SM Unit 2 Printout

STRATEGIC MANAGEMENT - UNIT 2
Strategic management process – vision of the company – business vision models – objectives and
goals. Business policies and strategies.
STRATEGIC MANAGEMENT PROCESS

INTRODUCTION:
The strategy process involved in strategy includes a number of elements. The process can be defined as
a set of management decisions and actions which determines the long run direction and performance of the
organization. It is a dynamic and continuous process.
PROCESS OF STRATEGY
The process of strategy is cyclical in nature. The elements within it interact among themselves. Figures
present the process for single SBU firm and multiple SBU firm respectively. The process has to be adjusted for
multiple SBU firms because there it is conducted at corporate level as well as SBU levels as these firms insert SBU
strategy between corporate strategy and functional strategy.
The process of strategy has been divided into the following steps:
 Strategic Intent
 Environmental and Organizational Analysis Strategy Analysis
 Identification of Strategic Alternatives
 Choice of Strategy Strategy Formulation
 Implementation of Strategy
 Evaluation and Control Strategy Implementation
STRATEGIC INTENT
Setting of organizational vision, mission and objectives is the starting point of strategy formulation. The
organizations strive for achieving the end results which are ‘vision’, ‘mission’, ‘purpose’, ‘objective’, ‘goals’, ‘targets’
etc. the hierarchy of strategic intent lays the foundation for the strategic management of any organization. The
strategic intent makes clear what an organization stands for. It is reflected through vision, mission, business
definition and objectives.
Vision serves the purpose of stating what an organization wishes to achieve in long run. The process of
assigning a part of a mission to a particular department and then further sub dividing the assignment among sections
and individuals creates a hierarchy of objectives. The objectives of the sub unit contribute to the objectives of the
larger unit of which it is a part.
Mission and Visions:
The vision of an organization is the expectations of the owner of the organization and putting this vision into
action is mission. Often these terms are used interchangeably, but both are different. The dictionary meaning of
mission is that, “mission relates to that aspect for which an individual has been or seems to have been sent into the
world”.
Mission is relatively less abstract, subjective, qualitative, philosophical and non-imaginative. Mission has a
societal orientation and is a statement which reveals what an organization intends to do for a society. It is a public
statement which gives direction for different activities which organizations have to carry on. It motivates employees
to work in the interest of the organization.
S. Vaidheeswaran, M.Tech., M.B.A., (Ph.D)1
MVIT, Puducherry.
Fig: Strategic Management Process in a Single SBU Firm
Defining Vision, Mission, and

Business
Environmental Analysis Organizational Analysis
Setting Objectives and

Goals
Reset if
required
Identifying Alternative
Strategies
Reformulate
if required Choice of Strategy
Re-implement
if required Implementation of Strategy
Strategy Evaluation and

Control
Feedback

MVIT, Puducherry.
Fig: Strategic Management Processing in a Multiple SBU Firm
Defining Vision, Mission Setting SBU Objectives

and Business Organizational
Long-term
Objectives
Environmental Analysis
Environmental Analysis for for SBU
Present and Potential SBU
Organizational and SBU Analysis of SBU

Analysis
Strategic Alternatives
Strategic Alternatives
Choice of Strategy
Choice of Strategy
Implementation
Implementation Strategy Strategy
Evaluation of Organization Evaluation of SBU

and SBU Results Results
Feedback Feedback

MVIT, Puducherry.
Business Definition:
A business definition is the clear cut statement of the business or a set of business, the organization engages
or wishes to pursue in the future. It also defines the scope of the organization. An organization can face its
competitors not by doing what they do but by doing it differently. Business can be defined along three dimensions
viz a viz product, customer and technology. In whatever dimensions, it is defined, it must reflect two features:
 Focus
 Differentiation
Focus of business is defined in terms of the kind of functions the business performs rather than the broad
spectrum of industry in which the organization operates. A sharp focus on business definition provides direction to
a company to take suitable actions including positioning of the company’s business.
The next feature involved in business definition is differentiation i.e., how an organization differentiates itself from
others so that the business concentrates on achieving superior performance in the market. Differentiation can be
several bases like quality, price, delivery, service or any other factor which the concerned market segment values.
Objectives and Goals:
Once the organization’s mission has been determined, its objective, desired future positions that it whishes
to reach, should be identified. Organizational objectives are defined as ends which the organization seeks to
achieve by its existence and operation. Objectives represent desired results which the organization whishes to
attain. They indicate the specific sphere of aims, activities and accomplishments.
An organization can have objectives in terms of profitability and productivity. Objectives provide a direction
to the organization and all the divisions work towards the attainment of the set objectives. Objectives and goals are
the terms which are used interchangeably.
It is necessary for the organization to assess the process identifying the objectives of each functional area.
After accomplishment of these objectives, the overall objectives of the organization are achieved.
Organization’s mission becomes the cornerstone for strategy. Objectives are other factors which determine
the strategy. By choosing its objectives, an organization commits itself for these.
ENVIRONMENTAL AND ORGANISATIONAL ANALYSIS
Every organization operates within an environment. This environment may be internal or external. For
conducting an environmental analysis, the strategic intent has to be very clear. This clarity in definition of mission
and objectives helps in the detailed analysis of the environment.
Environmental analysis, also known as environmental scanning or appraisal, is the process of through which an
organization monitors and comprehends various environmental factors and determines the opportunities and
threats that are provided by these factors. There are two aspects involved in environmental analysis
 Monitoring the environment i.e. environment search and

 Identifying opportunities and threats based on environmental monitoring i.e. environmental diagnosis.
Environmental analysis is an exercise in which total view of environment is taken. The environment is divided
into different components to find out their nature, function and relationship for searching opportunities and threats
and determining where they come from, ultimately the analysis of these components is aggregated to have a total
view of the environment. Some elements indicate opportunities while others may indicate threats.
A large part of the process of environmental analysis seeks to explore the unknown terrain, the dimensions of future.
The analysis emphasizes on what could happen and not necessarily what will happen. The factors which comprise
firms’ environment are of two types:
 Factors which influence environment directly including suppliers, customers and competitors and
 Factors which influence the firm indirectly including social, technological, political, legal, economic factors
etc
MVIT, Puducherry.
The environmental analysis plays a very important role in the process of strategy formulation. The environment has
to be analyzed to determine what factors in the environment present opportunities for greater accomplishment of
organizational objectives and what factors present threats.
Environmental analysis provides time to anticipate the opportunities and plan to meet the challenges. It also warns
the organization about the threats. The analysis provides for elimination of alternatives which are inconsistent with
the organizations objectives.
Due to the element of uncertainty, environmental analysis provides for certain anticipated changes in the
organization’s network. The organization equips itself to meet the unanticipated changes and face the ever
increasing competition.
For doing the environmental analysis, there can be the strategic advantage profile which provides for analysis of
internal environment, and the organization capability profile as well. For analyzing the external environment,
environmental threat and opportunity profile could be adopted. An organization has to continuously grow in term of
its core business and develop core competencies.
Through organizational analysis, the organization has to understand its strengths and weaknesses. It has to identify
the strengths and emphasize on them. At the same time, it has to identify its weaknesses and unprove them or try
to eliminate them.
Organizational threats and opportunities, strengths and weaknesses help in identifying the relevant environmental
factors for detailed analysis. Therefore, after developing the strategic intent, environmental analysis becomes the
next component step in the process of strategy formation.
IDENTIFICATION OF STRATEGIC ALTERNATIVES
After environmental analysis, the next step is to identify the various strategic alternatives. After the identification of
strategic alternatives they have to be evaluated to match them with the environmental analysis.
According to Glueck & Jauch, “strategic alternatives revolve around the question whether to continue or change the
business, the enterprise is currently improving the efficiency or effectiveness with which the firm achieves its
corporate objectives in its chosen business sector” the process may result into large number of alternatives through
which an organization relates itself to the environment. All alternatives cannot be chosen even if all of these provide
the same results.
According to Glueck, there are basically four grand strategic alternatives:
 Stability
 Expansion (or) Growth
 Retrenchment
 Combination
There are together known as stability strategies / basic strategies.
Stability:
In this, the company does not go beyond what it is doing now. The company serves with same product, in same
market and with the existing technology.
This is possible when environment is relatively stable. Modernization, improved customer service and special facility
may be adopted in stability.
Expansion:
This is adopted when environment demands increase in pace of activity. Company broadens its customer groups,
customer functions and the technology. These may be broadened either singly or jointly. This kind of strategy has
a substantial impact on internal functioning of the organization.
MVIT, Puducherry.
Retrenchment:
If the organization is going for this strategy, then it has to reduce its scope in terms of customer group, customer
function or alternative technology. It involves partial or total withdrawal from three things.
For example L&T has been getting out of the cement business. The objective varies from company to company.
Combination:
When all the three strategies are taken together, this is known as combination strategy. This kind of strategy is
possible for organizations with large number of portfolios.
Apart from these four grand strategies, different strategies which are used commonly are as follows:
Modernization:
In this, technology is used as the strategic tool to increase production and productivity or reduce cost. Through
modernization, the company aims to gain competitive and strategic strength.
Integration:
The company starts producing new products and services of its own either creating facility or killing others.
Integration can either be forward or backward in terms of vertical integration.
In forward integration it gains ownership over distribution or retailers, thus moving towards customers while in
backward integration, the company seeks ownership over firm’s suppliers thus moving towards raw materials.
When the organization gains ownership over competitors, it is engaged in horizontal integration.
Diversification:
Diversification involves change in business definition either in terms of customer functions, customer groups or
alternative technology. It is done to minimize the risk by spreading over several businesses, to capitalize
organization strength and minimize weaknesses, to minimize threats, to avoid current instability in profit & sales
and to facilitate higher utilization of resources.
Diversification can be
 Related or unrelated,
 Horizontal or vertical,
 Active or passive,
 Internal or external.
It is of the following types:
 Concentric diversification
 Conglomerate diversification
 Horizontal diversification
Joint Ventures:
In joint ventures, two or more companies form a temporary partnership (Consortium). Companies opt for joint
venture for synergistic advantages to share risk, to diversify and expand, to bring distinctive competences, to
manage political and cultural difficulty, to take technological advantage and to explore unexplored market.

MVIT, Puducherry.
Strategic Alliance:
When two or more companies unite to pursue a set agreed upon goals but remain independent it is known as
strategic alliance. The firms share the benefits of the alliance and control the performance of assigned tasks. The
poling of resources, investment and risks occur for mutual gain.
Mergers:
It is an external approach to expansion involving two or more than two organizations. Companies go for merger to
become larger, to gain competitive advantage, to overcome weaknesses and sometimes to get tax benefits. Merger
takes place with mutual consent and common goals.
Acquisition:
For the organization which acquires another, it is acquisition and for organization which is acquired, it is merger.
Takeovers:
In takeovers, there is a strong motive to acquire others for quick growth and diversification.
Divestment:
In divestment, the company which is divesting has no ownership and control in that business and is engaged in
complete selling of a unit. It is referred to the disposing off a part of the business.
Turnaround Strategy:
When the company is sick and continuously making losses, it goes for turnaround strategy. It is the efforts in
reversing a negative trend and it is the efforts to keep the organization alive. All these alternatives are available to
an origination according to its objectives, it can decide on the one which is most suitable.
CHOICE OF STRATEGY
The next logical step after evaluation of strategic alternatives is choice of the most suitable alternative. For a
business group, it may be possible to choose all strategic alternatives but for a single company it is quite difficult.
The strategic alternatives have to be matched with the problem. While making a choice, two types of factors have
to be considered.
 Objective factors
o Subjective factors
Objective factors are the ones which can be quantified while subjective factors are the ones which cannot be
quantified and are based on experience and opinion of people. Strategic choice is like a decision making process.
OBJECTIVE FACTORS:
There are three objective ways to make a choice:
 Corporate Portfolio Analysis

 Competitor Analysis
 Industry Analysis
Corporate Portfolio Analysis:

When the company is in more than one business, it can select more than one strategic alternative depending upon
demand of the situation prevailing in the different portfolios. It is necessary to analyze the position of different
business of the business house which is done by corporate portfolio analysis.

MVIT, Puducherry.
This analysis can be done by using any of the seven technologies given below:
 Experience Curve
 PLC Concept
 BCG Matrix
 GE Nine Cell Matrix
 Space Diagram
 Hofer’s Product Market Evaluation Matrix
 Directional Policy Matrix
Experience Curve Technique:

In the Experience Curve Technique, the experience of the strategist enables him to decide which businesses to
enter or quit.
PLC Concept:
Depending upon the stage of the Product Life Cycle of the business, one can make a strategic choice for different
portfolio.
BCG Matrix:
Boston Consultancy developed a matrix called BCG Matrix which is helpful to make strategic choice. In this, the
products are positioned based on various external and internal factors to know the continuity, growth and
discontinuing product. The factors given are specific in nature and attempt has been made to quantify them.
GE Nine Cell Matrix:

The GE nine cell matrix is a matrix in which nine positions are defined in terms of business strength factors and
industry attractiveness factors. The business strength factors include market share, profit margin, ability to compete;
market knowledge, competitive position, technology, and management caliber and the industry attractiveness factor
include market size, growth rate, profit, competition, economics of scale, technology and other environmental
factors. Nine cells are divided into three zones and depicted by different colors i.e. green, yellow and red. Each
zone of matrix presents a specific type of strategy or set of strategies.
Space Diagram:
The Strategic Position and Action Evaluation (SPACE) is an extension of two dimensional portfolio analyses which
helps an organization to hammer out an appropriate strategic posture. It involves consideration of dimensions like
organization’s competitive advantage, organization’s financial strength, environmental stability, etc. various SPACE
factors are measured in terms of degrees, often quantified from 0 to 5 with 0 indicating most unfavorable and 5
indicating most favorable. On basis of four dimensions, organization can choose its strategy.
Hofer’s Product Market Evaluation Matrix:

Hofer and Schendel suggested the product market evaluation matrix. They constructed a 15 cell matrix taking
competitive position and stages of product / market evolution dimensions.
Directional Policy Matrix:

The Directional Policy Matrix was developed by shell chemicals, U.K. It is used two dimensions – business sector
prospects and company’s competitive capabilities to choose strategies. Each dimension is further divided into
unattractive, average and attractive (for business sector prospects) and weak, average and strong (for company’s
competitive capabilities. Each quadrant shows a different strategy which the organization may adopt.
Competitor Analysis:
In this analysis, we try to access what the competitor has and what he does not have. We explore everything with
respect to the competitor.
In competitor analysis, focus is on external environment as one of the components of external environment is the
competitor. The difference between SWOT analysis and competitor analysis is that in competitor analysis we are
concerned with only one component of the environment i.e. competitor while in SWOT analysis we take about all
the factors of the environment.

MVIT, Puducherry.
Industry Analysis:
In industry analysis, all the competitors belonging to the particular industry with which the organization is associated
are looked at. All the members of the industry are considered as a whole. In competitive analysis, only the major
competitors are assessed while in industry analysis all the competitors belonging to the industry are looked at.
The strategic choice is a decision making process which looks in to the following steps:
 Focusing on strategic alternatives

 Evaluating strategic alternatives
 Considering decision factors – objective factors and subjective factors
 Finally, making the strategic choice
IMPLEMENTATION OF STRATEGY
After the evaluation of the alternatives, the choice of strategy is made. This choice now needs to be implemented
i.e. strategy is now put in to action. This step of strategy process is the implantation step. This includes the activation
of the strategic alternatives chosen.
Strategy making and strategy implementation are two different things. Strategy making requires person with vision
while strategy implementation requires a person with administrative ability. If the strategy made is not implemented
properly then the objectives would be lost.
Strategy implementation is as good as starting a new business. The stage requires looking at the problems and
eliminating them. In strategy implementation, one has to pass through different steps:
 Project Implementation
 Procedural Implementation
 Resource Allocation
 Structural Implementation
 Functional Implementation
 Behavioral Implementation
Project Implementation:
It is a comprehensive plan of action from acquiring land to the installation of machinery within a time frame.
Procedural implementation:
It takes place by following the “Law of the Land” i.e. the rules and regulation in terms of wastage cost, utility etc. it
involves completing all those procedural formalities that have been prescribed by the governments both central and
state.
A procedure is a series of related tasks that make up the chronological sequence and the established way of
performing the work to be accomplished. Procedural implementation involves different steps. These steps vary from
industry to industry. Also these may change as per the changes in the government policies. The major procedural
requirements are:
 Licensing Requirements
 FEMA Requirements
 Foreign Collaboration Procedure
 Capital Issue Requirements
 Import and Export Requirements
 Incentives and Benefits
Resource Allocation:
MVIT, Puducherry.
After procedural implementation there comes Resource Allocation. The organization has to allocate resource both
inside the company and outside the company. It has to make decisions regarding short them and long term
allocation. The problem associated with resource allocation is the problem involved in the process. The problems
emerge because:
 Resources are limited

 There are competing organizational units with each trying to have the major portion.
 Organization’s past commitment
Structural Implementation:
The structural implementation of strategy involved designing of the organization structure and interlinking various
units and subunits of the organization. It involves issues like
 How the work of the organization will be divided?

 How will the work be assigned among various positions, groups, department, divisions, etc?
 The coordination among these for achievement of organizational objectives.
There are basically two aspects:
 Differentiation and
 Integration
Differentiation refers to, “the differences in cognitive and emotional orientations among managers in different
functional departments.”
Integration refers to, “the quality of the state of collaboration that are required to achieve unity of efforts in the
organization.”
The organization has to emphasize on both aspects and therefore, it must design organizational structure and
provide systems for integration and coordination among organization’s parts and members.
Functional Implementation:
It deals with the development of policies and plans in different areas of functions which an organization undertakes.
The major function of the organization includes:
 Production
 Marketing
 Finance
 Personnel
Each and every function makes its own policies and plans in tune with the whole organization’s strategy and then
implements to fulfill the objectives. For example, the production function may involve decisions relating to size and
location of plants, technology to be used, cost factor, production capacity, quality of the product, research and
development etc.
Similarly marketing function may include the decisions relating to type of products, price of products, product
distribution and product promotion.
The financial functions deals with dicisions like sources of funds, usage of funds and management of earnings.
Likewise, the major consideration in personnel policies include recruitment of right personnel, development of
personnel, motivation system, retaining personnel, personnel mobility, industrial relations etc.
Behavioral Implementation:
MVIT, Puducherry.
It deals with those aspects of strategy implementation that have impact on behavior of people in the organizations.
Since human resources form an integral part of the organization, their activities and behavior need to be directed
in a certain way. Any departure may lead to the failure of strategy. The five issues in this context relevant to strategy
implementation are:
 Leadership
 Organization Culture
 Values and Ethics
 Corporate Governance and
 Organizational Politics
EVALUATION AND CONTROL
This is the last step of the strategy making process. This is an ongoing process and evaluation and control have to
be done for future course of action as well. To get successful results and to achieve organizational objectives, there
has to be continuous monitoring of the implementation of strategy.
The evaluation and control of strategy may result in various actions that the organization may have to take for
successful well being, such actions may involve any kind of corrective measures concerned with any of the steps
involved in the whole process be it choice for setting mission or objectives.
The process of strategy formulation is considered as a dynamic process wherein corrective actions are taken and
change is brought in any of the factors affecting strategy.
Evaluation of strategy is done by the top managers to determine whether their strategic choice is implemented in a
manner that it is meeting the organization’s objectives. Evaluation emphasizes measurement of results of a strategic
action.
On the other hand, control emphasizes on taking necessary action in the light of gap that exists between intended
results and actual results in the strategic action.
When evaluation and control is carried out efficiently, it contributes in three basic areas:
 Measurement of organizational process,

 Feedback for future actions, and
 Linking performance and rewards.
The board of directors, the chief executive and other managers all play a vinery important role in strategy evaluation
and control. Control can be of three types:
 Control of inputs that are required in an action, known as feed forward control.
 Control at different stages of action process, known as concurrent control.
 Past action control based on feedback from completed action known as feedback control.
Control is exercised by managers in the form of four steps:
Setting performance standards

Measuring actual performance
Analyzing variance
Taking corrective actions
After evaluation and control, the strategy process continues in an efficient manner. The effectiveness could be
assessed only when the strategy helps in the fulfillment of organizational objectives.
STRATEGIC INTENT
MVIT, Puducherry.
INTRODUCTION:
Strategies are involved in the formulation, implementation and evaluation of process. The hierarchy of
strategic intent lays the foundation for strategic management process. The process of establishing the hierarchy of
strategic intent is very complex.
In this hierarchy, the vision, mission, business definition and objectives are established. Formulation of
strategies is possible only when strategic intent is clearly set up. This step is mostly philosophical in nature. It will
have long term impact on the organization.
The concept of strategic intent makes clear “what an organization stands for?” A few aspects about strategic
intent are as follows:
It is an obsession with an organization.

This obsession may even be out of proportion to their resources and capabilities.
It envisions a derived leadership position and establishes the criterion, the organization will use to chart its
progress.
It involves the following:
 Creating and communicating a vision

 Designing a Mission statement
 Defining the business
 Setting objectives
 Vision serves the purpose of stating what an organization wishes to achieve in the long run.

MVIT, Puducherry.
 Mission relates an organization to society.
 Business explains the business of an organization in terms of customer needs, customer groups and
alternative technologies.
 Objectives state what is to be achieved in a given time period.
 The strategic intent concept also encompasses an active an active management process that includes
focusing the organization’s attention on the essence of winning.
 The concept of stretch and leverage is relevant in this context.
 Stretch is a misfit between resources and aspirations.
 Leverage concentrates, accumulates, conserves and recovers resources so that a meager resource base can
be stretched. Leverage reduces the stretch and focuses mainly on efficient utilization of resources.
 The strategic fit matches organizational resources and environment. This positions the firm by assessing
organizational capabilities and environmental opportunities.
 Under fit, the strategic intent would seem to be more realistic.
 It is hierarchy of intentions ranging from a board vision through mission and purpose down to specific
objectives.
VISION:
It is at the top in the hierarchy of strategic intent. It is what the firm would ultimately like to become. A few
definitions are as follows:
Kotter: “description of something (an organization, corporate culture, a business, a technology, an activity) in the
future”. The definition itself is comprehensive and states clearly the futuristic position.
Miller and Dess: defined vision as the “category of intentions that are broad, all inclusive and forward thinking”.
The definition lays stress on the following:
 Broad and all inclusive intentions;

 Vision is forward thinking process.
A few important aspects regarding vision are as follows:
 It is more of a dream than articulated idea.

 It is an aspiration of organization. Organization has to strive and exert to achieve it.
 It is powerful motivator to action.
 Vision articulates the position of an organization which it may attain in distant future.
Envisioning:
This is the process of creating vision. It is a difficult and complex task. A well conceived vision must have:
 Core Ideology
 Envisioned Future
Core Ideology will remain unchanged. It has the enduring character. It consists of core values and core purpose.
Core values are essential tenets of an organization. Core purpose is related to the reasoning of the existence of an
organization.

MVIT, Puducherry.
Envisioned Future will basically deal with following:
 The long tem objectives of the organization

 Clear description or articulated future
Advantages of having a Vision:
A few benefits accruing to an organization having a vision are as follows:
 They foster experimentation.

 Vision promotes long term thinking.
 Visions foster risk taking.
 They can be used for the benefit of people.
 They make organizations competitive, original and unique.
 Good vision represents integrity.
 They are inspiring and motivating to people working in an organization.
CORE VALUES AND CORE PURPOSE:
These concepts are very important in the process of envisioning. Collins and Porras have developed this
concept for better philosophical perspective. A well conceived vision consists of core ideology and envisioned future.
Core ideology rests on core values and core purpose.
Core Values are the essential and enduring tenets of an organization. They may be beliefs of top
management regarding employees’ welfare, customer’s interest and shareholder’s wealth. The beliefs may have
economic orientation or social orientation. The entire organization structure revolves around the philosophy coming
out of core values.
Core Purpose is the reason for existence of the organization. Its reasoning needs to be spelt. A few
characteristics of core purpose are as follows:
i. It is the overall reason for the existence of organization.

ii. It is why of an organization.
iii. This mainly addresses to the issue which organization desires to achieve internally.
iv. It is the broad philosophical long term rationale.
v. It is the linkage of organization with its own people.
MISSION
The mission statements stage the role that organization plays in society. It is one of the popular philosophical issues
which are being looked into business managers since last two decades.
Definition:
Hynger and Wheelen: “Purpose or reason for the organization’s existence”.
David F. Harvey: “A mission provides the basis of awareness of a sense of purpose, the competitive
environment, degree to which the firm’s mission fits its capabilities and the opportunities
which the government offers”.
Thompson: “Essential purpose of the organization, concerning particularly why it is in existence, the
nature of the business it is in, and the customers it seeks to serve and satisfy”.
The above definition reveals the following:

MVIT, Puducherry.
 It is the essential purpose of organization.
 It answers “why the organization is in existence”?
 It is the basis of awareness of a sense of purpose.
 It fits its capabilities and the opportunities which government offers.
Nature:
A few points regarding nature of mission statement are as follows:
 It gives social reasoning. It specifies the role which the organization plays in society. It is the basic reason
for existence.
 It is philosophical and visionary and relates to top management values. It has long term perspective.
 It legitimizes societal existence.
 It has stylistic objectives. It reflects corporate philosophy, identify, character and image of organization.
Characteristics:
In order to be effective, a mission statement should posses the following characteristics:
1. A mission statement should be realistic and achievable. Impossible statements do not motivate people.
Aims should be developed in such a way so that may become feasible.
2. It should neither be too broad nor be too narrow. If it is broad, it will become meaningless. A narrower
mission statement restricts the activities of organization. The mission statement should be precise.
3. A mission statement should not be ambiguous. It must be clear for action. Highly philosophical statements
do not give clarity.
4. A mission statement should be distinct. If it is not distinct, it will not have any impact. Copied mission
statements do not create any impression.
5. It should have societal linkage. Linking the organization to society will build long term perspective in a
better way.
6. It should not be static. To cope up with ever changing environment, dynamic aspects be looked into.
7. It should be motivating for members of the organization and of society. The employees of the organization
may enthuse themselves with mission statement.
8. The mission statement should indicate the process of accomplishing objectives. The clues to achieve
the mission will be guiding force.
Examples of Mission Statement:
A few examples of mission statement (academically not accepted) are as follows:
 India Today – “The complete new magazine”.

 Bajaj Auto – “Value for Money for Years”.
 HCL – “To be a world class Competitor”.
 HMT – “Timekeepers of the Nation”.
Some experts argue that these are the publicity slogans. They are not mission statements.
 A few other examples are as follows:
 Ranbaxy Industries – “To become a research based international Pharmaceuticals Company”.
 Eicher Consultancy – “To make India an economic power in the lifetime, about 10 to 15 years, of its founding
senior managers”.
Formulation of Mission Statements:

MVIT, Puducherry.
The mission statements are formulated from the following sources:
National priorities projected in plan documents and industrial policy statements.

Corporate philosophy as developed over the years.
Major strategists have vision to develop mission statements.
The services of consultants may be hired.
Mission versus Purpose:
The term purpose was used by some strategies. At some places, it was used as synonymous to mission. A few
major points of distinction are as follows:
 Mission is the social reasoning while the purpose is the overall reason.
 Mission is external reasoning and relates to external environment. Purpose is internal reasoning and relates
to internal environment.
 Mission is for outsiders while purpose is for its own employees.
BUSINESS DEFINITION:
It explains the business of an organization in terms of customer needs, customer groups and alternative
technologies.
Oerik Abell suggests defining business along the three dimensions of customer groups, customer functions and
alternative technologies. They are developed as follows:
i. Customer groups are created according to the identity of the customers.

ii. Customer functions are based on provision of goods/services to customers.
iii. Alternative Technologies describe the manner in which a particular function can be performed for a
customer.
For a watch making business, these dimensions may be outlined as follows:
 Customer groups are individual customers, commercial organizations, sports organizations, educational
institutions etc.
 Customer functions are record time, finding time, alarm service etc. it may be a gift item also.
 Alternative technologies are manual, mechanical and automatic.
A clear business definition is helpful in identifying several strategic choices. The choices regarding various
customer groups, various customer functions and alternative technologies give the strategists various strategic
alternatives.
The diversification, mergers and turnaround depend upon the business definition. Customer oriented approach
of business makes the organization competitive.
On the same lines, product/service concept could also give strategic alternatives from a different angle.
Business can be defined at the corporate or SBU levels. At the corporate level, it will concern itself with the wider
meaning of customer groups, customer functions and alternative technologies.
If strategic alternatives are linked through a business definition, it results in considerable amount of synergic
advantage.
OBJECTIVES AND GOALS
Objectives refer to the ultimate end results which are to be accomplished by the overall plan over a specified
period of time. The vision, mission and business definition determine the business philosophy to be adopted in the
long run. The goals and objectives are set to achieve them.
MVIT, Puducherry.
Meaning:
 Objectives are open ended attributes denoting a future state or out come and are stated in general terms.
 When the objectives are stated in specific terms, they become goals to be attained.
 In strategic management, sometimes, a different viewpoint is taken.
 Goals denote a broad category of financial and non-financial issues that a firm sets for itself.
 Objectives are the ends that state specifically how the goals shall be achieved.
 It is to be noted that objectives are the manifestation of goals whether specifically stated or not.
Difference between Objectives and Goals:
The points of difference between the two are as follows:
o The goals are broad while objectives are specific.

o The goals are set for a relatively longer period for time.
o Goals are more influenced by external environment.
o Goals are not quantified while objectives are quantified.
Broadly, it is more convenient to use one term rather than both. The difference between the two is simply a matter
of degree and it may vary widely.
Need for Establishing Objectives:
The following points specifically emphasize the need for establishing objectives:
 Objectives provide yardstick to measure performance of a department or SBU or organization.

 Objectives serve as a motivating force. All people work to achieve the objectives.
 Objectives help the organization to pursue its vision and mission. Long term perspective is translated in
short-term goals.
 Objectives define the relationship of organization with internal and external environment.
 Objectives provide a basis for decision-making. All decisions taken at all levels of management are
oriented towards accomplishment of objectives.
Areas of Objectives (What Objectives should be set)?
According to Peter Drucker, objectives should be set in the area of market standing, innovation productivity, physical
and financial resources, profitability, manager performance and development, worker performance and attitude and
public responsibility. Researchers have identified the following areas for setting objectives:
Profit Objective:
It is the most important objective for any business enterprise. In order to earn a profit, an enterprise has to
set multiple objectives in key result areas such as market share, new product development, quality of service etc.
Ackoff calls them as performance objectives.
Marketing Objective:
It may be expressed as: “to increase market share to 20% within five years” or “to increase total sales by
10% annually”. They are related to a functional area.
Productivity Objective:
It may be expressed in terms of ratio of input to output. This objective may also be stated in terms of cost
per unit of production.
Product Objective:
It may be expressed in terms of product development, product diversification, branding etc.
Social Objective:

MVIT, Puducherry.
It may be described in terms of social orientation. It may be tree plantation or provision of drinking water or
development of parks or setting up of community centers.
Financial Objective:
It relates to cash flow, debt equity ratio, working capital, new issues, stock exchange operations, collection
periods, debt instruments etc. For example a company may state to decrease the collection period to 30 days by
the end of this year.
Human Resource Objective:
It may be described in terms of absenteeism, turnover, number of grievances, strikes and lockouts etc. an
example may be “to reduce absenteeism to less than 10% by the end of six months”.
Characteristics of Objectives:
The following are the characteristics of corporate objectives:
i. They form a hierarchy. It begins with broad statement of vision and mission and ends with key specific
goals. These objectives are made achievable at the lower level.
ii. It is impossible to identify even one major objective that could cover all possible relationships and needs.
Organizational problems and relationship cover a multiplicity of variables and cannot be integrated into one
objective. They may be economic objectives, social objectives, political objectives etc. Hence, multiplicity
of objectives forces the strategists to balance those diverse interests.
Essentials of Objectives:
1. A specific time horizon must be laid for effective objectives. This timeframe helps the strategists to fix
targets.
2. Objectives must be within reach and is also challenging for the employees. If objectives set are beyond
the reach of managers, they will adopt a defeatist attitude. Attainable objectives act as a motivator in
the organization.
3. Objectives should be understandable. Clarity and simple language should be the hallmarks. Vague and
ambiguous objectives may lead to wrong course of action.
4. Objectives must be concrete. For that they need to be quantified. Measurable objectives help the
strategists to monitor the performance in a better way.
5. There are many constraints internal as well as external which have to be considered in objective setting.
As different objectives compete for scarce resources, objectives should be set within constraints.
Process of Setting Objectives:
Glueck identifies four factors that should be considered for objective setting. These factors are: the forces in the
environment, realities of an enterprise’s resources and internal power relations, the value system of top executives
and awareness by the management of the past objectives. They are briefly narrated below:
I. Environmental forces, both internal and external, may influence the interests of various stake holders.
Further, these forces are dynamic by nature. Hence objective setting must consider their influence on its
process.

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II. As objectives should be realistic, the efforts are made to set the objectives in such a way so that objectives
may become attainable. For that, existing resources of enterprise and internal power structure be
examined carefully.
III. The values of the top management influence the choice of objectives. A philanthropic attitude may lead
to setting of socially oriented objectives while economic orientation of top management may force them to
go for profitability objective.
IV. Past is important for strategic reasons. Organizations cannot deviate much from the past. Unnecessary
deviations will bring problems relating to resistance to change. Management must understand the past so
that it may integrate its objectives in an effective way.
RELEVANCE OF STRATEGIC INTENT
The Elements of Strategy – Strategic Diamond:
If a business must have a strategy, then the strategy must necessarily have parts. What are those parts?
As Figure 2 portrays, a strategy has five elements, providing answers to five questions:
 Arenas: where will we be active?

 Vehicles: how will we get there?
 Differentiators: how will we win in the marketplace?
 Staging: what will be our speed and sequence of moves?
 Economic logic: how will we obtain our returns?
This article develops and illustrates these domains of choice, emphasizing how essential it is that they form
a unified whole. Where others focus on the inputs to strategic thinking (the top box in Figure 1), we focus on the
output—the composition and design of the strategy itself.
Arenas:
Present-day marketplace is just like an arena where various fighters try to use their power to win to win the
fights. To win a fight, each fighter chooses his own arena. In the business field, arenas specify in which business
or businesses an organisation will be active. Specifying the arenas is based on organisation’s business definition
where question is asked: what business we are in? in fact every organisation enters only those businesses in which
it perceives that it can compete successfully.
In choosing arenas, the strategist needs to indicate not only where the business will be active, but also how
much emphasis will be placed on each. Some market segments, for instance, might be identified as centrally
important, while others are deemed secondary.
A strategy might reasonably be centred on one product category, with others—while necessary for
defensive purposes or for offering customers a full line—being of distinctly less importance.
Differentiators:
Differentiators define the specific sources of competitive advantage to the organization, that is, through
which sources it will outperform its competitors – image, customization, price, styling, and product reliability.
For example, ICICI Bank differentiates itself on the basis of customization by tailoring its banking services
to the specific needs of each customer group or even individual customer. Bharti Airtel differentiates itself from other
internet service providers on the basis of reliability of its service by ensuring that any complaint by a customer is
handled within four working hours.

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However, while using differentiators, it should be kept in mind that these should be unique in some way and
hard to be copied by competitors. To the extent these differentiators are susceptible for copying, they cease to be
sources of competitive advantage.
Vehicles:
Vehicles specify how the organisation will reach the intended ends –, the means for attaining the needed
presence in a particular product category, market segment, geographic area, or value-creation stage should be the
result of deliberate strategic choice.
If we have decided to expand our product range, are we going to accomplish that by relying on organic,
internal product development, or are there other vehicles—such as joint ventures or acquisitions—that offer a better
means for achieving our broadened scope? If we are committed to international expansion, what should be our
primary modes, or vehicles—Greenfield start-ups, local acquisitions, licensing, or joint ventures? Each of these
vehicles has its pros and cons and relevance for competitive advantage.
For example, with emergence of product patent regime as opposed to process patents, many Indian
pharmaceutical companies have shifted their focus on basic molecular research in order to compete in branded
pharmaceutical products rather than generics. In this process, Ranbaxy intends to become a one billion $ research-
based global pharmaceutical company.
Staging:
While arenas, differentiators and vehicles specify contents of an organisation’s strategy, staging refers to
the speed and sequence of its major activities in the pursuit of its intent. Often, the sequence of progress of an
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organisation is like this: a project is decided and executed; another product either of the same nature or of different
nature is decided and executed. This process goes on.
Most strategies do not call for equal, balanced initiatives on all fronts at all times. Instead, usually some
initiatives must come first, followed only then by others, and then still others. In erecting a great building, foundations
must be laid, followed by walls, and only then the roof. Of course, in business strategy there is no universally
superior sequence. Rather the strategist’s judgment is required.
(Refer class notes for diagrams of staging)
Economic Logic:
Economic Logic defines the specific business model of the organisation indicating how it intends to generate
revenues and profits. While differentiators specify how the organisation is different from others, economic logic
specifies how it can take advantages from this difference.
For example, Hero Cycles Limited, which differentiates itself from other bicycle manufacturers by focusing
on cost reduction manufacturers low-priced but sturdy bicycles which have huge market potential. To tap this
potential, the company takes the advantage of large scale operations. In fast-moving consumer goods (FMCG)
sector, Hindustan Unilever takes the advantage of wide marketing network – the company can reach any household
located in any corner of India.
(For illustrative examples, refer class notes).
BUSINESS POLICIES AND STRATEGIES
THE NATURE AND PURPOSE OF STRATEGIES AND POLICIES:
Strategies and policies are closely related. Both give direction, both are the frameworks for plans, both are the basis
of operational plans, and both affect all areas of managing.
Strategy
 Strategy refers to the determination of the mission (or the fundamental purpose) and the basic long-term
objectives of an enterprise, followed by the adoption of courses of action and allocation of resources
necessary to achieve these aims.
o Therefore, objectives are part of strategy formulation.

o The purpose of strategy is to determine and communicate a picture of enterprise through a system of major
objectives and policies.
o Strategy is concerned with a unified direction and efficient allocation of an organization’s resources. A well
made strategy guides managerial action and thought.
o It provides an integrated approach for the organization and aids in meeting the challenges posed by
environment.
o Strategy is a blend of internal and external factors. To meet the opportunities and threats provided by the
external factors, internal factors are matched with them.
o Strategy is future oriented. Strategic actions are required for new situations which have not arisen before
in the past.
o It is the means to achieve the end in an efficient and effective manner.
Policy
 Policies are general statements or understandings that guide managers’ thinking in decision making.

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o A policy is general guideline for decision-making. Policy is a verbal, written or implied overall guide, setting
up boundaries that supply the general limits and direction in which managerial action will take place.
o Policies provide a framework within which decisions must be made by the management.
 They ensure that decisions fall within certain boundaries. They usually do not require action but guide
managers in their commitment to the decision.
 The essence of policy is discretion. Strategy, on the other hand, concerns the direction in which human
and material resources will be applied in order to increase the change of achieving selected objectives.
 Both policies and objectives both guide thinking and action, but with difference. Objectives are end points
of planning while policies channelise decisions to these ends.
 To be effective, strategies and policies must be put into practice by means of plans, with increasing details
until they get down to the nuts and bolts of operation.
TACTICS
 The action plans through which strategies are executed are known as tactics. Strategies must be supported
by effective tactics.
IMPORTANCE or NEED or SCOPE OF STRATEGY:
(Refer Unit – 1 Notes)
IMPORTANCE or NEED or SCOPE OF POLICIES:
Policies are an important tool for management for ensuring the smooth running of the firm’s day-to-day activities.
Policies are needed:
a) To ensure consistency of individual decisions taken by different branches and departments;

b) To provide for a set of common parameters and criteria for decision making in different situations;
c) To ensure compatibility of individual decisions with the mission and strategy;
d) To ensure consistency of decisions over time;
e) To facilitate delegation of work and authority; and
f) To avoid ad hoc and arbitrary decisions.
Advantages of Policies:
1. Policies ensure uniformity of action in respect of various matters at various organizational points. This
makes action more predictable.
2. Policies speed up decisions at lower levels because subordinates need not consult their superiors
frequently.
3. Policies make it easier for the superior to delegate more and more authority to his subordinates without
being unduly concerned because he knows that whatever decision the subordinates make will be within the
boundaries of the policies.
4. Policies give a practical shape to the objectives by elaborating and directing the way in which the
predetermined objectives are to be attained.
TYPES OF POLICIES:
1. Classification on the basis of sources:

a) Originated policies
b) Appealed policies
c) Implied policies
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d) Externally imposed policies
2. Classification on the basis of functions:

a) Production
b) Sales
c) Finance
d) Personnel
e) Safety etc.
3. Classification on the basis of organizational level:

a) Major departmental policies
b) Minor derivative policies
Guidelines for effective policy making:
 Policies should be, as far as, possible, be stated in writing and should be clearly understood by those who
are supposed to implement them.
 Policies should reflect the objectives of the organization, define the appropriate methods and action, and
delineate the limits of freedom of action permitted to those whose actions are to be guided by them.
 To ensure successful implementation of policies, the top managers and the subordinates who are supposed
to implement them must participate in their formulation. Participation is the best assurance of loyalty to a
policy.
 A policy must strike a reasonable balance between stability and flexibility. Conditions change and policies
must change accordingly.
 Different policies in the organization should not pull in different directions and should support one another.
They must be internally consistent.
 Policies should not be detrimental to the interest of society. They must conform to the canons of ethical
behavior which prevail in society.
 Policies must be comprehensive to cover as many contingencies as possible.
 Policies should be periodically reviewed in order to see whether they are to be modified changed, or
completely abandoned and new ones put in their place.
DIFFERENTIATION OF THE TWO SETS:
-- Mission, Objectives & Strategy VERSUS Policies, Programs & Procedures
Mission, objectives and strategy are mainly the concern of top management while policies, programs and
procedures are concerned primarily with the middle and operating management level.
 While formulation of the mission is an exclusively top management function, the formulation of secondary
objectives and strategy may imply some involvement of the middle management too.
 The formulation of mission, objectives, and strategy imply interaction with the environment and their
concern is with improving the effectiveness of the firm.
 The time horizon for mission, objectives and strategy is long-term and their formulations have far-reaching
consequences affecting the very survival and growth of the firm. On the other hand, policies, programs and
procedures have a shorter time horizon, are easier to change without much adverse impact and do not
have a very critical bearing on the firm.
 On the other hand, policies, programs and procedures affect the internal structure and operational activities
of the firm. Their concern is with improving the efficiency of the firm.
MAJOR KINDS OF STRATEGIES AND POLICIES:
For a business enterprise, the major strategies and policies that give an overall direction to operations are
likely to be in the following areas.

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Growth: growth strategies give answers to such questions such as: how much growth should occur? How fast?
Where? How should it occur?
Finance: every business enterprise and non-business enterprise must have a clear strategy for financing its
operations. There are various ways of doing this and usually many serious limitations.
Organization: Organizational strategy has to do with the type of organizational pattern an enterprise use. It answers
practical questions like: How centralized or decentralized should the decision making authority be? What kinds of
departmental patterns are most suitable? How should staff positions be designed? Naturally, organization structures
furnish the system of roles and role relationships that help people accomplish objectives.
Personnel: There can be many major strategies in the area of human resources and relationships. They deal with
such topics as union relations, compensation, selection, hiring, training, and appraisal, as well as with special areas
such as job enrichment.
Public Relations: Strategies in this area can hardly be independent; they must support other major strategies and
efforts. They must also be designed in the light of the company’s type of business, its closeness to the public and
its susceptibility to regulation by government agencies.
Products or Services: A business exists to furnish products or services. In a very real sense, profits are merely a
measure – although an important one – of how well a company serves its customers. New products or services,
more than any other single factor, determine what an enterprise is or will be.
Marketing: Marketing strategies are designed to guide managers in getting products or services to customers and
in encouraging customers to buy. Marketing strategies are closely related to product strategies; they must be
interrelated and mutually supportive.
EFFECTIVE IMPLEMENTATION OF STRATEGIES
Strategic planning, to be effective, must go beyond the allocation of resources to achieve organizational
objectives. It must be accomplished by strategic thinking, which also includes designing an appropriate organization
structure, an effective management information system, a budgeting system to facilitate the accomplishments of
strategic objectives and reward system that supports the strategy.
Strategic Planning - Failures:
Strategic plans tend to fail for the following reasons:
a. Managers are inadequately prepared for strategic planning.

b. The information for preparing the plans is not sufficient for making action plans.
c. The goals of the organization are too vague to be of value.
d. The business units are not clearly identified.
e. The reviews of the strategic plans of the business units are not done effectively.
f. The link between strategic planning and control is insufficient or not well established.
Recommendations:
The following measures help to make strategic planning more result oriented:

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 Train the line managers – strategic planning is the job of line managers, who, especially in large
companies, may be assisted by staff planners. But in order to do an effective job, line managers must be
coached in strategic planning.
 Supplement the strategic plans with specific action plans – the overall strategic plan needs to be
supplemented by specific action plans. This in general, requires the contribution of line managers from
different functional departments, to plan for the people required to carryout the plan. But integrating the
various functional groups is not easy. Thus, companies have to set up a task force, comprising large number
of middle managers, to cut across the functional barriers.
 Meaningful Goals and Objectives – the goals and objectives to be meaningful have to be more than
platitudes such as ‘achieving excellence’. The degree of specificity depends on the level in the hierarchy of
objectives.
 Create Strategic Business Units (SBUs) – when organizations become too large, they are frequently
broken down into strategic business units. These units are expected to operate as if they were relatively
independent businesses. But it is important that the boundaries of the different SBUs are correctly drawn.
Otherwise, strategic planning may be difficult.
 Prepare budgets to support Strategic Plans: - too often strategic plans and budgets are in conflict. Too
often budgets are based on last year’s budgets rather than on the strategic plan. Very frequently budgets
are prepared without a specific action plan to implement the strategy.
 Focusing on long-term goals – Strategic plans can also is thwarted by a compensation system that
rewards short-term results at the expense of the long-term health of the organization.
It is clear that strategic planning needs to be integrated with the total management process, such as the
organization structure, the appraisal, reward and motivation system and the control used to measure performance
against objectives.
Successful Implementation of Strategies:
 Communicating Strategies to all Key Decision Making Managers

 Developing and Communicating Planning Premises
 Ensuring that Action Plans Contribute to and Reflect Major Objectives and Strategies
 Reviewing Strategies Regularly
 Developing Contingency Strategies and Program
 Making the Organization Structure fit Planning Needs
 Continuing to Emphasize Planning and Implementing Strategy
 Creating a Company Climate that Forces Planning

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STRATEGIC MANAGEMENT - UNIT 2

STRATEGIC MANAGEMENT PROCESS

Mission and Visions:

Defining Vision, Mission, and

Environmental Analysis Organizational Analysis

Setting Objectives and

Strategy Evaluation and

S. Vaidheeswaran, M.Tech., M.B.A., (Ph.D)2

Defining Vision, Mission Setting SBU Objectives

Organizational and SBU Analysis of SBU

Evaluation of Organization Evaluation of SBU

S. Vaidheeswaran, M.Tech., M.B.A., (Ph.D)3

Objectives and Goals:

ENVIRONMENTAL AND ORGANISATIONAL ANALYSIS

 Monitoring the environment i.e. environment search and

IDENTIFICATION OF STRATEGIC ALTERNATIVES

According to Glueck, there are basically four grand strategic alternatives:

There are together known as stability strategies / basic strategies.

It is of the following types:

S. Vaidheeswaran, M.Tech., M.B.A., (Ph.D)6

There are three objective ways to make a choice:

 Corporate Portfolio Analysis

Corporate Portfolio Analysis:

S. Vaidheeswaran, M.Tech., M.B.A., (Ph.D)7

Experience Curve Technique:

GE Nine Cell Matrix:

Hofer’s Product Market Evaluation Matrix:

Directional Policy Matrix:

S. Vaidheeswaran, M.Tech., M.B.A., (Ph.D)8

 Focusing on strategic alternatives

 Resources are limited

 How the work of the organization will be divided?

There are basically two aspects:

EVALUATION AND CONTROL

 Measurement of organizational process,

Control is exercised by managers in the form of four steps:

Setting performance standards

It is an obsession with an organization.

It involves the following:

 Creating and communicating a vision

S. Vaidheeswaran, M.Tech., M.B.A., (Ph.D)12

 Stretch is a misfit between resources and aspirations.

The definition lays stress on the following:

 Broad and all inclusive intentions;

A few important aspects regarding vision are as follows:

 It is more of a dream than articulated idea.

S. Vaidheeswaran, M.Tech., M.B.A., (Ph.D)13

 The long tem objectives of the organization

Advantages of having a Vision:

A few benefits accruing to an organization having a vision are as follows:

 They foster experimentation.

CORE VALUES AND CORE PURPOSE:

i. It is the overall reason for the existence of organization.

Hynger and Wheelen: “Purpose or reason for the organization’s existence”.

The above definition reveals the following:

S. Vaidheeswaran, M.Tech., M.B.A., (Ph.D)14

Examples of Mission Statement:

A few examples of mission statement (academically not accepted) are as follows:

 India Today – “The complete new magazine”.

 A few other examples are as follows:

 Ranbaxy Industries – “To become a research based international Pharmaceuticals Company”.

Formulation of Mission Statements:

S. Vaidheeswaran, M.Tech., M.B.A., (Ph.D)15