Jeyarathmm, M. Strategic Management

The Strategic
Management Process
Conceptual Framework for Strategic Management

In earlier times, the managers focused on "today's decisions for today's business".
However the rapid changes experienced by companies have made the managers to anticipate
the future and prepare for it. They have prepared systems, procedures and manuals and
evolved budgets and planning and control systems, which included capital budgeting and
management by objectives. The inadequacy of these techniqu"es has led to the emergence
of long range planning which in turn gives rise to strategic planning and subsequently to
strategic management.
Strategic management deals with decision making and actions which determine an
enterprise's ability to excel, survive or die by making the best use of a firms' resources in
a dynamic environment .The main purpose of study of strategic management is to examine
why some organizations succeed while others fail and yet others completely change.
Copyright © 2007. Global Media. All rights reserved.
Consider the following examples.

• Bharat Heavy Electricals Ltd. (BHEL) is now planning to expand its range to
800 MW supercritical power projects.
• LG Electronics India Ltd. (LGEIL) signed a MOU with Maharashtra government to
expand manufacturing facility at Pune for Rs. 900 crores.
• GAIL India has received an offer from China Gas Holdings for participation in a gas
based petrochemical project to be set at Humor in Mongolia.
• The world's largest steel conglomerate Mittal Steel Company is to become the
second largest stakeholder in a Chinese Steel firm in Hunan Province.
• Mittal signed three MOUs with Jharkhand Government for setting up 12 million
tonne Greenfield project in two phases.
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2 Strategic Management
• "Mau..lti Udyog slashed the price of Maruti-800 by Rs It;OOf) in small car segment
drastically" .
• "Lenova, the Chinese computer giant acquired IBM in China".
• "Tata Steel entered a joint venture agreement with Iranian Mines and Mining
Industries Development and RerlOvatlon Organization".
These examples illustrate how organizations react to environment and adopt suitable
course of action such as divestment, expansion and stability as part of their operations. The
decisions regarding upgradation of product mix, joint ventures and expansion have a long
term impact on the activities and such crucial decisions are taken by senior management.
The top management is mainly responsible for providing a sense of direction and guiding
future course of action for any firm. Strategic management deals with long-term decisions
taken by top management which gives overall direction to the organization. Strategic
Management provides a cooperative, integrated and enthusiastic approach for tackling
problems and realising opportunities.
An enterprise's success mainly depends on three broad factors
• The industry, it belongs to.
• The nation, it is located and
• Its own resources, capabilities and stra~egies.
Company resources
Industry context National context capabilities and
strategies
I I
r
, "
Company
Performance
Fig 1.1: Determinants of Company Performance
Industry: Some industries are profitable than others due to industry attractiveness.
A company in attractive industry will achieve success compared to a firm in a less attractive
industry. During the last decade software industry is more profitable than pharmaceutical
industry.
Nation: The country also influences the competitiveness of companies based within the
nation. Some countries enjoy competitive advantage with regard to certain industries. For
example, the world's most successful automobile and consumer electronics companies are

The Strategic Management Process
located in Japan. The most successful pharmaceutical companies are located in U.S. and
Switzerland. Many of the successful financial services companies are located in the United
States and Great Britain. The success or failure of individual firms depends on national
competitive advantage.
Company: Firms' resources, capabilities and strategies are, by far, the strongest reasons for
the success or failure of the firm. Some firms thrive even in less attractive industry whereas
some firms perform poorly inspite of being in profitable industry. Often one comes across
wide variation in the performance of companies within the same industry and enjoying same
national competitive advantage. There is a grave need to understand the causes of success
and failure in order to develop strategies, which will increase the probability of success and
reduce the probability of failure.
Top executives, who formulate strategy draw information from several publications in
order to keep abreast of current developments in their industry and business. Some of the
online sources of business strategy news are as follows:
1. Business line - www.indiaserver.com/bline/.
2. Financial Express - www.financialexpress.com.
3. The Economic Times - www.economictimes.com/
4. Times Syndication - www.timesofindia.com/htmls/tsslhtm.
5. Fortune - www.fortune.com.
6. Forbes - www.forbes.com.
7. Wall street - www.wsj.com.
Strategic management tends to develop a generalist approach to managerial problems
and it enables one to view organizational issues in its totality. Hence business is viewed as
a system consisting of number of subsystems and the narrow outlook of a specialist is not
recommended for solving business problems. For instance, employee turnover apparently
looks like a personnel problem. If one probes d~eply into the problem, its genesis may be
deeper. Employee turnover may be attributabie'to unsuitable recruitment policy, poor
training, MNC's attractive package, declining demand for the products of the company, poor
morale, lack of job satisfaction, uncertainty ofthe tenure,'underutilization of capability and
so on. Apparently it looks like a personnel problem but truly speaking, it is due to various
factors beyond the purview of the Personnel Department. Hence a generalists' outlook,
rather than that of specialists, is desirable to deal with organizational problems in its totality.
AnalytiCal techniques and skills are needed for developing and exploiting strategies
successfully. Understanding strategy is the first step in strategic management process.

Definitions
• Strategy is "a unified comprehensive and integrated plan designed to ensure that the
basic objectives of the enterprise are achieved"-Glueck.
• Strategy is "a determination of the basic long term goals and objectives of an
enterprise, and the adoption of courses of action and the allocation of resources
necessary for carrying out these goals"-Alfred Chandler
• Strategic management is "a stream of decisions and actions, which leads to the
development of an effective strategy or strategies to help achieve corporate
objectives".- Glueck
Basically these definitions assume that strategy is an outcome of rational planning.
Strategy Formation Process
Intended strategy
I Mission and Goals

I ~ I
External Environment . Strategic Choice Internal Environment
Analysis Analysis
INTENDED +STRATEGY
Organizing for
Implementation
Emergent strategy
External Environment Mission and Goals Internal Environment

Analysis Analysis
I T I
I
Strategic Choice
Does it fit?
EMERGENT STRATEGY r
Organizational
grass roots
Fig 1.2: Strategic Management Process for Intended Strategy and Emergent Strategy

The Strategic Management Process 5
Henry Mintzberg holds a different view about strategic management process. According
to him, strategies can emerge from within an organization without any formal plan. Strategies
may emerge from the grassroots of the organization in response to unforeseen circumstances.
Strategy is more than what a company ptans to do; it is what the company does actually.
Mintzberg has defined strategy as II a pattern in a stream of decisions or actions" the
pattern being a product of whatever intended strategies (planned) are actually realized and
of any emergent (unplanned) strategies. Hence strategies may be, intended (planned) as well
as emergent (unintended). In Mintzberg's opinion emergent strat~gies are more successful
than other types. In practice, the strategies of several organizations are probably a combination
of the 'intended' and the 'emergent' types.
A Model of Strategic Management Process

Strategic management process involves strategic planning, strategy implementation and
strategic control. Strategic planning involves thorough study of internal and external
environmental factors relevant for the organization. It results in mission, purpose, objectives,
policies and programmes.
Hence the five steps in strategic management process are as follows.
• The choice of corporate mission and corporate goals
• Analysis of external competitive environment to understand opportunities and
threats
• Analysis of the organization's internal operating environment to understand the
firms' strengths and weaknessess.
• Selection of strategy to build on the organizations' strengths and correct weaknesses
so as to take advantage of external opportunities and counter external threats.
• Strategy implementation and control

The steps involved in strategic management process are almost similar for intended
strategies and emergent strategies but the formulation of intended strategies is basically a
top-down process and that of the emergent strategies is a bottom-up process.

.--_ _ _ _ _ _ _ _ _ _ _ _ _.110.
... Mission and Goals
I
Internal Analysis ..~trategic Choice External Analysis

Strengths, Weaknesses SWOT Opportunities, Threats
Functional Level Strategy

Business Level Strategy
Corporate Level Strategy
Global Strategy
STRATEGY IMPLEMENTATION
Designing Organizational Conflict, Politics Designing Control

Structure ~ & Change +- Systems
L I Matching Strategy s~cture conL..tr-o-I--....;...-I---~

and
Feed back -----~I

Fig 1.3: Strategic Management Process
Mission and Goals

Defining the mission and main goals of the organization is the first step in strategic
management process. The mission tells clearly why the organization exists and what it
would be doing. Organizations set goals, which they hope to achieve in the medium to long-
term basis. Normally organizations work with a hierarchy of goals such as sizeable market
share, maximizing shareholders' wealth, profit and so on.
Policies: Policies act as guide in decision-making. Policies define an area within which a
decision is to be made and ensure that the decision will be consistent with and contribute
to objectives. Managers who are responsible for implementation of policy use discretion
while deciding various courses of action. Policies exist at all levels ofthe organization and
range from major company policies to departmental policies.
Steiner proposes a pyramid of business policy as given below.

Major Policy
Line of Business
(code of ethics)
Secondary Policy
Selection of geographical area
Major customers, major products
Functional Policies
Marketing Production, Research, Finance,
Procurement, etc.
Procedure and Standard Operating Plan

Handling incoming orders, servicing customers
complaints, shipping to foreign countries
Rules
Delivery of pay cheques, loitering around the plant, security guard
duty, use of company car, smoking etc.
Fig. 1.4: Pyramid of Business Policy
Procedure
Infosys has 36,000 employees on its pay roll. Infosys manages the challenges of
inducting and orienting a large number of employees through an online resource called
PRIDE (Process Repository at Infosys for Driving Excellence). After induction and orientation
all the employees work in the same way.
External Analysis
The next step in strategic management process is external environmental analysis,
which aims to understand the opportunities and threats in the environment. In this stage,
examination of three environments normally takes place, the industry environment in which
the organization operates, the national environment and the macro environmental forces
such as social, economical, government and legal, international and technological factors,
which affect the organization. The competitive structure of the industry, competing firms and
the competitive positions are analyz·ed during this phase.

Internal Analysis
Identifying strengths and weaknesses of the organization involves identification of
quantity and quality of resources and distinctive competencies that help in building competitive
advantage to achieve superior efficiency, quality, innovation and customer loyalty.
Strategic Choice
Strategic cho'ice involves generating a series of alternatives in the light of internal
strengths and weaknesses and external opportunities and threats, which is known as SWOT
analysis. The purpose of strategic choice is to build organizations' strengths to exploit
opportunities and set right weaknesses and to minimize threat. Finally, strategies are evolved
at functional level, business level, corporate level and global level.
• Functional strategies are directed to improve the effectiveness of functional operations
of the firm such as manufacturing, finance, R&D, marketing and human resources.
• Business level strategies lay emphasis on the way the firm positions itself in the
market place to gain competitive advantage. The three generic business level
strategies are 1). Cost leadership, 2) Differentiation and 3) Focus strategy.
• Corporate level strategies enable organizations to maximize the long run profitability
of the organization. Vertical integration (backward and forward integration),
diversification, strategic alliances, acquisitions and joint ventures are examples of
corporate level strategies.
Global level strategies are pursued by organisations while they expand their operations
in international business so as to increase their profitability. International strategy, multidomestic
strategy, global strategies and transnational strategy are some of the choices before strategists.
Strategy Implementation
Strategy implementation consists of four steps namely

• Designing appropriate organizational structure
• Designing control systems
• Matching strategy, structure and controls and
• Managing conflicts, politics and change
Structure
Structure involves allocation of duties, responsibilities and decision-making authority
and integration among the ranks and files of organization. It is widely believed that structure
follows strategy. Some of the options available in this regard are tall structure, flat structure,

centralized decision making authority, decentralized decision making authority, autonomous

units and semi autonomous units and different mechanisms for integration of subunits.
Control,"
The purpose of strategic control is to determine whether the given strategy is effective
in achieving organizational objective and moving on the right track. The organizational
control may be classified as market control, output control, and bureaucratic control.
Control system requires development of perceptible organizational culture. Besides, the type
of reward and incentive systems also needs to be decided and established towards this end.
Matching Strategy, Structure and Control

In successful organizations a fit among strategy, structure and controls is observed.
Different strategies and environments call for different structures and control systems. Cost
leadership strategy warrants a simple organization, which lays emphasis on efficiency
whereas differentiation strategy revolves around R&D and technical creativity. A fit among
strategy, structure and control is essential to ensure success of organizations.
Matching Conflicts, Politics and Change

Conflict is common in organizations. The reasons for conflicts are resource sharing and
different agendas of different subgroups within organizations. Power struggles anci coalition
building are consequences of such conflicts. The organizational politics plays a key role in
strategy implementation. The power and conflict will cause organizational inertia and
prevent organizational change. Power, politics, conflict, and inertia should be analyzed and
managed effectively so that mission could be fulfilled and change could be introduced
smoothly.
Feedback
Strategic management is an ongoing process. Periodic feedback reveals whether objectives
are attainable or implementation is poor or not. The feedback is fed into next round of
strategic formulation and implementation. It may reaffirm objectives or suggest changes in
goals and objectives.
Approaches to Strategic Decision Making Process

There are three approaches to strategic decision-making process. They are as follows.
• Rational - analytical
• Intuitive - emotional
• Behavioral - political
Rational Analytical Model assumes that decision· maker is always intelligent and
rational. He is fully aware of all the alternatives and their consequences upon implementation
to maximize advantages. In real life, the decision makers face information overload and are
not aware of all the consequences.
Intuitive- Emotional Model assumes that the decision maker prefers 'gut feeling',
reflective thinking and instinct using unconscious mental processes. Managers who endorse
this approach, point out that intuitive judgment may lead to better decisions than optimizing
techniques.
Political - Behavioral decision-making Model assumes that real decision makers consider
a variety of pressures from people who are affected by their decisions. Every organization
interacts with a variety of stakeholders. For instance trade unions demand job security and
decent wages for workmen. Customers demand quality products for the value they pay as
price. Owners expect reasonable returns for their investment. Suppliers exchange inputs for
money and expect continued business. The government extends protection and economic
security in lieu of the tax it collects. The pressure exerted by powerful stakeholders makes
the strategists juggle and go for political compromise. They balance competing demands and
a compromise of interests emerges consequently.
Strategists adopt a synthesis of all the three approaches. So strategic decisions are made
in a typically human way using the rational conscious analysis, intuitive and 'unconscious
gut feeling' in the light of varied political realities.
Pitfalls: Strategic decision-making process is not without pitfalls and it suffers from the
following limitations. The reasons for poor decision-making are cognitive bias and groupthink.
Most strategic decision-making is done by groups. Groupthink occurs when a group of
decision makers decide on a course of action, which is purely based on emotional rather
than objective criteria, and the group is pressurized for uniformity and consensus. Consequently,
controversial issues and weak arguments are never touched upon.
Techniques for improving strategic decision-making: To enhance the effectiveness of strategic

decision-making, techniques like devils' advocacy and dialectic inquiry are recommended.
In devils' advocacy, a plan is evolved and is critically analyzed. One member highlights
the reason why the plan is unacceptable and acts like the devil's advocate. The main
advantage of this method is to highlight all possible dangers involved in the course of action.
In dialectic inquiry, a plan and a counter plan are evolved in order to reflect plausible
and conflicting courses of action. The debate between advocates of plan and counter plan
reveals problem areas with definitions, suggested courses of actions and assumptions. Based
on the identification of problem areas, final plan is evolved which is comprehensive.

The Strategic Management Process II
Impact of e-commerce
A survey undertaken by Booz-Allen & Hamilton and Economist Intelligence unit of 525
top executives revealed that Internet is reshaping the global market place. According to 90%
of executives, internet would transform and would have major impact on their corporate
strategy wi~hin two years.
Learning Organization
In the wake of liberalization, organizations are forced to cope up with intense competitive
forces arising from dynamic, and complex environment and hyper competition. So competitive
advantage could not be built on permanent basis but short-term strategic thrusts are aimed
at. Hence strategic management process requires a learning organization in order to adopt
to change quickly. An important characteristic of learning organization is its strategic
flexibility. A learning organization is skilled in creating, acquiring and transferring knowledge
and modifying its behavior to reflect new knowledge and insights. According to Senge, the
main activities undertaken by a learning organization are:
• Systematic problem solving

• Experimentation with new approaches
• Learning from new experiences and from others and
• Transferring knowledge quickly and efficiently throughout the organization
Employees at all levels are involved in strategic management process in a learning
organization. They do environmental scanning for vital information; understand shifts in
environment in order to improve work methods, procedures and evaluation techniques. For
example at Xerox, all employees are trained in small group activities and problem solving
skills, which enabled the company to come out with improved products.
QUESTIONS
Part· A
1) Define the term strategic management.
2) What are the elements in strategic management process?
3) Explain the objectives of strategic management.
4) Define the term 'strategy'.
5) What are the three broad factors, which influence the success of a company?
6) What is an emergent strategy?

PART - B
1) Discuss the steps involved in strategic' management process.
2) What are the pitfalls in strategic management process?
3) Explain the concept of 'learning organization' and its salient features.
4) Write a note on the techniques used for enhancing strategic management process.
* * *


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The Strategic

Conceptual Framework for Strategic Management

Consider the following examples.

Fig 1.1: Determinants of Company Performance

Jeyarathmm, M. (2007). Strategic management. ProQuest Ebook Central <a onclick=window.open('http://ebookcentral.proquest.com','_blank')

Jeyarathmm, M. (2007). Strategic management. ProQuest Ebook Central <a onclick=window.open('http://ebookcentral.proquest.com','_blank')

Strategy Formation Process

I Mission and Goals

External Environment Mission and Goals Internal Environment

Jeyarathmm, M. (2007). Strategic management. ProQuest Ebook Central <a onclick=window.open('http://ebookcentral.proquest.com','_blank')

A Model of Strategic Management Process

• Strategy implementation and control

Jeyarathmm, M. (2007). Strategic management. ProQuest Ebook Central <a onclick=window.open('http://ebookcentral.proquest.com','_blank')

Internal Analysis ..~trategic Choice External Analysis

Functional Level Strategy

Designing Organizational Conflict, Politics Designing Control

L I Matching Strategy s~cture conL..tr-o-I--....;...-I---~

Feed back -----~I

Mission and Goals

Jeyarathmm, M. (2007). Strategic management. ProQuest Ebook Central <a onclick=window.open('http://ebookcentral.proquest.com','_blank')

Procedure and Standard Operating Plan

Fig. 1.4: Pyramid of Business Policy

Jeyarathmm, M. (2007). Strategic management. ProQuest Ebook Central <a onclick=window.open('http://ebookcentral.proquest.com','_blank')

Strategy implementation consists of four steps namely

Jeyarathmm, M. (2007). Strategic management. ProQuest Ebook Central <a onclick=window.open('http://ebookcentral.proquest.com','_blank')

centralized decision making authority, decentralized decision making authority, autonomous

Matching Strategy, Structure and Control

Matching Conflicts, Politics and Change

Approaches to Strategic Decision Making Process

Techniques for improving strategic decision-making: To enhance the effectiveness of strategic

Jeyarathmm, M. (2007). Strategic management. ProQuest Ebook Central <a onclick=window.open('http://ebookcentral.proquest.com','_blank')

• Systematic problem solving

Jeyarathmm, M. (2007). Strategic management. ProQuest Ebook Central <a onclick=window.open('http://ebookcentral.proquest.com','_blank')

Jeyarathmm, M. (2007). Strategic management. ProQuest Ebook Central <a onclick=window.open('http://ebookcentral.proquest.com','_blank')

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