Chapter – One

Introduction
1.1 Defining Strategic Management
The top management of an organization is concerned with selection of a course of action from among
different alternatives to meet the organizational objectives. The process by which objectives are formulated
and achieved is known as a strategic management and strategy acts as the means to achieve the objective.
Strategy is the grand design or an overall ‘plan’ which an organization chooses in order to move or react
towards the set of objectives by using its resource. It is the pathway along which the organizations move
towards its objectives.
Strategic management is the art and science of formulating, implementing and evaluating cross functional
decisions that will enable an organization to achieve its objectives. It is the process of specifying the
organization’s objectives, developing policies, and plan to achieve these objectives, and allocating
resources to implement the policies and plans to achieve the organization’s objectives. Strategic
management focuses on integrating management, marketing, finance/accounting, production/operations,
research and development, and computer information systems to achieve organizational success.
Managers at all companies face three basic critical questions in thinking strategically about their
company’s present circumstances and prospects: -
Where are we now? Must consider the company’s market position and the competitive pressures it
confronts, its resources strengths and capabilities, its competitive shortcomings, the appeal its products and
services have to customers, and its current performance.
Where do we want to go? Deals with the direction of in which management believes the company should
be headed in light of the company’s present situation and the winds of market change – new markets and
customer groups that the company should be adding, the improvements in competitive market position the
company is aiming for, and the geographic scope and product line makeup of the company’s business in
the years to come.
How will we get there? Deal with crafting and executing a strategy to get the company from where it is to
where it wants to go.
An organization is considered efficient and operationally effective if it is characterized by coordination
between objectives and strategies. “Without strategy, the organization is like a ship without a rudder.” It
is like a tramp, which has no particular destination to go to. Without an appropriate strategy effectively
formulated and implemented, the future is always dark and hence, more are the chances of business failure.
1.2. Stages of Strategic Management
The strategic management process consists of three stages:
Strategic formulation: includes developing a business vision and mission, identifying an organization’s
external opportunities and threats, determining internal strengths and weaknesses, establishing long-term
objectives, generating alternatives strategies, and choosing particular strategies to pursue. Strategic-
formulation issues include deciding what new business to enter, what business to abandon, how to allocate
resources, whether to expand operations or diversify, whether to enter international markets, whether to
merge or form a joint venture, and how to avoid a hostile takeover. Since no organization has unlimited
resources, strategists must decide which alternative strategies will benefit the firm most.
Strategy implementation: requires a firm to establish annual objectives, revise policies, motivate
employees, and allocate resources so that formulated strategies can be executed; strategy implementation
includes developing a strategy supportive culture, creating an effective organizational structure, redirecting
marketing efforts, preparing budgets, developing and utilizing information systems, and linking employee
compensation to organizational performance. Implementing means mobilizing employees and managers to
put formulated strategies into action. It is often considered to the most difficult stage in management, it
requires personal discipline, commitment, and sacrifice. The challenge of implementation is to stimulate
managers and employee’s through-out an organization to work with pride and enthusiasm toward achieving
stated objectives.
Strategy evaluation: is the final stage in strategic management. Managers greatly need to know when
particular strategies are not working well. All strategies are subject to future modification because external
and internal factors are constantly changing. Three fundamental strategy evaluation activities are (1)
reviewing external and internal factors that are the bases for current strategies, (2) measuring performance,
and (3) taking corrective actions.
1.3. Key terms in strategic Management
1. Competitive Advantage: Strategic management is all about gaining and maintaining competitive
advantage. This term can be defined as “anything that a firm does especially well compare to rival firms.”
When a firm can do something that rival firms cannot do, or owns something that rival firm’s desire, that
can represent a competitive advantage. Normally, a firm can sustain a competitive advantage for only a
certain period due to rival firms imitating and undermining that advantage. Thus, it is not adequate to
simply obtain competitive advantage. A firm must strive to achieve sustained competitive advantage by (1)
continually adapting to changes in external trends and events and internal capabilities, competencies, and
resources; and by (2) effectively formulating, implementing, and evaluating strategies that capitalize upon
those factors.
2. Strategists: are individuals who are most responsible for the success or failure of an organization.
Strategists have various job titles, such as Chief executive officer, president, executive director….

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strategists differ as much as organizations themselves, and this difference must be considered in the
formulation, implementation and evaluation of strategies. They differ in their attitudes, values, ethics
willingness to take risks, concern for social responsibility, concern for profitability, concern for short-term
versus long-run aims, and management style.
3. Mission statements: are “enduring statements of purpose that distinguish one business from other
similar firms. A mission statement identifies the scope a firm’s operations in product and market terms”.
“What is our business?” a clear mission statement describes the values and priorities of an organization.
4. External opportunities and threats: refers to economic, social, cultural, demographic, environmental,
political, legal, governmental, technological, and competitive trends and events that could significantly
benefit or harm an organization in the future. It is largely beyond the control of a single organization.
5. Internal strengths and weaknesses: are controllable activities within an organization that are
performed especially well or poorly. The process of identifying and evaluating organizational strengths and
weaknesses in the functional areas of a business is an essential strategic management activity.
Organizations strive to pursue strategies that capitalize on internal strengths and improve on internal
weaknesses.
6. Long-term (more than one year) objectives: Are specific results that an organization seeks to achieve
in pursuing its basic mission. Objectives are essential for organizational success because they provide
direction, aid in evaluation, create synergy, reveal priorities, allow coordination, and provide a basis for
effective planning, organizing, motivating, and controlling activities. It should be challenging, measurable,
consistent, reasonable, and clear.
7. Strategies: are the means by which long-term objectives will be achieved. Business strategies may
include geographical expansion, diversification, acquisition, product development, market penetration.
8. Annual objectives: are short-term milestones that organizations must achieve to reach long-term
objectives. It should be stated in terms of functional areas and is important in strategy implementation
while long-term objectives are particularly important in strategy formulation.
9. Policies: is the means by which annual objectives will be achieved. It includes guidelines, rules, and
procedures established to support efforts to achieve stated objectives. It is guide to decision making and
stated in terms of functional areas.
1.4. Overview of types of Strategy
Alternative strategies that an enterprise could pursue can be categorized into integration, intensive,
diversification, and defensive strategies.

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 Integration strategies: allow a firm to gain control over distributors, suppliers, and/or competitors.
Forward integration, backward integration, and horizontal integration are sometimes collectively referred to
as vertical integration strategies.
Intensive Strategies: Market penetration, market development, and product development are sometimes
referred to as intensive strategies because they require intensive efforts if a firm’s competitive position with
existing products is to improve.
Diversification Strategies: There are two general types of diversification strategies. These are: related and
unrelated. Businesses are said to be related when their value chains possess competitively valuable cross-
business strategic fits; businesses are said to be unrelated when their value chains are so dissimilar that no
competitively valuable cross-business relationships exist.
Defensive Strategies: In addition to integrative, intensive, and diversification strategies, organizations also
could pursue defensive strategies like: Retrenchment, Divestiture, and Liquidation.
1.5. The Strategic Management Model
The strategic-management process can best be studied and applied using a model. Every model represents
some kind of process. It is a widely accepted, comprehensive model of the strategic-management process.
This model does not guarantee success, but it does represent a clear and practical approach for formulating,
implementing, and evaluating strategies. Relationships among major components of the strategic-
management process are shown in the model.

Perform
external
audit

Develop Establish Generate, Implement Measure and

Vision and evaluate, Implement
long-term strategy: Evaluate
Mission and select Mgmt issue
strategy
performance
statement objectives strategies

Perform
internal
audit

tation strategy evaluation

Fig. 1 comprehensive strategic model

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 Identifying an organization’s existing vision, mission, objectives, and strategies is the logical starting point
for strategic management because a firm’s present situation and condition may preclude certain strategies
and may even dictate a particular course of action. The strategic-management process is dynamic and
continuous. A change in any one of the major components in the model can necessitate a change in any or
all of the other components. For instance, a shift in the economy could represent a major opportunity and
require a change in long-term objectives and strategies; a failure to accomplish annual objectives could
require a change in policy; or a major competitor’s change in strategy could require a change in the firm’s
mission. Therefore, strategy formulation, implementation, and evaluation activities should be performed on
a continual basis, not just at the end of the year or semiannually. The strategic-management process never
really ends.
1.6. Benefit of Strategic Management
Strategic management allows an organization to be more proactive than reactive in shaping its own future;
it allows an organization to initiate and influence (rather than just respond to) activities—and thus to exert
control over its own destiny.
Historically, the principal benefit of strategic management has been to help organizations formulate better
strategies through the use of a more systematic, logical, and rational approach to strategic choice. This
certainly continues to be a major benefit of strategic management, but research studies now indicate that
the process, rather than the decision or document, is the more important contribution of strategic
management. Communication is a key to successful strategic management.
Financial Benefits: The organizations using strategic-management concepts are more profitable and
successful than those that do not. Businesses using strategic-management concepts show significant
improvement in sales, profitability, and productivity compared to firms without systematic planning
activities. High-performing firms tend to do systematic planning to prepare for future fluctuations in their
external and internal environments.
Nonfinancial: Benefits Besides helping firms avoid financial demise, strategic management offers other
tangible benefits, such as an enhanced awareness of external threats, an improved understanding of
competitors’ strategies, increased employee productivity, reduced resistance to change, and a clearer
understanding of performance–reward relationships. Strategic management enhances the problem-
prevention capabilities of organizations because it promotes interaction among managers at all divisional
and functional levels.
In General, strategic management offers the following benefits:
 It allows for identification, prioritization, and exploitation of opportunities.

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 It provides an objective view of management problems.
 It represents a framework for improved coordination and control of activities.
 It minimizes the effects of adverse conditions and changes.
 It allows major decisions to better support established objectives.
 It allows more effective allocation of time and resources to identified opportunities.
 It allows fewer resources and less time to be devoted to correcting erroneous or ad hoc decisions.
 It creates a framework for internal communication among personnel.
 It helps integrate the behavior of individuals into a total effort.
 It provides a basis for clarifying individual responsibilities.
 It encourages forward thinking.
 It provides a cooperative, integrated, and enthusiastic approach to tackling problems and opportunities.
 It encourages a favorable attitude toward change.
 It gives a degree of discipline and formality to the management of a business
Why some Firms Do No Strategic Planning
Some firms do not engage in strategic planning, and some firms do strategic planning but receive no
support from managers and employees. Some reasons for poor or no strategic planning are as follows:
 Lack of knowledge or experience in strategic planning—No training in strategic planning.
 Poor reward structures—When an organization assumes success, it often fails to reward success. When
failure occurs, then the firm may punish.
 Firefighting—An organization can be so deeply embroiled in resolving crises and firefighting that it
reserves no time for planning.
 Waste of time—Some firms see planning as a waste of time because no marketable product is produced.
Time spent on planning is an investment.
 Too expensive—Some organizations see planning as too expensive in time and money. • Laziness—People
may not want to put forth the effort needed to formulate a plan.
 Content with success—Particularly if a firm is successful, individuals may feel there is no need to plan
because things are fine as they stand. But success today does not guarantee success tomorrow.
 Fear of failure—By not taking action, there is little risk of failure unless a problem is urgent and pressing.
Whenever something worthwhile is attempted, there is some risk of failure.
 Overconfidence—As managers amass experience, they may rely less on formalized planning. Rarely,
however, is this appropriate. Being overconfident or overestimating experience can bring decease.
Forethought is rarely wasted and is often the mark of professionalism.

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 Prior bad experience—People may have had a previous bad experience with planning, that is, cases in
which plans have been long, cumbersome, impractical, or inflexible. Planning, like anything else, can be
done badly.
 Self-interest—When someone has achieved status, privilege, or self-esteem through effectively using an
old system, he or she often sees a new plan as a threat.
 Fear of the unknown—People may be uncertain of their abilities to learn new skills, of their aptitude with
new systems, or of their ability to take on new roles.
1.7. Business Ethics and Strategy
Every business has an ethical duty to each of its associates namely, owners, or stockholders, employees,
customers, suppliers and the community at large. Business is a cooperative activity whose very existence
requires ethical behavior. Business ethics is applied ethics. It is an application of our understanding of what
is good and right to that assortment of institutions, technologies, transactions, activities and pursuits that we
call business. Strategy means merely that over the long run and for most of the part, ethical behavior can
give a company significant competitive advantages over companies that are not ethical.
Corporate social responsibility is generally seen as the business contribution to sustainable development
which has been defined as “development that meets the present needs without compromising the ability of
future generations to meet their own needs”, and is generally understood as focusing on how to achieve the
integration of economic, environmental, and social imperatives. Today it is generally accepted that
business firms have social responsibilities that extend well beyond what in the past was commonly referred
to simply as the ‘business economic function.’ In earlier times managers in most cases had only to concern
themselves with the economic results of their decisions. Today, managers must also consider and weigh the
legal, ethical, moral and social impact of each of their decision.
Stakeholders and Ethics
Organization has moral duties and morally responsible for its acts to stakeholders.
 A company’s duty to employees arises out of respect for the worth and dignity of individuals who devote
their energies to the business and who depend on the business for their economic well being. Principled
strategy making requires that employee related decisions be made equitably and compassionately with
concern for due process and for the impact that strategic change has on employee’s lives. At best the
chosen strategy should promote employee interests and concerns such as compensation, career
opportunities, job security and overall working conditions. At worst the chosen strategy should not
disadvantage employees. Even in crisis situations, businesses have an ethical duty to minimize whatever
hardship have to be imposed in the form of workforce reductions, plant closing, job transfers, relocations,
retraining and loss of income.

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 The duty to the customer arises out of expectations that attend the purchase of a good /services. However,
the question which still about are should a seller voluntarily inform consumers that its products contain
ingredients that though officially approved for use are suspected of having potentially harmful effect? Is it
ethical for cigarette manufacturers to advertise at all?
 A company’s ethical duty to suppliers arises out of the market relationship that exists between them. They
are both partners b/c the quality of suppliers’ affects the quality of a firm’s own product and in the sense
that their business is connected. they are adversaries in the sense that the suppliers want the highest price
and profit it can get while the buyer wants a cheaper price, better quality and speeder service. A company
confronts several ethical issues in its supplies relationship. “Is it ethical to threaten to cease doing business
with a supplier unless supplier agrees not to do business with key competitors?
 A company’s ethical duty to the community at large stems from its status as a member of the community
and as an institution of society. Communities and society are reasonable in expecting businesses to be good
citizens- to pay their fair share of taxes, for fire, and police protection, waste removal, streets and high
ways and so on, and to exercise care in the impact their activities have on their environment, on society,
and on the communities in which they operate. E.g. advertisement.

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 Chapter- Two
Strategy Formulation: The Business Mission, Vision and value
2.1. Vision and Mission statement
Vision: Serve the purpose of stating what an organization wishes to achieve in long run. Strategic vision is
a road map of a company’s future; it creates a picture of a company’s destination and provides a rationale
for why this destination makes good business sense for the company. Strategic vision is concerned with
“where we are going and why,” i.e. it portrays a company’s future business scope. Strategic visions
become real only when the vision statement is imprinted in the minds of organization members and then
translated into mission and objectives. Therefore, effectively communicating the strategic vision down the
line to lower-level managers and employees is almost as important as ensuring the strategic soundness of
the organization’s long-term direction and business model. Many organizations have both a vision and
mission statement, but the vision statement should be established first and foremost.
The vision of an organization is the expectation of the owner of the organization and putting this vision into
action is mission. Mission is relatively less abstract, subjective, qualitative philosophical and non-
imaginative. A company’s mission statement usually deals with the company’s present business scope and
purpose-“where we are now, what we do, and why we are here.” Mission has a societal orientation and is a
statement which reveals what an organization intends to do for a society. It is a public statement which
gives direction for different activities which organizations have to carry on. Organization’s mission
becomes the cornerstone for strategy. Sometimes called a creed statement, a statement of purpose, a
statement of philosophy, a statement of beliefs, a statement of business principles, or a statement
“defining our business,”
What is the difference between a mission statement and a vision statement?
 A mission statement concerns what an organization is all about.
 A vision statement is what the organization wants to become.
A mission statement answers three key questions:
 What do we do?
 For whom do we do it?
 What is the benefit?
A vision statement, describes how the future will look if the organization achieves its mission. A mission
statement gives the overall purpose of an organization, while a vision statement describes a picture of the
"preferred future." A mission statement explains what the organization does, for whom and the benefit.

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Examples:

Centers for Disease Control

Mission To promote health and quality of life by preventing and controlling disease, injury, and
disability
Vision Healthy People in a Healthy World
Minnesota Department of Health
Mission To protect, maintain and improve the health of all Minnesotans.
Vision Keeping All Minnesotans Healthy

Nature of Business Mission

 It gives social reasoning. It specifies the role which the organization plays society. It is the basic
reason for existence
 It is philosophical and visionary and relates to top management values. It has long term perspective.
 It legitimizes societal existence
 It reflects corporate philosophy, identity, character and image of organization.
Characteristics of Business Mission
In order to be effective a mission statement should possess the following characteristics.
 A mission statement should be realistic and achievable.
 It should neither be too broad nor be too narrow.
 A mission statement should not be ambiguous. It must be clear for action.
 It should have societal linkage. Linking the organization to society will build long term perspective in
a better way.
 It should not be static. To cope up with ever changing environment, dynamic aspects be looked into.
 It should be motivating for members of the organization and of society.
Components of an Effective Mission Statement
Most practitioners and academicians of strategic management consider an effectively written mission
statement to exhibit nine mission statement components.
1. Customers: Who are the firm’s customers?
2. Products or services: What are the firm's major products or services?
3. Markets: Where does the firm compete?
4. Technology: What is the firm's basic technology?
5. Concern for survival, growth, and profitability: What is the firm's commitment towards economic
objectives?

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 6. Philosophy: What are the basic beliefs, core values, aspirations and philosophical priorities of the
firm?
7. Self-concept: What are the firm's major strengths and competitive advantages?
8. Concern for public image: What is the firm's public image?
9. Concern for employees: What is the firm's attitude/orientation towards employees?
The Process of Developing Vision and Mission Statements
A widely used approach to developing a vision and mission statement is first to select several articles
about these statements and ask all managers to read these as background information. Then ask managers
themselves to prepare a vision and mission statement for the organization. A facilitator, or committee
of top managers, should then merge these statements into a single document and distribute the draft
statements to all managers. A request for modifications, additions, and deletions is needed next, along with
a meeting to revise the document. To the extent that all managers have input into and support the final
documents, organizations can more easily obtain managers’ support for other strategy formulation,
implementation, and evaluation activities. During the process of developing vision and mission statements,
some organizations use discussion groups of managers to develop and modify existing statements. Some
organizations hire an outside consultant or facilitator to manage the process and help draft the language.
Business values
Business values are the benefits that a firm’s generates for its stakeholders. This includes a firm’s long-
term ability to create revenue, product, services, and employment, quality of life, and investment returns.
Here are some examples of core values from which you may wish to choose:
 Dependability. - Consistency.
 Honesty. - Reliability.
 Efficiency - Loyalty - Open-mindedness.

Objectives and goals

Goals are general guidelines that explain what you want to achieve in your community. They are
usually long-term and represent global visions such as: The Millennium Development Goals are: eg
- To eradicate extreme poverty and hunger;
- To achieve universal primary education;
- To promote gender equality and empower women

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Objectives: define strategies or implementation steps to attain the identified goals. Unlike goals,
objectives are specific, measurable, and have a defined completion date. They are more specific
and outline the “who, what, when, where, and how” of reaching the goals.
The Difference between goals and objectives
 Goals are broad while objectives are narrow
 Goals are general intentions; objectives are precise
 Goals are intangible; objectives are tangible
 Goals are abstract; objectives are concrete
 Goals are more influenced by external environment than objective.

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