environment and judge how the happenings can affect the organisation. Strategic analysis is a dynamic area of strategic management where new tools and techniques are continually •being developed, often replacing some of the older techniques. Corporateportfolioanalysiscouldbedefinedasasetof techniques thathelpstrategists in takingstrategic•decisionswithregardtoindividualproductsorbusinessesinafirm’sportfolio.Organisational perform a SWOT analysis to understand their internal and external environments. SWOT, which •is the acronym for strengths, weaknesses, opportunities and threats, is also known as WOTS-UP or TOWS analysis. The experience curve is based on the commonly observed phenomenon that unit cost declines as a firm•accumulates experience in terms of the cumulative volume of production. Lifecycle is a conceptual model that suggests that products, markets, businesses and industries evolve through •sequential stages of introduction, growth, maturity, and decline. The purpose of an industry analysis, in the context of strategic choice, is to determine the industry attractiveness •andtounderstandthestructureanddynamicsoftheindustrywithaviewtofindingoutthecontinuedrelevancetostrategicalternativesthataretherebeforeafirm.Strategic group analysis serves the purpose of identifying the strategic groups and then analysing the industry •from the viewpoint of the differences in the business strategies employed. Competitoranalysisdealswith theactionsandreactionsof individualfirmswithinan industryorstrategic•group.

ReferencesOlsen, E, 2008. • SWOT Analysis: How to perform one for your Organisation [Video Online] Available at: <http://www.youtube.com/watch?v=GNXYI10Po6A&feature=related>. [Accessed 19 September 2011].LSBFGlobalMBA, 2010. • LSBF Global MBA - Case Study: Strategic Choice [Video Online] Available at: <http://www.youtube.com/watch?v=3X-19rvpOq0&feature=relmfu>. [Accessed 19 September 2011].David, F., 2006. • Strategic Management, 5th ed., Prentice Hall.Thompson, J., 2010. • Strategic Management, 6th ed., Cengage Learning Inc.NetMBA.com, 2002. Strategic Management [Online] Available at: <http://www.netmba.com/strategy/>. •[Accessesd 19 September 2011]. scribd.com, 2011. Strategy Analysis and Choice• [Online] Available at: <http://www.scribd.com/doc/43455441/1-Strategy-Analysis-and-Choice>. [Accessed 19 September 2011].

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Recommended ReadingKazmi, A., 2002. • Business Policy and Strategic Management, 3rd ed., Tata Mcgraw-Hill.Sadler, P., 1993. • Strategic Management. Kogan Page Ltd.Emerald Insight Staff, 2005. • Strategic Management. Emerald Group Publishing Ltd.

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Self AssessmentTheexperiencecurveisbasedonthephenomenonthatunitcostdeclinesasafirmaccumulatesexperiencein1. terms of the cumulative volume of _____________.

demanda. productionb. supplyc. productd.

Which of the following involves making two proposals with contrasting assumptions for each strategic 2. alternative?

Dialectical enquirya. Devil’s advocateb. Strategy shadow committee c. Balanced scorecardd.

Which of the following statements is false?3. Thepurposeofportfoliotechniquesistohelptopofficersofdiversifiedcorporationsbettermanagetheira. portfolio of businesses. The gap between what is desired and what is achieved narrows as the time passes if no strategy is b. adopted. Thevaluesystemoftopmanagementinfluencesthetypeofstrategypursuedbyorganisation.c. Politics is a universal phenomenon and no organisations can escape from politics.d.

Themainobjectiveof_________istohelptopmanagementtoidentifythecashflowrequirementsofdifferent4. businesses in their portfolio.

competitors analysisa. strategic choiceb. BCG matrixc. SWOT analysisd.

Which of the following statements is true?5. Balanced scorecard can be used in general for any business or any industry.a. Strategies analysis largely involves making subjective decisions based on subjective information. b. The industry provides the context in which an organisation operates, while competitors vie for the same set c. of customers by offering more or less identical products. The life cycle concept provides a useful framework for analysis of corporate-level strategies.d.

The main advantage of the ___________concept is that it can be used to diagnose a portfolio of products in 6. order to establish the stage at which each of them exists.

life cyclea. strategic analysisb. competitors analysisc. industry analysisd.

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The level of rivalry is low in a perfectly _________market where there are large number of buyers and sellers 7. and the product is uniform with everyone.

uniforma. newb. corporatec. competitived.

Which of the following provides executives with “a comprehensive framework that translates a company’s 8. strategic objectives into coherent set of performance measures”?

Value chain analysisa. Benchmarkingb. Balanced scorecardc. Swot analysisd.

Devil’s advocate in strategic decision making is responsible for identifying potential _________and problems 9. in a proposed strategic alternative by making a formal presentation.

pitfallsa. marketsb. analysisc. decisionsd.

Which of the following is primarily used for competitive analysis and strategic planning in multi-product and 10. multibusinessfirms?

Strategic group analysisa. Corporate portfolio analysisb. Industry analysisc. SWOT analysisd.

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Chapter VI

Strategy Implementation

Aim

The aim of this chapter is to:

introduce the concept of strategy implementation•

explain the interrelation between formulation and implementation of strategy•

definetheconceptofresourceallocation•

Objectives

The objectives of this chapter are to:

elucidate strategic budgeting•

explain the issues in strategic implementation•

explicate the barriers to strategy implementation•

Learning outcomes

At the end of this chapter, you will be able to:

discuss project implementation•

enlist the factors affecting the resource allocation•

understand • the major themes in strategy implementation

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6.1 Introduction Strategy implementation is an essential part of strategic management process. Bad implementation often results in strategic failures. A survey indicates that business organisations face the following ten problems while implementing strategy:

Implementation takes longer time than required. •Unanticipated major problems crop up. •Ineffective coordination of activities. •Crisis management takes lot of time. •Employees have less than required capabilities. •Inadequate training of lower level employees. •Problems arising from uncontrollable external environment. •Inadequate leadership on part of departmental environment. •Lackofprecisedefinitionofimplementationoftasksandactivities.•Inadequate monitoring of activities through information system. •

Strategy implementation process requires development of programmes, budgets and procedures. All managers down tosupervisorsareinvolvedinstrategyimplementation.Strategyimplementationdealswiththewayinwhichafirmcreates the organisational arrangements that allow it to pursue its strategy. Strategy is mainly implemented through appropriate structure and control. Selecting the right combination of organisational structure and control system is known as organisational design.

The purpose of organisation structure and control is to coordinate employees’ activities and to motivate them for better performance.Theorganisationstructurehasgotdefinitebearingonthebehaviourofemployeesinorganisationalsetting. Good structure allows the organisation to improve its ability, to create value and develop competitive advantage. Organisational structure and control shape the way people behave and determine how they will act in the organisational set up.

The structure also provides a mechanism through which managers coordinate the activities of various functions and divisions to fully exploit their skills and capabilities. Right kind of organisation structure facilitates the management of resources and capabilities between departments and divisions. Changes in corporate strategy would lead to changes in organisation structure. The sequence of activities is as follows:

Creation of new strategy•Emergence of administrative problems•Economic performance declines•Invention of new appropriate structure•Profitsreturntoitspreviouslevel•

Changesintheenvironmentgetreflectedinstrategyanditleadstochangesinstructure.Organisation’sperformancewill suffer if structure, strategy and environment are not aligned.

6.1.1 Nature of Strategy ImplementationIt is possible to turn strategies and plans into individual actions, necessary to produce a great business performance. But it’s not easy. Many companies repeatedly fail to truly motivate their people to work with enthusiasm, all together, towards the corporate aims. Most companies and organisations know their businesses, and the strategies required for success.

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However many corporations - especially large ones - struggle to translate the theory into action plans that will enable the strategy to be successfully implemented and sustained. Here are some leading edge methods for effective strategic corporate implementation. The characteristics of strategy implementation are listed below, which highlight the essential nature of strategy implementation:

action orientation•comprehensive in scope•demanding varied skills•wide-ranging involvement•integrated process•

6.1.2 Issues in Strategy Implementation A number of issues are normally involved in strategy implementation. The important issues are project, procedural, organisationalstructural,behaviouralconsiderations,productionandoperations,humanresources,financialandmarketing.

Project implementation ProjectisdefinedbytheProjectManagementInstituteas,“Aone-shot,timelimited,goal-oriented,majorundertaking,requiringthecommitmentofvariedskillsandresources.”Thus,aprojectisahighlyspecificprogrammeforwhichthetimescheduleandspecificcostsaredeterminedinadvance.Projectscreateallnecessaryconditionsandfacilitiesfor the strategy implementation.

Procedural implementation Strategy implementation also requires executing the strategy, based on the rules, regulations and procedures formulated bythegovernment.Though,manyproceduresaresimplifiedwiththeliberalisation,privatisationandglobalisationof Indian economy, certain procedures are still applicable in the process of strategy implementation. Therefore, the strategists should study the following procedural aspects before implementing the strategy. They are licensing procedures, foreign collaboration procedures, Foreign Exchange and Regulation Act requirements, environmental requirements, Monopolies and Restrictive Trade Practices requirements, import and export requirements, incentives andbenefits,requirementsoflabourlawsandotherlegislations.

Organisational growth Organisational structure is a means to an end of achieving organisational mission and objectives. Thus, it is an important means for strategic implementation. Organisational structure refers to the methods of allocating duties and responsibilities to individuals, and the ways that individuals are grouped together into units, departments and divisions. The formal organisational structure represents the relationships between people and functions as designated bymanagementandconveyedintheorganisationalchart.Italsodefinesthenumberoflevelsintheorganisationalhierarchy. The informal organisational structure represents the web of social relationships among various members of a company.

6.1.3 Barriers to Strategy ImplementationBarriers to strategy implementation are listed as under:

An inability to manage change•Poor or vague strategy•Not a model to guide implementation efforts•Inadequate information sharing•Unclear responsibility and accountability•Working against the organisational power structure•

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The means to overcome the barriers to strategy implementation usually revolve around the following two main suggestions:

Adopting a clear model of strategy implementation:• Such a model should lay down the elements or the major themes of the implementation process so that, there is a high level of understanding about how the process has to proceed.Effective management of change in complex situations:• Implementation almost always creates the need to manage change in complex organisational contexts. Many of these areas of change are behavioural in nature and are, therefore, multifaceted and messy in nature.

6.1.4 Interrelationship between Formulation and Implementation of StrategyThe strategy formulation and the relationship between strategy formulation and strategic implementation should be studied. This is necessary because the formulation and implementation process are intertwined in real life. The two linkages exist between strategy formulation and strategy implementations are:

Forward linkage• : The forward linkage deals with preparing the organisational activities including organisational structure, leadership, culture and so on, necessary for the strategic implementation. Backward linkage• :Thebackwardlinkagedealswiththeinfluenceofimplementationonstrategyformulation.Inother words, once the strategy is selected and implemented, it is found in reality that there are certain deviations due to the different ground realities. These deviations force the strategist to reformulate the strategy based on ground realities. Therefore, the past strategic actions and experiences should be taken into consideration while formulating strategies.

6.2 A Model of Strategy ImplementationA model of strategy implementation attempts to capture the major themes in strategy implementation and the activities that make up each theme. The forward linkage from strategic plan guides the implementation process andconnectsittotheprecedingphaseofstrategyformulation.Thefeedbackflowinginreversefromthestepofstrategy evaluation and control moves through the implementation phase and goes back to strategy formulation establishing the backward linkage.

PROJECT IMPLEMENTATION

PROCEDURALIMPLEMENTATION

RESOURCEALLOCATION

STRUCTURAL IMPLEMENTATION

LEADERSHIPIMPLEMENTATION

BEHAVIORAL IMPLEMENTATION

FUNCTIONAL IMPLEMENTATION

OPERATIONALIMPLEMENTATION

STRATEGICPLAN EVALUATION &

CONTROL

FEED BACK

ACTIVATING STRATEGIES

MANAGINGCHANGE

ACHIEVING EFFECTIVENESS

Fig. 6.1 A model of strategy implementation

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6.2.1 Major Themes in Strategy Implementation The model of strategy implementation depicts three major themes:

Activating strategies:• The theme of activating strategies serves to prepare the ground for managerial tasks andactivitiesofstrategyimplementation.Threesetsofactivitieshavebeenidentified,whicharebelievedtoberelevant for Indian organisations and these are

project implementation �procedural implementation �resource allocation �

Managing change:• This theme is the core of strategy implementation and deals with managing change in complexsituations.Threesetsofactivitiesidentifiedunderthisthemeare

structural implementation �leadership implementation �behavioural implementation �

Achieving effectiveness:• This theme will cover two sets of activities of functional and operational implementation.

6.2.2 Theme of Activating StrategyThe activation of strategies are shown in the form of pyramid. Strategy sits at the top of the pyramid—its implementation being supported by an elaborate administrative structure within the organisation.

Strategy

Plans

Programmes

Projects

Budgets

Policies, Procedures, Rules & Regulation

Fig. 6.2 The pyramid of strategy activation

Strategy:• Strategy should lead to plans. For, instance, if stability strategies have been formulated, they may lead to the formulation of various plans.Plans:• Plans result in different kinds of programmes.

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Programmes:• A programme is a broad term, which includes goals, policies, procedures, rules and regulations and other steps that need to be taken for putting a plan into action. Programmes are usually supported by funds committed for plan implementation. An example of a programme is a research and development programme for the development of a new product. They lead to the formulation of projects. Project:• Aprojectishighlyspecificprogrammeforwhichthetimescheduleandcostsarepredetermined.Itrequires an allocation of funds based on capital budgeting by organisations. Projects create the needed infrastructure for the day-to-day operations in an organisation. They may be used for •setting up new plants, modernising the existing facilities, installation of newer systems and for several other activities that are needed for the implementation strategies.

The administrative mechanisms of policies, procedures and rules and regulations are ubiquitous in any organisation. Policies are guidelines to action. An example of a policy is: ‘Our Company will accept all defective products from the customerwithoutanyquestionbeingasked’.Proceduresaresequentialstepsdescribedinsufficientdetail,requiredto implement policy. Rules and regulations are the prescribed mode of conduct in a given situation – the do’s and don’ts—that serve to make the policies and procedures explicit.

6.2.3 Theme of Managing ChangeManagement of change requires an understanding of the process of change. The process usually starts with the triggers of change that set off within or outside the organisation. The managers diagnose organisational problems, future challenges and opportunities, and then process to plan for change. They identify the need for change, prepare the organisation for implementing the change and take process. The managers then set a monitoring system to check whether the planned changes are indeed taking place. They may take corrective measures if the change process is deviating from the set course.

Innovation and learning are considered as parts of any change process. Innovation is generally considered as new ways of doing things. A change programme often relies on new ways of doing things to tackle problematic situations. Learning from mistakes and not repeating them is also an essential feature of the change process. The change process offers valuable learning opportunities to managers and quite often, they will emerge wiser after they have undergone a change programme.

The three key issues in management of change are:Degree of change:• Changesareusuallyclassifiedasradicalorincremental,thedifferencebeinginthedegreeofchange that occurs. Radical changes are big changes that involve a major transformation within the organisation. Incremental changes are small, slow-moving and routine changes that take place over a long period of time and usually, are limited to one part of the organisation.Timing of change:• The timing of change focuses on ‘when to change’. Organisations have a choice. They can change either as a reaction to a crisis within or an eventful happening outside. In this case it will be called as ‘reactive change’. When organisation chooses to foresee change and prepare to face it, it is an anticipatory change. Planned strategic implementation would be expected to deal with radical and anticipatory change. Activity areas of change:• For strategic implementation the concerned activities areas are: structure, leadership and behaviour. The reason for this choice is that these three areas might be of greater relevance to radical, anticipatory changes in the contemporary Indian context, which are more likely to come up while strategy implementation.

6.2.4 Theme of Achieving Effectiveness Organisational effectiveness means the degree to which an organisation is able to achieve its objectives. There are several models available to help us understand what is organisational effectiveness, which measures can we use to assess it, what are the different methods of achieving it and what can be done to improve organisational effectiveness. There are four models of organisational effectiveness:

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Goal model•Resource-based model•Internal process model•Conflictingvaluesmodel•

The measures of organisational effectiveness depend on the model used. Common measures in the goal model of organisationaleffectivenessincludeprofitability,growth,marketshare,qualityandefficiency.Theresource-basedmodelmayusemeasuressuchastheabilityoftheorganisationtoobtainfinance,rawmaterials,humanresources,informationandotherresources.Theinternalprocessmodelmayemployindicatorsofinternalhealthandefficiencysuch as the quality of corporate culture, organisational climate, team-work and communication.

6.3 Project Implementation As markets get more competitive, senior managers realise that to implement the strategy, they need to make sure that the right projects getdoneontime,withinbudgetprovisionsandtospecifications.Projectsarenotsomethingthatareanappendagetostrategyimplementationbutneedtobeasignificantpartoftheoverallstrategy,supportedby the right approach, processes, tools and techniques.

6.3.1 Projects and Project ManagementProjectisdefinedas‘atemporaryendeavourundertakentoachieveaparticularaimandtowhichprojectmanagementcan be applied, regardless of the project’s size, budget or timeline’. Project management is ‘the application of knowledge, skills, tools and techniques to a broad range of activities in order to meet the requirements of a particular project’.

Project management generally comprises fivesequentialprocessesaslistedbelow:Initiation:• Projects are initiated as part of a programme used to execute a plan to implement strategies.Planning:• Aprojectplandocumentisprepared,providingdetailsofidentificationofactivities,sequenceofactivities, cost estimates, time schedules, resource requirements and risk assessment. A formal plan document mayalsobenecessaryincaseitisrequiredforsubmissiontofinancialinstitutionsforfundingpurpose.Executing:• Themajorpartofprojectmanagementwheretheactivitiesareidentifiedintheprojectplan,aretoput the plan into action.Controlling:• It keeps track of the execution process through controls exercised on cost, resource utilisation and risk.Closing:• The formal end of the project involving an administrative closure and handing over it to the operative personnel.

6.3.2 Project Management and Strategy ImplementationProjectmanagementisthekeyenablerofstrategyimplementationwithinanorganisation.Thefigurebelowpresentsa schematic representation of how strategy implementation might be done through project management. The project management process shown relates to one project to demonstrate the manner in which strategy implementation could help initiate the project by providing a set of clear project targets to be achieved. The succeeding step of strategic evaluation and control would support the controlling stage of the project process by providing a set of control measures. These control measures are the performance criteria on the basis of which project effectiveness would be assessed.

The linking of the project management process with strategy implementation helps in creating a project-oriented organisation. Creating such a linkage may, however, pose a complex organisational challenge before managers as this requires a high level of coordination. Overall, this exercise could enhance the ability of the organisation for successful project management, thereby augmenting the effectiveness of the strategy implementation process.

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STRATEGIC MANAGEMENT PROCESS

STRATEGY IMPLEMENTATION STRATEGY EVALUATION AND CONTROL

PROJECT OBJECTIVES

CONTROLMEASURES

INITIATING CONTROLLINGEXECUTINGPLANNING CLOSING

PROJECT MANAGEMENT PROCESS

Fig. 6.3 Strategy implementation through project management

6.4 Procedural ImplementationRegulation is a fact of life for businesses and industries. Despite deregulation, an intent to loosen control within which any industry operates and let the market forces determine supply and demand for products and services, regulation is practiced around the world. For organisations, there are costs of compliance with regulation and usually higher costs of non-compliance too. Yet, regulation is necessary as businesses and industries have to operate within the limits set by the society. Regulation is a sort of contact between the businesses and society.

6.4.1 Regulatory Mechanism in IndiaAny organisation which is planning to implement strategies must be aware of the procedural framework within which the plans, programmes and projects have to be approved by the government at the central, state and local levels. The procedural framework consists of a number of legislative enactments and administrative orders besides policy guidelines issued by different levels of the government from time to time.

The regulatory mechanisms for trade, commerce and industry in India span a wide legal framework consisting in theConstitutionofIndia,theDirectivePrinciples,centrallaws,statelaws,generallaws,sector-specificlawsandindustry-specificlawsandtherulesandprocedureprescribedbytheimplementingauthoritiesatvariouslevelsofthe government.

The procedures laid down for project implementation constitutes an important component of strategy implementation in the Indian context. The government has an elaborate set of procedures depending on the type of project to be implemented. A government agency at the central and state levels plays a major role, while some procedures require the involvement of the local governmental agencies too. The various regulatory elements are:

Formation of company•Licensing procedures•Securities and Exchange Board of India (SEBI) requirements•Monopolies and Restrictive Trade Practices (MRTP) requirements•

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Foreign collaboration procedures•Import and export requirements•Patenting and trade marks requirements•Labour legislation requirements•Environmental protection and pollution control requirements•Consumer protection requirements•Incentivesandfacilitiesbenefits•

6.4.2 Procedural Implementation in ActionStrategists may adopt submissive, confrontational or collaborative stance while dealing with regulations. At the same time, they can adopt an ‘existentialist’ view and continually look for opportunities within the business environment as such an environment is substantially affected by government plans, priorities and actions. Regulatory environment, just like other environmental sectors, is dynamic. Governments respond to the developments within and outside the country, to adapt the regulatory framework, to the changing times. This places an additional burden on strategists to not only follow the existing framework but also anticipate the likely future changes and be prepared to deal with them.

Strategy formulation and implementation within organisations have to closely follow the ground rules laid by the government. Project and procedural implementation results in the necessary infrastructure and required permissions for an organisation to proceed with other aspects of strategy implementation.

6.5 Resource AllocationA strategic plan documents the aspirations of the strategists. Project implementation is meant for the creation of the infrastructure required to put such a plan into action.

Resourceallocationdealswithprocurement,commitmentanddistributionoffinancial,human,informationalandphysical resources to strategic tasks for the achievement of organisational objectives. The importance of resource allocation can be observed from the fact that strategic management itself is sometimes referred to as a resource allocation processes.

Resource allocation is both a one-time and continuous process. When a new project is implemented, it would require allocation of resources. An on-going concern would also require a continual infusion of resources. Strategy implementationshoulddealwithboththesetypesofresourcesallocation.Resourceallocation,especiallyforfinancialand physical resources, could be done through budgeting.

6.5.1 Strategic BudgetingThe main instrument for resource allocation is a budget. Budgeting is a common technique used as a planning, coordination and control device in management.

There are three approaches to resource allocation through budgeting and these are as follows:First type:• Thefirsttypeisatop-downapproachwhereresourcesaredistributedthroughaprocessofsegregationdown to the operating levels. The corporate management, consisting of the Board of Directors, chief executive officerandexecutivecommitteecoulddecidetherequirementsanddistributeaccordingly.Thetop-downapproachis usually adopted in an entrepreneurial mode of strategy implementation.Second type: • The second type is a bottom-up approach where resources are allocated after a process of aggregation from the operating level. The bottom-up approach could be used in a participative mode of strategy implementation.Third type:• A third type of approach is a mix of these two and involves an iterative form of strategic decision-making between different levels of management. This approach has been termed as strategic budgeting.

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Levels of management

Top management

Executive management

Operating management

CorporatePolicy

guidelines

Position papers (e .g. Environment ,

core competencies marketing and

past performance )

Desired long -and -short -run goals

Minimising gaps

Targets /operations

plans

Resourcesavailability

Strategic budget

Proposals

Approval and

sanction

Implementation

Making of a strategic budget

Fig. 6.4 Making of a strategic budget

The difference between strategic and traditional top-down budgeting lies in the way the budgeting exercise is carried out in an iterative manner between different managerial levels and the assumptions made before the formulation of budgets.

Ascanbeseenfromtheabovefigure,strategicbudgetingisaniterativeprocessinvolvingamulti-level,organisation-wide effort and, therefore, needs to carry the approval of all concerned. More importantly, it takes into account strategic factors such as environmental changes and their likely impact on the implementation of strategies and the corporate core competencies, and their probable effect on the objective-achieving capability of the organisation.

6.5.2 Aligning Resource Allocation to StrategyA major task of top managers is resource allocation. Strategy guides the implementation making decisions about resource allocation. In the absence of guidance from the strategy, managers can easily end up misallocating resources. Such misallocation of resources can take place in two ways:

First, resources might get allocated to tasks that are really not necessary from the strategic point of view.•Secondly, tasks that are strategically important may be starved of resources. •

Another challenge before managers in resource allocation is that of trade-offs. Since resources are scarce and organisationaltasksthatdemandresourcesareoftentoomany.Insuchascenario,manager’sendupmakingdifficulttrade-offs.

In aligning resource allocation to strategy, the basic challenge before the strategists is how to allocate scarce resources to competitive strategic tasks that will lead to the accomplishment of organisational objectives and the realisation of strategic intent. It would be easier for the strategists to allocate resources if the strategic priorities are clear.

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6.5.3 Factors Affecting Resource AllocationThe factors that affect resource allocation are:

The objectives of the organisation•Preference of dominant strategists•Internal politics•Externalinfluences•

From the above factors it is clear that in the absence of clear strategic priorities, the process of resource allocation could be distorted to a great extent. The value of explicit strategies at different levels, clearly lay down objectives and setting down of strategic priorities lies in a balanced allocation of resources.

6.5.4 Difficulties in Resource AllocationThemajordifficultiesinresourceallocationare:

Scarcity of resourcesThemajordifficultyarisesduetoascarcityofresources.Financial,physicalandhumanresourcesarehardtofind.Firmswillusuallyfacedifficultiesinprocuringfinance.Eveniffinanceisavailable,thecostofcapitalisaconstraint.In a developing country like India, many capital goods have to be imported. The government may no longer impose manyconditionsbutitdoesplaceaburdenonthefirm’sfinancesandthisplacesarestrictiononfirmswishingtoprocure physical resources.

Restrictions on generating resourcesWithinorganisations,thereareseveraldifficultiesencounteredduringresourceallocation.Theusualbudgetingfortheexisting SBU’s, divisions and departments places restrictions on generating resources for newer units and those with a greater potential for growth. This is often seen in the case of bureaucracies such as government departments.

Overstatement of needsIt is a frequent problem in a bottom-up approach to resource allocation and is of overstatement of the need for resources. The budgeting and corporate planning departments may have to face the ire of those executives who do not get resources according to their expectations. Such negative reactions may hamper the process of strategic planning itself. When strategic budgeting is used for resource allocation, powerful units may be divested of resources for reallocation to potential units.

Tendency to initiate competitorsIt is interesting to observe that companies in an industry tend to imitate their competitors in terms of resource allocation. There might be strong reasons in the beginning to do so when the competitive strategies might have been similar. But as companies move from one strategy to the next, often the resource allocation fails to respond to the strategic changes. This hurts the capability to develop competitive advantage, especially when differentiation strategies are being followed.

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SummaryStrategyimplementationdealswiththewayinwhichafirmcreatestheorganisationalarrangementsthatallow•it to pursue its strategy. The characteristics of strategy implementation are action orientation, comprehensive in scope, demanding varied •skills, wide-ranging involvement and integrated processA number of issues are normally involved in strategy implementation. The important issues are project, •procedural, organisational structural, behavioural considerations, production and operations, human resources, financeandmarketing.Barriers to strategy implementation are as follows: an inability to manage change, poor or vague strategy, not a •model to guide implementation efforts, inadequate information sharing, unclear responsibility and accountability, and working against the organisational power structure.The means to overcome the barriers to strategy implementation usually revolve around two main suggestions: •adopting a clear model of strategy implementation, and effective management of change in complex situations.There are two linkages between strategy formulation and strategy implementations, namely, forward linkage •and backward linkageThe forward linkage deals with preparing the organisational activities including organisational structure, •leadership, culture and so on, necessary for the strategic implementationThebackwardlinkagedealswiththeinfluenceofimplementationonstrategyformulation.•A model of strategy implementation attempts to capture the major themes in strategy implementation and the •activities that make up each theme. The model of strategy implementation depicts three major themes: activating strategies, managing change and •achieving effectiveness.Project is defined as ‘a temporary endeavour undertaken to achieve a particular aimand towhichproject•management can be applied, regardless of the project’s size, budget or timeline’. Projectmanagementisgenerallythoughtofascomprisingoffivesequentialprocesses:initiation,planning,•executing, controlling and closingThe linking of the project management process with strategy implementation helps in creating a project-oriented •organisation.Any organisation which is planning to implement strategies must be aware of the procedural framework within •which the plans, programmes and projects have to be approved by the government at the central, state and local levels.Resourceallocationdealswiththeprocurement,commitmentanddistributionoffinancial,human,informational•and physical resources to strategic tasks for the achievement of organisational objectives.

ReferencesSubha, P., 2010. • Strategic Management. Global Media.Pearce, J. and Robinson, R., 2008. • Strategic Management, 10th ed., Tata McGraw-Hill.zainbooks.com, 2009. • The nature of strategy implementation [Online] Available at: < http://www.zainbooks.com/books/management/strategic-management_31_the-nature-of-strategy-implementation.html>. [Accessed 20 September 2011].Olsen, E., 2008. • The Secret to Strategic Implementation [Video Online] Available at: <http://www.youtube.com/watch?v=ndCexCPLNdA&feature=related>. [Accessed 20 September 2011].InnovationPartners, 2009. • Rapid Strategy Development and Implementation Get Engagement and Results Quicker!!! [Video Online] Available at: <http://www.youtube.com/watch?v=oQaISAihZSY&feature=related>. [Accessed 20 September 2011].

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beginnerguide.com. • What is Strategic Implementation? [Online] Available at: <http://www.beginnersguide.com/executive-coaching/strategic-implementation/what-is-strategic-implementation.php>. [Accessed 20 September 2011].

Recommended ReadingWheelen, T. and Hunger, J., 2010. • Strategic Management and Business Policy, 12th ed., Dorling Kindersley (India) Pvt. Ltd.Hiriyappa, B., 2010. • Business Policy and Strategic Management. CreateSpace.Williamson, D. and Cooke, P. and Jenkins, W., 2003. • Strategic Management and Business Analysis. Butterworth-Heinemann.

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Self AssessmentThe forward linkage from ________guides the implementation process and connects it to the preceding phase 1. of strategy formulation.

business policya. project managementb. strategic planc. activating strategiesd.

Whichofthefollowingdealswiththeinfluenceofimplementationonstrategyformulation?2. Backward linkagea. Forward linkageb. Project linkagec. Strategic linkaged.

Which of the following statements is false?3. Strategy implementation is an essential part of strategic management process. a. Strategy is mainly implemented through appropriate structure and resources. b. Organisational structure and control shape the way people behave and determine how they will act in an c. organisational set up. Strategyimplementationdealswiththewayinwhichafirmcreatestheorganisationalarrangementsthatd. allow it to pursue its strategy.

The purpose of organisation ____________and control is to coordinate employees’ activities and to motivate 4. them for better performance.

strategya. planb. managementc. structured.

Which of the following is “a means to an end of achieving organisational mission and objectives”?5. Organisational structurea. Organisational planb. Organisational linkagesc. Organisational strategyd.

Project __________is the key enabler of strategy implementation within organisations.6. implementationa. formulationb. managementc. planningd.

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Which of the following statements is true?7. The linking of the project management process with strategy implementation helps in creating a process-a. oriented organisation.Management of change requires an understanding of the process of management. b. The administrative mechanisms of policies, procedures and rules and regulations are ubiquitous in an c. organisation. Projects create the needed infrastructure for the entire year operations in an organisation.d.

Which of the following leads to the formulation of projects?8. Strategya. Planb. Budgetingc. Programmesd.

Aprojectishighlyspecific___________forwhichthetimescheduleandcostsarepredetermined.9. programmea. planb. strategyc. processd.

The______________modelmayemploy indicatorsof internalhealthandefficiencysuchas thequalityof10. corporate culture, organisational climate, team-work and communication.

internal processa. the goal modelb. resource-based modelc. conflictingvaluesmodeld.

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Chapter VII

Functional and Operational Implementation

Aim

The aim of this chapter is to:

definetheconceptoffunctionalstrategies•

describe the need of functional plans and policies•

introducetheterms‘verticalfit’and‘horizontalfit’•

Objectives

The objectives of this chapter are to:

elucidate the operational plans and policies•

highlight the nature of functional plans and policies•

explicate the operations planning and control•

Learning outcomes

At the end of this chapter, you will be able to:

discuss the mechanism to integrate functional plans and policies•

enlist the areas of operational effectiveness•

understa• nd the application of operational implementation practices

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7.1 Introduction to Functional StrategiesFunctionalstrategydealswitharestrictedplandesignedtoachieveobjectivesinaspecificfunctionalarea,allocationof resources among different operations within that functional area and coordination among different functional areas for optimal contribution to the achievement of the business and corporate-level objectives.

Business-levelstrategiesareimplementedthroughday-to-daydecisionsmadeattheoperatinglevelofthefirm.Thecompetitiveadvantagesanddistinctivecompetencesthataresoughtbyfirmsareoftenembeddedintheskills,resources, and capabilities at the functional level. Functional strategies are the plans for matching those skills, resources, and capabilities to the business and corporate strategies of the organisation.

The collective pattern of day-to-day decisions made and actions taken by employees responsible for value activities create functional strategies, detailed action plans for implementing the growth and competitive strategies of the company.

7.1.1 Vertical FitTheconsiderationofverticalfitleadsustodefiningfunctionalstrategiesintermsoftheircapabilitytocontributetocreatingadvantagefortheorganisation.Thefunctionalstrategieswecanhaveunderverticalfitare:

Strategic marketing management:• It focuses on the alignment of marketing management within an organisation with its business and corporate strategies to gain strategic advantage.Strategic financial management:• Itfocusesonthealignmentoffinancialmanagementwithinanorganisationwith its business and corporate strategies to gain strategic advantage.Strategic operations management:• It focuses on the alignment of operations management within an organisation with its business and corporate strategies to gain strategic advantage.Strategic human resource management:• It focuses on the alignment of human resource management within an organisation with its business and corporate strategies to gain strategic advantage.Strategic information management:• It focuses on the alignment of information management within an organisation with its business and corporate strategies to gain strategic advantage.

7.1.2 Horizontal FitTheconsiderationofhorizontalfitmeansthattherehastobeanintegrationofalloperationalactivitiesundertakento provide a product or service to a customer. This has to take place in the course of operational implementation. Operational implementation is the approach adopted by an organisation to achieve operational effectiveness. When an organisation performs value-creating activities optimally and in a better way than its competitors can perform, it results in operational effectiveness.

7.2 Functional Plans and PoliciesFor effective implementation, strategists have to provide directions to functional managers regarding the plans and policies to be adopted.

7.2.1 Nature of Functional Plans and PoliciesFunctionalstrategiesdefinedin termsoffunctionalplansandpolicies–plansor tactics to implementbusinessstrategies—are made within the guidelines set at higher levels. Plans are made to select a course of action, while policies are required to act as guidelines to action. Functional plans and policies, therefore, are in the nature of tactics to make a strategy work.

Functional managers need guidance from the corporate and business strategies in order to make decisions. Functional plans tell the functional managers what has to be done while functional policies state how the plans are to be implemented.

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7.2.2 Need for Functional Plans and PoliciesFunctional plans and polices are developed to ensure that:

The strategic decisions are implemented by all parts of an organisation.•There is a basis available for controlling activities in the different functional areas of business•The time spent by functional managers in decision-making is reduced as plans lay down clearly what is to be •done and policies provide the discretionary framework within which decisions need to be taken.Similar situations occurring in different functional areas are handled in a consistent manner by the functional •managers.Coordination across the different functions takes place where necessary.•

7.2.3 Development of Functional Plans and PoliciesThe development of functional plans and policies is aimed at making the strategies formulated at the top management level, practically feasible at the functional level. Strategies need to be segregated into viable functional plans and policies that are compatiblewith eachother, thereby augmenting the horizontal fit thisway; strategies canbeimplemented by the functional managers.

The process of development of functional plans and polices may range from the formal to informal. The process of development of functional plans and polices is similar to that of strategy formulation. Environmental factors relevant to each functional area have an impact on the choice of plans and policies. Organisational plans and policies affect thechoiceoffunctionalplansandpolicies.Finally,theactualprocessofchoiceisinfluencedbyobjectiveaswellas subjective factors.

Traditionally,functionalareashavebeensegregatedintofinance,marketing,productionandpersonnel.

Integration of functional plans and

policies

Operational plansAnd policies

Personnel plans and policies

Financial plansAnd policies

Marketing plansAnd policies

Information management plans

And policies

Fig. 7.1 The configuration of functional plans and policies

7.3 Financial Plans and PoliciesThefinancialplansandpolicesrelatedtothesourcesoffundsarerelatedtotheavailability,usageandmanagementof funds. Strategists need to formulate plans and policies in these so that strategies are implemented effectively.

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7.3.1 Sources of FundsPlanandpoliciesrelatedtothesourcesoffundsdealwithfinancingorcapitalmixdecisions.Themajorfactorsregarding which plans and policies have to be made are: capital structure; procurement of capital and working capitalborrowing; reservesandsurplusassourcesof funds;and relationshipwith lenders,banksandfinancialinstitutions.

Organisationshavearangeofalternativesregardingthesourcesoffundslike:externalborrowing,internalfinancing,venture capital and so on.

7.3.2 Usage of FundsPlans and policies for the usage of funds deal with investment or asset-mix decisions. The important factors regarding whichplansandpoliciesaretobemadearecapitalinvestment,fixedassetacquisition,currentassets,loansandadvances, dividend decisions, and relationship with shareholders. Usage of funds is important since it relates to the efficiencyandeffectivenessofresourceutilisationintheprocessofstrategyimplementation.

Implementation of projects in pursuance of expansion strategies typically results in increase of capital, work-in-progressandcurrentassets.Ifplansandpoliciesarenotclear,theusageoffundsisinefficient,leadingtolessthanoptimum utilisation of resources.

Dividenddecisions are an important aspect of corporatefinancial policy since they canhave an effect on theavailability as well as the cost of capital. Dividend policies in the public sector are governed by the guidelines set by the government.

7.3.3 Management of FundsThemanagementoffundsisanimportantareaoffinancialplansandpolicies.Itbasicallydealswithdecisionsrelatedtothesystematicaspectsoffinancialmanagement.Themajorfactorsregardingwhichplansandpolicesrelatedtothe management of funds have to be made are:

thesystemsoffinance•accounting and budgeting•management control systems•cash•credit and risk management•cost control and reduction•ax planning and advantages•

The management of funds can play a pivotal role in strategy implementation as it aims at the conservation and optimum utilisation of funds—objectives which are central to mnay strategic actions. Organisations that implement business strategies of cost leadership cannot escape the rigours of a proper management of funds. In fact, good management of funds often creates the difference between a strategically successful and unsuccessful company.

7.4 Marketing Plans and PoliciesPlans and policies related to marketing have to be formulated and implemented on the basis of the 4P’s of the marketing mix, i.e. product, pricing, place and promotion. The major issues and decisions relate to these marketing mix factors are as follows.

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7.4.1 ProductProduct denotes the goods and services that an organisation offers to its target markets. Plans and polices related to the products and markets need to be formulated and implemented on the basis of characteristics such as quality, features, choice of models, brand names, packaging and so on. Strategies dictate the manner in which product and marketcharacteristicswouldbedefined.Thus,competitivestrategiesmaybeimplementedbystressingonhighquality, better and more features.

A white goods company, for instance, needs to be constantly on the move in terms of new product offerings. The appliance division of Godrej is well aware of this and it introduced nearly 100 new and variant products in 2007. This was done through product innovation and customisation policies based on feedback from market research aided by back up support from R and D.

7.4.2 PricingPrice denotes the money that customers pay in exchange for goods and services. It is important to the seller because it represents the returns on efforts. To a buyer, price is the value that is assigned to the satisfaction of needs and wants. Several price characteristics such as discount, mode of payment, allowances, payment period, and credit terms and so on, affect pricing plans and policies.

The policy of setting high or low prices for their products is extensively used by companies as a competitive tool.

7.4.3 PlacePlace or distribution is the process by which goods or services are made available to the customers. Distribution plans and policies address themselves to issues such as the channels to be used, transportation, logistics and inventory storage management and coverage of markets and so on.

The use of distribution plans and policies in the marketing function as well as strategy implementation is important. The successofmarket-orientedstrategies,especiallyinacompetitiveenvironment,restsontheefficiencyandeffectivenessof the distribution system. Supply-chain management and customer relationship management have developed in recentyearstohelpcompaniesinperformingtheirdistributionactivitiesmoreefficiently.Thedistributionpolicyisan extension of the company’s reported strengths in the area of procurement and supply chain management.

7.4.4 PromotionPromotion deals with marketing communication intended to convey the company and product or service image to prospective buyers. The promotional mix consists of four activities: advertising, personal selling, sales promotion and publicity.

Promotional plans and policies have to consider the basic question of what promotional mix needs to to be adopted so that promotional activities can be used to implement strategies. The increasing competitiveness in several industries in India has prompted companies to adopt promotion as a strategic tool. The nature of the product and industry also determines the type and mix of promotional methods used. In a crowded competitive market, organisations struggle to make their presence felt. They sometimes resort to unconventional means to grab the attention of prospective customers.

7.4.5 Integrative and Systemic FactorsThis part of the plans and policies related to marketing management deals with factors such as marketing mix, segmentation, targeting, positioning, market standing, company image, marketing organisation, marketing system, marketing management information system and so on.

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Several companies that are admired for their marketing prowess have built integrative and systematic factors painstakingly over a period of time. Targeting newer segments is often aimed at through promotional policies designed to attract new customers or to offer new uses for existing products as a part of market and product development tactics. Corporate reputation is becoming critical in a milieu where customers are becoming more aware of company activities through the different media, including the Internet.

The environmental trends that impact marketing plans and policies in India are:The continuous entry of new competitors is exploding choice for the consumer.•Competitors are making enormous investments for gaining long-term market shares.•Fast-fallingmarginsarecuttingintotheprofitabilityofmanymarketers.•Global quality standards are forcing companies to deliver better products.•Both high-spenders and budget-shoppers are demanding value for their money.•

7.5 Operations Plans and PoliciesThe plans and policies for operations are related to the production system, operational planning and control, and research and development. The corporate and business –level strategies adopted determine the bases of competion that in turn, affect the nature of product, the markets to be served and the manner in which the markets are to be served.Theoperationsplansandpoliciesareclassifiedintothreecomponentsofproductionsystem,operations,planning and control, and research and development.

7.5.1 Production SystemThe production system is concerned with the capacity, location, layout, product or service design, work systems, degree of automation, extent of vertical integration and such factors. Plans and policies related to productions system aresignificantastheydealwithvitalissuesaffectingthecapabilityoftheorganisationtoachieveitsobjectives.

Strategy implementation would have to take into account the production system factors as they involve decisions whicharelong-terminnatureandinfluencenotonlytheoperationscapabilityofanorganisation,butalsoitsabilityto implement strategies and achieve objectives.

7.5.2 Operations Planning and ControlPlans and policies related to operations planning and control are concerned with aggregate production planning; materials supply; inventory; cost and quality management; and maintenance of plant and equipment. Here, the aimofstrategyimplementationistoseehowefficientlyresourcesareutilisedandinwhatmannertheday-to-dayoperations can be managed in the light of long-term objectives.

Operations planning and control provides an example of an organisation activity that is aimed at translating the objectives into reality. For instance, at Instrumental Ltd. a public sector company engaged in the business of process control and automation, operations planning and control was based on the policy of ancillarisation. There were about 259 ancillary units that supplied sub-assemblies and components. The company’s centralised production at Kota in Rajasthan integrated its operations plans with the plans of its ancillary units. The centralised production provided all the basic inputs to ancillaries and performed the functions of testing, standardising and fabricating the equipment.

7.5.3 Research and DevelopmentPlans and policies for R&D deal with product development, personnel and facilities, level of technology used, technology transfer and absorption, technological collaboration and support, and so on. R&D occupy an important position in operations management in the Indian context as companies have access to multiple sources of technology, including foreign sources. India is becoming a base for R&D for many foreign companies too as they are attracted bythehighlyqualifiedandlowcostengineeringandtechnicalskills.

For strategy implementation, R&D is used as a foundation for implementing strategies such as product development anddiversification.

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7.6 Personnel Plans and PoliciesPersonnel plans and policies relate to the personnel system, organisational and employee characteristics and industrial relations. Management of human resource has been undergoing profound changes in the post-liberalisation environment in India. These changes are impacting all the three components of personnel plans and policies: personnel system, organisational and employee characteristics, and industrial relations.

7.6.1 Personnel SystemPlans and policies related to the personnel system deal with factors like manpower planning, selection, development, compensation, communication and appraisal. The importance of such plans and policies resides in the role personnel systems play in providing and maintaining human resources.

While implementing strategies, companies often rely on personnel systems. Hindustan Petroleum Corporation Ltd. (HPCL) faced new challenges of oil sector deregulation and found itself to be a bureaucratic organisation not suited to dealing with competitive markets. As a part of the reformulation of the human resources systems, HPCL created transparency in appraisal systems, reduced transfers to encourage specialisation as a formidable competitor in a highly competitive market.

7.6.2 Organisational and Employee CharacteristicsOrganisational and employee characteristics include factors such as the corporate image, quality of managers, staff and workers, perception about the image of the organisation as an employer, availability of development opportunities for employees, working conditions, and so on. Plans and policies related to these factors have to be formulated if strategies have to be implemented properly. The real value of the organisational and employees' characteristics lie in the creation of an appropriate environment for strategy implementation.

In the contemporary business environment in India, where attracting and retaining good quality employees is a formidable challenge for organisations, corporate image and reputation play a vital role in letting prospective employees assess the suitability of employees.

7.6.3 Industrial RelationsPlans and policies related to industrial relations deal with issues such as union-management relationship, collective bargaining, safety, welfare and security, employee satisfaction and morale and so on. Industrial relations assume a specialsignificanceinanenvironmentwherethereareseveralfactorssuchas

pro-labour attitude of government•plethora of legislation•rules and regulations related to union workers•multiplicity of unions•political interference, and so on•

Things however are changing in the industrial relations scenario in India. There has been a steady improvement in the industrial relations environment as evidenced by several parameters like the number of strikes, lockouts and man day lost. Recent years have seen a drastic change in the management’s attitude towards workers and their unions. Employers have started adopting a tough attitude and consequently, industrial relations policies have become stringent.

Owing to the changing nature of industrial relations, now the focus of human resource management is on training and development, rewards and incentives, performance management and like. A redeeming feature of the industrial relations environment in India is the proactive stance taken by companies to improve the working conditions.

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7.7 Information Management Plans and PoliciesInformationcapabilityfactorsrelatetothedesignandmanagementoftheflowofinformationwithinandfromoutside into an organisation. The value of information as tangible resource and a source of strategic advantage have been recognised by organisations. The development of information technology and the emergence of information managementasaspecialisedfunctionhavehelpedtheorganisationderivebenefitsoutofthevastamountofdatathat is typically present in most organisations.

From being a peripheral function dealing with routine activities like payroll accounting and bulk accounting, information management is now being viewed as a distinct functional area within organisations that, if managed properly, can augment their capability to develop strategic advantage.

7.7.1 Factors related to Acquisition and Retention of InformationPlans and policies with regard to the processing and synthesis of information deal with factors such as sources, quantity, quality and timeliness of information, retention capacity and security of information. Customer relationship management (CRM) and supply chain management (SCM) systems have become tremendously popular owing to their ability to provide a platform for acquisition and retention of information related to an organisation’s customers andsuppliers.Thisfacilitatesfurtherprocessingandsynthesisofinformationforthebenefitofdecision-making,particularly that related to marketing management that can prove immensely useful to organisations operating in competitive sectors like the FMCG industry.

7.7.2 Factors related to Processing and Synthesis of InformationPlans and policies with regard to the processing and synthesis of information deal with factors such as data-base management, computer systems, software capability and ability to synthesise information. The booming retailing industry has seen many and varied applications of the IT system, aimed at processing and synthesising information for better decision-making.

Retailing companies have moved ahead from enterprise resource planning (ERP) to explore supply chain management (SCM),businessintelligence(BI),customerrelationshipmanagement(CRM),radiofrequencyidentification(RFID),and innovative models of points of sale (POS).

7.7.3 Factors related to Retrieval and Usage of InformationThe retrieval and usage of information deal with factors such as the availability and appropriateness of information and the capacity to assimilate and use information. Information retrieval in organisation can be done at various levels. Usage of information is usually in the form of report generation. Useful reports based on the personnel information systemcanbegenerated,forinstance,forthepurposeoffindingouttheemployeestrength,distributionofnumberof employees along different demographic variables and so on.

Such reports can be used for various purposes like human resource planning and framing policies for various human resource management functions. Information retrieval via Internet search is now an indispensable tool for billions of people worldwide. Data warehousing and data mining techniques are common analytic processes for exploring a mass of data, identifying trends, predicting future trends and generally extracting useful information for the purpose of business decision-making.

7.7.4 Factors related to Transmission and DisseminationThe plans and policies with regard to the transmission and dissemination of information deal with factors such as speed, scope, width and depth of coverage of information and with the willingness to accept information.

Digitalisation of the service for citizens is the theme of e-governance. The aim is to establish systems that facilitate smooth retrieval and usage of information that can help the citizens to deal with the government more effectively. There is an increasing trend among government departments at different levels of governance to set up information portals for the users to access information easily. Some of the key areas where e-governance initiatives are working at present in India include the following:

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land records•property registration•treasuries •municipalities•

7.7.5 Integrative, Systematic and Supportive FactorsThe last set of factors deal with the integrative, systematic and support factors such as availability of IT infrastructure, its relevance and compatibility to organisational needs, up-gradation of facilities, willingness to invest in state-of-arts systems, availability of computer professionals and top management support.

IT isanarea that isoneof the fastestgrowingareas in termsof technologicalsophistication. It isdifficult fororganisations to keep pace with the dynamic nature of information management. The contemporary IT environment consists of many inter-related components leading to complexity. Such complexity arises from the interdependencies among these components, which increase exponentially as business demands the addition of hardware and software to the IT architecture. Legacy systems are upgraded with additions as new technologies emerge.

Industries such as consumer durables, sophisticated industrial products and the IT industry have special organisational needstodealwithconsumersthatareinformedanddemanding;coupledwiththefactthatfirmsintheseindustrieshavetoadoptcompetitivebusinessstrategiesthatrequireefficiencyincustomerresponse.Theinformationmanagementsystem within organisation has to be designed in such a way that the customers are provided with satisfactory and timely response.

7.8 Integration of Functional Plans and PoliciesFunctional tasks are derived from the key activities that have to be performed for the implementation of the corporate and business strategies. The functional areas in any organisation are, therefore, based on the segregation of the key activities. But what has been segregated will have to be brought together since all activities are performed to achieve the overall objectives of any organisation. Integration of functional plans and policies provides the means for such an aggregation.

Thefigurebelowshowstheinterrelationshipofthefunctionalplansandpolicies.

Financial plans And policies

Marketing plans And policies

Operations plans And policies

Personnel planspolicies

Information Management

Plans and policies

Integration ofFunctional plans

And policies

Fig. 7.2 Integration of functional plans and policies

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7.8.1 Consideration in Integration Plans and policies formulation is a major task for strategists. They have to formulate the various functional plans andpoliciesandintegratethemaswell.Therearefiveconsiderationsinintegratingfunctionalplansandpoliciesnamely:

Need for internal consistency: • It ensures that the different functional areas do not work as cross-purpose but operate in consonance. Absence of internal consistency may lead to a sub-optimal implementation of strategy. Relevant for the development of organisational capability:• The development of organisational capability, especially in terms of strategic or competitive advantages, is relevant to the integration of functional plans and policies. Synergistic effect occurs across functional areas and core competencies emerge as a result of the concentration of resources in the areas where an organisation wishes to build up strategic advantages.Making trade-offs decisions:• The formulation and implementation of functional plans and policies involve trade-offs decisions. This is due to the inherent nature of the functional areas. Strategists have to realise that somesacrificeintheformoftrade-offinoneoremorefunctionalareasisimperativeifemphasisislaidonother functional areas. Determination of intensity of linkages:• The intensity of linkages that exist between the different functional areas is of important consideration in determining the level of coordination that should exist between the different functional areas.Timing of implementation of plans and policies:• Integration of functional plans and policies is dependent on the timing of their implementation. The different plans and policies have to be implemented at the appropriate time so that they dovetail with each other.

7.8.2 Mechanism to Integrate Functional Plans and PoliciesStrategists have to arrange for mechanisms that will ensure integration among the different functional plans and policies.Thesemechanismsareintheformofhorizontalinformationlinkagestoaugmenthorizontalfitamongdifferent functional areas in an organisation.

Therearefivetypesofmechanismsusedforintegratingfunctionalplansandpoliciesthroughhorizontalinformationlinkages:

Information systems:• The information system serves as a horizontal information linkage that enables implementation of policy changes simultaneously at all locations, elimination of duplication in work and consolidation of information for decision-making.Direct contact:• Personal interaction between personnel involved in a project or discharging related functions is achieved through direct contact. One way for organisations to create direct contact is to create a special liaison role and assign it to a person who is responsible for communicating and achieving coordination.Task forces:• A temporary organisational unit created to discharge a particular function or to resolve a special problem is a task force. A task force draws members from all the departments that are involved in the performance of a particular task.Full-time integrator:• A stronger horizontal linkage is established through the creation of a full-time position or even a department solely for the purpose of cross-functional coordination. Full time integrators are found in a matrix organisation structure. Teams:• A team is the strongest horizontal linkage mechanism as it is a permanent task force and often used in conjunction with a full-time integrator. Large-scale projects within organisations are implemented through project teams.

7.9 Operational ImplementationOperational implementation is the approach adopted by an organisation to achieve operational effectiveness. It dealswiththenitty-grittyofstrategy.Thefigurebelowexplainstheoverallframeworkofstrategyimplementation.Operational implementation plays the key role in helping an organisation achieve effectiveness, which is monitored by the evaluation and control process.

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STRATEGIC PLAN

ACHIEVINGEFFECTIVENESS

MANAGINGCHANGE

ACTIVATING STRATEGIES

EVALUATION ANDCONTROL

FUNCTIONALIMPLEMENTATION

OPERATIONALIMPLEMENTATION

OPERATIONAL EFFECTIVENESS:

PRODUCTIVITYPROCESSES

PEOPLEPACE

MONITORING

FEEDBACK

Fig. 7.3 The framework of strategy implementation

7.9.1 Operational EffectivenessOperationaleffectivenessincludesefficiencybutisnotlimitedtoit.Itreferstoanynumberofpracticesthatallowsa company to better utilise its inputs, for example, reducing defects in products or developing better products faster.

Differences in operational effectiveness between organisations are omnipresent. Some organisations out-perform their competitors by extracting more out of their resources because they are able to perform a range of activities better than rivals.

One of the fundamental objects of the discipline of management has been to enlighten and guide organisation on how to improve their operational effectiveness.

7.9.2 Areas of Operational EffectivenessThe four areas of operational effectiveness we deal with are:

Productivity:• It is the measure of the relative amount of input needed to secure a given amount of output.Processes:• These are courses of action used for operational implementation.People:• These are the stakeholders of the organisation.Pace:• It is the speed of operational implementation and is measured in terms of time.

7.9.3 ProductivityThe modern practices of productivity enhancement are an amalgam of the traditional methods, variations made upon thetraditionalmethodsandnewmethods.Thesignificantmodernpracticesobservedare:

Just-in-time manufacturing•Cycle time reduction•

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Group technology•Mass customisation•Concurrent engineering and processing•Optimised production technology•Flexible manufacturing system•Cellular manufacturing •Total productive maintenance•Lean manufacturing•

Productivity,asapracticeforoperationalimplementation,issignificantforalltypesofstrategies,butisespeciallyrelevant for business strategies of cost leadership, differentiation and focus.

7.9.4 ProcessesProcesses have an overwhelming presence in management. Modern practices related to processes are several. Among them, the major comprehensive processes are business process reengineering, enterprise-wide resource planning, quality management processes, benchmarking, and value chain and supply chain management.

Processes as practices for operational implementation, are significant for all types of strategies.Sinceprocessimprovementsisthebasicpurposeofallnewprocesses,thereareseveralbenefitsviz.quality,lesserwastage,lowerproduction time and higher productivity. So processes are relevant for operational implementation of all types of business strategies.

7.9.5 PeopleOperational implementation with regard to people management assumes a wider scope when strategies have to address an extended body of stakeholder. The coverage includes not only people—the employees – within but also those outside, such as the customers, suppliers and the society at large. The people factor becoming a critical contributor to operational effectiveness is indicated by plethora of terms such as job enrichment, empowerment, team-building, organisational learning and so on. Some of the major practices related to people management in the contemporary context are:

strategic recruitment and selection•performance management•training and development•performance appraisal and retention management•

7.9.6 PaceBy pace we mean the speed of operational implementation. This area is important since time is now recognised as being of essence to strategy implementation. In terms of value-chain, pace can be seen as performing every activity faster than rivals so that strategic advantage results. Operational implementation makes it possible to speed up the activities.Themostsignificant technologythatquickens thepaceofoperational implementationis informationtechnology.

7.9.7 Choice of Operational Implementation PracticesThere are large number of tools and techniques that have emerged in the area of management. The high demand for new approaches and techniques of management has resulted in the emergence of a phenomenon that is referred to as management fashion or fad. With such a wide array of practices, methods and techniques for enhancing operational effectiveness, in the areas of productivity, processes, people and pace, the choice before managers to pickupthosetouseinoperationalimplementationisindeeddifficult.

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7.9.8 Applying Operational Implementation PracticesThere are essential pre-requisites for applying a technique and then there are the consequences. A proper understanding of all these aspects is necessary to apply a technique.

Application of techniques is facilitated through the help of books and journals, manuals, in-house experts and consultants related to the management techniques. A dedicated and patient approach can help managers in applying the practices, methods and techniques for enhancing operational effectiveness and effective operational implementation.

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SummaryFunctionalstrategydealswitharestrictedplandesignedtoachieveaspecificfunctionalarea,allocationof•resources among different operations within that functional area and coordination among different functional areas for optimal contribution to the achievement of the business and corporate-level objectives. Verticalfitleadsustodefinefunctionalstrategiesintermsoftheircapabilitytocontributeincreatingadvantage•for the organisation. Horizontalfitmeansthat therehastobeanintegrationofalloperationalactivitiesundertakentoprovidea•product or service to a customer. Functionalstrategiesdefinedintermsoffunctionalplansandpolicies–plansortacticstoimplementbusiness•strategies—are made within the guidelines set at higher levels. The development of functional plans and policies is aimed at making the strategies formulated at the top •management level, practically feasible at the functional level.Thefinancialplansandpolicesrelatedtothesourcesoffundsarerelatedtotheavailability,usageandmanagement•of funds.Plans and policies for the usage of funds deal with investment or asset-mix decisions.•Product denotes the goods and services that an organisation offers to its target markets. •Plans and polices related to the products and markets need to be formulated and implemented on the basis of •characteristics such as quality, features, choice of models, brand names, packaging and so on.Price denotes the money that customers pay in exchange for goods and services. •Distribution plans and policies address themselves to issues such as the channels to be used, transportation, •logistics and inventory storage management and coverage of markets and so on.Promotional plans and policies have to consider the basic question of what promotional mix needs to be adopted •so that promotional activities can be used to implement strategies.The plans and policies for operations are related to the production system, operational planning and control, •and research and development.The development of information technology and the emergence of information management as a specialised •functionhavehelpedtheorganisationderivebenefitsoutofthevastamountofdatathatistypicallypresentinmost organisations. Plans and policies with regard to the processing and synthesis of information deal with factors such as sources, •quantity, quality and timeliness of information, retention capacity and security of information. The plans and policies with regard to the transmission and dissemination of information deal with factors such •as speed, scope, width and depth of coverage of information and with the willingness to accept information. Functional tasks are derived from the key activities that have to be performed for the implementation of the •corporate and business strategies.Operational implementation is the approach adopted by an organisation to achieve operational effectiveness. It •deals with the nitty-gritty of strategy.

ReferencesilexFS, 2009. • Financial Planning Introduction [Video Online] Available at: <http://www.youtube.com/watch?v=BtbfbuFkuE8>. [Accessed 22 September 2011].Kotler, P., 2008• . Marketing Strategy with Philip Kotler [Video Online] Available at: <http://www.youtube.com/watch?v=bilOOPuAvTY&feature=related>. [Accessed 22 September 2011].Subha, P., 2010. • Strategic Management. Global Media.Kazmi, A., 2002. • Business Policy and Strategic Management, 3rd ed., Tata Mcgraw-Hill.scdl.net. Aspects of Strategy Implementation [Online] Available at: <http://www.scdl.net/E-Learning/strMgt/•t4/t4_7.swf>. [Accessed 22 September 2011].

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slideshare.net, 2009. Functional Strategies [Online] Available at: <http://www.slideshare.net/suresh.singh/•functional-strategies-presentation>. [Accessed 22 September 2011]

Recommended ReadingHill, C. and Jones, G., 2009. • Strategic Management Theory: An Integrated Approach. Cengage Learning.Tata, P., 2008. • Strategic Management, 10th ed., Tata McGraw-Hill Education.Dess, G. and Lumpkin, G., 2009. • Strategic management: creating competitive advantages, 5th ed., McGraw-Hill Irwin.

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Self AssessmentImplementation of projects in pursuance of _______strategies typically results in increase of capital, work-in-1. progress and current assets.

businessa. expansionb. financialc. managementd.

Operational _________is the approach adopted by an organisation to achieve operational effectiveness.2. implementationa. plansb. policiesc. strategyd.

Which of the following statements is false?3. Functional managers need guidance from the corporate and business strategies in order to make decisions.a. The process of development of functional plans and polices may range from the formal to informal. b. Situational factors relevant to each functional area have an impact on the choice of plans and policies.c. Processesaspracticesforoperationalimplementationaresignificantforalltypesofstrategies.d.

Whichofthefollowingleadsustodefinefunctionalstrategiesintermsoftheircapabilitytocontributeincreating4. advantage for the organisation?

Horizontalfita. Verticalfitb. Functionalfitc. Strategicfitd.

Operational effectiveness refers to any number of _______that allows a company to better utilise its inputs.5. resourcesa. practicesb. objectivesc. plansd.

Which of the following statements is true?6. Organisations that implement business strategies of cost leadership can escape the rigours of a proper a. management of funds.Themanagementofpoliciesisanimportantareaoffinancialplansandpolicies.b. Organisations that implement business strategies of cost leadership cannot escape the rigours of a proper c. management of funds.The policy of setting high or low prices for their products is extensively used by companies as a promotion d. tool.

What does RFID stands for?7. RadioFunctionIdentificationa. Radio Frequency Inputb. RadioFactorIdentificationc. RadioFrequencyIdentificationd.

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________planning and control is an example of an organisation activity that is aimed at translating objectives 8. into reality.

Operationsa. Resourcesb. Managementc. Functionald.

_____________policies in the public sector are governed by the guidelines set by the government.9. Planninga. Functionalb. Operationsc. Dividendd.

___________denotes the goods and services that an organisation offers to its target markets.10. Servicesa. Productsb. Resourcesc. Qualityd.

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Chapter VIII

Strategy Evaluation and Control

Aim

The aim of this chapter is to:

introduce the concept of strategic evaluation and control•

definethe• characteristics of an effective evaluation strategy

describe the types of strategic control•

Objectives

The objectives of this chapter are to:

explicate the evaluation techniques of strategic control•

explain the process of strategic control•

elucidate the role of organisational systems in strategic control•

Learning outcomes

At the end of this chapter, you will be able to:

enlist the barriers in strategic evaluation•

differentiate between strategic control and operational control•

discuss the• evaluation techniques for operational control

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8.1 An Overview and Nature of Strategic Evaluation and ControlThe purpose of strategic evaluation is to evaluate the effectiveness of a strategy in achieving organisational objectives. Thus,strategicevaluationandcontrolcouldbedefinedastheprocessofdeterminingtheeffectivenessofagivenstrategy in achieving the organisational objectives and taking corrective action wherever required.

Fromtheabovedefinition,wecouldinferthatthepurposeofstrategicevaluationandcontrolprocessistotesttheeffectiveness of strategy as well as to take corrective action to keep it continually effective. During the two preceding phases of the strategic management process, the strategists formulate the strategy to achieve a set of objectives and thenimplementthestrategy.Now,therehastobeawayoffindingoutwhetherthestrategybeingimplementedisguiding the organisation towards its intended objectives. Strategic evaluation and control, therefore, performs the crucial task of keeping the organisation on the right track.

8.1.1 Importance of Strategic EvaluationThe process of strategic management requires that strategists lay down the objectives of the organisation and then formulatestrategiestoachievethem.Theprocessofimplementationofstrategystartswiththeidentificationofkey managerial tasks which form the basis for the creation of organisational structure and design of systems. The segregation of key managerial tasks leads to a situation where individual managers are required to perform a small portion of the overall tasks required to implement a strategy.

The fact that individually, a manager performs a set of functions, which are interrelated to the other tasks - that managers elsewhere in the organisation are doing, makes it clear that the tasks have to be coordinated. The importance of strategic evaluation lies in its ability to coordinate the tasks performed by individual managers—and also groups, division or SBU’s—through control of performance. In the absence of coordinating and controlling mechanisms, individual managers may pursue goals, which are inconsistent with the overall objectives of the department, division, SBU or the whole organisation.

Besides the basic reason of coordinating tasks there could be several other motives for strategic evaluation as described below:

Need for feedback, appraisal and reward•Check on validity of strategic choice•Congruence between decisions and intended strategy•Successful culmination of the strategic management process•Creating inputs for new strategic planning•

8.1.2 Participants in Strategic EvaluationIt is important to know who the participants are and what role they play in strategic evaluation and control. The major participants in strategic evaluation and their role is given as under:

Every organisation is ultimately responsible to its shareholder:• Owners, lenders and the public in the case of private companies and the government in the public sector companies. There role is limited and is concerned about the security and returns on their shareholding rather than in a long-term assessment of strategic success.Board of directors:• They enact a formal role of reviewing and screening executive decisions in the light of their environmental, business and organisational implications.Chief Executives:• They are ultimately responsible for all the administrative aspects of strategic evaluation and control. SBU or profit centre heads:• They may be involved in performance evaluation at their levels and may facilitate evaluation by corporate-level executives.Financial controllers, company secretaries and external and internal auditors:• They form the group of persons,who are primarily responsible for operational control basedonfinancial analysis, budgeting andreporting.

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Middle-level managers:• They may participate in strategic evaluation and control as providers of information and feedback, as well as recipients of direction to take corrective action.

8.1.3 Barriers in EvaluationThebarrierswhicharecreatedduetoperformanceevaluationarecategorisedintofivetypesnamely,

Limits of controls:• It is never an easy task for strategists to decide the limits of control. Too much control may impairtheabilityofmanagersandtoolesscontrolmaycreatedifficultiesincoordination,rightbalancecomeswith experience.Difficulties in measurement:• Thedifficultiesmainly relate to the reliability andvalidity ofmeasurementtechniquesusedforevaluation,lackofquantifiableobjectivesandtheinabilityoftheinformationsystemtoprovide timely and valid information.Resistance to evaluation:• The evaluation process involves controlling the behaviour of individuals and like any similar organisational mechanism, is likely to be resisted by managers.Short-termism:• Mangers often tend to rely on short-term implications of activities and try to measure the immediate results, on the other hand long-term implications reduces bias in evaluation. Relying on efficiency versus effectiveness:• There is often a genuine confusion among managers as to what constitute effective performance? The solution lies in creating a sharp focus on effectiveness as opposed to mereefficiency.

8.1.4 Requirements for Effective EvaluationThebasicissueinevaluationshouldbedictatedbystrategy.Thereneedstobeaverticalfitbetweenthestrategyrequirements, and the valuation and control exercised over performance. The guidelines below are suggested in order to make controls effective.

Control should involve only the minimum amount of information.•Control should monitor only managerial activities and results.•Controls should be timely.•Long-term and short-term controls should be used.•Controls should aim at pinpointing exceptions.•Rewards for meeting or exceeding standards should be emphasised.•

8.1.5 Characteristics of an Effective Evaluation StrategyThere are certain basics, which should be followed for making the strategic evaluation effective. These characteristics are as follows:

The activities of evaluation must be economical.•The information should neither be too much nor too little.•The control should neither be too much nor too less. It should be balanced.•Theevaluationactivitiesshouldrelatetothefirm’sobjectives.•It should be designed in such a manner so that a true picture is portrayed.•

There can be many more such requirements. Large organisations require a more elaborate system than the smaller ones.

8.2 Strategic ControlThe process of strategic management makes it clear that strategy is formulated on the basis of several assumptions. These relate to the environmental and organisational factors that are dynamic and eventful. There is a considerable gap between the time a strategy is formulated and when it is implemented. Strategic controls take into account the changing assumptions that determine a strategy, continually evaluate the strategy as it is being implemented and take the necessary steps to adjust the strategy to the new requirements.

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8.2.1 Purpose of Strategic ControlThebasicpurposeofstrategiccontrolistohelptopmanagementachievestrategicgoalsasplanned.Tobespecific,the purposes of strategic control are to answer questions, such as the following:

Are our internal strengths still holding good? •Have we added other internal strengths? •Are our internal weaknesses still holding well? •Do we have other weaknesses? •Are our opportunities still opportunities? •Are there new opportunities? •Do our threats still exist? •Are there new threats? •Are the decisions being made consistent with policy? •Aretheresufficientresourcestoachievetheobjectives?•Are events in the environment occurring as anticipated? •Are goals and targets being met?•Should we proceed with plans as we have formulated? •Are the organisational vision, mission and objectives appropriate to the changing environment factors? •

Thus, strategic control provides feedback about various steps of strategic management to know, whether the strategic management processes are appropriate, compatible and functioning in the desirable direction.

8.2.2 Types of Strategic ControlThe four basic types of strategic controls are:

Premise control:• It is necessary to identify the key assumptions and keep track of any change in them so as to assess their impact on strategy and its implementation. It serves the purpose of continually testing the assumptions tofindoutwhethertheyarestillvalidornot.Implementation control:• Implementation control is aimed at evaluation whether the plans, programmes and projects are actually guiding the organisation towards its predetermined objectives or not. It may be put into practicethroughidentificationandmonitoringofstrategicthrusts,suchasanassessmentofthemarketingsuccessofanewproductafterpre-testingorcheckingthefeasibilityofadiversificationprogrammeafterinitialattemptsat seeking technological collaboration.Strategic surveillance:• Strategic surveillance is aimed at a more generalised and overarching control ‘designed to monitor a broad range of events inside and outside the company that are likely to threaten the course of a firm’sstrategy’.Itcanbedonethroughabroad-based,generalmonitoring,onthebasisofselectedinformationsources to uncover events that are likely to affect the course of the strategy of an organisation.Special alert control: • Special alert control is based on a trigger mechanism for rapid response and immediate reassessment of strategy in the light of sudden and unexpected events. Special alert control can be exercised through the formulation of contingency strategies and assigning the responsibility of handling unforeseen events to crisis management teams.

8.2.3 Operational ControlOperational control deals with monitoring and evaluating the operations to ensure that organisational issues and operations function in the right direction. Operational control aims at achieving the results as planned operational controlfocusesonvariousroutineaspectsoftheproduction,marketing,humanresourceandfinancialissuesinthecompany.

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Operational control mostly deals with performance of the company in the direction decided in advance. Similarly it deals with the allocation and utilisation of various organisational resources like materials, spare pants human resourcesmachinery,technology,financialresourcesandsoon.Managersatthemiddlelevelandlowerlevelexecutethe operational control at the direction of the top level management.

8.2.4 Difference between Strategic Control and Operational ControlThe difference between strategic control and operational control is shown in the table below.

Attribute Strategic control Operational control

1.Basic question ‘Are we moving in the right direction’? ‘How are we performing?’

2.Aim Proactive, continuous questioning of basic direction of strategy

Allocation and use of organisational resources

3.Main concern ‘Steering’ the organisation’s future direction Action control

4. Focus External environment Internal organisation5. Time horizon Long-term Short-term

6. Exercise Exclusively by top management, may be through lower-level support

Mainly by executive or middle –level management on the direction of the top management

7. Main techniques Environment scanning, information gathering, questioning and review Budgets, schedules and MBO

Table 8.1 Differences between strategic control and operational control

8.3 Techniques of Strategic Evaluation and ControlIt is necessary for strategists to have an idea about the techniques of strategic evaluation and control in order to make a choice from among the many available and to use them. Several of the techniques of evaluation are traditional and have been in usage for long, while there are some other techniques that are of recent origin.

8.3.1 Evaluation Techniques for Strategic ControlTechniquesforstrategiccontrolcouldbeclassifiedintotwogroupsonthebasisofthetypeofenvironmentfacedby the organisations. The organisations that operate in a relatively stable environment may use strategic momentum control,whilethosefacearelativelyturbulentenvironmentmayfindstrategicleadcontrolmoreappropriate.

Strategic momentum control:• These types of evaluation techniques are aimed at assuring that the assumptions on the basis of which strategies were formulated are still valid and what needs to be done in order to allow the organisation to maintain its existing strategic momentum. For achieving these aims there are three techniques which could be used:

Responsibility control centres: � These form the core of management control systems and are of four types:revenue,expense,profitandinvestmentcentres.Eachofthesecentresisdesignedonthebasisofthemeasurement of inputs and outputs.The underlying success factors: � It enable organisations to focus on the critical success factors.Generic strategies: � This approach to strategic control is based on the assumption that the strategies adopted byfirmssimilartoanotherfirmarecomparable.

Strategic leap control:• Organisationsarerequiredtomakestrategicleapinordertomakesignificantchangeswhen the environment is relatively unstable. Strategic leap control can assist such organisations by helping to definethenewstrategicrequirementsandtocopewithemergingenvironmentrealities.Therearefourtechniquesof evaluation used for exercising strategic leap control:

Strategic issue management: � It is aimed at identifying one or more strategic issues and assessing their impact on the organisation.

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Strategic field analysis: � It is a way of examining the nature and extent of synergies that exist or are lacking between the components of an organisation.System’s modelling: � It is based on computer-based models that simulate the essential features of the organisation and its environment.Scenarios: � Theseareperceptionsaboutthelikelyenvironmentafirmcouldfaceinthefuture.

8.3.2 Evaluation Techniques for Operational ControlEvaluation techniques for operational control are based on organisational appraisal rather than environmental monitoring, as it is the case with strategic control. These techniques are used for operational control as well. The classificationofevaluationtechniquesisdoneinthreeclasses:

Internal analysis:• It consists of VRIO framework, value chain analysis, quantitative analysis and qualitative analysis,anddealswiththeidentificationofthestrengthsandweaknessofafirminabsoluteterms.

VRIO framework: � The basic idea behind the VRIO framework is that sustainable strategic advantage results through the use of capabilities that are valuable, rare, inimitable and organised for usage. The performance evaluation for operational control can make use of this framework to focus on evaluating the capabilities so as to examine whether these are present.Value chain analysis: � It focuses on a set of inter-related activities performed in a sequence, for producing and marketing a product or service.Quantitative analyses: � Ittakesupthefinancialparametersandthenon-financialquantitativeparameters,such as physical units or time in order to assess performance.Qualitative analysis: � It supplements the quantitative analysis by including those aspects, which are not feasibletomeasureonthebasisoffiguresandnumbers.

Comparative analysis:• It consists of historical analysis, industry norms and benchmarking, which compares theperformanceofafirmwithitsownpastperformanceorwithotherfirms.

Historical analysis: � Itisafrequentlyusedmethodforcomparingperformanceofafirmoveragivenperiodof time.Industry norm: � It is a comparative method for analysing performance that brings with it the advantage of makingafirmcompetitiveincomparisontoitsrivalsinthesameindustry.Benchmarking: � Itisacomparativemethodwhereafirmfindsthebestpracticesinanareaandthenattemptsto bring its own performance in that area in line with the best practice.

Comprehensive analysis:• This includes balanced scorecard and key factor rating. This analysis adopts a total approach rather than focusing on one area of activity or department.

Balanced scorecard: � Thismethod isbasedon the identificationof fourkeyperformancemeasuresofcustomerperspective,internalbusinessperspective,innovationandlearningperspective,andthefinancialperspective. This method is a balanced approach to performance measurement as a range of parameters is taken into account for evaluation.Key factor rating: � It is a method that takes into account the key factors in several areas, and then sets out to evaluate performance on the basis of these.

8.3.3 Special Purpose TechniquesSpecial purpose techniques are used in particular situations by some organisations, to assess performance and exercise operational control. These are:

The parta system:• ItisanindigenoussystemadoptedusuallybyMarwarifirmstokeeptrackofdailycashgenerations. “Parta is the pre-determined budget of the net cash inflows fromoperations before tax anddividend”.Network techniques:• Programmed evaluation and review technique (PERT), critical path method (CPM), and their variants, are used extensively for the operational controls of scheduling and resource allocation in projects.

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Management by objectives• (MBO): It is a system, based on a regular evaluation of performance against objectives, which are decided upon mutually by the superior and the subordinate.Memorandum of understanding:• It is a commitment to objectives between individuals, a memorandum of understanding (MoU) is “an agreement between a public enterprise and the government, represented by the administrative ministry in which both parties clearly specify their commitments and responsibilities”.

8.3.4 Auditing TechniquesAuditing is basically a watchdog function in organisations, which is used to evaluate the soundness of organisational systems, such as the accounting system. It can play an indirect role in exercising operational control as it helps in findinglacunaeintheorganisationalsystems,thecorrectionofwhichcanaidinperformanceimprovement.Theimpactoforganisationalactivitiesisnotlimitedtotheconfinesoftheorganisationitself.Strategicevaluationandcontrolneeds to take account of the impact of the organisational activities on the society and the physical environment.

Corporate social audit:• Corporate social audit is “a commitment to systematic assessment of and reporting on somemeaningful,definabledomainofthecompany’sactivitiesthathavesocialimpact”.Itcanhelporganisationto assess the impact of its operational performance on the contiguous community as well as on the larger society.Environment audit:• It is a method used to obtain accurate, comprehensive and meaningful information on the environmentalimpactofacompany,onwhichmanagementdecisionscanbebased.Everyfinancialyear,thecompanies have to submit an environmental statement to the respective state pollution control boards in which their production units are situated.

8.4 Process of Strategic ControlThe strategic control process consists of six steps. Top management, initially must decide what elements of the environment and the organisation need to be monitored, evaluated and controlled. The three key areas to be monitored and controlled are:

the macro-environment•the industry environment •internal operations•

8.4.1 Steps in Process of Strategic ControlThere are six steps in the strategic control process as described below:

Step 1: Key result areas to be monitored Macro-environment: • One of the key areas to be monitored is the macro-environment of the company. This area shouldbefocusedfirst.Normally,individualcompaniescannotinfluencetheenvironmentsignificantly.But,theexternalenvironmentalforcesmustbecontinuouslymonitoredasthechangesintheenvironmentinfluencethestrategicimplementationprocessofthecompany.Continuousstrategicfitbetweenthecompanyanditsexternalenvironment is necessary. Therefore, strategic control is essential. Strategic monitoring and control includes:• Modifying anyone or more of the areas like company’s mission, objectives,goals,strategyformulationandstrategyimplementation.Themodificationdependsuponthenatureand degree of changes and shifts in the environment. Industry environment: • The strategist also monitors and control the industry related environment. The environmental forces may not be as they were planned. The changes in the environment may provide new opportunitiesorposenewthreats.Thestrategy,therefore,shouldbemodifiedaccordingly.Thus,thepurposeisto modify the company’s strategy, goals and operations in order to capitalise the new opportunities and defend against the new threats effectively. The industry environment of the future should be considered by the top management for the purpose of strategic evaluation and control. Internal operations:• The strategist has to evaluate the internal operations continuously in view of the changes in the macro-environment and industry environment. The strategist has to introduce changes in internal operations when the changes in the environment affect the strategy.

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Step 2: Establishing standards Evaluating an organisational performance is normally based on certain standards. These standards may be the previous year’s achievements or the competitor’s records or the fresh standards established by the management. Qualitative judgements like the qualitative features of the product or service in the last year may be used. Quantitative measures like Return on Investment, Return on sales may also be used for judging the performance. Companies should establish the standards for evaluating the performance of the strategies taking several factors into consideration.

The standards may include: Quality of products or services•Quantity of products to be produced•Quality of management•Innovativeness or creativity•Long term investment value•Volume of sales and/or market share •Financial soundness in terms of the following:•

return on investment �return on equity capital �market price of the share �earning per share and so on �

Community and environmental responsibility in terms of amount spent on community development, variety of •facilities provided to the community, programmes undertaken for the environmental protection and ecological balance and so on.Soundness of human resource management in terms of number of employee grievances, employee satisfaction •rate, employee turnover rate, industrial relations situation and so on.Ability to attract, develop and retain competent and skilled people. •Use of company’s assets. •Production targets, rate of capacity utilisation, design of new products, new uses of existing products, rate of •customer complaints about the product quality, suitability of ingredients and so on.Corporate image among the customers and general public. •Market place performance. •Standards relating the organisational variables include freedom and autonomy, level of control, responsibility, •formal organisation and degree of formality, informal organisation.

Step 3: Measuring performance The strategist has to measure the performance of various areas of the organisation before taking an action. Strategic audits and stakeholder audit are useful to measure the organisational performance.

Strategic audit A strategic audit is an execution and evaluation of organisation’s operations affected by the strategy implementation. Strategic audit may be very comprehensive, emphasising all facets of a strategic management process. It may also be narrowly focused, emphasising only on a single part of the process, such as, environmental process.

Strategic audit may be quite formal adhering to organisational rules and procedures. It may be quite informal providing freedom and autonomy to the managers to take decisions. The strategic audit must work to integrate related functions. Hence, the strategic audits are carried out by cross-functional teams of managers. There is no universally accepted single method of strategic audit. Each organisation can formulate its own method depending upon its need. ,

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Stakeholders’ auditStakeholders are the people who have stake in the company. They are interested in the company’s activities as they aresignificantlyaffectedbythecompany’sobjectives.Theorganisationalstakeholdersinclude:

Shareholders or owners of the company who are interested in dividend and market price of the share.•Tradeunionsandemployees,whoareinterestedinfavourablewages,benefits,conditionsofemploymentand•better quality of work life.Creditors are interested in company’s liquidity position and ability to repay the debts with interest in right •time.Suppliers are interested in retaining the organisation as a good customer.•Government is interested in keeping the organisation as a good tax payer, maintaining the congenial industrial •relations, maintaining the ecological balance, and contributing to solve the social and economic problems of the country.Social interest groups, such as, consumer protection associations and environmental protection associations.•Customers, who expect a qualitative product or service at a reasonable price, prompt service and favourable •conditions of sales.

Step 4: Compare performance with standards Once the performance of the different aspects of the organisation is measured, it should be compared with the predetermined standards. Standards are set to achieve the already formulated organisational goals and strategies. Organisational standards are yardsticks and benchmarks that place organisational performance in perspective. The strategists should set standards for all performance areas of the organisation based on the organisational goals and strategies. Normally, the standards vary from one company to the other company. The standards developed by General Electric can be used as model standards. These standards include.

Profitability standards: • Thesestandardsincludehowmuchgrossprofit,netprofit,returnoninvestment,earningpershare,percentageofprofittosalesthecompanyshouldearninagiventimeperiod.Market position standards:• These standards include total sales, sales-region-wise and product-wise, market share, marketing costs, customer service, customer satisfaction, price, customer loyalty shifts from other organisations’ products and so on.Productivity standards: • These standards indicate the performance of the organisation in terms of conversion of inputs into outputs. These standards include capital productivity, labour productivity, and material productivity and so on.Product leadership standards:• These standards include the innovations andmodifications in products toincrease the new uses of the existing product, developing new products with new uses and so on.Human resource standards:• Humanresourcestandardsincludeprovidingcompetitivesalaries,benefitsanddifferent aspects of quality of work-life. These standards also include human resource performance, productivity, turnover rates, and absenteeism rates and so on.Employee attitude standards: • Employee attitude, standards include employees’ favourable attitude towards thenatureofwork,organisation,salaries,benefits,workingenvironment,quantityofwork-life,treatmentbysuperiors and so on.Social responsibility standards: • All organisations discharge their responsibilities towards different sections of the society. These standards are related to the services of the organisations towards community, government, employees, suppliers, creditors and so on.Standards reflecting balance between short-range and long-range goals:• Short-range and long-range strategies should be balanced successfully. Standards in these areas should bring balance between short-range and long-range goals.

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Step 5: Take no action if performance is in harmony with standards If the performance of various organisational areas matches with the standards, the strategist need not take any action. They should just allow the process to continue. However, they can try to improve the performance above the standards, if it would be possible, without having any negative impact on the existing process.

Step 6: Take corrective action, if necessary Strategist should take necessary corrective action, if performance is not in harmony with standards.

8.4.2 Managing Strategic ControlStrategic control is the primary responsibility of the strategist who formulated the strategy. However, it is the responsibility of all members of the organisation. All employees participate in the strategy implementation. Therefore all employees can contribute to the control of strategic implementation process.

Role of the strategy planning staffNormally the role of strategy planning, formulation, implementation and control go hand-in-hand. But, in some companies the roles of planning and control of strategy are separated. This practice is unfortunate as performing thesetwofunctionsseparatelybytwomanagersandistooofteninflexibleandbureaucratic.Planningwithoutcontroleliminates feed forward, and control without planning eliminates feedback.

The best results of strategic control are achieved when the planning and control staff works as a team. When a strategic control team member represents a cross-section of the organisation, a number of advantages are likely to occur. Better judgements and insights should result from a diverse group. The team serves as a sounding board for the ideas of individual managers. Involvement in implementation and control gives other members a better comprehension of the problems associated with the new strategy.

Role of top management Top level managers are primarily responsible for strategy formulation, analysis and implementation. Therefore, they should understand strategic control and take actions imply in the control process. Top managers should have a vision about the possible changes in the environment and their possible affect on the current strategy and feed this information forward to the staff at the ground. They must be committed to the strategic control process. Top managers are in leadershippositionandas such they should influence theorganisationalmembers in strategiccontrol process.

8.4.3 Successful Maintenance of Strategic ControlSuccessful maintenance of strategic control is important from the long-run point of view. According to this model, top managers must ensure that four interrelated organisational variables are consistent and complementary. They are:

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Organisational Structures

Reward System

Information Systems

Organisational Value Systems

or Culture

Interrelated Organisational

variables

Fig. 8.1 Four interrelated organisational variables

Implementing strategy and controlling its progress are actually a series of incremental steps. The managers should do the following to implement strategic and control the strategy successfully.

Create pockets of commitment:• Executives provide broadgoals, a proper climate, andflexible resourcesupport. By allowing various groups to develop and present proposals for strategies, managers are able to build commitmentamongthegroupstosupportthestrategyfinallyselected.Maintain objectivity:• Managers should avoid taking a stand on issues too early in the generation and evaluation process. When managers take a position, the generation of new alternatives often ceases and the evaluation of existing, alternatives is often biased by the position of the top manager. Eliminate options two levels down: • Managers can maintain their position of neutrality and avoid rejecting proposals by encouraging, discouraging, or killing options through subordinates.Crystallise focus and consensus:• Bycontrollingmembershiponcommittees,managersareabletoinfluence,and if desired, receive the proposals wanted. Properly selected committees can broaden support for and increase commitment to new strategies. Empower champions: • Managers are given responsibility for developing new ideas and programmes early. As the programme is evaluated and gains support, these individuals tend to become committed to the programme orstrategy,onceitisgivenfinalapproval,thesemanagersarethenwillingtochampionthestrategyandtoguideit through whatever hurdles are necessary to get it operating effectively. Develop strategies incrementally, but not piecemeal: • Part of management’s responsibility is to make certain thatstrategiesareintegratedandappropriatefortheenvironmentinwhichthefirmisoperating.Strategiesmaybedevelopedinincrementalsteps,buttheymustbemadetofittogetherinaunified,integrated,andcohesivewhole.

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Recognise continuing dynamics:• Strategies do not remain constant and for long periods. Part of the executive’s responsibility is to gain consensus support for the new strategy, but at the same time room must be maintained modify or terminate the strategy. Managers should use discretion in making certain that the organisation does not become overcommitted to the new strategy and unwilling to change at some future point.

8.5 Role of Organisational Systems in EvaluationThe process of strategic evaluation and control does not operate in isolation; it works on the basis of the different organisational systems that are used to implement strategies. The role of the organisational systems in evaluation isbrieflydiscussedbelow:

8.5.1 Role of Information SystemThe use of computerised information systems in organisations has opened up countless possibilities for using them for performance monitoring and reporting. In the control process, evaluation is done by comparing actual performance with standards.

The measurement of performance can be done on the basis of reports generated through information system.•Therearesomeessentialconditionstobesatisfiedbeforeinformationsystemscanplayaneffectiverolein•strategic evaluation. First, all stakeholders of the organisation must agree on the objectives and strategies to achievethem.Indicatorsformeasuringperformancemustbedefinedanddatasourcesmustbeidentifiedclearlyfor those indicators. Collection of data must then systematically and collated and aggregated to be reported in user-friendly formats. •Finally, the data must be used by managers to assess and improve performance.Onebigbenefitofusingcomputerisedinformationsystemsistheavailabilityofreal-timeinformationtomanagers.•Forthepurposeofevaluationthisissignificantasassesstoreal-timeinformationcanenablemanagerstotaketimelycorrectiveaction,ratherthanwaittofindoutthevarianceoftheactualfromstandardperformanceatthe end of the evaluation process. Techniques, such as, data warehousing and data mining enable organisations to delve deep into their internal •systems and come up with information that can be useful for evaluation and control purposes. Business intelligence software is becoming a popular IT application in helping organisations in accessing data for the purpose of performance evaluation.

8.5.2 Role of Control SystemThe control system is at the heart of any evaluation process for setting standards, measuring performance, analysing variances and taking correct measures. The development system in an organisation prepares the managers for performing strategic and operational tasks. The most important aim of development is to match a person with the job to be performed. This matching can be done provided it is known what a manager is required to do and what is deficientintermsofknowledge,skillsandattitude.

Suchadeficiencyisfoundoutthroughtheappraisalsystem.Theroleofthedevelopmentsysteminevaluationis, therefore, to help strategists to initiate and implement corrective action i.e. to take steps that would lead to the development of individuals, so as to enable them to perform as required. Employee performance management systems used through applications of IT, play a helpful role in the development of a system for exercising control in organisations.

8.5.3 Role of Reward SystemOrganisations design and operate their reward systems on the basis of the appraisal of performance of individuals. The appraisal system performs the critical role of evaluating managerial performance in the light of organisational objectives.When the performance of managers is appraised, it is their contribution to the organisational objectives that is sought to be measured. The evaluation process, through the appraisal system, measures the actual performance and provides the basis for the control system to work.

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The relevance of reward systems to strategy implementation can be seen from the fact they are to be linked to the control system at one end and to motivation at the other end. The central role of the motivation systems is to induce strategically desirable behaviour so that managers are encouraged to work towards the achievement of organisational objectives.

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SummaryStrategicevaluationandcontrolcouldbedefinedastheprocessofdeterminingtheeffectivenessofagiven•strategy in achieving the organisational objectives and taking corrective action wherever required.The process of strategic management requires that strategists lay down the objectives of the organisation and then •formulatestrategiestoachievethem.Theprocessofimplementationofstrategystartswiththeidentificationofkey managerial tasks, which form the basis for the creation of organisational structure and design of systems.Participantsinstrategicevaluationareshareholders,boardofdirectors,chiefexecutives,profitcentreheads,•financialcontrollers,andmiddle-levelmanagers.Barriersinperformanceevaluationarelimitofcontrols,difficultiesinmeasurement,resistancetoevaluation,•short-termism,andrelyingonefficiencyversuseffectiveness.Strategic controls take into account the changing assumptions that determine a strategy, continually evaluate •the strategy as it is being implemented and take the necessary steps to adjust the strategy to the new requirements.The basic purpose of strategic control is to help top management achieve strategic goals as planned. •Comparative analysis consists of historical analysis, industry norms and benchmarking, which compares the •performanceofafirmwithitsownpastperformanceorwithotherfirms.Comprehensive analysis includes balanced scorecard and key factor rating. This analysis adopts a total approach •rather than focusing on one area of activity or department.Corporatesocialauditis“acommitmenttosystematicassessmentofandreportingonsomemeaningful,definable•domain of the company’s activities that have social impact”. Environment audit is a method used to obtain accurate, comprehensive and meaningful information on the •environmental impact of a company, on which management decisions can be based.The top managers must ensure that four interrelated organisational variables are consistent and complementary •and they are: organisational structure, reward system, information systems, and organisational value systems or cultures.

ReferencesBradford, R., 2009. • Strategic Planning - Setting and Reaching Your Goals with Robert Bradford [Video Online] Available at: <http://www.youtube.com/watch?v=Zx98zrGfpvM&feature=related>. [Accessed 26 September 2011].Holman, V. • Strategic Management – Planning [Video Online] Available at: <http://vimeo.com/20687457>. [Accessed 26 September 2011].Subha, R., 2010. • Strategic Management. Global Media.Jeyarathmm, M., 2008. • Strategic Management. 2008. Global Media.Barnat, R., 2005. • Control Tools and Techniques [Online] Available at: <http://www.introduction-to-management.24xls.com/en240>. [Accessed 26 September 2011].Barnat, R., 2005. • Management Control [Online] Available at: <http://www.strategic-control.24xls.com/en116>. [Accessed 26 September 2011].

Recommended ReadingHarrison, J., 2009. • Foundations in Strategic Management, 5th ed., South-Western College Pub South-Western College Pub Stahl, M. and Grigsby, D., 1997. • Strategic management: total quality and global competition. Wiley.Wheelen, T. and Hunger, J., 2010. • Strategic Management and Business Policy, 12th ed., Dorling Kindersley (India) Pvt. Ltd.

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Self Assessment_______1. ______focuses on a set of inter-related activities performed in a sequence for producing and marketing a product or service.

Balanced scoreboarda. Qualitative analysisb. Quantitative analysisc. Value chain analysisd.

Which of the following method takes into account the key factors in several areas and then sets out to evaluate 2. performance?

Key factor ratinga. Benchmarkingb. VRIO frameworkc. Corporate auditd.

A __________audit is an execution and evaluation of organisation’s operations affected by the strategy 3. implementation.

strategica. corporateb. performancec. evaluationd.

Which of the following statements is false?4. Top level managers are primarily responsible for strategy formulation, analysis and implementation. a. Evaluating strategy and controlling its progress are actually a series of incremental steps. b. Topmanagersareinleadershippositionandassuchtheyshouldinfluencetheorganisationalmembersinc. strategic control process.The best results of strategic control are achieved when the planning and control staff works as a team.d.

__________control deals with monitoring and evaluating the operations to ensure that organisational issues and 5. operations function in the right direction.

Performancea. Auditb. Operationalc. Strategicd.

Which of the following is “a system, based on a regular evaluation of performance against objectives, which 6. are decided upon mutually by the superior and the subordinate”?

The parta systema. Memorandum of understandingb. Management by objectives c. Network techniquesd.

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Match the following.7.

1. Corporate social auditA. It is a method used to obtain accurate, comprehensive and

meaningful information on the environmental impact of a company, on which management decisions can be based.

2. Environment auditB. It is an agreement between a public enterprise and the government,

represented by the administrative ministry in which both parties clearly specify their commitments and responsibilities.

3. Strategic auditC. It is a commitment to systematic assessment of and reporting on

somemeaningful,definabledomainofthecompany’sactivitiesthathave social impact.

4. Memorandum of Understanding D. It is an execution and evaluation of organisation’s operations affected by the strategy implementation.

1-C, 2-A, 3-D, 4-Ba. 1-A, 2-C, 3-D, 4-Bb. 1-C, 2-B, 3-D, 4-Cc. 1-D, 2-C, 3-A, 4-Bd.

Which of the following statements is true?8. The measurement of performance can be done on the basis of reports generated through information a. system.Strategist should take necessary corrective action, if performance is in harmony with standards.b. Organisational objectives are yardsticks and benchmarks that place organisational performance in c. perspective.Corporate audit may be very comprehensive, emphasising all facets of a strategic management process.d.

____________isacomparativemethodwhereafirmfindsthebestpracticesinanareaandthenattemptsto9. bring its own performance in that area in line with the best practice.

Auditinga. Benchmarkingb. Evaluationc. Management by Objectivesd.

Organisationsarerequiredtomakestrategic_______inordertomakesignificantchangeswhentheenvironment10. is relatively unstable.

issuesa. objectivesb. methodsc. leapsd.

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Case study I

Doordarshan

Doordarshan (DD) is the India’s premier public service broadcaster with more than 1,000 transmitters covering 90% of the country’s population across on estimated 70 million homes. It has more than 20,000 employees managing its metro and regional channels. Recent years have seen growing competition from many private channels numbering more than 65, and the cable and satellite operators (C and S). The C and S network reaches nearly 30 million homes and is growing at a very fast rate. DD’s business model is based on selling half–hour slots of commercial time to the programme producers and charging them a minimum guarantee.

Forinstance,thepresenttariffforthefirst20episodesofaprogrammeisRs.30lakhsplusthecostofproductionof the programme. In exchange, the procedures get 780 seconds of commercial time that he can sell to advertisers and can generate revenue. Break-even point for procedures, at the present rates, thus is Rs.75, 000 for a 10 second advertising spot. Beyond 20 episodes, the minimum guarantee is Rs.65 lakhs for which the procedures has to charge Rs.1,15,000 for a 10 second spot in order to break-even. It is at this point the advertisers face a problem – the competitive rates for a 10 second spot is Rs.50, 000. Procedures are possessive about buying commercial time on DD. As a result the DD’s projected growth of revenue is only commercial time on DD.

As a result the DD’s projected growth of revenue is only 6- 10% as against 50-60% for the private sector channels. Software suppliers, advertisers and audiences are deserting DD owing to its unrealistic pricing policy. DD has options before it. First, it should privates, second it should remain purely public service broadcaster and third, a middle path. The challenge seems to be exploiting DD’s immense potential and emerge as a formidable player in the mass media.

Source: PCC Exam, 2007. CASE STUDIES IN STRATEGIC MANAGEMENT [Online] Available at: <http://www.hindustanlink.com/career-discuss-forum/thread-131.html>. [Accessed 7th October 2011].

QuestionsWhich is the best option, in your view for DD?1. AnswersFor several years Doordarshan was the only broadcaster of television programmes in India. After the opening of the sector to the private entrepreneur (cable and satellite channels), the market has witnessed major changes. The number of channels has increased and also the quality of programmes, backed by technology, has improved. In terms of quality of programmers, opportunity to advertise, outreach activities, the broadcasting has become a popular business. Broadcasters too have realised the great business potential in the market. But for this, policies need to be rationalised and be opened to the scope of innovativeness in term of quality of programmes. This would not come by simply going to more areas or by allowing bureaucratic set up to continue in the organisation. Strategically the DD needs to undergo a policy overhaul. DD, out of three options, namely privatisation, public service broadcaster or a middle path, can choose the third one, i.e. a combination of both. The whole privatisation isnotpossibleunderthediversifiedpoliticalscenario.Noritwouldbedesirabletohandoverthebroadcastingemotively in the private hand as it proves to be a great means of communication of many socially oriented public programmers. The government could also think in term of creating a corporation (as it did by creating Prasar Bharti) and provide reasonable autonomy to DD. So far as its advertisement tariff is concerned that can be made fairly competitive. However, at the same time cost of advertising is to be compared with the reach enjoyed by the Doordarshan. The number of viewers may be far more to justify higher tariffs.

Analyse the SWOT factors DD has.2. AnswersThe SWOT analyses involve study of strengths, weaknesses, opportunities and threats of an organisation. SWOT factors that are evidently available to the Doordarshan are as follows:

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S – StrengthMore than 1000 transmitters•Covering 90% of population across 70 million homes against only 30 million homes by C & S•More than 20,000 employees•

W – WeaknessRigid pricing strategy•Low credibility with certain sections of society•Quality of programs is not as good as compared to C & S network•

O– OpportunitiesInfrastructure can be leased out to cable and satellite channel•Digital terrestrial transmission•Regional focused channels•Allotment of time, slots to other broadcasters•

T – ThreatsDesertion of advertisers and producers may result in loss of revenues•Due to quality of program the reach of C & S network is continuously expanding•As the C& S network need the trained staff, some employees of DD may switchover and take new jobs•Best of the market-technology is being used by the private channels•

Why do you think that the proposed alternative is the best?3. AnswersIt is suggested that the DD should adopt a middle path. It should have a mix of both the options. It should economised on its operational aspects and ensure more productivity in term of revenue generation and optimisation of use of its infrastructure. Wherever, the capacities are underutilised, these may be leased out to the private operations. At the same time quality and viewer-ship of programmes should be improved. Bureaucracy may reduce new strategic initiatives or make the organisation less transparent. Complete privatisation can fetch a good sum and may solve many of the managerial and operational problems. However, complete public monopoly is not advisable because that denies the government to fully exploit the avenue for social and public use. The government will also lose out as it will not be able to take advantage of rising potential of the market.

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Case study II

McDONALD's PLAN TO WIN

After 50 years of operation, McDonald’s is revitalising its products, and pushing innovation through a variety of initiatives. This foodservice giant with more than 30,000 restaurants in 100 countries provides food to nearly 50 millioncustomerseachday,butdecadesofexpansion,salesgrowth,andprofitsmadetheburgergiantcomplacent.Byfocusingongettingbigger,notbetter,thecompanystumbledin2002,recordingitsfirstlosingquarter.By2003,U.S.saleshadflattened,asmanyconsumerswereturningtohealthieroptionsandrestaurantswithmoreupscalemenuitems,asegmentsometimesreferredtoas“fast-casual”.MorganSpurlock’sfilmSuper Size Me , released in 2004, also seriously diminished the public image of the quick - service chain, as moviegoers watched Spurlock become ill and gain 25 pounds after eating only McDonald ’ s food for one month.

With pressure to get back on track, it was time for McDonald’s to rethink the business.

The chain devised a recovery strategy that included new menu items, redesigned restaurants, and a focus on the consumer experience. Through a program titled “Plan to Win,” McDonald’s focused on making a deeper connection withcustomersthroughthefivebusinessdriversofpeople,products,place,price,andpromotion.UsingitsownfiveP’s,thecompanyisdevelopingandrefiningnewstrategiestodelivervalue,offeringproductvariety,developingupdated and contemporary stores, balancing the delivery of value pricing with more expensive items, and marketing through bold and innovative promotions.

Execution of this strategy has included mystery shoppers and customer surveys, along with grading restaurants to help the company deliver on its people goals. New menu items like the Fruit & Walnut Salad in the United States and deli sandwiches in Australia are part of the commitment to serve high - quality products to satisfy customer demand for choice and variety. Restaurants are staying open longer, accepting credit and debit cards, enabling wireless internet access, and even providing delivery service in parts of Asia. As part of the program, franchisees and suppliers are asked to provide their opinions and ideas on facility design, while the company benchmarks retail leaders, such as Crate & Barrel, to help produce cleaner and smarter restaurants. The company is testing small handheld devices to use on what it calls “travel paths,” a process for checking operational failures such as the temperature inside the refrigerators. Experiments with a new grilling concept from Sweden, which grills burgers vertically instead of horizontally, offers space - saving possibilities for the chain. Product offerings like the McCafé, a concept developed in the Australian market that provides gourmet coffee inside 500 existing restaurants, are proving to be successful.

The trouble experienced in the early part of the millennium has abated, and executives at McDonald’s have declared success after several years of progress under the Plan to Win.

Companyrevenuesareup,andthefirmplanstoremainfocusedonitscorebusiness.Oneindicationofitscommitmentto fast food was the divestiture of its seven - year ownership stake in Chipotle Mexican Grill, a highly successful fast - casual burrito chain. With the sale of around 5 million shares of Chipotle stock, the burger maker is now refocusing on Brand McDonald ’ s.

Attracting more customers to McDonald’s remains its goal for growth. In the U.S. market, the strategy is to leverage menu innovation; in Europe, upgrading the customer experience and enhancing local relevance have drivenmanagementefforts;andtheAsia/Pacific,MiddleEast,andAfricamarketshavefocusedonbuildingsalesthrough extended hours. The question remains whether focusing on the core business will yield maximum return. At McDonald’s, the executives are betting on the core brand and hoping that this strategy will pay off.

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(Source: media.wiley.com. Strategic Management [PDF] Available at: <http://media.wiley.com/product_data/excerpt/70/EHEP0007/EHEP000770.pdf>. [Accessed 7th October 2011].

QuestionsWill the decision to focus on brand McDonald’s yield best returns?1. What was the problem faced by McDonald?2. Can the premium coffee McCafé concept expect to compete seriously with Starbucks? Or will McDonald’s, 3. like the market leaders in many other industries in the past, struggle?How many times can McDonald’s reinvent itself and continue to grow?4.

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Case study III

Credit flow to Housing Sector Stays Stagnant despite Rate Cats: Sector witnessed Credit Growth of only 2.49% between November 7, 2008 and January 16, 2009.

Credit to housing sector is not growing at the desired rate despite a number of steps taken by the Reserve Bank of India(RBI),thefinanceministryandthestate-run-bankstoaugmentfundflowtothissector.

Accordingtodataavailablewiththefinanceministry,thesectorwitnessedacreditgrowthofonly2.49%betweenNovember 7, 2008 and January 16, 2009. This is in sharp contrast to an average credit growth of about 10-20% in almostallquartersbeforetheglobalfinancialturmoilstartedshowingitsimpactsinceSeptemberlastyear.

The sector has witnessed deceleration in credit growth (from the public sector banks) despite the fact that PSBs have cut home loan rates by up to 300 basis points between October and December 2008. PSBs have a total exposure ofaboutRs.162,500croreashousingloanattheendofDecember2008,accordingtofinanceministrydata.Allcommercial banks in total has an exposure of Rs. 2, 71,683 crore as housing loan as on December 19, 2008, according to RBI data.

Thefinanceministryhasaskedthepublicsectorbanks(PSBs)toexplainreasonsbehindthelowdeploymentofcredittothissectorsaidanofficialinthefinanceministry.TheinterestrateorhomeloanfromthePSBswasintherange of 9.25% and 12% as on September 30, while it was in the range of 8.75% and 11% as on December 1. The home loan rates have come down further in the month of January and February.

During mid-December, the Indian Banks’ Association (IBA) also announced a special package for home loan borrowers offering those home loans at a uniform rate of 8.5% for loans up to Rs. 5 lakhs and at a rate of 9.25% for loans up to Rs. 20 lakhs. The IBA has also announced relaxation in norms for taking home loan.

Further, the Country’s biggest lender State Bank of India last week froze new home loans, at 8% for one year. It also reduced 300 points during the last three months in order to make cheaper loans available to the borrowers. BPLR is the rate at which banks offer loans to their prime borrowers. Usually banks offer home loans upto 2.5% below their BPLR. Home loans constitute the largest share among all types of retail loans provided by banks.

(Source: Economic Time)

QuestionsCarry out environmental analysis (SWOT) for housing sector in India.1. Develop strategies for Public Sector Banks to boost the sluggish demand in housing sector.2. List down the steps taken by banks to attract customers.3.

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Recommended ReadingAlkhafaji, A., 2003. • Strategic Management: Formulation, Implementation, and Control in a Dynamic Environment (Promotional Management). Routledge.Dess, G. and Lumpkin, G., 2009. • Strategic management: creating competitive advantages, 5th ed., McGraw-Hill Irwin.Emerald Insight Staff, 2005. • Strategic Management. Emerald Group Publishing Ltd.Harrison, J., 2009. • Foundations in Strategic Management, 5th ed., South-Western College Pub South-Western College Pub Hill, C. and Jones, G., 2009. • Strategic Management Theory: An Integrated Approach. Cengage Learning.Hill, C., 2008• . Strategic Management: An Integrated Approach, 2nd ed., John Wiley and Sons Ltd.Hiriyappa, B., 2010. • Business Policy and Strategic Management. CreateSpace.Kazmi, A., 2002. • Business Policy and Strategic Management, 3rd ed., Tata Mcgraw-Hill.Luffman, G. and Sanderson, S., 1991. • Business Policy: An Analytical Introduction, 2nd ed., Blackwell Pub.Pearce, J. and Robinson, R., 2008. • Strategic Management, 10th ed., Tata McGraw-Hill.Phadtare, M., 2011. • Strategic Management Concepts and Cases. PHI Learning Private Limited.Sadler, P., 1993. • Strategic Management. Kogan Page Ltd.Sekhar, G., 2010. • Business Policy and Strategic Management. I.K.International Publishing House Pvt. Ltd.Stahl, M. and Grigsby, D., 1997. • Strategic management: total quality and global competition. Wiley.Subha, P., 2010. • Strategic Management. Global Media.Tata, P., 2008. • Strategic Management, 10th ed., Tata McGraw-Hill Education.Wheelen, T. and Hunger, J., 2010. • Strategic Management and Business Policy, 12th ed., Dorling Kindersley (India) Pvt. Ltd.Williamson, D. and Cooke, P. and Jenkins, W., 2003. • Strategic Management and Business Analysis. Butterworth-Heinemann.

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Self Assessment Answers

Chapter Ia1. d2. b3. c4. c5. c6. a7. b8. a9. c10.

Chapter IIa1. d2. c3. b4. b5. a6. b7. d8. b9. c10.

Chapter IIIc1. b2. d3. b4. b5. a6. a7. c8. c9. a10.

Chapter IVc1. a2. a3. b4. d5. b6. a7. d8. d9. c10.

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Chapter Vb1. a2. b3. c4. c5. a6. d7. c8. a9. b10.

Chapter VIc1. a2. b3. d4. a5. c6. c7. d8. a9. a10.

Chapter VIIb1. a2. c3. b4. b5. c6. d7. a8. d9. b10.

Chapter VIIId1. a2. a3. b4. c5. c6. a7. a8. b9. d10.