Strategic Management

Concept:
 "Strategic management is defined as the art and science of formulating, implementing, and
evaluating cross-functional decisions that enable the organization to achieve its objectives."
Generally, strategic management is not only related to a single specialization but covers cross-
functional or overall organization.

 Strategic management is a comprehensive area that covers almost all the functional areas of the
organization. It is an umbrella concept of management that comprises all such functional areas
as marketing, finance & account, human resource, and production & operation into a top level
management discipline. Therefore, strategic management has an importance in the
organizational success and failure than any specific functional areas.

 Strategic management is different than the routine and operation management. Strategic
management deals with organizational level and top level issues whereas functional or
operational level management deals with the specific areas of the business. Strategic
management has relatively long-term focus in comparison to the operational management. Top-
level managers such as Chairman, Managing Director, and corporate level planners involve more
in strategic management process whereas functional managers and other employees involve
more in operational management areas. Strategic management area is broader than any specific
functional management area. Strategic management relates to setting vision, mission,
objectives, and strategies that can be the guideline to design functional strategies in other
functional areas. Therefore, it is top-level management that paves the way for other functional
or operational management in an organization.

Meaning:
 Strategic Management (managing or competing for future) is also known as Business Policy or
Corporate Strategy or Corporate Planning. It refers to those set of management measures taken
with a view to ensuring the survival and success of an enterprise in a competitive environment.

 It is that set of decisions and actions which leads to the development of an effective strategy or
strategies to help achieve corporate objectives. It is designed to ensure that the basic objectives
of the enterprise are achieved.

Definition:
 Glueck – Strategic Management can be defined as a set of decisions, actions resulting in
formulations & implementation of strategies designed to achieve the objectives of enterprise.
 Hofer – ‘The process which deals with the fundamental organizational renewal and growth with
the development of strategies, structures and systems, necessary to achieve such renewal and
growth’.

Advantage:
 Advantages of Strategic Management: Due to the strategic management company
receives the following type of economic and non-economic advantages.

(1) Increase in rate of return on investment: Due to the strategic management there is a noble
increase in the rate of return on investment made in the project. On the basis of the
information received through analysis of internal and external environment the managers
can increase the rate of return on investment by making a maximum use of resources.

(2) Reduction in Cost of Capital: It is a fact that the unit which is successful in raising the capital
of the lowest possible cost is almost eligible to face the competition right from the beginning.
After getting the estimate of capital requirement the managers select the sources of capital
from where they can acquire the capital in a strategically manner. The strategic management
has been proved to be very useful to raise the estimated capital at lowest possible rate,
simple conditions for mortgage, return of borrowed capital and conversion of borrowed
capital into owner’s capital.

(3) Increase in Trading on Equity: Trading on equity depends upon many factors. Among to this,
by making a maximum use of borrowed capital in a creative manner through strategic
management process, the profitability of the unit can be increased and the equity share holders
can be paid maximum dividend. If an appropriate strategical arrangement is not made for the
use of financial resources, then its profitable use will not be successful and the interest on the
borrowed capital will also become burdensome.

(4) Increase in Profitability: The profitability of a unit depends upon the maximum use of
limited resources. Through strategical management process, the managers cannot only make
the maximum use of financial resources but also they can use maximum man power to increase
the overall productivity and profitability of the unit.

(5) Reduction in fixed and flexible expenses: The capital invested in the fixed assets is a fixed
capital. Instead of purchasing the fixed assets, the managers may buy such assets on rent to
decrease the fixed capital investment. In the same way, the flexible expenses can also be
reduced through collection arrangement. Making changes in packing, of making changes in full,
by acceptance, the strategy of machinery resources in management etc.

(6) Motivation to group activity: By taking strategic decisions through the group, integration
between group members increases on accepting various optional strategies which result in to
 co-operation and unity. Not only that, but the managers can also get the advantage of special
strength of group members.

(7) Increase in the efficiency of the employees: The officers and experienced employees of all
the three levels of management are included in strategic management process. The necessary
inter process is being done with them and for the success of strategy necessary training is also
given to them. By this there is a notable increase in efficiency of employees and they get
inspiration to work more.

(8) Alertness in employees: The alertness among the employees increases the success of
objectives and targets due to strategic management. While framing the strategy management
studies the capability and weaknesses of employees and resources and taking the steps to
improve them, the employees become more alert about their own performance and the group
activity.

(9) Prevention of overlapping of work: Due to the interaction with employees and officers
working at all the levels of the organization the question does not arise at all for the distribution
of one work to more than one employee or even the overlapping work is also not possible.
When the same activity is done by more than one employee At that time there is a wastage of
time and materials. The problem of co-ordination also arises. With the help of strategic process,
the managers can prevent the overlapping of work.

(10) Prevention of organizational gap: Out of the departmental activities o organization if any
activity is not allotted to any employee, that activity is known as organizational gap. If the
allotment of any work is left out by mistake, then none of the employees can be held
responsible for it. In strategic management process, because of the interacting process being
done with each employee, all the employees are given equal works and so there does not arise a
question of organizational gaps.

(11) Acceptance of Organizational Changes: Normally the employees do not accept the changes
made in the organization, because due to that the change occurs in their roles also. As a result
the necessity to giving training of the new work to the employees arises. Not only that but
because of such changes many departments also have to be closed. In these circumstances the
problem of the safety of job arises. In strategic management process the capability of
employees is also considered. Not only that, but for its development, efforts are made through
training programme so no question arises for the employees for not accepting the changes.

Conclusion: The concept of strategic management is connected with the development and profitability of business unit. By adopting this
concept cost of production can be reduced and business competition can be faced. Efforts are made for the success of strategic decisions at
the all three levels of strategy. Hence more alertness seen in the employees of this companies.
Limitation:
 Strategic process is not a short term process. For this the officers and employees have to
sacrifice for a long time. For the implementation of strategy necessary changes have to be
made in the present organization. These changes many times create unsatisfaction among
the employees. At the view point of management strategies are economically advantageous
but even employees considered themselves responsible for the profits and put various
demands in front of management, considering all these, the limitations of strategic
management are as follows:

(1) Time Consuming: For taking a strategic decision, the managers make a study of internal and
external environments. For this, a process of forecasting is being used.

Besides this, interacting process is being done with various officers and employees. For all these
works a lot of time is being consumed.

(2) Ignorance of other Managerial Functions: The responsibility of the chief officers is more who
are connected with framing and implementation of strategy and due to continuously following
the work of strategies they are unable to concentrate on other managerial works.

(3) Unsatisfaction in employees: The non-fulfillment of the expectations of the employees is the
main reason for the unsatisfaction among employees. Many times officers use to say the
employees that due lo strategies they will also have some advantages and if they do not get
those advantages, then unsatisfaction takes place among them, which creates unfavorable
attitude towards work and unit.

(4) Depression due to failure in target: Many times during the framing of strategy high targets
are being fixed. If these targets are not achieved then dissatisfaction takes place among the
employees.

(5) Protest of employees: When officers and employees are included in strategic decisions
process, they use to take more interest in some plans and methods. If the managers select any
other plan except those which are related, then employees use to oppose them and criticize
their decisions.

(6) Demand for more reward and facilities: The extent to which the strategies depends on
financial resources, to that extent the employees also demand more remuneration and facilities.
If their demands are not fulfilled industrial disputes and unrest are created.

(7) Dependability: If the employees are continuously demanded for co-operation for the
framing and implementation of strategy then they also feel the dependability of managers over
them and in these circumstances the demands of employees go on increasing.

(8) Non-practical planning: In the strategic management by considering the external

environment planning the long-term planning is done to achieve the long-term objective. After
the planning done on the top level the operational planning is being prepared by considering the
special functions of the middle and bottom level. It is argued that during the planning due to the
consideration of many questions of lower level it becomes non-practical. The quick changes are
difficult to be done at the lower level in the technical process. Besides this the flexibility of the
activities creates the question of co-ordination and control.

To overcome these limitations the middle and lower level managers and officers are advised to
keep co-ordination with the implementation of strategy and formation activities. If the strategy
is prepared after considering their suggestions, then up to some extent there will be an increase
in the success of strategic management.

(9) Changes in technical factors: In the study of the external environment, the study of the
technical matters are also included. But accordingly for management to make the changes in the
present structure is not difficult but it becomes very expensive. Besides this though the strategy
is formed by making these changes the executives are unable to make necessary changes again
according to new technology because it requires heavy capital investment.

Against this limitation it is suggested that the executives must take advice of technicians and
experts while forming the strategy and should also be aware of the researches taking place for
it. e.g. Many changes are taking place in the printing technology and laser composing method.
Those who are not aware of these changes their present capital investment fails in future.

(10) It gives only a guideline: The strategies of the strategically management are also not giving
the guarantee of the successes but it guides the executives in proper direction and in sequence
of work So, it can be said that the implementation of the strategy will be definitely benefitted.
Due to this the strategic management only be taken as a guidance.

(11) Changes in the attitudes of employees: The idea of the strategic management is considered
in context to the large plans. In these plans the capital investment is done on a large scale and
the executives also insist co-operation from the employees. Considering this matter the
employees pressures on executives to increase their salaries and their facilities. The employees
are in the belief that the executives will have to sanction their demands if they want to be
successful in their strategic plans.

(12) Adverse attitude of trade unions: Because of the strategic management if the new
technology is implemented then many employees will become unemployed and such
circumstances also may occur that the other employees will have to compulsorily accept the
training and transfer. Due to this dissatisfaction arises among the employees and for this the
labour unions also oppose the management.

(13) Political Pressure: In the strategic management at all the levels of the unit inteprocess has
to be done with the working officers. Not only that but for the formation of the strategy the top
level managers and experts are being included. In these circumstances, the political pressure
and interference also plays an important role in decision making.
 Conclusion: It is not completely true to say that strategic management process will always be profitable. In reality the study of environment
is an intellectual process based on estimates. The estimates may be as much logical but uncertain changes always occur in environment.
Because of it many times the changes are to be made in strategic plans. Most of the changes become expensive. Not only that but many
problems also occur in organization.

Strategic Business Unit

(SBU)
Meaning:

 The SBUs are the natural ‘grouping’ of part of a corporation.

 The SBU has a range of related products/services which has similar technologies and
production processes.
 The products/services are sold in similar or related market segments.
 The production/services are sold against a well-defined set of competitors.
 An SBU is managed by an SBU manager, largely as an independent unit.
 The SBU has its own set of goals and strategies.
 Each SBU in a particular organization should be able to operate independently of any
other SBU.

Advantage of SBU:

• Minimizes problems associated with sharing resources across functional areas,

• Quick response to environmental change,
• Increased focus on products and markets,
• Facilitates development if general managers, and
• Increases operational and strategic control, allowing corporate level executives to
deal with strategic issues.

Disadvantages of SBU:

• Increased expenditure invited through doubling of operations, personnel, and

investments,
• Difficulty in maintaining a uniform corporate image,
• Dysfunctional antagonism amongst divisions might detract from in general corporate
performance,
• Over emphasis on short term performance, and
• Distortion of information.
 ENVIRONMENT THREAT AND OPPORTUNITY PROFILE

(ETOP)

Meaning:

It is a process of dividing the environment into different sectors and then

analyzing the impact of each sector on the organization.

Preparation of ETOP:

1. Environmental Factor: Since ETOP is the presentation of environmental

analysis instructured way, its process follows that of environmental
analysis: Thus, the starting point is the identification of different
components of relevant environment. tlsually, each major component is
divided into sub-components as is done in the case of environmental
analysis, Thus, economic environment may be divided into rate of
economic growth, rate of inflation, monetary policy fiscal policy, and so on
or competitive environment may be divided into threats of entry and exit,
competitive position of competitors, etc.

2. Assessing Importance of Environmental Factor: At this stage, importance of

environmental factors is assessed. the degree of importance can be in
qualitative terms like high, medium, or low, or it can be quantified like, 3, 2,
1. It may be mentioned that all the environmental variables, even the
relevant ones, will not have same degree of importance.

3. Assessing Impact Factor: An environmental factor which is relevant may

either present threats or provide opportunities depending upon the nature
of environmental factors and their behavior. Positive impact of a factor is
opportunity and negative impact is threat. Impact factor may also be
quantified as above.
 4. Combining Importance and Impact Factor: Combination of importance and
impact factor can give a clear picture of the industry sector. If both
variables have been quantified, these can be combined by multiplication.
Such figures for various industry sector can be compared easily.
ETOP can be presented in two forms: matrix form or descriptive form. In
matrix form, importance and impact of various environmental factors are
presented in tabular form and, often, quantified. In descriptive form,
impact of various factors is described in terms of their being positive or
negative. Table 4.3 presents ETOP in matrix form while Exhibit 4.1 presents
it in descriptive form.

STRATEGIC ADVANTAGE PROFILE

(SAP)

Meaning:
Every firm has strategic advantages and disadvantages. For example, large firms have financial
strength but they tend to move slowly, compared to smaller firms, and often cannot react to
changes quickly. No firm is equally strong in all its functions. In other words, every firm has
strengths as well as weaknesses
 
Strategists must be aware of the strategic advantages or strengths of the firm to be able to choose
the best opportunity for the firm. On the other hand they must regularly analyse their strategic
disadvantages or weaknesses in order to face environmental threats effectively.

Examples:
The Strategist should look to see if the firm is stronger in these factors than its competitors.
When a firm is strong in the market, it has a strategic advantage in launching new products or
services and increasing market share of present products and services.

1. Marketing and Distribution

2. R & D and Engineering
 3. Production and Operations Management
4. Corporate Resources and Personnel
5. Finance and Accounting

Strategic Advantage Factors: Marketing and Distribution

 
1.   Competitive structure and market share: To what extent has the firm established a strong
mark share in the total market or its key sub markets?
2.   Efficient and effective market research system.
3.  The product-service mix: quality of products and services.
4.     Product-service line: completeness of product-service line and product-service mix; phase
of life-cycle the main products and services are in.
5.    Strong new-product and new-service leadership.
6.    Patent protection (or equivalent legal protection for services).
7.  Positive feelings about the firm and its products and services on the part of the ultimate
consumer.
8.  Efficient and effective packaging of products (or the equivalent for services).
9.    Effective pricing strategy for products and services.
10.   Efficient and effective sales force: close ties with key customers. How vulnerable are we in
terms of concentrating on sales to a few customers?
11.   Effective advertising: Has it established the company's product or brand image to develop
loyal customers?
12.      Efficient and effective marketing promotion activities other than advertising.
13.      Efficient and effective service after purchase.
14.      Efficient and effective channels of distribution and geographic coverage, including
internal efforts.

R & D (Research and Development) and Engineering function can be a strategic advantage
for two reasons:
 
 1.  It can lead to new or improved products for marketing
 
2.   It can lead to the development of improved manufacturing or material processes to gain cost
advantages through efficiency.
 
Strategic Advantage Factors: R&D and Engineering
 
1.          Basic research capabilities within the firm
2.          Development capability for product engineering
3.          Excellence in product design
4.          Excellence in process design and improvements
5.          Superior packaging developments being created
6.          Improvements in the use of old or new materials
7.          Ability to meet design goals and customer requirements
8.          Well-equipped laboratories and testing facilities
9.          Trained and experienced technicians and scientists
10.      Work environment suited to creativity and innovation
11.      Managers who can explain goals to researchers and research results to higher managers
12.      Ability of unit to perform effective technological forecasting.
 

DIFFERENT APPROACHES TO DEVELOP AN COMPETITIVE ADVANTAGE:

1. The first approach is to compete based on existing strengths. This approach is called KFS,
abbreviated from Key Success Factors. The firm can gain strategic advantage if it focuses
resources on one crucial point.

2. The second approach is still based on existing strengths but avoids head-on competition.
The firm must look at its own strengths which are different or superior to that of the
competition and exploit this relative superiority to the fullest. For example, the strategist
 either (a) makes use of the technology, sales network, and so on, of those of its products
which are not directly competing with the products of competitors or (b) makes use of other
differences in the composition of assets. This avoids head-on competition.

3. The third approach is used for example to compete directly with a competitor in a
well-established, stagnant industry. Here an unconventional approach may be needed to
upset the key factors for success that the competitor has used to build an advantage. The
starting point is to challenge accepted assumptions about the way business is done and gain
a novel advantage by creating new success factors.

4. Finally, a competitive advantage may be obtained by means of innovations which open

new markets or result in new products. This approach avoids head-on competition but
requires the firm to find new and creative strengths. Innovation often involves market
segmentation and finding new ways of satisfying the customer's utility function.

5. In each of these approaches the principal point is to avoid doing the same thing as the
competition on the same battleground. So the analyst needs to decide which of these
approaches might be pursued to develop a sustainable distinctive competence.

Preparing SAP

Strategic advantage profile is known as SAP. It shows strength and weakness of an

organization. Preparation of SAP is very similar process to the ETOP. There are
generally five functional areas in most of the organizations. These areas are Production
or Operation, Finance or Accounting, Marketing or Distribution, Human Resource &
Corporate Planning, and Research & Development. These functional areas are listed to
identify their relative strength and weakness in SAP. Very similar to the ETOP, positive,
neutral, and negative signs are denoted and brief description is written in SAP profile.
Each functional area is very broad having many components inside. All these above
described profiles provide a clear picture to understand the strategic position of an
organization.