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PART 1 INTRODUCTION

Meaning of strategy

Flow Chart

Concept of Strategic Management

SBU

Levels of Strategy

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CHAPTER 1 INTRODUCTION TO STRATEGIC MANAGEMENT

The concept of strategy is central to understanding the process of

strategic management. The term strategy is derived from a Greek wordstrategos, which means generalship the actual direction of militaryforce, as distinct from the policy governing its deployment. Literally,therefore, the word strategy means the art of the general. In businessparlance, there is no definite meaning assigned to strategy. It is oftenused loosely to mean a number of things. In the preceding section, wereferred to its connection with policy and tactics.

Strategy, as a concept, has been defined by many experts. Before wetake up a few definitions for discussion, consider the following examples:

A leading brand name in the pain balm market is that of Amrutanjanmanufactured by Amrutanjan Ltd. With a 60 per cent market share, thecompany is well-entrenched in the market but increasing competitionfrom companies like Zandu balm and Eskayef have forced AmrutanjanLtd to consider taking certain steps. These include market expansion,introduction of new products and taking up the distribution of otherconsumer products.

Set up in 1972, Apollo Tyres has been facing various problems during thelast 20 years. After many remedial measures, taken during the last six

years, the company is gradually trying o gain stability and becomeprofitable. One of the measures taken relates to the product mix. Thecompany has stopped the manufacturing of two- and three-wheeler tyresand is now concentrating only on truck and tractor tyres.

Camlin Ltd, a company known for its camel brand stationary materials,

visualizes future opportunities in the pharmaceuticals industry. It plans

to expand the company operations through its pharmaceuticals divisions,

which is the fastest growing division within the company.

Escorts Ltd, a reputed engineering firm, planned to invest Rs 179 crorebetween 1986 and 1990 and take up the manufacture of petrochemicals,electro-medical equipment and food packaging machinery. It has alreadystarted making electronic telephone exchange systems.

The above illustration show how different companies react to theirenvironment. In doing so, they adopt a course of action which to them

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seems to be appropriate. Such a course of action may involve actionslike diversification, expansion, aiming for stability or divesting a part ofoperations.

When an old established company which has been profitable in the past,

starts facing new threats in the environment, like the emergence ofcompetitors, it has to rethink the course of action it had been adoptingwith such a rethinking, new ways are devised to counter the threats.Alternatively, some new opportunities may emerge in the environment,which were not there in the past. In order to take advantage of theseopportunities, a company reassesses the approaches it had beenfollowing and changes its course of action. These courses of action arewhat we may call strategies.

Defining Strategy

Alfred D. Chandler (1962)

The determination of the basic long-term goals and objectives of anenterprise and the adopting of the courses of action and allocation ofresources necessary for carrying out these goals.

Note that Chandler refers to three aspects:

Determination of basic long-term goals and objectives;

Adopting of courses of action to achieve these objectives;

and

Allocation of resources necessary for adopting the courses

of action.

William F. Glueck (1972)

A unified, comprehensive and integrated plan designed to assure thatthe basic objectives of the enterprise are achieved,

The three adjectives, which Glueck uses to define a plan, make thedefinition quite adequate. Unified means that the plan joins all the partsof an enterprise together, comprehensive means it covers all the major

aspects of the enterprise, and integrated means that the parts of theplan are compatible with each other.

Basically, a strategy is a set of decision-making rules forguidance of organizational behaviour.

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FLOW CHART

Dream

/Imagination

SOCIETAL

LEVEL

Closed Ended

Open Ended

VISION

OBJECTIVE

S

MISSIO

N

PURPOSE

(Strategic Intent)

(

GOALS

Corporate

Strategy

C.S. Serves

purpose

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Concept of strategic Management:

The term strategic management refers to the process of forming astrategic vision, setting objectives, crafting a strategy, implementing andexecuting the strategy, and then over time initiating whatever corrective

adjustments in the vision, objectives strategy and execution are deemedappropriate.

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Strategic Business Unit:

Strategic Business Unit or SBU is understood as a business unitwithin the overall corporate identity which is distinguishable from otherbusiness because it serves a defined external market where

management can conduct strategic planning in relation to products andmarkets. When companies become really large, they are best thought ofas being composed of a number of businesses (or SBUs).

These organizational entities are large enough and homogeneousenough to exercise control over most strategic factors affecting theirperformance. They are managed as self contained planning units forwhich discrete business strategies can be developed. A StrategicBusiness Unit can encompass an entire company, or can simply be asmaller part of a company set up to perform a specific task. The SBU has

its own business strategy, objectives and competitors and these willoften be different from those of the parent company.

An SBU, as defined by Sharplin, is any part of business organizationwhich is treated separately for strategic management purposes.

Generally, SBUs are involved in a single line of business. Acomplementary concept to SBU, valid for external environment of acompany is strategic business area (SBA). It is defined as a distinctivesegment of the environment in which the firm does (or may want to do)

business.A number of SBUs, relevant for different SBAs, form a cluster of units

under a corporate umbrella. Each of the SBU has its own functional

departments or a few major functional departments while common

functions are grouped under the corporate level.

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Levels of Strategies:

Corporate level strategy is an overarching plan of action covering thevarious functions performed by different SBUs. The plan deals with theobjectives of the company, allocation of resources and coordination of

the SBUs for optimal performance.

SBU-level (or business) strategy is a comprehensive plan providingobjectives for SBUs, allocation of resources among functional areas andcoordination between them for making optimal contribution to theachievement of the corporate-level objectives.

Functional strategy deals with a relatively restricted plan providingobjectives for a specific function, allocation of resources among differentoperations within that functional area and coordination between them foroptimal contribution to the achievement of the SBU and corporate-levelobjectives.

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The pyramid of strategic implementation

The administrative mechanism of policies, procedures & rules

support the working of organization, while it implements the

projects, programs, plans & strategies.

Policies, procedures, and rules

A policy is considered to be guideline for action. It channelizesorganizational efforts in a predetermined direction and leads to the

achievement of goals, objectives, purpose and mission of the company.

Policies are subdivided and stated in terms, of procedures (a series of

related steps or tasks expressed in a chronological order) and rules

(prescribed courses of action that explicitly state what is to be done

Policies, Procedures, RulesPolicies, Procedures, Rules

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under a given set of circumstance). A company may state one of its

many policies as: products, which are going to become obsolete, will be

offered for sale with a certain percentage of discounts. The procedure

may explain how to decide which product is obsolete and what

percentage of discount is to be offered. A rule may specify the way inwhich a discount plan is going to operate.

Explanation of above pyramid:

The activation of strategy is depicted in the above diagram in the form of

pyramid with strategy at the top. Strategies lead to several plans. Each

plan leads to several programmes. Each program results in numerous

projects. Projects are supported by budjets prepared through the

resource allocation process. The administrative mechanism of policies,

procedures, rules and regulations support the working of the

organization while it implements the projects, programmes, plans and

strategies.

Strategies should lead to plan. For e.g. if stability strategies have been

formulated, they may lead to the formulation of various plans. One such

plan could be technology modernization plan. If expansion strategies

have been adopted, various types of expansion plans will have to be

formulated. Similarly, diversification could lead to new product

development plan.

Plans result in various kinds of programmes. A program is a broad term

which includes goals, policies, procedures, rules and regulations that

need to be taken for putting a plan into action. Programmes are usually

supported by funds committed for plan implementation. For e.g. R & D

program for development of a new product.

Programmes lead to formulation of projects. A project is a highly specific

program for which the time schedule and costs are predetermined. Itrequires allocation of funds based on capital budgeting by organizations.

Thus R&D programmes may consists of several projects each of which is

intended to achieve specific and limited objectives, requires separate

allocation of funds and is to be completed within a set time schedule.

Projects create the needed infrastructure for the day-to-day operations in

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an organization. They may be used for setting up new or additional

plants, modernizing the existing facilities, installation of newer systems

and for several other activities that are needed for the implementation

strategies.