MODULE – 1

INTRODUCTION TO STRATEGIC MANAGEMENT

INTRODUCTION

Strategic management can be is the art and science of formulating, implementing, and
evaluating cross-functional decisions that enable an organization to achieve its objectives.
Strategic management focuses on integrating management, marketing, finance, operations,
research and development, and information systems to achieve organizational success. The
purpose of strategic management is to exploit and create new and different opportunities for
tomorrow. A strategic plan is, in essence, a company’s game plan. Just as a cricket team
needs a good game plan to have a chance for success, a company must have a good strategic
plan to compete successfully. Profit margins among firms in most industries have been so
reduced by the global economic crisis that there is little room for error in the overall strategic
plan. A strategic plan results from tough managerial choices among numerous good
alternatives, and it signals commitment to specific markets, policies, procedures, and
operations.

A BRIEF NOTE ON THE EVOLUTION OF STRATEGIC MANAGEMENT

The terms Business Policy, Strategic Management and Corporate Strategy/Planning are often
used interchangeably. Their combined use, however, causes confusion. William Glueck, a
well-known author on this subject, in his book Business Policy and Strategic Management
points out that “business policy is a term traditionally associated with the course in business
schools devoted to integrating the educational program of these schools and understanding
what today is called strategic management.” This connotes that strategic management is the
modern term for what was earlier called business policy.

Business Policy as a course began to be included in the curriculum of the Business Schools in
the US in the 1950s following the Gordon-Howell research sponsored by the Ford
Foundation and Carnegie Corporation. The objective of this course was to provide an
integrated approach by binding together appropriately the various courses like Marketing,
Finance, Organisational Behaviour, and Operations Management which the students learn in
the earlier semesters. Business Policy, thus, sought to apply a holistic approach to business
problem analysis and decision making.

The Gordon-Howell Report gained widespread acceptance that by early 1970s, most Business
Schools in the US included Business Policy courses within their curriculum requirements.
“As time passed, however, the focus of the course became wider and it began to consider the
total organisation and its environment. For example, it addressed issues such as social
responsibilities and ethics, as well as the potential impacts of political, legislative, and
economic events on the successful operation of anorganisation.”

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Since1980s, researchers and perspective thinking of a number of scholars like Michael Porter,
C.K. Prahalad and Gary Hamel, contributed substantially to the development of this subject,
by enlarging the analytical kit and shaking the mind-set for strategic thinking. This newer,
broader emphasis prompted leaders in the field to change the name of the course from
business policy to strategic management. Thus, strategic management is a broader term than
business policy.

However, as mentioned earlier, the terms business policy and strategic management are often
used as synonymous; but some people give different interpretations to these terms. By the
termbusinesspolicy, somerefertothestrategy; strategicmanagement encompassesbothstrategy
formulationandimplementation.

However, even most authors who have titled their books on this subject as Business Policy
define it as strategic management and in the text they more often use the term strategic
management andtheuseofthetermbusinesspolicyisrare. In his book Business Policy, which has
been subtitled Strategy Formation and Management Action, Glueck describes “Business
Policy as the strategic planning process in business and other institutions in a developed
society.” William Boulton in his book Business Policy, subtitled The Art of Strategic
Management, states that “business policy is the study of how organisations determine and
achieve their purposes. The study is concerned with the ability of organisations to achieve
their objectives in a specific environment and with the top level managers of organisations
who must both lead and motivate people to achieve those objectives. It is the actions of
setting organisational policies that we refer to as strategic management.”

In the Harvard Business School, where business policy is a required course, the first half of
the course considers the formulation of effective strategies. This involves the identification
and analysis of problem situations. Problems are approached from the point of view of the
chief executive or general manager, who is responsible for the enterprise as a whole. The
second half of the course considers the implementation of the selected strategy. It examines
twomajorprocesses for which the general manager must take principal responsibility:
achieving stated objective and assuring thattheorganisationisable torenewitselfbyestablishing
newobjectives.

STRATEGY

The word strategy is derived from the Greek word strategos, (meaning army) and ago
(meaning leading /moving).Strategy is an action that managers take to attain one or more of
the organisation’s goals. A strategy is all about integrating organizational activities and
utilizing and allocating the scarce resources within the organizational environment so as to
meet the present objectives.

Where are the business trying to get to in the long-term (direction), which markets should a
business competing in and what kind of activities is involved in such markets? (Markets;
scope), How can the business perform better than the competition in those markets?
(Advantage), what resources (skills, assets, finance, relationships, technical competence, and
facilities) are required in order to be able to compete? (Resources), what external,

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environmental factors affect the businesses’ ability to compete? (Environment), what are the
values and expectations of those who have power in and around the business? (Stakeholders).

A few definitions stated below may clarify the concept of Business strategy

Kenneth Andrews (1955) "The pattern of objectives, purpose, goals and the major policies
and plans for achieving these goals stated in such a way so as to define what business the
company is in or is to be and the kind of company it is or is to be"

Henry Mintzerg (1987) explains that "strategies are not always the outcome of rational
planning ……a pattern in a stream of decisions and actions”.

William Glueek defines the term strategy as "the unified, comprehensive and integrated plan
that relates the strategic advantage of the firm to the challenges of the environment and is
designed to ensure that basic objectives of the enterprise are achieved through
implementation process"

NATURE AND FEATURES OF STRATEGY

Strategy has several features. Some of these are:

1. Top Level Management Involvement: The strategy of a company is made by top level
management which has information about several activities performed in the past, the
competitiveness of market and other factors which affect the operation of the business.
The involvement of top level management in making strategy of the company ensures the
effectiveness of decision as they are qualified and experienced persons.

2. Resource Development: One of the main objectives of the business is to increase

efficiency. It is the measure of the deployment of the resources used as inputs of business
enterprise. The strategy of a company is assumed to be effective if it has resources
deployment throughout the business activities. It improves efficiency of business
activities.

3. Long-term Impact: The strategy of company sets the goal of company. The goal of a
company is always long-term in nature. The strategy of a company formulates the long-
term goals instead to short-term goals. Long term plan is more consistent than short-term
plan.

4. Implications for Multiple Products, Customers and Services: The strategy of a company
prepares it for multiple products, customers and services rather than for a single product,
customer and service. There are several strategies formulated for different groups of
customers, products and services and the best strategy is selected.

5. Consideration of Environment: As we know that there is mutual dependence between

environment and business enterprise. One business enterprise depends on another
business enterprise directly and indirectly through the environment. The environment
includes several forces to which affect the business enterprise like - suppliers, customers,

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 technology, political, legal, etc. the strategist must consider all these factors while
formulating strategy for making it effective.

6. Future Oriented: It is future oriented as it helps the organisation to look forward. Strategic
action is required in a new situation.

7. It is a Process: As the management process applies in an organisation to achieve the

goals, the process of strategic management may apply in an organisation to ensure that
the organisational objectives are being achieved. As a process, strategic management may
include logical steps such as, formulation of objectives, monitoring the environment to
identify SWOT, formulation of strategies, implementation and evaluation of these
strategies.

IMPORTANCE OF STRATEGY

With the increase in the pressure of external threats, companies have to make clear
strategies and implement them effectively so as to survive.

Strategy provides various benefits to its users:

1. Strategy helps an organization to take decisions on long range forecasts.

2. It allows the firm to deal with a new trend and meet competition in an effective
manner.

3. With the help of strategy, the management becomes flexible to meet unanticipated
changes.

4. Efficient strategy formation and implementation result into financial benefits to the
organization in the form of increased profits.

5. Strategy provides focus in terms of organizational objectives and thus provides clarity
of direction for achieving the objectives.

6. Organizational effectiveness is ensured with effective implementation of the strategy.

7. Strategy contributes towards organizational effectiveness by providing satisfaction to

the personnel.

8. It gets managers into the habit of thinking and thus makes them proactive and more
conscious of their environment.

9. It provides motivation to employees as it paves the way for them to shape their work
in the context of shared corporate goals and ultimately they work for the achievement
of these goals.

10. Strategy formulation & implementation gives an opportunity to the management to

involve different levels of management in the process.

11. It improves corporate communication, coordination and allocation of resources.

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 With all the benefits listed above, it is quite clear that strategy forms an integral part
of an organization and is the means to achieve the end in an efficient and effective manner.

WHAT IS A GOOD STRATEGY?

Generally, a 'good' strategy is the one that delivers the purpose set out for the strategy
in the beginning. However, Richard Lynch suggests a few tests to decide whether a strategy
is good or not. They are;

1. Value Added Test: A good strategy will deliver increased value in the market place.
This might show itself in increased profitability and also gain in business performance
such as market share, innovative ability and satisfaction for employees.

2. Consistency Test: A good strategy will be consistent with the circumstances that
surround a business at any point of time. For example, it enables a firm to use its
resources efficiently and its organizational ability to cope with the circumstances of
that time.

3. Competitive Advantage Test: For most organisations, a good strategy will increase the
sustainable competitive advantage of the organisation.

4. Originality Test: A good strategy is often original i.e. doing something totally
different.

5. Purpose Test: A good strategy should make full attempt to address whatever purpose
has been identified for the organisation, and such a definition of purpose might be
taken to include the aspirations and ambitions of the leaders of the organisation along
with its stakeholders.

6. Logical Consistency: A good strategy should flow in a clear and logical way from the
goals.

7. Flexibility Test: A good strategy should not lock the organisation into the future even
though the environment and the resources might change. It should allow some
flexibility, depending on the way that competition, economy, management, employees
and other material factors change.

TACTICS

Tactics is the means by which previously determined plans are executed. It is

concerned with the short to medium term co-ordination of activities and the deployment of
resources needed to reach a particular strategic goal.

A tactic means "a specific, operating plan detailing how a strategy is to be

implemented in terms of when and where it is to be put into action. By their nature, tactics are
narrower in their scope and shorter in their time horizon than are strategies."

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DISTINCTION BETWEEN STRATEGY AND TACTICS

Strategy Tactics

1. Related to top level of management. 1. Related to lower level of management.

2. Focus is on long term. 2. Focus is on short term.

3. Decisions are uncertain. 3. Decisions are certain.

4. Affects various parts of organization. 4. Affects specific parts of an

organization.

5. Strategic decision that managers need 5. Tactical decision is the information

more detailed, analyzed information. generated within the organization.

6. Strategy is oriented towards ends as well 6. Tactics are concerned with selection of
as means. means.

7. Strategies are formulated from corporate 7. Tactics are formulated from functional
point of view. point of view.

8. Strategy involves smaller number of 8. Tactics involve large number of

people. people.

9. Strategy is original in nature. 9. Tactics follow strategy.

A few aspects regarding the nature of strategy are as follows:

1. Strategy is concerned with pursuing those activities which move an organization - from its
current position to a planned future position

2. It is concerned with the resources necessary for implementing a plan or a predetermined

course of action.

3. It is a plan or course of action or a set of decision rules.

4. It is derived from its policies, objectives and goals.

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STRATEGIC-MANAGEMENT PROCESS

In today's highly competitive business environment, budget-oriented planning or forecast-

based planning methods are insufficient for a large corporation to survive and prosper. The
firm must engage in strategic planning that clearly defines objectives and assesses both the
internal and external situation to formulate strategy, implement the strategy, evaluate the
progress, and make adjustments as necessary to stay on track. A simplified view of the
strategic planning process is shown by the following diagram:

Strategic Control

A) Strategic Intent Strategic intent takes the form of a number of corporate challenges and
opportunities, specified as short term projects. The strategic intent must convey a significant
stretch for the company, a sense of direction, which can be communicated to all employees. It
should not focus so much on today's problems, but rather on tomorrow's opportunities.
Strategic intent should specify the competitive factors, the factors critical to success in the
future. Strategic intent gives a picture about what an organization must get into immediately
in order to use the opportunity. Strategic intent helps management to emphasize and

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concentrate on the priorities. Strategic intent is, nothing but, the influencing of an
organization’s resource potential and core competencies to achieve what at first may seem to
be unachievable goals in the competitive environment.

b) Environmental Scan The environmental scan includes the following components:

• Analysis of the firm (Internal environment)

• Analysis of the firm's industry (micro or task environment)

• Analysis of the External macro environment analysis

The internal analysis can identify the firm's strengths and weaknesses and the external
analysis reveals opportunities and threats. A profile of the strengths, weaknesses,
opportunities, and threats is generated by means of a SWOT analysis. An industry analysis
can be performed using a framework developed by Michael Porter known as Porter's five
forces. This framework evaluates entry barriers, suppliers, customers, substitute products, and
industry rivalry.

c) Strategy Formulation: Strategy formulation includes developing a vision and mission,

identifying an organization’s external opportunities and threats, determining internal
strengths and weaknesses, establishing long-term objectives, generating alternative strategies,
and choosing particular strategies to pursue. Strategy formulation issues include deciding
what new businesses to enter, what businesses 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. Because no organization has
unlimited resources, strategists must decide which alternative strategies will benefit the firm
most. Strategy-formulation decisions commit an organization to specific products, markets,
resources, and technologies over an extended period of time. Strategies determine long-term
competitive advantages. For better or worse, strategic decisions have major multifunctional
consequences and enduring effects on an organization.

i) Mission is the purpose or reason for the organization’s existence. It tells what the company
is providing to society, either a service like housekeeping or a product like automobiles.

ii) Objectives are the end results of planned activity. They state what is to be accomplished
by when and should be quantified, if possible. The achievement of corporate objectives
should result in the fulfilment of a corporation’s mission.

iii) Policies A policy is a broad guide line for decision-making that links the formulation of
strategy with its implementation. Companies use policies to make sure that employees
throughout the firm make decisions & take actions that support the corporation’s mission,
objectives & strategy.

d) Strategy Implementation: Strategy implementation often is called the “action stage” of

strategic management. Implementing strategy means mobilizing employees and managers to
put formulated strategies into action. Often considered to be the most difficult stage in

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strategic management, strategy implementation requires personal discipline, commitment,
and sacrifice. Successful strategy implementation hinges upon managers’ ability to motivate
employees, which is more an art than a science. Strategies formulated but not implemented
serve no useful purpose. Interpersonal skills are especially critical for successful strategy
implementation. Strategy-implementation activities affect all employees and managers in an
organization. Every division and department must decide on answers to questions, such as
“What must we do to implement our part of the organization’s strategy?” and “How best can
we get the job done?” The challenge of implementation is to stimulate managers and
employees throughout an organization to work with pride and enthusiasm toward achieving
stated objectives.

e) Strategy evaluation: Strategy evaluation is the final stage in strategic management.

Managers desperately need to know when particular strategies are not working well; strategy
evaluation is the primary means for obtaining this information. All strategies are subject to
future modification because external and internal factors are constantly changing.

Three fundamental strategy-evaluation activities are

 reviewing external and internal factors that are the bases for current strategies,
 measuring performance, and
 taking corrective actions.

Strategy evaluation is needed because success today is no guarantee of success

tomorrow! Success always creates new and different problems; complacent organizations
experience demise. Strategy formulation, implementation, and evaluation activities occur at
three hierarchical levels in a large organization: corporate, divisional or strategic business
unit, and functional. By fostering communication and interaction among managers and
employees across hierarchical levels, strategic management helps a firm function as a
competitive team. Most small businesses and some large businesses do not have divisions or
strategic business units; they have only the corporate and functional levels. Nevertheless,
managers and employees at these two levels should be actively involved in strategic-
management activities.

LEVELS OF STRATEGY

Strategy may operate at different levels of an organisation-corporate level, business level and
functional level. The strategy may change based on the levels of strategy.

1. Corporate level strategy (Group level) This strategy occupies the highest level of
strategic decision making and covers actions dealing with the objective of the firm,
acquisition and allocation of resources and coordination of strategies of various SBU’s for
optimal performance. Top management of the organization makes such decision.

2. Business level strategy (Company level) Applicable in those organizations which have
different businesses and each business is treated as separate strategic business unit. Reliance
industries limited operates in textile fabrics, yarns, fibres, petrochemical products etc. For

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each product groups the nature of market in terms of customers, competition, and marketing
channel differs.

3. Functional level strategy (Department level) as suggested by title relates to a single

functional operation and the activities involved therein. These decisions are often referred as
tactics. It deals with relatively restricted plan providing objectives for specific action,
allocation of resources among different operations within the functional area and
coordination between them for the optimal contribution towards the achievement of business
level and corporate level strategies. Marketing strategy is an example of a functional strategy.

BENEFITS OF STRATEGIC MANAGEMENT

Strategic management offers the following benefits:

1. Ensuring Success: An explosion in information technology has increased the knowledge

and better methods of planning. Since strategic management helps in achieving success,
there is a need to undertake it in most of the companies.

2. Encourages Innovation and Creativity: A better strategic system should encourage

managers to derive new ways of doing things. It encourages innovative and creative
thinking among managers because they will think of many new things while planning.

3. Increasing Organizational Effectiveness: Organizational effectiveness is something

whereby the organization is general to use its resources to attain the goals. As strategic
management is most particular about statement of objectives and the way in which they
are to be used to produce the best result.

4. Organizational Personnel Satisfied: Strategically managed firm is one where every person
knows clearly as to what is his role in converting the resources into product and services.

5. Minimizing Resistance to Change: Strategic management grants the freedom of choice to

the participants. Though the individual employees are capable of resisting the changes in
common tooth and nail, it is reduced because they have a say in the management.

6. Financial Benefits: Effective Strategic management leads to better financial performance

in terms of profits and growth. Research studies reveal that companies adopting strategic
management out-performed those not adopting strategic management approaches.

7. Offsetting Uncertainty: Strategic management involves forecasting the future and

deciding the future course of action in the light of forecasting. During this process, an
organization acquires the capability to cope with future uncertainties.

8. Improved Quality of Strategic Decisions: Group interactions during the strategic

management process facilitates generation and screening of strategic options. The best
options are likely to be selected and acted upon.

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9. Competitive advantage: Strategic management helps to improve the competitive position
of the organization. It enables the organization to make optimum use of its competencies
and resources and keeps it on the right track.

10. Criteria for Evaluation: Strategic management clearly defines the desired level of
performance. Actual performance can be judged in terms of critical success factors that
are strategically important for the organization.

LIMITATIONS OF STRATEGIC MANAGEMENT

The important limitations of strategic management are the following:

1. Resistance to change: Resistance to change is commonly experienced phenomenon in

business world.

2. Complex and Dynamic Environment: Besides internal factors, there are external factors
too which adversely affect strategy. These factors may be economic, social, political,
technological or legal.

3. Expensive: Strategic Management process is very expensive. The gathering of

information and testing of various courses of action involve greater amount of money.
The utility derived from this process is sometimes less than the expenditure incurred on it.

4. Not suitable for Small Scale Organization: Sometimes, expenses are so prohibitive that
small concerns cannot afford to use strategic management process.

5. Lack of Expertise and Information: SWOT analysis has a very important role in strategic
management. It is an exercise which requires lot of expertise-and information. When
these two are lacking the utility of the SWOT analysis questionable and it could even lead
to formulation of wrong or ineffective strategies.

6. Lack of Realism: Strategic management is a means to achieve the mission and objectives
of the organization. Hence, any lack of realism or other limitation of the mission
/objectives would naturally get reflected in the strategy.

7. Lack of Flexibility: Another criticism against strategic management is that it makes the
whole approach very rigid. It is pointed out that a good strategic management provides
for required flexibility and modifications.

8. No Match in Strategy Formulation and Strategy Implementation: There is a wide gap

between strategy formulation and its actual implementation. The strategies are framed at
top level but implemented at middle level and lower level. A strategy of top management
may mean different to different people at middle level and lower level.

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9. Lack of Commitment: Many people states the important reason for the failure of
strategies is the lack of commitment. The top management and every one directly
involved in the implementation of the strategy would be fully committed to it.

10. Failure of Firms adopted Strategic Management: Another problem is the utility or need
for strategic management pointing out the failure of many firms which adopted strategic
management and the success of many firms which did not have it.

STRATEGIC DECISION MAKING

Decision making is a managerial process and it is a function of choosing a particular

course of action out of several alternative courses for the purpose of achieving organisation's
objectives and goals. It is essential to differentiate between strategic management and what
one may call the day-to-day operations of the management function. Strategic management
relates to the concerns and issues which impact the basis of the business enterprise. It is
concerned with setting the direction for the enterprise which is a difficult and complex job for
the corporate body. Strategy is about the uncertain, unprecedented future. The environment
may be competitive as well as dynamic and in the middle of all this the management may
have multiple choices to make while taking strategic decisions for the company.

Strategic decision making is the core of strategic management. It influences the entire
organisation. Strategic decisions have a long term horizon and are non repetitive, centralised,
taken by top management and are concerned with the allocation of the total resources among
product-market opportunities.

According to Peter F. Drucker, "strategic decisions are multidimensional decisions,

which will have an impact on the future of the enterprise.

FEATUES OR ELEMENTS OF STRATEGIC DECISIONS

The major features or elements of strategic decisions are given below:

1. Top Management Involvement: Strategic decisions consist of several areas of

organization like marketing, production, finance, accounting, human resource
management and research and development operations. Hence, top management
involvement in decision making is imperative.

2. Future Orientation: Long term future direction of the organization is an important aspect
of strategic decisions. Strategic decisions often emerge from the perspective views about
the economy and society, including regulatory environment, prospects of different
business, industry structure, competitive environment etc.

3. Value Orientation: Strategic decisions are affected by the value system, including
business ethics and philosophy.

4. Means to End: Strategy is the means to achieve the end, i.e., the mission and goals.

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5. Resource Commitment: Strategic decision, being long term in nature and having to do
with the scope of the business of the organization, may imply major resource
commitments, including reallocation of existing resources.

6. Strategic Fit: Strategic decisions seek to establish a sustainable organization-environment

fit. The essence of strategic management is the effective deployment of organizational
resources or strengths to exploit the environmental opportunities and to face the
environmental threats.

7. Competitive Orientation: Strategic decision aim at gaining a sustainable competitive edge

for the firm.

8. Complexity: As strategic decisions encompass mission, long term direction, scope of the
organization and establishment of organization-environment fit, they are often complex in
nature.

9. External Environment Considerations: All businesses without any exception are affected
by the external environment factors such as political, social, economic, technical,
competitors, suppliers, customers and so on. Strategic management does consider these
factors carefully during strategy formulation.

10. Uncertainty: Because of the long term future perspective of the strategic decisions, they
can involve considerable uncertainty as future can be hardly be predicted exactly.

CORPORATE LEVEL STRATEGY

BUSINESS VISION

In the beginning, a new business is simply a collection of ideas. Starting a new business rests
on a set of beliefs that the new organization can offer some product or service to some
customers, in some geographic area, using some type of technology, at a profitable price. A
new business owner typically believes that the management philosophy of the new enterprise
will result in a favorable public image and that this concept of the business can be
communicated to, and will be adopted by, important constituencies. When the set of beliefs
about a business at its inception is put into writing, the resulting document mirrors the same
basic ideas that underlie the vision and mission statements. As a business grows, owners or
managers find it necessary to revise the founding set of beliefs, but those original ideas
usually are reflected in the revised statements of vision and mission.

What Do We Want to Become? It is especially important for managers and executives in any
organization to agree on the basic vision that the firm strives to achieve in the long term. A
vision statement should answer the basic question, “What do we want to become?”

A vision is a statement for where the organization is heading over the next five to ten years.

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Warren Bennis and Burt Nanus described the role of vision as follows “To choose a direction,
a leader must first have developed a mental image of a possible and desirable future state of
the organization which we call a vision. With a vision, the leader provides the all important
bridge from the present to the future of the organization”.

Examples: General Motors’ vision is to be the world leader in transportation products and
related services.

BUSINESS MISSION

A Business organization cannot set objectives without mission statement. Therefore, it is of

utmost importance to frame a mission statement. Many organizations define the basic reason
for their existence in terms of a mission statement. An organization’s mission includes both a
statement of organizational philosophy and purpose. The mission can be seen as a link
between performing some social function and attaining objectives of the organization.

Organizations often commit their major goals and corporate philosophy to writing in a
Mission Statement or a statement of purpose. Though varied in its structure and form, the
statement typically describes the company’s reasons for existing. If also sometimes outlines
the “core values” on which the organization is based and to which it expects corporate
behaviour to confirm.

A good mission statement outlines customer needs and utilities. It places emphasis on public
need rather the company product e.g. Oil and Natural Gas Commission and the Indian Oil
Company may stress that they are meeting the energy need of the people rather than
producing and selling oil or gas. Similarly, the Bharat Sanchar Nigam Ltd. (BSNL) may
emphasis that it is helping better and faster communications and not merely selling or
operating telephones.

Mission Statement Components:

Mission statements can and do vary in length, content, format, and specificity. Most
practitioners and academicians of strategic management feel that an effective statement
should include nine components. Because a mission statement is often the most visible and
public part of the strategic management process, it is important that it includes the nine
characteristics

1. Customers—who are the firm’s customers?

2. Products or services—what are the firm’s major products or services?

3. Markets—geographically, where does the firm compete?

4. Technology—is the firm technologically current?

5. Concern for survival, growth, and profitability—is the firm committed to growth and
financial soundness?

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6. Philosophy—what are the basic beliefs, values, aspirations, and ethical priorities of the
firm?

7. Self-concept—what is the firm’s distinctive competence or major competitive advantage?

8. Concern for public image—is the firm responsive to social, community, and environmental
concerns?

9. Concern for employees—Are employees a valuable asset of the firm?

BUSINESS OBJECTIVES

An objective is something aimed at or something sought for. It is nothing but the goal or
destination of the organization. Objectives should be very clearly spelt out, as clearer the
objectives the more the strength one derives to achieve them. The organization should see to
it that while fixing business objectives interest of all groups should be considered and under
no circumstance should it be sacrificed for others.

According to George Terry- “A Managerial objectives is the intended goal which prescribes
definite scope and suggests direction to efforts of a manager”.

According to D. E. McFarland- “Objectives are the goals, aims or purposes that organizations
wish to achieve over varying period of time”.

FEATURES OF BUSINESS OBJECTIVES

1. Ultimate goals: Objectives are the aims; goals and the destination where the organization
wants to go Objectives differentiate one company from others. Every organization must have
a clearly defined objective, e.g. a marketing objective of an organization may be to increase
its profits by 5% or increase its market share by 3%.

2. Future Oriented: Objectives are future destinations which the organization wants to
reach. However these objectives are finalized after considering the past trends and the past
performance of the organization. This is necessary in order to formulate realistic objectives.

3. Guides principles: Whether economic, social or human objectives guide the organization
in taking relevant and quick decisions. Objectives guide in formulating the policies, the
programmes and the plans which in turn guide the employees while implementing the plans
in order to achieve the objectives

4. Complex: Business environment is very complex. Change in one environment may have
different impacts on the other environmental factors. Moreover these environmental factors
are uncontrollable. Objectives have to be modified continuously in order to suit the changed
environment. Thus dynamic environment makes setting of objectives difficult.

5. Qualitative/Quantitative: There are certain objectives which are of qualitative nature,

especially advertising objectives. Advertising objectives can be creating awareness, changing
attitudes, perceptions, enabling recognition of the brand etc. Qualitative objectives are

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therefore difficult to measure. Quantitative objectives are those which can be measured in
volume or value terms. Marketing objectives are generally of quantitative in nature. Some of
the common marketing objectives are increasing sales, increasing market share, increasing
profits etc.

7. Hierarchical: All objectives may not be equally important at a given moment of time, for
instance if the organization is new, its objective generally is survival, rather than growth or
achieving prestige and recognition. However since many groups are involved like
shareholders, creditors, employees etc. identifying proper hierarchy is difficult.

IMPORTANCE OF BUSINESS OBJECTIVES

1. Identity to the organization: Every organization must have an objective. In fact it is the
objectives that justify an organization’s existence. Outwardly all organizations may be similar
but what differentiate one organization from another are its objectives.

2. Facilitates co-ordination: There are various departments in an organization. Success of

any organization depends upon the achievements of each department, which in turn depends
upon the proper co-ordination between people and functions of different departments. This
would enable the different department to work as a cohesive unit.

3. Guides decision-making: The top management has to take number of decisions in

different areas every day. Decisions can be relating to extending the product line or changing
the pricing structure or the place of sale. Decisions depend entirely upon the objectives of the
organization. So, it is the objectives that guide individual as well as group decision making.

4. Motivation: Motivation is the simulation to work with zeal and enthusiasm. When
objectives are clear, the employees know what is expected of them and the reward which they
would earn on achieving those objectives. Clear definition of business objectives motivates
employees to put in their best efforts as they are aware as to what to achieve.

5. Ensures planning: It is said that most people don’t succeed in life because they don’t
know what they want to achieve. One can plan properly only when one knows what one
wants to achieve. Moreover implementation would be effective only if it is planned properly.
Therefore objectives ensure proper planning.

6. Reduces wastage: Objectives facilitate preparing programmes and schedules for achieving
the predetermined goals. Men, money, materials etc. are scare. Success of a business
organization depends upon the effective utilization of the resources. So to the extent possible
wastage of resources should be avoided.

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MCKINSEY 7S MODEL

Definition: McKinsey 7s model can be termed as an internal assessment tool for business
organizations. It determines the organizational effectiveness by examining the alignment of
the seven essential elements (i.e., hard elements – systems, strategy, structure; and soft
elements – share values, staff, style, skills) with the core values of the entity.

Robert Waterman, Richard Pascale and Tom Peters introduced the concept of 7s framework
in the year 1970. They were employed as consultants in McKinsey Consulting firm at that
time. Thus, the tool was named McKinsey 7s model.

Elements of McKinsey 7s Model

An organization comprises of different aspects, the functioning of which defines the

organizational strengths or weaknesses.

Thus, this framework consists of seven such crucial factors. Moreover, these can be broadly
bifurcated into the following two categories:

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Hard Elements

The elements which can be easily recognized and treated by the management in case of any
issues are known as hard elements. This model states the following three hard components of
an organization:

Strategy: A strategy is a set of actions formulated by the management, keeping in view the
long term organizational objectives. The company must be prepared in advance to cope up
with the market competition. The organizational strategies should be in synchronization with
the company’s vision, goals, values and mission.

The McKinsey 7s model provides the following checklist for the alignment of organizational
strategy:

The above figure lists some questions whose answers must be known to the management.

It, therefore, explains the plan formulated and enlist the ways of attaining the organizational
goals, handling the market competition, coping with changing consumer demands and
dealing with the business environment problems.

Structure

The organization’s roles, responsibilities, authority and hierarchical arrangement determine

its structure. It defines the level of accountability and answerability of each personnel. It
clearly states that who will report to whom, defining the superior-subordinate relations within
the company.

The checklist for the organizational structure includes:

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Thus, clarifying the team division, hierarchical structure, inter-department coordination, team
arrangement or alignment, level of centralization and line of business communication.

Systems

The methods, procedures and process which forms the base of carrying out the routine
business operations are termed as an organizational system. For instance, accepting only cash
payment is a system in some organizations.

McKinsey model helps the management to set standards for regular decision making. Thus, it
emphasizes on designing and establishing a robust system.

Given below is the checklist for this element:

Here, ascertainment of an organizational system in terms of security, human resource, finance

and communication takes place. Also, the control and evaluation mechanism of these
systems, along with the internal tracking process is carried out.

Soft Elements

On the contrary, soft elements are complex and dynamic. These factors, usually define the
organizational culture.

This model highlights the four essential soft elements which are explained in detail below:

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Shared Values

This element can be entitled as the foundation of an entity. Shared values are the standards,
principles, believes and norms set by the organization as guidelines for its people.

It is the core of any business, to better understand this element, go through its given checklist:

The answers to the above questions highlight an organization’s core values, corporate culture,
the potential of the set values and fundamental or foundation values.

Style

In simple terms, style refers to how leadership and management of an organization are carried
out to attain organizational goals.

The checklist comprises of the following questions:

Here, we can find out the level of employee participation in decision making allowed by the
management style. Also, an organization’s leadership effectiveness, employees
‘competencies and team efforts can be determined.

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Staff

The composition of different personnel, engaged in carrying out various operations within the
company, are unanimously called staff. The organization essentially needs to place its
personnel at the right positions to ensure optimal resource utilization.

The checklist under the McKinsey framework for this element is:

It brings into notice the team specialization, positions available within a team and areas of in
competencies.

Skills

The competencies or an ability of efficiently performing a particular task is termed as skills.

An organization has to find out the strengths and weaknesses of its personnel by adequately
understanding their skills set.

Following checklist enlightens us on this element:

This factor analyzes the most active team skills, loopholes in the skills set, team strength,
team abilities and ways to evaluate the personnel skills.

Advantages of 7s Model

 When the essential components of the firm are aligned with its vision, the
organization can achieve the desired objectives in a better way.
 It helps in bringing the various departments and processes in sync with each other,
especially when mergers or acquisition takes place.

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  It also facilitates the systematic application of the policies, regulations and strategies
framed by the top management.
 The management can analyze the effects of changing corporate culture, policies,
strategies, structure, technology over the organization.
 It is a broad approach since it inspects each of the seven elements and their correlation
with each other.
 This model is not only theoretically developed but have been practically tested and
applied for managing business organizations.

Disadvantages of 7s Model

 The conclusion of the analysis sometimes does not have a proper factual backing.
 There are possibilities that the management may overlook some of the minute facts
while framing or implementing the strategies.
 When it comes to the accomplishment of strategies, the analyst fails to explain such
application clearly.
 It is a stagnant framework, especially in the short-term, since its result cannot be
analyzed so soon.
 It is difficult to evaluate the degree of suitability of this model in a business
organization.
 This framework emphasizes on the analysis of the organization’s internal factors,
neglecting the external factors which substantially affect the business operations.

CORPORATE POLICY

Corporate Policy is usually a documented set of broad guidelines formulated after an

analysis of all internal and external factors that can affect a firm's objective, operations &
plans. Formulated by the firm's board of directors, corporate policy lays down the firm's
response to know and knowable situations and circumstances. It also determines the
formulation and implementation of strategy and directs and restricts the plans, decisions and
actions of the firm's officers in achievement of its objectives.

Corporate Policy is the guideline which helps the management to carry out its
activities in an efficient and effective manner so that the objectives of the organization are
met. However, there are different views with regard to definition of the corporate policy.
Corporate policy has been defined as "Management's expressed or implied intent to govern
action in pursuit of the company objectives". Corporate policy clarifies the intension of the
management in dealing with the various problems faced. Corporate policy helps the managers
in identification of the problems and the solutions. It provides the framework in which he has
to take the decisions."

DETERMINANTS OF CORPORATE POLICY

The Corporate policy of an organization is influenced by various inter related and

interacting factors. These factors can be classified as internal and external factors. The

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determinants which are internal to the organization and which influence the decisions directly
are known as internal factors and. those factors which act from outside the organization and
influence it externally are called external factors. These factors are discussed below:

INTERNAL DETERMINANTS

These determinants include the corporate mission, corporate objectives, corporate

resources and the management values which are all internal to the organization and play a
very important role in the formulation of the corporate policy.

(a) Corporate Mission: The missions of the company stand for the purpose for which it
exists and operate. The policy makers should be very clear in their minds for which the
company exists and operate and accordingly formulate the policies and guidelines for
managerial and other activities so that corporate mission is accomplished.

(b) Corporate Objective: The organization objectives are designed, framed and
operationalised to work for achieved them. Corporate policy should be made by taking
into account the economic, financial and other objectives of the company.

(c) Resources: The activities to sum any organization depend upon the size of the plant,
capital structure, liquidity position, personnel skills and expertise, competitive position
and nature of products etc. The above factors and resources are considered in
formulating the corporate policy.

(d) Management Values: Another internal determinant of corporate policy is management

value. The corporate policy is influenced by the values of the persons responsible for
formulating it. Their views reflect the values absorbed by the organization. These
values differ from organization to organization.

EXTERNAL DETERMINANTS

These Determinants include all those factors which act from outside the firm and
influence the organization externally. The external determinants of corporate policy include
-Industry structure, social environment, political environment, economic environment,
technology etc.

(a) Industry Structure: The structure of the firm depends upon its size, barriers of the
entry into the market, number and market captured by the competitors, strategies and policies
of the competitors. All these factors are kept in mind while formulating the corporate policy
of any business house. These factors decide the existence of the firm in the market.

(b) Social Environment: The various groups in the society also influence and affect the
activities of an organization / firms. The social, religious, cultural, and ethnic factors of the
managers running the business also influence the making of the policies of the organization.

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Even the holidays are decided as per the social and cultural beliefs of the majority of
population. So the above factors are be considered which making the policy.

(c) Political Environment: The firm has to carry out its activities in accordance with the
government's regulations and policies. If these are not complied with, the firm would not be
able to meet its objective in an efficient manner. The various policies like Monitory Policy,
Fiscal Policy & credit policy of the firm.

(d) Economic Environment: Economic environment comprises of the demand, supply,

prices, trends, the national income, availability of inputs, the various institutions etc. It
includes all those factors which influence the policies of the firm. Therefore, it becomes one
of the most important determinants of corporate policy.

(e) Technology: The Technologies are charging rapidly throughout the world and these
changes are entering the market at regular or intermittent intervals. For any organization to
sustain and remain in the market has to come up with these technologies changes. Thus
technology plays a very important role in formulating the corporate policy.

IMPORTANCE OF CORPORATE POLICY IN TODAY'S SCENARIO

For effective management, the solving of day-to-day problems is not enough. What is
required is the proper assessment of all kinds of activities and operations taking place in the
organization. After the assessment, they are to be defined in clear cut way, so that objectives
could be met. The importance of Corporate Policy may be well seen in following areas:

1. Policies are needed to carry out the business activities in a smooth manner.

2. They provide a clear cut course of attainment of business objectives.

3. If a paper explicit policy has been formulated, many of the details could be
conveniently handled by the subordinates and management would not unnecessarily
waste its time and energy in doing them.

4. Policies provide a guideline and frame work for decision making.

5. Policies encourage delegation of power of decision making.

6. Good policies provide a direction in which all management activities are focused.

7. Policies facilitate evaluation of performance by acting as a standard.

8. The sound policies help in building good public image of the business.

9. Policies provide the firm with clear objectives with which the managers can decide
about the future course of action.

10. They act as tool for co-ordination and control.

CORPORATE PLANNING

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 Corporate planning is a total system of planning which involves the determination of
the objectives for the company as a whole and for each department of the it; formulation of
strategies for the attainment of these objectives; conversion of strategies into tactical plans (or
operational plans); implementation of tactical plans and a review of the progress of tactical
plans against the corporate planning objectives.

Features of Corporate Planning

1. Corporate planning is a total system of planning, under which the objectives are
determined for the company as a whole and for each department of it. This means that
under the concept of corporate planning, no department of company is allowed to have its
own independent planning. All departmental plans are a part of corporate planning, in a
unified structure.

2. To realize the objectives of corporate planning, strategy formulation is done. Strategy

formulation is the core aspect of corporate planning. Success of corporate planning
depends on the success of strategy formulation.

3. Strategies are translated (or converted) into tactical plans (or operational plans), which are
detailed in nature.

4. Tactical plans are put to action at the right time, as decided by management. This is the
practical aspect of corporate planning.

5. Performance of tactical plans is judged in the light of the objectives of corporate

planning; so that necessary modifications might be made in the corporate planning
process and better corporate planning might be done in future.

6. Corporate planning has a long-term perspective; while operational plans have a short-
term prospective.

PROCESS OF CORPORATE PLANNING

Major steps involved in corporate planning are as follows:

1. Environmental Analysis and Diagnosis: The first step involved in corporate planning is
environmental analysis and diagnosis.
2. Determination of Objectives: In corporate planning, after environmental analysis and
diagnosis, the planners determine objectives for the company as a whole and for each
department of it; which become the beginning point of corporate planning.
3. Strategy Formulation: Strategy formulation is the core aspect of corporate planning.
Strategy is, in fact, the weapon of the planner devised for attaining objectives of corporate
planning. It is easier to set objectives; it is difficult to realize them. Strategies facilitate
the attainment of objectives.

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4. Development of Tactical Plans: Strategies are translated into action plans called tactical
plans or operational plans. Tactical plans are necessary for implementation of strategies
leading to the attainment of corporate planning objectives. For example, if the strategy of
a company is to develop the skills and talents of manpower for realizing objectives; then
designing of suitable training programmes would amount to making tactical plans.
5. Implementation of Tactical Plans: Mere paper planning is no planning; unless and until it
is put into practice. As such, tactical plans are put into a process of implementation, just
at the right time, as decided by management. For implementation purposes, necessary
communications are made to the operating staffing; who are also provided with necessary
facilities to implement the tactical plans.
6. Follow-Up-Action: After the tactical plans have been put into practice; a review of
progress is done i.e. an examination of what results are following from the
implementation of the plan and what feedback action is necessary, for the betterment of
the corporate planning process.

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