Strategic Management and Business Policy

Unit 2

Unit 2
Structure

Strategic Management Process

2.1 Introduction 2.2 Caselet Objectives 2.3 Strategic Management Model 2.4 Approaches to the Strategic Management Process 2.5 Levels in SMP 2.6 Participants in SMP 2.7 Strategic Drift 2.8 Case Study 2.9 Summary 2.10 Glossary 2.11 Terminal Questions 2.12 Answers 2.13 References

2.1 Introduction
In the previous unit, we had defined corporate strategy and strategic management. In defining strategic management, we had mentioned the external environment, formulation of strategy and also implementation and control. Strategic planning and management should actually start with organizational mission and objectives, consider internal competences and resources, various strategy alternatives and the competitive situation and, then proceed with formulation and implementation of the strategy. All these constitute the strategic management process (SMP). And, this would be the subject matter of our analysis in the various units starting with Unit 5. In this unit, we shall give an overview of the strategic management process in terms of different approaches, levels in SMP, planned or intended and realized strategies, the people involved, roles of the chief executive, board of directors and consultants, among others. We shall also discuss concepts like strategic drift and the learning organization and their relevance and roles in the strategic management process.

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2.2 Caselet
Every organization follows a strategic management model, which depends on its size, products and other factors. The organizational structure of the company is built on the basis of this model. Hindustan Unilever (HUL) is a fast moving consumer goods (FMCG) company that markets about 100 products/brands grouped into different categories. The different categories of products require different organizational structure. Therefore, the company has adopted a hybrid organizational structure based on functions and product divisionalization. Like most organizations, strategies at HUL also operate at three levels: corporate, SBU and functional. These will be discussed in more detail in the unit.

Objectives
After studying this unit, you should be able to: Explain the different approaches to the strategic management process Illustrate the strategy-making hierarchy in an organization Describe the various participants in the strategic management process Explain the meaning and nature of strategic drift

2.3 Strategic Management Model

The strategic management process consists of four distinct steps or stages: (a) Defining organizational mission, objectives or goals (b) Formulation of strategy/strategic plan (c) Implementation of strategies (d) Strategy evaluation and control For understanding these four stages, a company has to consider a number of other factors like organizational competence and resources, the environment, various strategy alternatives available, strategy selection criteria, etc. All these are internal parts of SMP. The strategic management process may best be illustrated in the form of a model. We can call this the strategic management model. Relationships among the major components of the strategic management process are shown in the model (Figure 2.1).

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Companies may or may not follow the strategic management process as rigidly as shown in the model. Generally, application of SMP is more formal and model driven in large, well-structured organizations with many divisions, products, markets, different priorities for investmhent, etc. Smaller businesses or companies tend to be less formal. In other words, formality in SMP refers to the extent to which participants in SMP, their responsibilities, authority and roles/ duties are clearly specified. Also, in practice, strategists may not always follow the strategic management model as rigid steps or chains in the management process. Situations may not always warrant this. It would also depend on a companys approach to SMP. Figure 2.1 Illustrates the Strategic Management Model.
CORPORATE STRATEGY

Understanding strategy

Strategy formulation

Strategy analysis

Strategy selection

Strategy implementation

Strategy evaluation control

Understanding corporate strategy (Ch. 1)

Strategic management process (Ch.2)

Corporate strategy and corporate governance (Ch. 3)

Mission. goal, objectives (Ch. 4)

Internal competences resources (Ch. 5)

External environment (Ch. 6)

Structural implementation (Ch. 2)

Functional implementation (Ch. 13)

Behavioural implementation (Ch. 14)

Strategy evaluation and control (Ch. 15)

Stability Strategies (Ch. 7)

Strategy for change (Ch. 8)

Expansion strategies (Ch.9)

Industry & competition analysis (Ch.10)

Selection & activation of strategy (Ch.11)

Figure 2.1 Strategic Management Model

Self-Assessment Questions
1. The _____process consists of four distinct steps or stages Defining organizational mission, objectives or goals; formulation of strategy/ strategic plan; implementation of strategies; and strategy evaluation and control. 2. Organizational competence and resources, the environment, various strategy alternatives available, strategy selection criteria, etc., are _____ parts of SMP.

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3. Application of SMP is more formal and model driven in small businesses. (True/False) 4. In practice, strategists may not always follow the strategic management model as rigid steps or chains in the management process as, situations may not always warrant this. (True/False)

2.4 Approaches to the Strategic Management Process

There are different approaches to the strategic management process (some call these modes of strategy making). These approaches lay varying emphasis on different elements of the strategic management process, primarily because of differences in the nature and forms of organizations. Approaches to strategy making or the strategic management process have been differently enunciated by different authors and strategy analysts. Mintzberg (1973) has classified various approaches into three modes. He calls these the three modes of the strategy-making process. These are: Entrepreneurial mode Adaptive mode Planning mode Steiner and others (1982) have classified various approaches into five forms or categories. These are: Formal-structured approach Entrepreneurial-opportunistic approach Intuitive-anticipatory approach Incremental approach Adaptive approach Three modes of Mintzberg and five approaches of Steiner and others have some commonness or similarities in terms of the content. Therefore, the two sets of approaches can be regrouped into more coherent forms for the purpose of analysis. For example, Mintzbergs planning mode resembles the formal-structured approach of Steiner and others, incremental and adaptive approaches have common features (adaptive is common in both). Entrepreneurial-opportunistic approach is essentially based on opportunities,

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intuition and anticipation. Therefore, entrepreneurial-opportunistic and intuitiveanticipatory approaches of Steiner and others can be analysed together. So, the two sets of approaches may be restated in the forms of three basic approaches: 1. Entrepreneurial-opportunistic 2. Formal-structured and 3. Adaptive

2.4.1 Entrepreneurial-opportunistic Approach

An entrepreneur is a creative thinkeran individual who combines the roles of an innovator and risk taker. He is tough and pragmatic in decision making and is constantly driven by an insatiable urge for creation and achievement. He is characterized by an active search for opportunities in a generally unfriendly or unfavourable environment. In the entrepreneurial-opportunistic approach, the focus is on exploiting opportunities against environmental odds rather than problem solving. In this approach, power rests with one person, the owner and chief executive, who is capable of taking bold decisions on the basis of personal power and charisma. Bold decisions are taken many times in situations of uncertainty. The most dominant goal in this approach is creation and expansion of assets, markets and market share. The strategy is to move forward with unusual leaps or discontinuous growth for achieving entrepreneurial success or profits. Many companies have successfully used this approach. The entrepreneurial-opportunistic approach is suitable for organizations in which the key strategistssometimes a single individualare visionaries. Also, they have complete control over formulation and implementation of a strategy and have very high stake in the outcome of the strategy. They lead the organization from front and by example. These are the reasons why many such organizations outperform their more professional counterparts adopting formalstructured approach. The advantages of this approach may, however, turn into disadvantages if the strategists are found lacking in what they do or in righteousness. Since there are hardly any checks and controls, the entrepreneurs/strategists should have the right vision backed by the right strategy and resources. Otherwise, the strategy may easily lead to failure. There are many such cases of failures.

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2.4.2 Formal-structured Approach

In the formal-structured approach (also called the planning mode), the strategic management process depends largely on the planning system. Planning is based on organizational objectives and priorities, values of the top management, the companys strengths and weaknesses, external opportunities and threats (including risks) and alternative options or strategies available. This implies the application of scientific techniques and tools of analysis in the planning process. The roles of planners are, therefore, very important in this approach. Suitability of the formal-structured approach depends on the size of the organization, management styles, complexity of environment, etc. Steiner (1969) has identified six factors which determine the degree of formalization of the strategic management process. These are organization, management style, environment, production process, nature of problems and purpose of planning system. Most of the large companies, including multinationals, follow the formalstructured approach because it suits their organizational structure and the decision-making process. Many companiesUnilever, for example, started with the entrepreneurial-opportunistic approach during the initial years of incorporation when the company was guided by the vision of the promoter. But, after years of growth when the company became large and, also global in nature, it switched over to the formal-structured approach because, at this stage, more planning and checks and balances are required to sustain growth. A basic advantage of this approach is that it generates enough information and, employs scientific tools of analysis which enable planners and decision makers to find solutions even in complex situations. However, when the planning and management system becomes too formalized and highly structured, the decision-making process becomes slow. Such a system also generally discourages new initiative and unconventional decision making which may be warranted by emerging competitive situations.

2.4.3 Adaptive Approach

The adaptive approach is essentially a balancing strategy. It is more remedial and reconciliatory, and, therefore, more reactive than proactive as a decisionmaking process. Decisions are made in sequential and incremental steps necessitated by internal or environmental changes. Different interest groups and stakeholders put pressure on the decision-making process to protect their own interests. The basic orientation in this approach, therefore, is to maintain flexibility to adapt to pressing needs and circumstances. This also means that

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the final decision, many times, is a compromised one, which may be at the cost of organizational effectiveness or success. The adaptive approach typically suits large public sector companies, where there is greater focus on accountability than on growth. There are also important pressure groups in the form of the controlling ministry and other related government departments and ministries. In such companies, current problem solving (with necessary adaptation and compromise) always has higher priority than future planning. All large public sector companies in India like ONGC, SAIL, BHEL, IOC, MMTC, STC and, also in other parts of the world, follow the adaptive approach. The degree of adaptability and compromise on strategic planning and decision making would depend on the progressiveness of the companies and the concerned controlling ministries. The adaptive approach also suits follower companies (in the private sector) rather than leaders in the industry. Followers or imitators are companies that avoid the risk of innovation and are content with producing and selling products that have already been established in the market. They only concentrate on market share.

2.4.4 Combination Approach

Many companies realize that adopting a single approach exclusively may not be the most judicious course. Stakeholders stakes/interests are increasing (including stock options), the marketplace is ever changing and the business environment is never fully predictable. Due to these factors, the strategic management process of a company has to cope with a large number of complex variables or factors, and a single approach may not be sufficient to secure competitive advantage. A combination of approaches may be the appropriate strategy. A dominant entrepreneurial-opportunistic approach may be combined with the formal-structured approach for better results. Similarly, a formal-structured approach may be combined with some elements of entrepreneurial-opportunistic approach. And, environmental (both internal and external) adaptability should be a common element in these approaches. As Sumantra Ghoshal puts it: It may be useful for Reliance (following entrepreneurial approach) to think whether it should follow a bit of Hindustan Levers structured processes, just as much as it may be productive for Hindustan Lever to consider ways of broadening its systems and culture to the entrepreneurial approach.1

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Hindustan Unilever, like many other companies, has also realized the need for infusing entrepreneurial approach into their dominant formal-structured approach for developing more effective business strategies. According to its former Chairman, Keki Dadiseth, Hindustan Lever has grown in size. While it has its own obvious benefits, it also has some drawbacks. What we need to master is the art of creating and preserving the entrepreneurial ability and connectedness of a small company within a large company.2 There are different ways in which the three approaches can be combined. Individual companies have to work out the right combination based on growth alternatives, investment opportunities or priorities, stakeholders pressures and top managements style of functioning. Activity 1 We have mentioned four different entrepreneurial-opportunistic approaches (Reliance, Dell, Sony, Hero Honda) to the strategic management process. Make a comparative analysis of these four approaches.

Self-Assessment Questions
5. ________ has classified various approaches to SMP into three forms, calling it the three modes of the strategy-making process entrepreneurial mode, adaptive mode and planning mode. 6. In the ______ approach, the focus is on exploiting opportunities against environmental odds rather than problem solving. 7. In the __________ approach, the strategic management process depends largely on the planning system. 8. Which of these approaches is essentially a balancing strategy more remedial and reconciliatory, and, therefore, more reactive than proactive as a decision-making process? (a) Entrepreneurial-opportunistic (b) Formal-structured (c) Adaptive approach (d) Combination approach

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2.5 Levels in SMP

We had mentioned the three levels of strategy in Unit 1. We shall now elaborate on these strategies with respect to the strategic management process. To do this, let us first define a strategic business unit (SBU). A strategic business unit is a division or a product/product group unit which operates as a separate profit centre having its own set of market and competitors and its own marketing strategies. The company or the corporate organization consists of related businesses and/or products grouped into different SBUs. The SBUs are homogeneous enough to manage and control most factors which affect their performance. Resources are allocated to SBUs in relation to their contributions to the corporate objectives, growth and profitability. Three levels in the strategic management process, as mentioned in Unit 1, are: the corporate level, the business unit or SBU level and the functional level. These three levels of strategy distinctly exist only in multiple SBU firms. For single-business companies, corporate-level strategy and SBU-level strategy are not really distinguishable because all the organizational level strategies for resource allocation or growth or market diversification are formulated with respect to the particular product or business of the company (only in the case of product diversification, corporate-level strategy and single business unit-level strategy may/would be different). Relationships among corporate level, business unitlevel and functional-level strategies in single SBU and multiple SBU firms are shown in Figures 2.2 and 2.3. We can also call these alternative strategic management structures.
Corporate/business strategy Top/Senior management

Functional strategy

Middle management

Operations strategies

Marketing strategies

Financial strategies

HR strategies

Figure 2.2 Corporate/Business Level and Functional Strategies in Single SBU Company Sikkim Manipal University Page No. 27

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Corporate strategy

Corporate management

SBU 1 strategy

SBU 2 strategy

SBU 3 strategy

SBU top management

Operations strategies

Marketing strategies

Financial strategies

Personnel strategies

Middle management

Figure 2.3 Corporate/Business Level and Functional Strategies in Multiple SBU Company

2.5.1 Corporate, SBU and functional level

Corporate-level strategy sets the long-term objectives of an organization and broad policies and controls within which an SBU operates. The corporate-level strategies also help an SBU to define its scope of operations and also limit or enhance SBUs operations through resources the corporate management allocates for securing competitive advantage. Functional-level strategies follow from, and also support, SBU-level strategies. Strategies at the functional level are often described as tactical. Such strategies are guided and controlled by overall SBU strategies. Functional strategies are more concerned with implementation of corporate-and SBU-level strategies rather than formulation of strategies. Strategic management process at three levels also involves decision making. But, the types of decision making, their scope and impact are different at different levels. The characteristics of decision making at three levels may be more clearly understood in terms of major dimensions of decision making. These are shown in Table 2.1.
Table 2.1 Characteristics of Strategic Decisions at Corporate, SBU and Functional Levels
Level of Strategy Dimension Type of decision Investment implication Risk involved Time horizon Impact Flexibility Adaptability Corporate Conceptual/policy High High Long term Critical High Low SBU Policy/operational Medium Medium Medium term Major Medium Medium Functional Operational Low/Nil Low Short term Minor Low High

A distinction can be made between functional-level or functional-area strategies and operating strategies. Functional-area strategies involve
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approaches, actions and practices to be undertaken for managing particular functions or business processes or key activities within a business marketing strategy. Operating strategies in comparison, are relatively narrow strategies for managing different operating units (plants, distribution centres in different geographic locations, etc.,) and specific operating activities of strategic significance (advertising campaigns, management of particular brands, website sales and operations, etc).3 Operating strategies provide more specific details about functional-area strategies and render completeness to functional-level strategies and also to overall corporate strategy. Hindustan Unilever (HUL) is a multi-SBU fast moving consumer goods (FMCG) company. It markets about 100 products/brands. It has grouped its big range of products into three categories: home and personal care, foods and beverages and, industrial and agricultural. In addition to domestic marketing, it is also engaged in export which is a separate SBU. The company has adopted a hybrid organizational structure based on functions and product divisionalization. Like most organizations, strategies at HUL also operate at three levels: corporate, SBU and functional. The strategic management process in HUL is shown below as a model structure (Figure 2.4).
HUL

Corporate level Resource mibilization Resource deployment Merger and acquisition divestment Appropriation of earnings

Business level (SBU) Beverages Personal products detergents Ice cream and frozen dessels Export Functional level Technical Marketing Finance Human resources Research Corporate affairs Legal & secretarial

Flow of decision Flow of support

Figure 2.4 Strategic Management Process at HUL Sikkim Manipal University Page No. 29

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Self-Assessment Questions
9. A ________ is a division or a product/product group unit which operates as a separate profit centre having its own set of market and competitors and its own marketing strategies. 10. Strategies at the functional level are often described as_____, and such strategies are guided and controlled by overall SBU strategies. 11. Corporate-level strategy sets the short-term objectives of an organization and broad policies and controls within which an SBU operates. (True/False) 12. Operating strategies in comparison are relatively narrow strategies for managing different operating units. (True/False)

2.6 Participants in SMP

The fact that the strategic management process involves strategy making at the corporate level, SBU level and functional level also implies that managers at different levelstop, senior and middleparticipate in the strategic planning and management process. In addition to the managers, the board of directors also play a definite role. Many times, management consultants also play important roles in the strategic planning and management of a company. So, there may be five major participants in the strategic management process of a company although they may play quite different roles. The five participants are: 1. Board of directors 2. Chief Executive Officer (CEO) 3. Corporate planning staff 4. Other managers 5. Consultants

2.6.1 Role of Board of Directors

In any organizational hierarchy, the board of directors is the apex/highest level body. The board is the final authority in managing the affairs of a company, strategic or non-strategic. They perform these functions according to or subject to the memorandum of association and articles of association of the company. The role of a board member depends on his (her) degree of involvement in the strategic process; and the degree of involvement of a member depends partly
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on the management philosophy of a company and partly on the interest a particular board member takes in the affairs of the company. The levels of involvement and, therefore, the roles of the board members can vary widely. Wheelan and Hunger4 have analysed the role of board members in terms of a continuum as shown in Table 2.2.
Table 2.2 Degree of Involvement of Board Members in Strategic Management
Low (Passive/ phantom) Never knows what to do Rubber Stamp Permits executives to make all decisions and approves what they decide Minimal review Reviews selected issues brought to him/her Normal participation Involved to a limited degree to review managements performance, decisions or programmes Active participation Questions, reviews and makes final decisions on mission, objectives, strategy, policies; performs fiscal and management audit High (Active/ catalyst) Takes the leading role in establishing and modifying mission, objectives, strategy and policies; has very active strategy committee

Source: T L Wheelen, and J D Hunger (1983), 49

Given the progressive management philosophy of a company, professional boards can play very effective roles in the strategic management process. Boards of Hindustan Unilever, L&T, ITC, Tata Motors, Tata Steel, for example, are quite effective and take active part in the strategy-making processes of these companies. They participate in setting and reviewing corporate objectives, formulation of longterm strategies, examination and review of proposals for new investment, appointment of chief executives and other key personnel, etc. According to a survey conducted by AIMS Research5 on the practice of boards of directors and their roles in company management, the boards of Hindustan Unilever, Tata Motors, Bajaj Auto, HDFC and L&T are considered the best in India. On the other extreme, as shown in Table 2.3, there are boards or board members who play only passive roles. In such cases, strategic decisions are taken mostly outside the board. Strategy and decision makers may be a powerful family group or a powerful CEO or the top management committee, overseas parent company in the case of subsidiaries of multinationals or bureaucrats or ministers in the case of public sector companies. Between the passive boards and the extraordinarily participative ones, there are boards which are more common in companies. These boards play a balancing role between the strategy-making process in the companies and the shareholders. Major strategic functions performed by these boards are:
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Approval of the corporate budget and resource allocation for strategic investments Periodic review of the strategic planning process Monitoring the chief executives role in the strategic management process Triggering discussion on growth possibilities and alternatives Guiding the chief executive in formulating organization-level strategies Review of strategy implementation with respect to results or profitability

2.6.2 Role of Chief Executive

The chief executive plays the most important role in the strategic management process of a company. Major management functions of a chief executive, however, can be broadly divided into two categories; strategic and non-strategic. Every chief executive should clearly distinguish between his/her strategic functions and non-strategic or operational functions so that he can appropriately allocate his time and concentrate more on strategic functions. Strategic and non-strategic functions of a chief executive in selected basic organizational areas are given in Table 2.3.
Table 2.3 Strategic and Non-strategic Functional Activities of Chief Executives
Function Basic organizational area Setting goals and priorities Strategic Deciding organizational mission and objectives, setting major policies, priorities, etc. Providing direction and leading the process Providing directions Leading organizational resource development team Non-strategic Minimal or nil

Long-term planning Short-term planning Developing resources

Constitute the planning team Reviewing results Developing human and physical resources

Allocation of work and major resources

Allocating major resources Designing organizational to strategic functions and structure and projects preparing/approving corporate budget Committing new projects or Developing control criteria resources; discommiting projects, resources Negligible or nil Measurement of performance against plans; measuring organizational and managerial effectiveness Maintaining good PR for better governance

Committing resources

Evaluating results / performance appraisal

Relationship with internal and external stakeholders

Mobilizing support

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It may be interesting to see how chief executives prioritize their major functions or roles. T Thomas, the former CEO of Hindustan Unilever visualizes three major roles6 of the chief executive: Managing relationship with the environment Managing the board Long-term planning It is to be noted that Thomas was holding the positions of the chief executive and also of the chairman of the company. If the two positions are delinked as happens in many companies, the chief executives primary role is to assist the board rather than manage it. Managing the board would be the chairmans job. Some empirical studies have highlighted the relative importance of major functions (both strategic and non-strategic) performed by a chief executive. Results of a study7 of 125 Indian CEOs are summarized in Table 2.4.
Table 2.4 Major Functions of a Chief Executive
Function 1. 2. 3. 4. 5. 6. 7. 8. Long-term planning External relationship Review and control of organizational performance Personnel development Short-term planning Performance appraisal Meetings in the organization Review of organizational relations Degree of importance* 4.8 4.5 4.0 3.4 3.2 3.0 2.8 2.6 Time spent (per cent) 18.0 30.0 20.0 7.0 8.0 5.0 6.0 6.0 100.0

* Degree of importance of a function has been measured on a 5-point scale Source: R K Shah, Top Managerial Effectiveness (1990).

Effectiveness of the strategic role of the chief executive determines the direction and pattern of growth of most of the companies. An effective chief executive is a practical/realistic visionary a dreamer who also does. He becomes a catalyst in the strategic management process and, mobilizes resources, managers and supports the board to accelerate the growth process. Effective chief executives are successful leaders; they lead by example and charter a new growth trajectory for the company. Jack Welch of GE, Lee Iacocca of Chrysler Corporation, Michael Dell of Dell Computers, Bill Gates of Microsoft, Keki Dadiseth of Hindustan Unilever, P N Haksar of ITC, Dhirubhai Ambani of Reliance, Aditya Birla of Hindalco Industries, Azim Premji of Wipro and N R Narayanamurthy of Infosys have led their companies to unprecedented heights.
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2.6.3 Role of Corporate Planning Staff

Every chief executive needs the support of his corporate planning staff. With increasing volatility of the competitive environment, the strategic planning and management process is becoming more complex. Also, with the introduction of new tools, techniques and planning models, the planning system is also becoming more technical and specialized. Therefore, almost all large companies and multinationals have created a separate corporate planning division or unit. This division or unit is equipped with specialized planning staff who forms the nucleus of strategic planning activities of a company. In many companies, this division or unit functions directly under the charge of the chief executive. The corporate planning division performs various functions mostly of a strategic nature. Major functions of the corporate planning staff may be summarized as follows: Assisting the chief executive in developing and formalizing fundamental concepts or divisions about organizational growth and diversification. Scanning the environment and identifying new business opportunities. Analysing cost benefits of alternative investment opportunities and allocating resources to various activities/projects. Integrating SBU plans (and, sometimes, also functional plans) into corporate plans. Monitoring progress of strategic plans at corporate level, SBU level and functional levels. Undertaking mid-term review of plans and strategies and, suggesting changes, if and when necessary. Evaluating plan performancemeasuring the degree of success (or failure) of strategic plans and reporting to the chief executive for any necessary action. Vaswani (1990) of Gujarat University conducted a study8 on the strategic management process in India based on a cross-section of Indian companies. The study included 12 public sector, 26 FERA9 and 24 private sector companies. One of the study findings focussed on the role or functions of the corporate planning staff. These are shown in Table 2.5.

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Table 2.5 Functions of Corporate Planning Staff: Relative Importance

Functions Getting top management participation in development of plan assumptions Integrating the plans Monitoring plan progress Communicating the plans Issuing planning guidelines Converting physical plans into financial plans Interpreting the plans Monitoring and reviewing strategic plans Negotiating plan targets Verification of plan activities Monitoring performance of operating units Providing continuous staff assistance to chief executive for planning activities Recommending and monitoring allocation of resources to various organizational units 14. Identification of new business opportunities 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. Weightage* 2.7 2.3 2.3 2.2 2.2 2.1 2.1 2.0 2.0 2.0 1.6 1.6 1.5 1.4

* Weightage is on a four-point scale Source: P Vaswani, Strategic Management Process in India (1990).

2.6.4 Role of Senior Managers

Not only the corporate planning staff but other managers, particularly the senior managers, also play an important role in the strategic management process of a company. The senior managers include SBU heads and also functional heads. Some of these heads are at the level of directors who are represented on the board. The senior managers are members of different management committees, including top management committees which are involved in strategic planning and management. Some of these committees consider and evaluate proposals for new investment, restructuring, diversification, etc. In all these committees some corporate planning staff members are also represented. ITC has constituted a Corporate Management Committee (CMC) which consists of five full-time directors and five senior managers, besides company secretary. MRF has divided its senior managers into five strategic groups dealing with products and markets, environment, technology, resources and manpower. Each group, headed by a leader, prepares position papers (which includes initiation of strategy proposals, feedback and implementation reports) for the board. Voltas undertakes strategy implementation through a Corporate Executive Committee (CEC) headed by the President (Chief Executive) and consisting of Senior VPs and VPs of different functional areas.
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2.6.5 Role of Consultants

Management consultants can play very useful roles in the strategic planning process of a company. Consultants render services in different functional areas of management including the strategic planning and management process. In companies with no separate planning division or unit, consultants can fill that gap. They can undertake planning and strategy exercises as and when the company management feels the need for such exercises or consultancies. Even in companies with a corporate planning division/unit, consultants may provide specialized inputs or insights into identified management or strategy areas. Top strategic consultants like McKinsey & Company use or develop latest tools, techniques or models to work out solutions to specific strategic management problems or issuesbe it productivity, cost efficiency, restructuring, long-term growth or diversification. Consultants bring with them diversified skills (most of the consulting companies are multidisciplinary) and experience from various companies which may not be available internally in a single company. This is the reason why even large multinational companies hire consultants for achieving their goals or objectives. There are many international consultants who are in demand in different countries. There are also national consultants. Leading international consultants, in addition to McKinsey & Company, are Boston Consulting Group (BCG), Arthur D Little and Accenture (formerly Anderson Consulting). Prominent Indian consulting companies are A F Ferguson, Tata Consultancy Services (TCS) and ABC Consultants. Consultants, sometimes have a difficult or delicate role to play. In many companies, a situation develops when the chief executive or the top management needs to bank upon the support of an external agency like a consultant to push through a strategic change in the organizational structure or management system of the company. It may be for growth and development or downsizing. In both cases, many companies face internal resistance to change. The resistance is more if it is downsizing even when it is required for turning around a company. This happens particularly in public sector companies where implementing change is always difficult. Consultants are engaged to support or substantiate the companys point of view (in the form of their recommendations) so that change is more easily acceptable to the internal stakeholders of the company. Consultants role may become delicate and, sometimes, tricky in such cases, and they should carefully weigh the ethical implication of their participation.

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Self-Assessment Questions
13. Managers at different levelstop, senior and middleparticipate in the strategic planning and management process. (True/False) 14. The _______ plays the most important role in the strategic management process of a company. 15. Most large companies and multinationals have created a separate _____unit, which is equipped with specialized planning staff who form the nucleus of strategic planning activities of a company. 16. In companies with no separate planning division or unit, ______can fill that gap.

2.7 Strategic Drift

In the strategic management process of every company, there is a risk of strategic drift. In simple terms, strategic drift is the widening gap between demand for change by the environmental forces and actual strategic change in a company. If there is a pressure for change, managers usually look for what is familiar. But, this creates problems when managing strategic change, because the action required may be outside the present system or paradigm, and organizations may be required to change significantly their core assumptions and strategies. The situation may be one of declining performance. To arrest the decline, company management may first seek to improve implementation of the existing strategy. This can be through tightening controls and improving the monitoring system. If this is not effective, a change of strategy may take place, but, a change which may still be within the existing paradigm. For example, the management may seek to expand the market but, may assume that it will be similar to its existing market and, therefore, plan for managing the new project in much the same way as it has been used to. This is the strategy of incremental change. But, this may not be enough. Such processes or strategies may not be adaptive enough to the environmental changes over time. This may give rise to strategic drifta mismatch between the environmental needs and strategic actionas shown in Figure 2.5.

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Environmental change Strategic change Amount of change 5 3

2 1 4

Phase 1 incremental change

Phase 2 Flux

Phase 3/4 Transformational change or demise

Time

Figure 2.5 Strategic Drift in the Management Process

As shown in the Figure 2.6, an organizations strategy gradually moves away from or neglects the forces at work in its environment. Sometimes, the strategic drift is difficult to detect and reverse. This happens because not only changes are being made in strategy, but also such changes may achieve some short-term improvement in performance tending to legitimize the action taken. But, with time, either the drift becomes evident or the environmental change increases, and the performance is affected. Strategy development is then likely to go into a state of flux (Phase 2), with no clear direction, further damaging the performance. Eventually, more transformational change may be required (Phase 3) if the demise of the organization (Phase 4) is to be avoided.10 The above description of strategic drift conforms to a situation of lack of fit or match with the environment. The lack of fit can happen in another way also. Those organizations, which tend to stretch their competences to create new opportunities, may also get into problems. In this case, a transformational change may be attempted through development of entirely new products or services not previously in existence. This can succeed and create a shift in the market in accordance with the intended strategy. However, there is a risk that such an organization can find itself ahead of its environment (Phase 5 in Figure 2.5). The strategy and the environment may eventually realign (as shown in the

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figure), but, this may not often happen in reality; and, even if it happens, the time lag in the realignment process can cause significant problems of performance in the organizations. Strategic drifts of this nature are, however, not very common. More common drifts in organizations are the ones where the strategic process lags behind the environmental forces. But, all this emphasizes the delicate balance that an organization needs to maintain in developing its strategy. It has internal pressurescultural or managerialwhich tend to constrain strategy development, and environmental forces, including markets and competitors, which it must cope with for a particular strategic process to succeed. Every organization has to constantly endeavour to align or realign these two forces to avoid the occurrence of a strategic drift.

2.7.1 The Learning Organization

The risk of strategic drift implies that there is not much justification in pursuing formalized planning approaches with predetermined objectives, analyses and strategies. The environment is too complex and changes too rapidly for such approaches to produce desired results. Such uncertainty in the environment requires that strategy should be managed in a more unconventional, discontinuous way and not through incremental changes. Managers should not regard their experience as fixed and unalterable; on the other hand, they should try to develop an organization in which they continually challenge past experience and practices and strive for new, innovative ways. In other words, they should develop a learning organization. Senge (1990) gives a good exposition of the art and practice of the learning organizations. Managers in a learning organization have a questioning mind. They start by questioning the past and the present. For this to happen, companies need to develop organizations which are pluralistic, i.e., organizations in which different and even conflicting ideas and views are encouraged, and discussions, debates and experimentations are the norms. In this way, all strategic solutions and decisions emerge through a critical, but progressive process. The job of the top management is to create such an organization and build teams which can work in a pluralistic environment. This can be done in a number of ways; for example, through development of different types of organizational structure or through development of organizational culture. Suitability of the organizational type is important. The learning organization is also an evolving organization.

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Activity 2 In every organization, there is a chance of strategic drift. Progressive organizations try to prevent strategic drift through advance planning and preventive strategies. Assume that you are the strategic planning manager of one such company. Give your analysis of preventive planning and strategies.

Self-Assessment Questions
17. The widening gap between demand for change by the environmental forces and actual strategic change in a company is referred to as ______. 18. The risk of strategic drift implies that there is not much justification in pursuing formalized planning approaches with predetermined objectives, analyses and strategies. (True/False) 19. Managers in a learning organization have a __________mind. 20. The learning organization is also an evolving organization. (True/False)

2.8 Case Study

Strategic Management Process At Hindustan Unilever (HUL) Hindustan Unilever (HUL) is a partly owned (majority holding) subsidiary of Unilever Ltd. For quite some years, Unilever was on the lookout for expansion opportunities for its group companies/ businesses in India. When the opportunity came its way with Indias e conomic liberalization in the 1990s, Unilever acted fast, achieved a big expansion in each of its major businesses in the country, regrouped and integrated its companies. Unilever worked out its corporate strategy for India in line with its objectives. To achieve its objectives, HUL formulated a strategy which had three distinct components:

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1. A strategy for expansion of businesses 2. A strategy for regrouping and integrating the group companies 3. A strategy for consolidation of ownership and control by the parent company in the Indian operations by acquiring majority equity in them. For expansion of its business, HUL exploited a whole range of strategic possibilities. It used takeovers/ acquisitions, mergers, strategic alliances and joint ventures. In some cases, it employed the start-up route as well. It, however, relied heavily on the takeover route for its expansions. There were valid reasons for this. By relying on the takeover route for its expansion, Unilever was in a position to avoid the time lags. Along with the expansion of its various businesses, Unilever carried out the regrouping/integration of its existing businesses/companies in the country. Its idea was to integrate all its companies in India into a single mega firm. It used mergers for accomplishing the objective and carried it out in stages. It took two companies at a timetwo companies of the group which enjoyed the closest synergy were merged at a time into a single entity, and the merged entity in turn was subsequently merged with another company of the group to form a much larger entity. The process continued till it reached the stage where Unilever had just a single company in India. Unilever merged four companiestwo of its existing companies, Doom Dooma India and Tea Estates India, two taken-over companies, Kissan and Kothari General Food (KGF), into Brooke Bond. The merging of Doom Dooma and Tea Estates served two purposes. It furthered the objective of integrating the group companies. It also helped Unilever to acquire majority equity in Brooke Bond with an incremental new investment. Unilever then merged Brooke Bond and Lipton into a single entityBrooke Bond Lipton India Ltd (BBLIL). Then TOMCO, which had been taken over earlier, was merged with HLL. Subsequently, the combined entity, Brooke Bond Lipton India Ltd (BBLIL) was merged with Hindustan Lever. Consolidation of ownership and control by the parent company was the third part of Unilevers strategic process with respect to its Indian operations. Unilever acquired majority stake and consolidated its position in all its companies in India. The company acquired 51 per cent or more equity in each of its companies in India, and it managed this at attractive prices and with minimal new investment. This was accomplished through a chain of moves involving mergers of companies and incremental new investments.

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2.9 Summary
Let us recapitulate the important concepts discussed in this unit: There are different approaches to the strategic management process. These approaches can be regrouped into three basic approaches: entrepreneurial-opportunistic, formal-structured and adaptive. Many companies use a predominantly entrepreneurial-opportunistic approach and combine this with the formal-structured approach. Similarly, a formal-structured approach may be combined with some elements of adopting predominantly a formal-structured approach with elements of entrepreneurial-opportunistic approach. Corporate-level strategies, SBU-level strategies and functional-level strategies all involve decision making. But, the types of decision making, their scopes and impacts are different at different levels. For example, corporate-level strategies are generally long term, SBU-level strategies are generally medium term and functional level strategies are short term. Managers at different levelstop, senior and middleparticipate in the strategic management process. In addition, the board of directors plays an important role. Consultants also have a role to play. In all, there are five major participants in SMP: board of directors, chief executives (CEO), corporate planning staff, other managers and consultants. In the strategic management process of every company, there is a risk of strategic drift. Strategic drift is the gap between demand for change by the environmental forces and actual strategic change taking place in a company. In learning organizations, managers constantly challenge past experience and practices and, strive for new innovative ways. In such organizations, strategy is managed in a more unconventional, discontinuous way and, not through incremental changes.

2.10 Glossary
Merger: The combining of two or more companies into one, through a purchase acquisition or a pooling of interests Strategic business unit: A division or a product/product group unit which operates as a separate profit centre having its own set of market and competitors and its own marketing strategies
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Strategic drift: The widening gap between demand for change by the environmental forces and actual strategic change in a company Strategic management process: An ongoing process that entails specifying the organization's mission, vision and objectives, developing policies and plans, often in terms of projects and programs, which are designed to achieve these objectives, and then allocating resources to implement the policies and plans, projects and programmes.

2.11 Terminal Questions

1. Explain the strategic management process (SMP). Discuss it in terms of the strategic management model. 2. Distinguish between the entrepreneurial-opportunistic approach, formalstructured approach and the adaptive approach in strategic management. Would you generally recommend each of these approaches in isolation or in some combination for a company? 3. What are the different levels in SMP? Are there any interrelations among them? Explain. 4. Who are the major participants in SMP? Do you feel all these participants play equal roles? 5. Compare the roles of the board of directors and the chief executives in the strategic management process. 6. What is the role consultants play in the strategic planning and management process of a company? Is it an essential role? 7. What is strategic drift? Explain graphically. 8. Which is a learning organization? What is the mindset of managers in a learning organization?

2.12 Answers Answers to Self-Assessment Questions

1. Strategic management 2. Internal 3. False

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4. True 5. Mintzberg (1973) 6. entrepreneurial-opportunistic 7. formal-structured 8. (c) 9. Strategic business unit 10. tactical 11. False 12. True 13. True 14. Chief executive 15. Corporate planning unit 16. Consultants 17. Strategic drift 18. True 19. Questioning 20. True

Answers to Terminal Questions

1. The strategic management process may best be illustrated in the form of a model. Refer to Section 2.3 for further details. 2. Three modes of Mintzberg and five approaches of Steiner and others have some commonness or similarities in terms of the content. Refer to Section 2.4 for further details. 3. Three levels in the strategic management process are the corporate level, the business unit or SBU level and the functional level. Refer to Section 2.5 for further details. 4. There may be five major participants in the strategic management process of a companyboard of directors, chief executive officer (CEO), corporate planning staff, other managers and consultants. Refer to Section 2.6 for further details.

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5. The board of directors is the final authority in deciding the affairs and direction of a company; the chief executive plays the most important role in the strategic management process of a company. Refer to Section 2.6 for further details. 6. Management consultants can play very useful roles in the strategic planning process of a company. Refer to Section 2.6.5 for further details. 7. Strategic drift is the widening gap between demand for change by the environmental forces and actual strategic change in a company. Refer to Section 2.7 for further details. 8. Due to the fear of strategic drift, every company should be a learning organization. In learning organizations, managers constantly challenge past experience and practices and, strive for new innovative ways. Refer to Section 2.7.1 for further details.

2.13 References
1. Hill, C W L, and G R Jones. 1997. Strategic Management: An Integrated Approach. 2nd edn. Boston: Houghton Mifflinco. 2. Johnson, G, and K Scholes. 2005. Exploring Corporate Strategy. 6th edn. London: Pearson Education. 3. Mintzberg, H. 1973. Strategy Making in Three Modes. California Management Review, Winter. 4. Senge, P. 1990. The Fifth Discipline: The Art and Practice of the Learning Organization. New York: Doubleday Century. 5. Thomas, J. 1981. Managing a Business in India. New Delhi: Allied Publishers. 6. Wheelen, T L, and J D Hunger. 1983. Strategic Management and Business Policy. Massachusetts: Addison-Wisley. 7. Wright, P, C Pringle, and M Kroll. 1998. Strategic Management: Text and Cases. Boston: Allyn and Bacon. Endnotes
1

Sumantra Ghoshal, Collectors of Great People, Economic Times, Supplement (August 20, 1999). Keki Dadiseth, Business Growth Through People Growth: Our Blueprint for the New Millennium , Chairman s Speech (Mumbai: Annual General Meeting of the Company, April 20, 2000).

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A A Thompson Jr, A J Strickland III, and J E Gamble, Crafting and Executing Strategy: The Quest for Competitive Advantage, 14th ed. (New Delhi: Tata McGraw-Hill, 2005) 34. T L W heelen, and J D, Hung er, Strategic Management and Business Policy (Massachusetts: Edition Wesley, 1983), 49. AIMS Research Survey, Best Boards, Business Today (March 7 21, 1999). T Thomas, Managing a Business in India (New Delhi: Allied Publications, 1981), l. R K Shah, Top Management Effectiveness, unpublished PhD Dissertation (South Gujarat University, 1990). P Vaswani, Strategic Management Process in India , PhD Thesis Surat: South Gujarat University, 1990. Companies covered under the Foreign Exchange Regulation Act (FERA). FERA has now been replaced with Foreign Exchange Management Act (FEMA). G Johnson, and K Scholes, Exploring Corporate Strategy (1999), 77.

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