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Strategic Management: It’s
Characteristics, Formulation, Types
and Other Details
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Strategic Management: It’s

Characteristics, Formulation, Types and
Other Details!

Strategic management has now become

invincible. It involves creating organizations
which generate value even in turbulent
environment over a sustained period of time.

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To manage for the present and continue to

change so that the firm continues to prosper, in
a global, uncertain world, strategic management
undertakes three steps of formulation,
implementation and control of strategies. In this
chapter we are concerned with the first aspect,
i.e., Strategy Formulation.

Concept of Strategy:
Before pondering over the process of strategy
formulation, we must first understand as to
what the term strategy implies. The term
strategy has been borrowed from military.
Today the competition, a business faces, is
similar to a war and every business wants to be
one step up over its nearest rivals.

Strategy is a common theme of strategic

decisions through which an organisation tries to
relate itself with the environment which
involves major resources commitment to
develop certain advantages which help in
achieving its vision and mission.

Characteristics of Strategy:
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1. Strategy is a systematic phenomenon:

Strategy involves a series of action plans, no way

contradictory to each other because a common
theme runs across them. It is not merely a good
idea; it is making that idea happen too. Strategy
is a unified, comprehensive and integrated plan
of action.

2. By its nature, it is multidisciplinary:

Strategy involves marketing, finance, human

resource and operations to formulate and
implement strategy. Strategy takes a holistic
view. It is multidisciplinary as a new strategy
influences all the functional areas, i.e.,
marketing, financial, human resource, and
operations.

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3. By its influence, it is
multidimensional:

Strategy not only tells about vision and

objectives, but also the way to achieve them. So,
it implies that the organisation should possess
the resources and competencies appropriate for
implementation of strategy as well as strong
performance culture, with clear accountability
and incentives linked to performance.

4. By its structure, it is hierarchical:

On the top come corporate strategies, then come

business unit strategies, and finally functional
strategies. Corporate strategies are decided by
the top management, Business Unit level
strategies by the top people of individual
strategic business units, and the functional
strategies are decided by the functional heads.

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5. By relationship, it is dynamic:

Strategy is to create a fit between the

environment and the organisation’s actions. As
environment itself is subject to fast change, the
strategy too has to be dynamic to move in
accordance to the environment.

Success of Microsoft appears to be very simple

as far as software for personal computers are
concerned, but Microsoft strategy required
continuous decisions in a turbulent and
dynamic environment to remain leader.

6. The purpose of strategy is to create

competence (things firm does better than
competitors), synergy (between different
parts of the organisation and their
activities) and value creation so as to
attain vision and mission.

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An organisation can reach its destiny (vision)

only if it can create value for the firm and its
stakeholders (mission). Value creation involves
economic value addition (profits for the
company), customer value addition (Value
customers perceive in relation to competitors),
people value addition (Value gained from
enabling employees to be most productive
resource.) so as to fulfil the needs of all
concerned.

7. Strategy requires searching for new

sources of advantage:

To achieve sustainable long term competitive

advantage the firm must invent new rules and
new games to become unique and create wealth.
Simply copying the leader means value is
destroyed for all the firms. Thus to look
different, strategy differentiation is a must.

9. Strategy is almost always the result of

some type of collective decision-making
process:

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The vision, mission, objectives, and corporate

strategies are determined by top management.
Business Unit strategies are decided by heads of
business units and functional plans by
functional heads. But the top management
consent is a must. It is the senior management
which resolves paradoxes between the
conflicting objectives, existing functions and
future activities, and the resources allocation.

Strategy and Tactics:

Often we find the two terms – strategy and
tactics – being used simultaneously. However,
the two terms are different as given in the Table
8.1.

Table 8.1: Distinction between Strategy

and Tactics:

Basis Strategy

Who A
formulates? prerogative
of top
management

What is the Deals with

scope? many things

Time Longer
horizon period

Timing of Prelude to
action action

Type of General
guidance guidance to
whole
organisation

From the above- table it should not be

concluded that they are exclusive from each
other. In fact the two are mutually reinforcing.
It is the strategy which provides the reason to
initiate tactics. If the vision is to be industry
leader, increases sales is part of this strategy,
but to sell in bulk to achieve the vision, the
discount given to a bulk buyer is tactic.

Concept of Strategy
Formulation:
Strategy formulation refers to the process of
choosing the most appropriate course of action
for the realization of organizational goals and
objectives and thereby achieving the
organizational vision.

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The process of strategy formulation basically

involves of the following five steps. Though
these steps do not follow a rigid chronological
order, however they are very rational and can be
easily followed in this order.

a. Strategic Intent:

It provides Vision – what the organisation

wants to become, Mission – what business the
firm is in, Values – a common set of beliefs
guiding the behaviour of organisational
members, and Objectives — Qualitative goals.

b. Situational Analysis:

The three kinds of environments need to be

scanned – External,(to know of Opportunities
and Threats), Internal (to know of strengths and
weaknesses), and Industry (to determine
competitive scenario)

c. Setting Long-term Quantitative

Objectives or Goals:

The results expected from pursuing certain

strategies. The objectives should be
quantitative, understandable, challenging,
hierarchical, obtainable, and in harmony among
organisational units. The time horizon of
objectives and strategies should be consistent.

d. Formulation of strategic Alternatives:

In its journey towards its destination the

strategy formulation has to find and evaluate
different strategic alternatives.

e. Selection of Strategy:

To create a fit between the environment and the

strategic intent of the organisation, a suitable
strategy has to be selected for implementation.

What Business Are We In?

If someone asks any businessperson to define
his business, almost everyone sill give a
manufacturing definition. Ask anyone who is
manufacturing readymade garments, about his
business and his answer will be readymade
garments manufacturing. Ask a railway
company the reply will be in railway business.
Normally, the way people define their business
has been termed by a marketing scholar as
marketing myopia.

Businesspersons must always view their

business from customer’s view, not production.
Always define your business on the basis of core
need being fulfilled. A core need always remains
in vogue and shall remain in vogue.

The way to satisfy that need may change, and

business will opt the new methods. Indian
cinema industry always thought they were in
cinema business until 1980 when VCR created a
revolution and the industry lost huge business.
It then realized that they were in entertainment
business. Always update yourself about
customers’ needs and technology.

What businesses following are in? Idea is not a

telephone company, it is in the business of
connectivity; Tata Tea is not in fruit juice, tea, or
water business, it is in hydration business;
Colgate is not in tooth paste business, but in
oral healthcare business; and a cinema hall is in
the business of entertainment.

Types of Strategies:
In the last chapter we have already mentioned
about corporate, strategic Business Unit
strategies, and functional Strategies. Now we
will see them into more specifics.

1. Corporate Strategies or Grand

Strategies:

There can be four types of strategies a corporate

management pay pursue: Growth, Stability,
Retrenchment, and Combination.

Growth strategy can be put to use by way of:

Concentration:

It means bringing in resources into one or more

of a firm’s business keeping customer needs,
customer functions, alternative technologies,
singly or jointly so as to expand.

Integration:

Integration means joining activities related to

the present activities of a firm. Integration not
only widens the scope of business but also a
subset of diversification strategies. Integration
can be of following types:

Horizontal Integration:

It means when a firm takes over the other firm

operating at the same level of production or
marketing. Recently ICICI Bank decided to
acquire Bank of Rajasthan and Reckit Benkier of
UK took over Paras of India.

Vertical Integration:

When a firm acquires control over another firm

operating into the same value chain. It can be of
two types, viz., Backward Integration –
acquiring a firm engaged in raw materials (Tata
steel buying a coal mine company in Indonesia);
and Forward Integration — acquiring control
over a firm/activity taking it nearer to the
ultimate consumer (Reliance Industries, a petro
refining company, also starting petrol pumps).

Diversification:

Adding a new customer function(s), customer

group(s), or alternative technologies to an
existing business is known as diversification.
Diversification strategies can be of following
types:

Concentric diversification:

Adding new, but related products or services is

known as concentric diversification. It can be
market-related concentric diversification (using
common channels); Technology-related (a bank
also selling mutual fund policies-similar
procedure); and Marketing and technology
related concentric diversification (Amul, selling
butter, curd, Shrikhand, and buttermilk along
with milk). A retailer selling kids wear also
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If a firm takes up business not related to the
existing one neither in terms of customer
groups, customer functions, nor alternative
technologies, it is known as conglomerate
diversification – Tata Sons is a conglomerate, as
5 Main Processes
it is unrelated businesses, of
steel, power,
Communication (With
chemicals, hospitality, education, publishing,
Diagram)
beverages, etc.

Horizontal Diversification:

It means adding new products or services for

present customers. Escort Fortis Hospital may
offer bank, bookstore, coffee shop, restaurant,
drug store in their compound for the visitors to
the hospital.

Internationalization:

It means marketing product/service beyond

national market.

Cooperation:

It means cooperation among competitors. It

may take the form of Mergers and Acquisitions
(like Tata Motors acquired Jaguar Land Rover
facilities of UK); Joint Ventures (like Indian Oil
company floated an oil marketing company in
Sri Lanka in collaboration with a local
company), and Strategic Alliances (the two
cooperating firms remain independent but
cooperate for synergy).

Digitalization:

It includes computerization, electronisation,

and digitalization (conversion of analogue
electrical signals into digital signals).

Stability Strategies:

When the firm wants to go for incremental

improvement of its performance, it is known as
stability strategy. Basic approach in the stability
strategy is ‘maintain present course: steady as it
goes.’ It can be No-change strategy (taking no
decision is a decision too); Profit strategy (lying
low and managing profit through cost cutting,
price rise, etc.

In times of crisis and recession- as the JK

Papers did during recent recession); Pause or
proceed-with-caution strategy (when getting
into non-core business, like Hindustan Unilever
selling shoes).

Retrenchment Strategies:

It means substantially reducing the scope of

business activities. It includes turnaround
strategy (to bring back to health through
internal and external restructuring); Divestment
strategy (Sell-off or hive-off – to sell off a non-
core business divisions; Spin-off -demerging the
business activities; and Split-off – division of
business into two separate ownership;
Disinvestment – dilution of control through sale
of equity -very recently Government of India has
sold stake through FPO in Power Finance
Corporation); and Liquidation Strategy (the last
resort in retrenchment, Lehman Brothers of
USA was finally liquidated ).

Combination Strategy:

All the strategies discussed above can be applied

simultaneously, sequentially, or in a
combination.

2. Business Level Strategies:

Business-level strategies are fundamentally

concerned with the competition. In this regard
Michael Porter has given three generic
strategies, which can be converted into four.

To compete successfully the first generic

strategy is Cost- leadership (Microsoft produces
software for PCs at such a cost that no hardware
manufacturer ever thinks of producing himself);
second is Differentiation (Dell computers are
sold online, whereas all other manufacturers use
physical distribution); and finally it is Focus.
Focus may rely on either cost leadership or
differentiation, but its market size is very small,
where large competitors do ignore them.

3. Functional Strategies:

These strategies may be Operations Strategy,

Marketing Strategy, Finance Strategy, and
Human Resource Strategy.

The SWOT Analysis:

No discussion on strategy formulation will be
complete without a discussion of SWOT
Analysis. It involves a systematic analysis of the
internal strengths and weaknesses (financial,
managerial, marketing, or technological) and of
external opportunities and threats (like change
in demand, law, or technologies.

It is an internal evaluation to be in fit with

external world. Strengths refer to competencies,
weaknesses refer to constraints, opportunities
refer to favourable condition in the business
environment of the firm, and threat means an
unfavourable condition in the firm’s
environment creating a risk.

Opportunities Threats

Gradual Terrorism
Political & Regional
Economic stability
Reforms Corruption
Political Inflation
Stability
Non-convertibility
of currency
Barriers to
repatriation of
profits

Strengths Weaknesses

Excess High prices of

production imports
capability (can
Deficiency of
be used for bilingual
exports) employees

New sources of Poor knowledge of

inexpensive raw local culture,
materials & parts consumer
behaviour, and
educational
system

SWOT analysis will be useful as under:

(a) To eliminate weaknesses those expose the

firm to external threats.

(b) To highlight the strengths, which the

company would try to exploit.

(c) To convert threat or weaknesses into an

advantage.

(d) To expose present shortcomings in the

company’s resources and skills.

(e) To match the strength to opportunity to

exploit it.

Barriers to Strategy
Formulation:
1. Lack of Information:

Lack of sufficient information for strategy

formulation is the most common. The quality of
financial analysis is generally very poor. Where
future is unknown such an analysis is
impossible. And in such situations strategic
decisions rely mainly on judgment and
intuition.

2. Too Much Data:

Sometimes strategy formulation may suffer due

to too much data but not enough information.
In this age of information explosion, too much
of data is a big problem.

3. Confusion and Dilution:

It is true that we treat the CEO as the person

responsible for formulating strategy. In actual
practice, there are many managers who
participate in policy formulation.

These managers have their own values. Many

managers come and many managers go away
from the task of formulation. Thus there is
confusion as to who made the decision and at all
if any decision has been made. Sometimes the
chosen decision may be a compromising
decision, lacking clarity or direction.

4. Old Mindset. Business runs in a

cyclical mode:

There are periods of stability interrupted by

periods of radical and revolutionary change. As
times move, senior managers may be out of
touch with the environment either because of
becoming lazy or due to overconfidence.

5. Prior Bad Experience and Fire-

Fighting:

If the managers had a previous bad experience

with strategy, as the plans have been long,
cumbersome, impractical, or inflexible or if
presently it is so engrossed with the crisis
management and fire-fighting that it has no
time for strategy formulation any more.

6. Content with Current Success:

The firms currently doing nice currently feel no

need of any more strategy formulation. To them