Strategic management unit i

Strategic Management
Semester III
UNIT – I STRATEGY AND PROCESS
Conceptual Framework for Strategic Management – Concept of Strategy and Strategy
Formation Process – Stakeholders in Business – Vision, Mission and Purpose –
Business Definition – Objectives and Goals – Corporate Governance – Social
Responsibility
CONCEPTUAL FRAMEWORK FOR 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 firm’s resources
in a dynamic environment. The main purpose of study of strategic management is to
examine why some organization succeed while others fail and yet others completely
change.
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 Mangolia.
 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 singed three MOUs with Jharkhand Government for setting up 12
million tonne Greenfield project in two phases.
 Maruthi Udyog slashed the price of Maruti-800 by Rs.16000 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 Renovation 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 up-gradation 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 up by top management which gives overall
direction to the organization. Strategic Management provides a cooperative, integrated
and enthusiastic approach for tackling problems and realizing opportunities.
Conceptual Framework for Strategic Management:
 Strategic Advantage
S.N.Selvaraj, M.B.A., M.Phil., Assistant Professor, Email: sn.selvaraj@yahoo.com Page 1

 Organizational capability
 Competencies
 Synergistic Effects
 Strengths and weaknesses
 Organizational Resources
 Organizational behavior
THE CONCEPT OF STRATEGY AND THE STRATEGY FORMATION PROCESS
Concept of Strategy
The term strategy is derived from a Greek word strategy which means generalship. A
plan or course of action or a set of decision rules making a pattern or creating a
common thread.
Strategy is a framework through which an organization can assert its vital continuity
whilst managing to adapt to the changing environment to gain competitive advantage.
According to Igor Ansoff (1984), “Strategic Management is a systematic approach to
the major and increasingly important responsibility of general management to
position and relate the firm to its environment in a way which will assure its
continued success and make it secure from surprises”.
Strategy Formation Process
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 plans to
do; it is what the company does actually.
Steps in Strategy Formation Process:
1. Existing business model
2. Mission – Vision, Values and goals
3. External Analysis, opportunities and threats
4. Internal Analysis, Strengths and weaknesses
5. SWOT Strategic choice
6. Functional level strategies
7. Business level strategies
8. Global strategies
9. Corporate level strategies
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

• Feedback
Designing appropriate organizational 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.
Designing control systems: The purpose of strategic control is to determine whether the
given strategy is effective in achieving organizational objective and moving on the
right tract. 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 control 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 and 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.
STAKEHOLDERS IN BUSINESS
Stake holders are the individuals and groups who can affect by the strategic outcomes
achieved and who have enforceable claims on a firm’s performance. Stake holders can
support the effective strategic management of an organization.

A stakeholder is any individual or organization that is affected by the activities of a
business. They may have a direct or indirect interest in the business, and may be in
contact with the business on a daily basis, or may just occasionally.
The main stakeholders in business are:
 Shareholders (not for a sole trader or partnership though) – they will be
interested in their dividends and capital growth of their shares.
 Management and employees – they may also be shareholders – they will be
interested in their job security, prospects and pay.
 Customers and suppliers
 Banks and other financial organizations lending money to the business
 Government – especially the Inland Revenue and the Customs and Excise who
will be collecting tax from them.
 Trade Unions – who will represent the interests of the workers?
 Pressure Groups – who are interested in whether the business is acting
appropriately towards their area of interest.
Stake holder’s relationship management: Stake holders can be divided into the
following 2 categories:
1. Internal Stakeholders
 Shareholders
 Employees
 Manager s
 Directors
2. External Stakeholders
 Customers
 Suppliers
 Government
 Banks/creditors
 Trade unions
 Mass Media
Stake holder’s Analysis:
• Identify the stake holders.
• Identify the stake holder’s expectations interests and concerns
• Identify the claims stakeholders are likely to make on the organization
• Identify the stakeholders who are most important from the organizations
perspective.
• Identify the strategic challenges involved in managing the stakeholder
relationship.
Stakeholders versus Shareholders

It is important to distinguish between a STAKEHOLDER and a SHAREHOLDER. They
sound the same – but the difference is crucial!
• Shareholders hold shares in the company – that is they own part of it.
• Stakeholders have an interest in the company but do not own it (unless they are
shareholders).
• Often the aims and objectives of the stakeholders are not the same as
shareholders and they come into conflict.
• The conflict often arises because while shareholders want short-term profits,
the other stakeholders’ desires tend to cost money and reduce profits. The
owners often have to balance their own wishes against those of the other
stakeholders or risk losing their ability to generate future profits (e.g. the
workers may go on strike or the customers refuse to buy the company’s
products).
Social Responsibility of a Business to Stakeholders
Social responsibility is the duty and obligation of a business to other stakeholders.
 Shareholder – Good return on investment
 Employee – Fair pay and working conditions
 Supplier – Regular business and prompt payment
 Customer – Fair price and safe product
 Local community – Jobs and minimum disruption
 Government – Employment for local community
 Environment – Less pollution
Social responsibility for one group can conflict with other groups, especially between
shareholders and stakeholders.
Ethics in Business
Ethics refers to the moral rights and wrongs of any decision a business makes. It is a
value judgement that may differ in importance and meaning between different
individuals. Businesses may adopt ethical policies because they believe in them or
they believe that by showing they are ethical, they improve their sales. Two good
examples of businesses that have strong ethical policies are The Body Shop and Co-
op.
Some examples of ethical policies are:
 Reduce pollution by using non-fossil fuels.
 Disposal of waste safely and in an environmentally friendly manner
 Sponsoring local charity events
 Trading fairly with developing countries
VISION, MISSION AND PURPOSE
Meaning of Vision:
A vision statement is sometimes called a picture of your company in the future. Vision

statement is your inspiration; it is the dream of what you want your company to
accomplish.
Meaning for Mission:
A mission statement is a brief description of a company s fundamental purpose. The
mission statement articulates the company s purpose both for those in the organizations
and for the public.
Definitions:
Wheelan and Hunger view that “Mission is the purpose or reason for the
organization’s existence”.
According to John Pearce, “Mission is an enduring statement of purpose that
distinguishes one firm from other similar firms”.
The mission statements of some Indian companies are given below:
Infosys: “The primary purpose of corporate leadership is to create wealth legally and
ethically. This translates to bringing a high level of satisfaction to five constituencies –
customers, employees, investors, vendors and the society at large. The reason de ‘e’tre
of every corporate body is to ensure predictability, sustainability and profitability of
revenues year after year”.
The Gindal Group: “To become a globally competitive player with a burning desire to
become number one in the steel industry”.
Unit Trust of India: “To keep the common man in sharper focus; to encourage saving
and investment habits among them”.
Ranbaxy: “To become a $1 billion research based global pharmaceutical company”.
Merck: “To preserve and improve human life”.
McKinsey: “To help business corporations and governments to be more successful”.
Unilever: “To make cleanliness common place, to lessen work for women, to foster
health and to contribute to personal attractiveness that life may be more enjoyable for
the people who use our products”.
ONGC: “To be a world class oil and gas company integrated in energy business with
dominant Indian leadership and global business”.
Nirma: “Nirma is a customer focused company committed to consistently offer better
quality products and services that maximize value to the customer”.
SBI: “With you, all the way”.
Asian Paints: “Leadership through excellence”.
Bajaj Auto: “Value for Money, for years”.

It is observed from these mission statements that mission provides direction to internal
organization and it embodies the values and philosophy of the founders of the
organization.
BUSINESS DEFINITION, OBJECTIVES AND GOALS
Definition for strategic management:
Strategic Management is defined as the dynamic process of formulation,
implementation, evaluation and control of strategies to realize the organizations
strategic intent.
Definition for Business:
A company should define its business in terms of three dimensions:
1. Who is being satisfied (what customer groups)
2. What is being satisfied (what customer needs)
3. How customer needs are being satisfied (by what skills, knowledge or Distinctive
Competencies)
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 to help achieve corporate objectives” –
Glueck
Meaning for Objectives:
Objectives are the ends that state specifically how the goals shall be achieved. They are
concrete and specific in contrast to goals that are generalized.
Role of Objectives:
• Objectives define the organizations relationship with its environment.
• Objectives help an organization pursue its vision and mission.
• Objectives provide the basis for strategic decision making.
• Objectives provide the standards for performance Appraisal.
Characteristics of Objectives:
o Objectives should be understandable.
o Objectives should be concrete and specific.

o Objectives should be r elated to a time frame
o Objectives should be measurable and controllable.
o Objectives should be challenging.
Consider the objectives of some organizations:
Canara Bank: “The bank’s stated objectives are growth, innovativeness, and high
profits as a barometer of efficiency, highly involved employees distinctively charged
with pride”.
Maruti: “We don’t just sell more car than No.2. We sell more cars than the entire
competition put together”.
Peter Drucker has recommended that companies should set goals and objectives in the
following areas:
1) Return on Investment
2) Market Share
3) Innovation
4) Productivity
5) Physical and Financial Resource
6) Manager Performance and Development
7) Worker Performance and Attitude
8) Social Responsibility
Meaning for Goal:
Goal denotes what an organization hopes to accomplish in a future period of time.
CORPORATE GOVERNANCE AND SOCIAL RESPONSIBILITY
CORPORATE GOVERNANCE
Corporate Governance involves a set of relationships amongst the company s
management its board of directors, shareholders and other stakeholders. These
relationships which various rules and incentives provide the structure through which
the objectives of the company are set and the means of attaining the objectives and
monitoring performance are determined.
Key aspects of Good Corporate Governance
 Transparency of corporate structures and operations
 Corporate responsibility towards employees, creditors, suppliers and local
communities where the corporation operates
Corporate Governance Mechanisms:
o Ownership concentration
o Boar d of Directors
o Top management compensation
o Threat of takeover

Relating corporate Governance to strategic management:
a. Corporate Governance and strategic intent
b. Corporate Governance and strategy formulation
c. Corporate Governance and strategy implementation
d. Corporate governance and strategy Evaluation
SOCIAL RESPONSIBILITY OF BUSINESS
Social Responsibility of business refers to all such duties and obligations of business
directed towards the welfare of society. The obligation of any business to protect and
serve public interest is known as social responsibility of business.
Why Should Business is Socially Responsible?
 Public image
 Government Regulation
 Survival and growth
 Employee satisfaction
 Consumer Awareness
Social Responsibility towards different Interest groups:
1. Responsibility towards owners: Owners are the persons who own the business. They
contribute capital and bear the business. They are responsible to run the business
efficiently along with proper utilization of capital and other resources. Also regular and
fair return on capital invested should be maintained.
2. Responsibility towards Investors: Investors are those who provide finance by way of
investment in shares, bonds, etc. Banks, financial institutions and investing public are
all included in this category. Ensuring safety of their investment becomes the must and
regular payment of interest also be made to attract the investors.
Responsibility towards Employees:
Business needs employees or workers to work for it. If the employees are satisfied and
efficient, then the business can be successful.
• Timely and regular payment of wages and salaries to be paid
• Opportunity for better career prospects to be made
• Proper working conditions should be made available
• Timely training and development may be given
• Better living conditions like housing, transport, canteen and crèches may also
provide.
Responsibility towards Customers:
1. No business can survive without the support of customers.
2. Products and services must be able to take care of the needs of the customers.
3. There must be regularity in supply of goods and services.

4. Price of the goods and services should be reasonable and affordable
5. There must be proper after sales-service
6. Grievances of the consumers if any must be settled quickly.
Responsibility towards Competitors:
 Competitors are the other businessmen or organization involved in a similar
type of business.
 Not to offer to customers heavy/discounts and or free products in every sale.
 Not to defame competitors through false advertisements.
Responsibility towards Suppliers:
Suppliers are businessmen who supply raw materials and other items required by
manufacturers and traders. Giving regular orders for purchase of goods would
encourage the suppliers. Availing reasonable credit period and timely payment of dues
will create the mutual understanding in the business.
Responsibility towards Government:
 Business activities are governed by the rules and regulations framed by the
government.
 Payment of fees, duties and taxes regularly as well as honestly
 Conforming to pollution control norms set up by government
 Not to indulge in restrictive trade practices.
Responsibility towards Society:
A society consists of individuals, groups, organizations, families etc. They all are the
member s of the society.
o To help the weaker and backward sections of the society
o To generate employment
o To protect the environment
o To provide assistance in the field of research on education, medical science,
technology etc.
Responsibility of CEOs:
CEOs responsibilities include executive leadership and strategic vision. In the words
of John Jack Welch Jr., CEO of GE “Good business leaders create a vision, articulate
the vision, passionately own the vision and relentlessly drive it to completion.
 Bill Gates of Microsoft,
 Anita Roddick of the Body Shop,
 Ted Turner at CNN,
 Steve Jobs at Apple Computer,
 Herb Kellher of Southwest Airlines,
 Narayanamurthy of Infosys,
 Asim Premji at Wipro,
 Bai Parvindar Singh at Ranbaxy

 Andy Grove at Intel
For example, the above CEOs are charismatic leaders with positive attitude.
Strategic Leadership Qualities of CEOs
1. Figure head role 2. The leader role
3. The leader role 4. The liaison role
5. The recipient role 6. The disseminator role
7. The disseminator role 8. The spokesperson role
9. The entrepreneur role 10. The disturbance handler role
11. The negotiator role 12. The resource allocator role
Corporate Social Responsibility
Corporate social responsibility has become an integral part of corporate strategy. It
means open and transparent business practices that are based on ethical values and
respect for employees, community and the natural environment. It is designed to
deliver sustainable value to society at large as well as to shareholders. Some of the
benefits of being socially responsible are that they can attract good employees who
prefer working for a responsible firm (P&G).
Part ‘A’ Questions
1. Define the concept of strategy.
2. What are the steps involved in strategy formation process?
3. Who are the main stakeholders of the business?
4. What is Vision?
5. Define Mission.
6. What is strategic management?
7. What do you understand by corporate governance?
8. Brief about corporate social responsibility?
9. Why should business be socially responsible?
10.Brief about manager performance and development.
Part ‘B’ Questions
1. Explain the conceptual framework for strategic management.
2. Enumerate the steps in strategy formation process.
3. Discuss about social responsibility of a business to stakeholders.
4. Elucidate corporate governance.
5. Explain the strategic leadership qualities of CEOs.
************
Text Books and References:

1. Azhar Kazmi, “Strategic Management & Business Policy”, Tata McGraw Hill,
New Delhi, 3rd
Edition, 2008.
2. Dr.M.Jeyarathnam, “Strategic Management”, Himalaya Publishing House, 5th
Edition, 2011.
3. Charles W.L.Hill & Gareth R Jones, “An Integrated Approach to Strategic
Management”, Cengage Learning India Private Ltd., New Delhi, 2008.

Strategic management unit i

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