Strategic Management

EVOLUTION OF STRATEGIC MANAGEMENT

 The word strategy is derived from the Greek word ‘strategos’,

which means ‘military commander’.
 Wars have to be waged deploying critical resources and putting a
desirable future at stake.
 The histories of strategy-making and warfare have had a long
allied relationship based on these roots.
 Contemporary defense systems have contributed immensely to
management and more specifically to operations research,
strategy, and technology.
 What is Strategy
 Strategy can be defined as the 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.

 Decisions to expand the volume of activities, to set up distant

plants and offices, to move into new economic functions, or to
become diversified along many lines of business involve the defining
of new basic goals.

 New courses of action must be devised and resources

allocated and reallocated in order to achieve these goals and to
maintain and expand the firm’s activities in the new areas in
response to shifting demands, changing sources of supply,
fluctuating economic conditions, new technological developments,
and the actions of competitors.
What is Strategic Management
Ansoff :
“A systematic approach to a major and increasingly important responsibility of
general management to position and relate the firm to its environment in a way that
will assure its continued success and make it secure from surprises.”

Glueck :
“A stream of decisions and actions which leads to the development of an
effective strategy or strategies to help achieve corporate objectives”.

“A process consisting of the determination of direction, strategic actions to

achieve objectives, the implementation of desired strategy, and monitoring of
that strategy.”

“The three stages of strategic management are strategy formulation, strategy

implementation, and strategy evaluation”
Characteristics of Strategy
 Long time horizon

 Irreversible

 Involves substantial capital costs, either explicitly or

implicitly
 The Three Levels of Strategy

1.Corporate Level Strategy: deals with aligning the resource deployments across a diverse set of
business areas, related or unrelated. Strategy formulation at this level involves integrating and
managing the diverse businesses and realizing synergy at the corporate level.
For example, your firm may have four distinct lines of business operations, namely, automobiles,
steel, tea, and telecom. The corporate level strategy will outline whether the organization should
compete in or withdraw from each of these lines of businesses, and in which business unit,
investments should be increased, in line with the vision of your firm.

 Defines the business areas in which your firm will operate.

 Involves integrating and managing the diverse businesses and realizing synergy at the
corporate level.
 Top management team is responsible.
2. Business Level Strategy: are formulated for specific strategic business units and relate to a distinct
product-market area. It involves defining the competitive position of a strategic business unit. The business
level strategy formulation is based upon the generic strategies of overall cost leadership, differentiation,
and focus.

For example, your firm may choose overall cost leadership as a strategy to be pursued in its steel business,
differentiation in its tea business, and focus in its automobile business. The business level strategies are
decided upon by the heads of strategic business units and their teams in light of the specific nature of the
industry in which they operate.

 Involves defining the competitive position of a strategic business unit.

 Decided upon by the heads of strategic business units and their teams.
3. Functional Level Strategy: Functional level strategies relate to the different functional areas which a
strategic business unit has, such as marketing, production and operations, finance, and human resources.
These strategies are formulated by the functional heads along with their teams and are aligned with the
business level strategies. The strategies at the functional level involve setting up short-term functional
objectives, the attainment of which will lead to the realization of the business level strategy.

For example, the marketing strategy for a tea business which is following the differentiation strategy may
translate into launching and selling a wide variety of tea variants through company-owned retail outlets.
This may result in the distribution objective of opening 25 retail outlets in a city; and producing 15 varieties
of tea may be the objective for the production department. The realization of the functional strategies in
the form of quantifiable and measurable objectives will result in the achievement of business level
strategies as well.

 Formulated by the functional heads along with their teams.

 Involve setting up short-term functional objectives.
 Schools of Thought
Year Author Key concept
1954 Peter Drucker Management By
Objectives(MBO)
1957 Philip Selznick Internal and external
environment analysis
Strategy and Structure
1962 Alfred D. Chandler

1965 Igor Ansoff Gap analysis tool

1970 Harry Markowitz Portfolio theory
1985 Michael Porter Competitive advantage

Gary Hamel and C. K.

1990 Prahalad Strategic intent
Contd..
 Japanese 7S Framework: strategy, structure, systems,
skills, staff, style, and superordinate goals (commonly
referred to as shared values)
 Industrial organization approach based on economic
theory — deals with issues like competitive rivalry,
resource allocation, economies of scale
 The sociological approach deals primarily with
assumptions about human interactions, such as bounded
rationality, satisfying behavior, and profit sub optimality.
EX: Google
 Bottom of the pyramid theory(Prahalad): An
enterprise must look at a large volume-driven, low
value, mass production base as the engine of growth.
THE STRATEGIC MANAGEMENT
PROCESS
 Developing A Vision Statement
‘‘when, where, what do we want to become?’

Firms goals in ally with community goals

Clear values
Precise and practical, and contain no ambiguity
Expressing company’s commitment to a deliberate strategic
management process
Made public and must be well communicated to all stakeholders
Vision statements of some leading Indian
companies
DEVELOPING A MISSION STATEMENT

This is a statement that outlines what a company will

become, why it exists, and how its vision can be achieved

 It differentiates the purpose of a company from a similar

organization or a competitor. Ex. Distinctive core
competencies
 It relates the vision to the immediate focus of the firm
 It details functional, market, and product initiatives that
need to be addressed by it
Mission statements of some
leading Indian companies
DEVELOPING CORE VALUES
 These are the principles which an organization would
follow in defining its relationship with internal and
external stakeholders to achieve their vision and
mission
 The purpose of developing core values is to underscore
business ethics and mutual obligations among stake
holders
 It also help in developing strength and resilience in
times of crisis