Module 1

Strategic Management- Concept of Strategy- Meaning – Definition-Features of Strategic

Management- Synergy- Dysergy-Strategic Management Process

According to William .F. Glueck, Strategy is defined as a unified, comprehensive and integrated
plan designed to assure that the basic objectives of the enterprise ae achieved.

The term strategy is defined as a long range blueprint of an organisation’s desired image, direction
and destination, ie., what it wants to be, what it wants to do and where it wants to go.

Strategy is the game plan that the management of a business uses to take market position, conduct
its operations, compete successfully and achieve its objectives.

Features of Strategy

1. Strategy deals with long term developments rather than routine operations, i.e. it
deals with probability of innovations or new products, new methods of productions,
or new markets to be developed in future.
2. Strategy is created to take into account the probable behavior of customers and
competitors. Strategies dealing with employees will predict the employee behaviour.
3. Strategy is a well-defined roadmap of an organization.
4. It defines the overall mission, vision and direction of an organization.
5. The objective of a strategy is to maximize an organization’s strengths and to
minimize the strengths of the competitors.
6. Strategy, in short, bridges the gap between “where we are” and “where we want to
be”.
7. Strategy is partly proactive and partly reactive.

Strategic Management

Strategic management is the management of an organization’s resources to achieve its goals and
objectives.

Strategic management refers to a managerial process of developing vision, setting objectives,

analysing the competitive environment, analyzing the internal organization, evaluating strategies,
and ensuring that management rolls out the strategies across the organization.

The Characteristics of Strategic Management are as follows:

1. Top management involvement

2. Requirement of large amounts of resources
3. Affect the firms long-term prosperity
4. Future-oriented
5. Multi-functional or multi-business consequences
6. Non-self-generative decisions

Importance/Benefits of Strategic Management

1. Strategic management gives a direction to the company to move ahead. It helps to define
goals and mission.
 2. Strategic management helps organisations to be proactive instead of reactive in shaping
its future.
3. Strategic management provides framework for all major decisions of an enterprise such
as decisions on business, products, markets, manufacturing facilities, investments and
organisational structure.
4. It seeks to prepare the organisation to face the future and act as pathfinder to various
business opportunities.
5. It serves as a corporate defence mechanism againt mistakes and pitfalls.
6. It helps to enhance the longevity of the business.
7. Strategic management helps the organisation to develop certain core competencies and
competitive advantages that would facilitate assist in its fight for survival and growth.

Limitation of strategic management

1. Since environment is highly complex and dynamic, it is difficult to understand the
complex environment and exactly pinpoint how it will shape-up the future.
2. Strategic management is a time-consuming process.
3. Strategic management is a costly process. It requires expert strategic planners.
4. Competition analysis is a challenging task. In a competitive scenario, where all
organisations are trying to move strategically, it is difficult to clearly estimate the
competitive responses to ta firm’s strategies.

Strategic levels in Organisations.

Corporate level
Business level
Functional level

Corporate level strategy:-

• It is formulated at the top level management which is meant to cope with the competitive
and complex settings.
• Corporate level strategies include identifying the overall vision, mission and goals of the
corporation, the type of business your organisation should be involved in, and the way in
which business need to be integrated and managed.
• It includes managing activities and business interrelationships.
• It is action oriented and is more specific than its objectives.
• It helps managers to handle environmental uncertainities and complexities.
Business level strategy:
• Business level strategy is applicable to all SBUs (Strategic Business Units) were
independent strategic plans can be made which is different from other business units of
the company.
• At business unit level, strategies are mainly about sustain a competitive advantage for its
specific product and services that are produced.
Functional level strategy:
• Functional level strategy relates to a single functional operation and the activities
involved there in.
• Decision at his level are within the organisation and are often described as tactical.
• Functional strategy deals with relatively restricted plans providing objective for specific
operations within the functional area which is coordinated for optimal contribution to the
achievement of business level and corporate level strategies.
• Functional level strategies include, marketing strategy, financial strategy, production
strategy, HR strategy.
Strategic Management Process

The strategic management process means defining the organization’s strategy. It is also defined
as the process by which managers make a choice of a set of strategies for the organization that
will enable it to achieve better performance.

Strategic management is a continuous process that appraises the business and industries in
which the organization is involved; appraises it’s competitors; and fixes goals to meet all the
present and future competitor’s and then reassesses each strategy.

Strategic management process has following four steps:

1. Environmental Scanning- Environmental scanning refers to a process of collecting,

scrutinizing and providing information for strategic purposes. It helps in analyzing the internal
and external factors influencing an organization. After executing the environmental analysis
process, management should evaluate it on a continuous basis and strive to improve it.
SWOT analysis is a method used for environmental scanning.
2. Strategic Intent- strategic Intent gives an idea of what the organisation desires to attain in
future. It indicates the long term market position which the organisation desires to create or
occupy and the opportunity for exploring new possibilities. Elements of strategic intent are
vision, mission, business definition, business model, goals and objectives.
3. Strategy Formulation- Strategy formulation is the process of deciding best course of action
for accomplishing organizational objectives and hence achieving organizational purpose.
After conducting environment scanning, managers formulate corporate, business and
functional strategies.
4. Strategy Implementation- Strategy implementation implies making the strategy work as
intended or putting the organization’s chosen strategy into action. Strategy implementation
includes designing the organization’s structure, distributing resources, developing decision
making process, and managing human resources.
5. Strategy Evaluation- Strategy evaluation is the final step of strategy management process.
The key strategy evaluation activities are: appraising internal and external factors that are the
root of present strategies, measuring performance, and taking remedial/corrective actions.
Evaluation makes sure that the organizational strategy as well as it’s implementation meets
the organizational objectives.

Synergy – originated from Greek word- Sunergoes-meaning -Working together or Joint

together

Synergy is a strategy where individuals or entities combine their efforts and resources to
accomplish anything more, collectively than they could individually. It eventually results in
increased productivity, efficacy, and performance.

Synergy is a method in which individuals or organizations pool their resources and efforts to
enhance value, productivity, efficacy, and performance more than they could individually.

Synergy is also known as positive synergy

To express it plainly, this is a situation where 2 + 2 = 5.

The meaning of synergy in strategic management contexts is the additional benefits which are
gained due to complementary activities and resources that reinforce and enhance the effect of
each other.

Types of Synergy
1.Corporate synergy

Corporate synergy refers to a financial benefit that a corporation expects to realize when it merges
with or acquires another corporation. Corporate synergy occurs when corporations interact
congruently with one another, creating additional value. Synergies are divided into two groups:
operational and financial.

2.Strategic fit synergy

This is one of the most important types of synergies expected in mergers and acquisition. The
company, which is being acquired, or the companies that are merging together must be able to ‘fit’
together to give rise to synergy of strategies. A perfect fit situation would be when each company is
able to improve the other through reciprocal synergies.

3.Resource synergy

This is when companies gain a positive result through interlinking of resources and capabilities either
internally, or with other companies. Resource synergy can be obtained from intangible resources
such as brand recognition and technology or physical resources, like plant and machinery.
Interlinking of intangible resources like knowledge and human resources is better achieved through
an alliance between companies. On the other hand, mergers and acquisitions might be more suited
when combining tangible resources as plant, machinery, or finance.

4.Product synergy

This is when the product range of a company or multiple companies within a group complement
each other. The result is a synergy in product offerings which fulfill the overall needs of customers
more effectively. By expanding product ranges to meet end-to-end requirements, companies can
keep customers within their own sales funnel. Naturally, this increases the revenue potential for the
company. The biggest example of this is Apple. The different products in Apple’s line-up reinforce
the need for each other through the push for a shared ‘Apple ecosystem’. For a consumer looking to
use a phone, laptop, and smartwatch, buying all of these from Apple would provide a much better
overall experience than buying only one of them from Apple and the rest from competitors.

5.Process synergy

This happens when value-adding processes of separate companies or business units are integrated
and interlinked to enhance or optimize performance. This results in operational efficiencies which
benefit both the individual entities and the overall group performance as well. One of the common
examples of this kind of process synergy is the creation of overlapping or common business
processes across different business units.

An example of this is the concept of vendor-managed inventory. Allowing suppliers some level of
control over the management of inventory allows a more streamlined and efficient process. This
benefits both parties as they achieve higher levels of combined performance through process
optimization.

6.Sequential synergy
This is a specific type of process synergy where a task or project needs to be completed by one of
the collaborative partners before passing to others. This is seen in the case of companies which use
collaborative partners for after-sales services.

An example of this is retail companies which used third-party logistics providers to distribute their
products, or handle product returns. Since these service providers have strong capabilities in these
functions, the retailing company can focus on sales while leaving these functions in the hands of
reliable channel partners.

8.Modular synergy

In contrast to the above scenario, modular synergy is when companies manage their resources or
capabilities independently and then combine only the results for better overall results. An example
of this is companies in the hospitality sector which synergize with each other through cross-selling of
one another’s services. As an example, airline booking websites often cross-sell rent a car or hotel
booking options. Similarly, hotel concierge services often have a tie-up with local tour operators and
limousine service providers to make suitable recommendations to their guests.

9.Synergy of skills and expertise

This refers to the synergies that arise from a transfer of skills or sharing of knowledge and expertise.
For example, Gillette and Olay, which are both brands under Proctor & Gamble benefit from this
kind of synergy. It has been reported that Gillette coordinated closely with Olay to benefit from their
skincare expertise and use that to design better razors for women.

10.Financial synergy

Financial synergy is often a key main basis or justification for mergers and acquisitions. Companies
expect to be able to drive down their wage bills by eliminating overlapping positions and
departments. This is particularly expected at the management level where the redundancy of top-
level positions can lead to significant cost savings. There could also be cost savings through sharing
of office space, warehousing and distribution. Additionally, when companies merge together, a key
financial synergy they gain is the ability to negotiate better prices with their suppliers. In mergers
and acquisitions, this is even more straightforward as the working capital of the companies can be
combined together. This allows greater flexibility to make moves in these market, which further
enhances the market position of the companies.

11.Technology synergy

Synergy of technologies is a key source of competitive advantage in today’s business landscape

which is continuously impacted by cutting-edge technological advancements. The sharing of
patented technology and other important intellectual property enables creation of products which
are superior to the competition. This is not limited to only product technologies though. Even
innovative process capabilities can be shared to achieve greater operational efficiencies.

We can look at Microsoft’s acquisition strategy to understand this easily. It continues to add
synergistic companies to its portfolio, helping it consolidate its position as a provider for office
solutions. For example, it acquired Skype Technologies in 2011 and this enabled it to enhance its
video chat service technology. This allowed the company to push the Teams application.
12.Market synergy

When two companies which have different geographies and customers merge or collaborate, they
can each take advantage of the access to a greater geographic area or customer demographics. This
would produce higher revenue for each of them.

Market synergy is often used as a basis for cross-selling efforts as well. This can be when companies
which have their own branding, marketing, and sales networks collaborate to achieve better overall
sales. Co-branding is another form of market synergy in which companies collaborate to improve
their combined sales of certain products or services. The Apple Watch Nike+ is an example of this.

Negative synergy/ Dysergy

Negative synergy also called Dysergy, is simply one where the overall results of combining resources
or capabilities leads a result that is less than what would be achieved individually. This is often used
as a driver for pursing diversification strategies. It is the situation where 2+2=3.

When Dysergy occurs, a marketing inefficiency is resulted which reduces the production efficiency
resulting in an overall negative impact to the organisation

Benefits of Synergy in Business

Opens the possibility of backward or forward integration

Many companies would like to increase their profit margins by expanding vertically, either through
backward or forward integration. However, this is often a difficult and expensive task to accomplish
without having some strong synergies to rely on.

Helps achieve economies of scale

Synergy between businesses can also lead to better economies of scale. This refers to a situation in
which companies are able to acquire resources at a much lower cost due to higher purchasing power
and volume.

Enables low-cost strategies

On the other hand, it could be the case that some of the organizations in the merger have a low-cost
approach. In this case, the new merged company can pursue low-cost strategies that synergize
between this low-cost footprint and the expertise of the other companies.

Disadvantages of Synergy in Business

Difficulty in identifying and capitalizing on synergies

Synergies are usually hard to identify in real-life situations. Even when identified correctly, taking the
necessary steps to utilizing these synergies may not always be feasible.

Unpredictability in achieving the expected benefits

There is also the risk that potential synergies which appear to exist on paper or in theory, may not
actually work out in practical application.

Possibility of expected costs exceeding expected benefits

When looking at expected synergies from integration, we should not neglect a proper cost benefit
analysis. Undertaking integration activities with the aim of achieving synergies often requires
investment of time, money and efforts. It is not a straightforward task to manage synergistic
relationships.

Competition between the players involved

. If the managers of different business units have an incentive to achieve higher results for their
department over others, they may not be willing to sacrifice this for ‘the greater good’ of the
company.