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Block-1 : Introduction

Ch-1:
Strategic Planning and Strategic Management

Chapte r

Strategic Planning and Strategic Management

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Block-1 : Introduction
Ch-1:
Strategic Planning and Strategic Management

Introduction
Firms often compete with each other to gain their customers attention and business. While doing so, each firm tries to chalk out its unique strategy or gameplan based on its own internal strengths and weaknesses in terms of, which products or services to pursue, which investments to make, which human

resource policy to implement and which organisational structure to adopt. The


whole exercise is meant to find how to effectively compete, against whom, when, where and for what, so that the firm can generate successful performance over an extended period of time. The essence of strategy lies in striking a harmonious balance between a firms distinctive skills and capabilities and the external environment in which it operates.

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Block-1 : Introduction
Ch-1:
Strategic Planning and Strategic Management

Strategic Planning
The necessity for planning arises because of the fact that business organisations
have to operate, survive and progress in a highly dynamic environment where change is the rule, not the exception. The change may be sudden and extensive, or it may be slow and almost imperceptible. Planning is the process of deciding in advance what should be accomplished and how it should be realised. It involves selecting objectives and how to achieve them. Strategic planning is a type of planning. But unlike short-term planning,

strategic planning involves an extended time-frame, the deployment of a large


percentage of the resources of an organisation, a wide spectrum of activities and a major eventual impact.
Cont.

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Block-1 : Introduction
Ch-1:

Strategic Planning and Strategic Management
Popular Definitions of Strategic Planning Alfred Chandler: It is concerned with the determination of the basic long-term goals and objectives of an enterprise, and the adoption of courses of action and allocation of resources necessary for carrying out these goals. William Glueck: It is a stream of decisions and actions, which lead to the deployment of an effective strategy or strategies to help achieve corporate objectives ....decisions and actions, which determine whether an enterprise excels, survives or dies. Hayes and Wheelwright: Strategic planning is planning that is long-term, wide ranging and critical to organisational success, in terms of the costs of the resources it affects and the outcomes it envisions. Harvey: Strategic planning is long-range planning that focuses on the organisation as a whole. Managers consider the organisation as a total unit and ask themselves what must be done in the long run to attain organisational goals. The most successful managers are those who are able to encourage innovative strategic thinking within their organisations (Pearson).

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Block-1 : Introduction
Ch-1:
Strategic Planning and Strategic Management

Strategic, Operational and Tactical Planning


Strategic planning, thus, is long-term in nature. It tends to be a top management responsibility. It requires looking outside the organisation for threats and opportunities. It also requires looking inside the organisation for finding out weaknesses and strengths. It affects many parts of the organisation as its decisions have enduring effects that are difficult to reverse. It tries to equip the organisation with capabilities needed to confront future uncertainties by taking a holistic view of the entire organisation. Its focus is clearly on the jungle, not the trees. The main objective is to position the firm in an advantageous relation to the environment, keeping its own internal capabilities in mind. In simple terms, strategic planning is the process of determining the major objectives of an organisation and the policies and strategies that will govern the acquisition, use and disposition of resources to achieve those objectives.
Cont.

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Block-1 : Introduction
Ch-1:
Strategic Planning and Strategic Management
Comparison Between Strategic Planning and Operational Planning Strategic (long-range) Plans Plans Intermediate (tactical) Plans Intermediate plan Time-frame: 2-3 years Performed by managers at middle level Concerned with integrating of the organisation departments in the organisation Focus on coordination Covers day-to-day the work of various operations; implements internal goals Focus on control primarily Short-range plan Time-frame: one year Done usually at lower levels Operational (short-range)

Long-range plan Time-frame: 3 or more years Top management

Concerned with broad objectives


Focus on planning and
forecasting

responsibility

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Block-1 : Introduction
Ch-1:
i. Strategic Planning and Strategic Management

Levels of Strategic Planning


Corporate-level Strategic Planning: It is the process of defining the overall character and purpose of the organisation, the business it will enter and leave and how resources will be distributed among those businesses. Strategy at this level is typically developed by top management (The Board of Directors, CEO etc.) ii. Business-level Strategic Planning: It is the planning process concerned primarily with how to manage the interests and operations of a particular unit within the organisation, commonly known as a strategic business unit (SBU). A strategic business unit is a distinct business with its own set of competitors, that can be managed reasonably independently of other businesses within the organisation. iii. Functional-level Strategic Planning: It is the process of determining policies and procedures for (relatively narrow levels of activity) different functions of an enterprise like marketing, finance, personnel etc. These are developed by functional managers and are typically reviewed by business unit heads.
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Block-1 : Introduction
Ch-1:
Strategic Planning and Strategic Management

The Strategy Makers and Strategic Decisions


Strategic decisions are mainly concerned with the selection of the product-mix that the firm intends to produce and the markets in which it will sell its products. Such decisions affect the organisation as a whole over long periods of time. Because strategic decisions have such a tremendous impact on a firm and because they require large commitments of company resources, they can only be made by top managers in the organisational hierarchy (Pearce and Robinson, AITBS). The CEO is expected to ask and seek answers to the following questions while managing the show:
Key Questions Where have we been? Where are we now? Where do we want to go? Where should we go? Where can we go? Where shall we go?

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Block-1 : Introduction
Ch-1:
Strategic Planning and Strategic Management

Dimensions of Strategic Decisions


Top Management Involvement: At every stage, strategic decisions require consistent support and continued blessings from top management. Allocation of Large doses of Resources: As mentioned above, strategic decisions require commitment of large doses of internal as well as external resources over an extended period. Effect on Long-term Prosperity of the Firm: Strategic decisions have long-term effects on firms - for better or worse. Future-Oriented: Strategic decisions are built around forecasts. The emphasis is on selecting a suitable course of action from the available alternatives and moving ahead with confidence. Multi-functional or Multi-business Consequences: They impact various strategic business units especially in areas relating to product-mix, customer-mix, organisation structure, competitive focus etc. Focus on External Groups: In order to successfully position a firm in a competitive environment, strategists must look beyond its operations.
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Block-1 : Introduction
Ch-1:
Strategic Planning and Strategic Management

The Concept of Strategy


Strategy is the overall plan of a firm deploying its resources to establish a

favourable position and compete successfully against its rivals. Strategy describes a framework for charting a course of action. It explicates an approach for the company that builds on its strengths and is a good fit with the firms external environment. It is basically intended to help firms achieve competitive advantage. Competitive advantage allows a firm to gain an edge over rivals when competing. Competitive advantage comes from a firms unique ability to perform activities more distinctively and more effectively than rivals. A firms distinctive competence or unique ability here implies, those special capabilities, skills, technologies or resources that enable a firm to distinguish itself from its rivals and create competitive advantage (such as superior quality, design skills, low-cost manufacturing, superior distribution etc.).

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Block-1 : Introduction
Ch-1:
a. Strategic Planning and Strategic Management

Elements of a Strategy
Goals: A strategy invariably indicates the long-term goals toward which all efforts are directed. For example long-term goals might be to dominate the market, to be the technology leader or to be the premium quality firm.

b.

Scope: A strategy defines the scope of the firm that is, the kind of products the firm will offer, the markets (geographies, technologies, processes) it will pursue and the broad areas of activity it will undertake. It will, at the same time, throw light on the activities the firm will not undertake. Competitive Advantage: Competitive advantage arises when a firm is able to perform an activity that is distinct or different from that of its rivals.
Logic: This is the most important element of strategy. For example, a firms strategy is to dominate the market for inexpensive detergents by being the low-cost, mass-market producer. Here the goal is to dominate the detergent market.
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c.
d.

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Block-1 : Introduction
Ch-1:
Strategic Planning and Strategic Management

Strategies Vs Tactics
To achieve clarity, managers now-a-days talk about four types of strategies: i. Master or grand strategies that cover the entire pattern of an organisations objectives, policies and specific resources deployment. Grand strategies are derived from a careful situational analysis of the organisation and its environment. Programme strategies are more specific and are concerned with the deployment of resources to achieve basic organisational objectives. Sub-strategies are more detailed than programme strategies and focus on the attainment of specific objectives. Tactics are the action plans of specific, step-by-step methods by which strategies are executed. Tactics convert the philosophy of management into practice and force the enterprise to go down to the nuts and bolts of its operations. Tactics are formulated at the supervisory level and their primary Cont. focus is on implementing policy decisions taken at the top level.
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ii. iii. iv.

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Block-1 : Introduction
Ch-1:
Strategic Planning and Strategic Management
The differences between strategies and tactics are outlined below:
Strategies Developed by management; these decisions are never delegated below a certain level in management hierarchy. Generally the focus is on long-term. The uncertainty level is quite high; lots of information to be obtained from diverse sources. Affect various parts of an organisation in a significant way. Tactics Employed and related to lower levels of management. The focus is on short-term. Decisions are more certain and are taken within the framework of strategies. The reach is limited to only specific segments of an organisation.

Various Types of Strategies

Master Strategies Programme Strategies Sub-strategies

Tactics

Top level activity includes formulation of organisation purposes and long-term objectives. Concerned with how basic organisational objectives will be achieved. Detailed steps to implement programme strategies Short range step-by-step methods to be followed.

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Block-1 : Introduction
Ch-1:
Strategic Planning and Strategic Management

Past Approaches to Strategy


Why are some firms able to perform better than others in profitability over a sustained period of time? Over the years, researchers have answered the question in three different ways: The Design Approach: In early 60s, Alfred Chandler (1962) proposed that structure follows strategy. Top managers generally formulate strategy after a careful analysis of opportunities in the environment and the strengths and weaknesses in the organisation. The strategy chosen by the manager is the primary explanatory variable for organisational structure in all the cases. The influence of strategy on structure may be expressed thus: Strategy determines organisational tasks. Strategy influences the choice of technology and people appropriate for accomplishment of those tasks - and these, in turn, influence the appropriate structure. Strategy determines the specific environment within which the organisation will operate.
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Block-1 : Introduction
Ch-1:
Strategic Planning and Strategic Management The Analytical Approach: Igor Ansoff (1965), a leading proponent of the analytical approach, tried to weave a fire garment out of the loose threads developed by Harvard researchers. He tried to examine two things basically: (i) whether strategy had a distinct context of its own (ii) whether it can be described in a structured way. Ansoff felt that strategy can be examined from several angles:
Corporate level Business level Functional level Institutional level (What businesses should we be in?) (How to function in a business once selected) (How to manage internal operations such as manufacturing, marketing, finance, personnel, R&D etc.) (How to manage external relationships in an ever changing dynamic, political world)

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Block-1 : Introduction
Ch-1:
Strategic Planning and Strategic Management The Positioning Approach: During the 1970s, the diversification moves of many large companies have failed to deliver the anticipated synergies. The oil crisis, competition from Japanese and European firms compounded the problem further. In place of diversification and growth, firms started putting more emphasis on achieving competitiveness. Michael Porter around this time proposed that a firms profitability is dependent on five important forces: i.e.

supplier power, buyer power, threat from new entrants, threat from substitutes and intensity of rivalry within an industry. Porter suggested three strategies to gain competitive advantage:
i. Overall Cost Leadership

ii.

Differentiation

iii. Focus iv. Resource-based View


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Block-1 : Introduction
Ch-1:
Strategic Planning and Strategic Management

Evolution of Business Policy Course


Origins Business policy as a distinct field of study was introduced at Harvard Business School way back in 1911. The course aimed at improving the general management capabilities of students. It was intended to tie together and give proper focus to the first year courses by showing how the functions of business, both internally and as between businesses, were closely interrelated in practice and how a chief executive had to recognise and deal with those relationships. Development of Course Contents In the days gone by, academicians viewed future as a moving target, difficult to capture, analyze and interpret with a certain degree of confidence. So they pinned their hopes primarily on short-term planning tools. Hofer et al have called this evolution a paradigm shift. The developments in this regard thus: First Phase: Paradigm of Adhoc Policy (till mid-1930s) Second Phase: Paradigm of Planned Policy (1930s - 1940s) Third Phase Strategy Paradigm (1960s) Cont. Fourth Phase: Paradigm of Strategic Management (1980s)
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Block-1 : Introduction
Ch-1:
Strategic Planning and Strategic Management

Current Trends in Business Policy


The four paradigms of business policy throw light on how the discipline has developed over the years. The story does not seem to end here. The approaches and methods of analysing business processes have not yet coalesced into a theory of how to manage the show. But certain visible trends revealing how strategic issues get resolved can be outlined thus (Christensen et al). Top Management Prerogative General Management Bias

Resource Focus
Externally Tuned Covers a Large Territory

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Block-1 : Introduction
Ch-1:
Strategic Planning and Strategic Management

The Indian Scenario


Management education received a big boost in early 60s after the setting up of Indian Institutes of Management (IIMs) and the Administrative Staff College of India. IIMs structured their curriculum along the lines followed in reputed American business schools. The case method of study (as followed in Harvard Business School) was an important pedagogical tool, employed in IIM, Ahmedabad all these years. Several university departments, meanwhile, have started the Masters in Business Administration (MBA) programmes at various locations throughout the country. After the opening up of the Indian economy in early 90s, the All India Council for Management Education (AICTE) was set up to provide proper direction to the growth of management education. A number of publications covering the concepts, techniques and case studies relating to business policy and strategic management have also gone up impressively, especially after 90s, such as Strategic Marketing, Business Standards Strategist etc.
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Block-1 : Introduction
Ch-1:
Strategic Planning and Strategic Management

The Nature of Business Policy


Business policy, basically, deals with decisions regarding the future of an ongoing enterprise (R E Thomas). Such policy decisions are taken at the top level after carefully evaluating the organisational strengths and weaknesses (in terms of product, price, quality, leadership position, resources etc.) in relation to

its environment.
Types of Policies There are many types of policies - marketing policies, financial policies,

production policies, personnel policies, to name a few in every organisation.


Within each of these areas, more specific policies are developed.
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Block-1 : Introduction
Ch-1:
Strategic Planning and Strategic Management
Pyramid of Business Policies
Major policies
l l l l l l l l l l l l

Lines of business Code of ethics Secondary policies

Selection of geographic area Identification of major customers Major products


Production Marketing Finance Handling and processing of orders Shipments to foreign locations Servicing customer complaints Salary and wage administration Discipline and discharge Use of company facilities Rules Welfare administration l Safety and health etc. l Functional policies Personnel l Research l Procedures and standard operating plans

l
l

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Block-1 : Introduction
Ch-1:
Strategic Planning and Strategic Management

Strategy vs Policy
Strategies define the overall character, mission and direction of an enterprise.
They focus on an organisations long-term relationship with its external environment. They specify what an organisation will be doing in future, reflecting the kind of enterprise the managers envision. Strategies are formulated and implemented with a view to achieve specific goals. An appropriate strategy will give managers an advantage over their opponents or competitors; it will enable them to marshall their resources so that they will be more effectively utilised. A policy, on the other hand, tells people what they should and should not do in order to contribute to the achievement of corporate goals. It says something about how goals will be attained. It is a helpful guide that makes the strategy of the business explicit and provides direction to subordinates.
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Block-1 : Introduction
Ch-1:
Strategic Planning and Strategic Management
Policy It offers guidelines for managers to take appropriate decisions

Strategy Deals with strategic decisions that decide the long-term health of an enterprise. It is a comprehensive plan of action designed to meet certain specific goals. It is a means of putting a policy into effect within certain time limits. Deals with those decisions which have not been encountered before in quite the same form, for which no predetermined and explicit set or ordered responses exist in the organisation and which are important in terms of the resources committed or the precedents set. Deals with crucial decisions whose implementation requires constant attention of top management.

It is a general course of action with no defined time limits. It is a guide to action in areas of repetitive activity.

Once policy decisions are formulated, these can be delegated and implemented by others independently.

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Block-1 : Introduction
Ch-1:
Strategic Planning and Strategic Management

Strategic Management
Evolution Till 1930s most firms were happy focussing attention on their day-to-day, shortterm activities. In an environment characterised by very little competition, a functional orientation supported by budgeting and control systems guided the fortunes of firms. The adhoc policy making yielded ground to planned policy formulation and by 1940 the emphasis shifted to the integration of functional areas in the context of environmental demands. The period between 1960s and 1980s, was chracterised by rapid environmental changes and increased complexity of business functions necessitating long range planning and comprehensive business policies aimed at placing a firm in an advantageous relationship to its environment. Strategic management is the process by which organisations try to determine what needs to be done to achieve corporate objectives and more importantly, how these objectives are to be met. Ideally, it is a process by which senior management examines the organisation and the environment in which it operates and attempts to establish an appropriate and optimal fit between the two to ensure the organisations success. Cont.
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Block-1 : Introduction
Ch-1:
Period Dominant Theme Main Issues

Strategic Planning and Strategic Management


1950s Budgetary planning and control 1960s Corporate planning 1970s Corporate strategy Portfolio planning Late 1970s to early 1980s Analysis of industry and competition Choice of industries, markets, and segments and positioning with them Analysis of industry structure Competitor analysis PIMS analysis Late 1980s to early 1990s The quest for competitive advantage Sources of competitive advantage within the firm Mid to late 1990s Strategic innovation Strategic and orgnisational advantage

Financial control Planning growth through operating budgets

Principal Concepts and Techniques

Financial budgeting Investment planning, Project appraisal

Forecasting investment planning models

Synergy SBUs Portfolio planning matrices Experience curves Returns to market share

Resource analysis Analysis of core competences

Dynamic sources of competitive advantage Control of standards Knowledge and learning The virtual organisation, The knowledge based firm Alliances and networks, The quest for critical mass

Organisational Implications

Financial management the key

Rise of corporate planning departments and five -year formal plans

Diversification Greater industry Multidivisional and market structures, selectivity Quest for global Industry market share restructuring Active asset management

Corporate restructuring and business process reengineering Refocusing and outsourcing

Cont.

The Evolution of Strategic Management


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Block-1 : Introduction
Ch-1:

Strategic Planning and Strategic Management

Definitions of Strategic Management It is a continuous process of effectively relating the organisations objectives and resources to the opportunities in the environment (Schellen Berger and Boseman) It is a process of formulating, implementing and evaluating cross-functional decisions that enable an organisation to achieve its objectives (F R David) It is a stream of decisions and actions which lead to the development of an effective strategy or strategies to a help achieve corporate objectives (Glueck and Jauch) It is the set of decisions and actions resulting in formulation and implementation of strategies designed to achieve the objectives of an organisation (Pearce and Robinmson, 2001)

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Block-1 : Introduction
Ch-1:
Strategic Planning and Strategic Management

Modes of Strategic Management


Modes of strategic management are the approaches adopted by managers in formulating and implementing strategies. They address the issues of who has the major influence in the strategic management process and how the process is carried out. Managers generally use one of three major approaches to strategic

management:
Entrepreneurial Mode Adaptive Mode Planning Mode Combined Mode

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