MANMOHAN JOSHI

PRINCIPLES
OF STRATEGIC
MANAGEMENT

2
Principles of strategic management
1st edition
2016 Manmohan Joshi & bookboon.com
ISBN 978-87-403-1552-3

3
 PRINCIPLES OF STRATEGIC MANAGEMENT Contents

CONTENTS
1 The Process Of Management 7
1.1 Introduction 7
1.2 The Process Of Management 7
1.3 Fayols Elements Of Management 7
1.4 Contemporary Views On Management Functions 9
1.5 Planning In Management 11
1.6 Strategic, Tactical And Operational Planning 16

2 Meaning And Nature Of Strategic Management 17

2.1 Introduction 17
2.2 Definition 17

360
2.3 Need For Strategic Management 17

.
2.4 The Theorists And Their Theories 20

thinking

360
thinking . 360
thinking .
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4
PRINCIPLES OF STRATEGIC MANAGEMENT Contents

3 History And Relevance Of Strategic Management 30

3.1 Introduction 30
3.2 History Of Implementation 30
3.3 Strategic Planning 32
3.4 The Strategic Manager 34
3.5 Why Strategies Fail? 35

4 Corporate Objectives And Planning 36

4.1 Introduction 36
4.2 Corporate Planning 36
4.3 Corporate Objectives 37
4.4 Policies 38
4.5 Ethics In Business 38
4.6 Social Responsibility 38
4.7 Overview Of Corporate Planning 39
4.8 Factors In Corporate Planning 40

5 The Anatomy Of Implementation 42

5.1 Introduction 42
5.2 Strategy Implementation With Operating Plans 44
5.3 Setting The Stage 45
5.4 Setting The Right Priorities And Objectives 48
5.5 SWOT Analysis 49

6 Tracking Strategy Implementation 52

6.1 Introduction 52
6.2 Issues Involved 52
6.3 Complex Systems 53
6.4 Measurement Of Performance 53
6.5 Development Of Measurement Package 55

7 Implementing Strategy 59
7.1 Introduction 59
7.2 The Planning Group 59
7.3 Planning Group Working Sessions 60
7.4 Sponsor Approval And Plan Implementation Launch 64
7.5 Implementing The Operating Plan 64

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PRINCIPLES OF STRATEGIC MANAGEMENT Contents

8 Multi-Businesses 66
8.1 Introduction 66
8.2 The Corporate Gap 66
8.3 Entrepreneurial Activity And Corporate Planning 66
8.4 Business Planning 67
8.5 How Should Multi-Businesses Compete? 67
8.6 The Corporate Centre 68
8.7 The Board 68
8.8 Integration Of Business Units 69
8.9 The Global Business 69
8.10 Strategic Alliances 70
8.11 Selecting Partners 70
8.12 Making Strategic Alliances Work 71
8.13 Alternate Corporate Strategies 71
8.14 The Final Stages 72

9 Small Businesses 73
9.1 Introduction 73
9.2 Entrepreneurs 73
9.3 Planning And Strategic Management In Small Firms 74
9.4 The Nature Of Strategic Management In Small Firms 75

10 E-Business 76
10.1 The Growth Of E-Business 76
10.2 Issues For New E-Business 76
10.3 Consolidation 77
10.4 Operational Efficiency 77
10.5 E-Business Strategies For Established Firms 77
10.6 Strategy Process And E-Business 77
10.7 Value Chain Analysis 78

References 79

About The Author 80

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PRINCIPLES OF STRATEGIC MANAGEMENT THE PROCESS OF MANAGEMENT

1 THE PROCESS OF MANAGEMENT

1.1 INTRODUCTION
The strategic dimension of management has grown in importance, largely due to the
increasing complexity of modern business organisations.

Cole (1994) stated, Strategic management is a process, directed by top management, to

determine the fundamental aims or goals of the organisation, and to ensure a range of
decisions which will allow for the achievement of those aims or goals in the long term,
while providing for adaptive responses in the shorter term.

However, in order to examine how todays situation has arisen with the emphasis being
placed on strategic management we must look back to the roots of management thinking
with regard to management as an integrated activity, and the various elements or functions
of which it is composed.

1.2 THE PROCESS OF MANAGEMENT

Henry Fayol (1930) was mostly concerned with the process of management, that is, what
the actual job of a manager was. He suggested that there are five elements of management
which are universal to all managers in all organisations.

1.3 FAYOLS ELEMENTS OF MANAGEMENT

According to Fayol, to manage is to forecast and plan, to organise, to command, to
coordinate and to control.

1.3.1 TO FORECAST AND TO PLAN

Managing entails looking ahead: assessing the future and determining as accurately as possible,
the probable course of future events which might affect an organisation and its operations.
A forecast is an assessment of the expected pattern of future events, and the ways in which
it might have effects on the activities of the organisation or subsystems of it. Based on the
forecast, plans can be formulated to attempt to deal successfully with the expected pattern
of future events, and to take steps to overcome problems which it is anticipated will arise
in the future; and as far as possible to avoid them before they arise.

The process of planning entails making decisions on how the predetermined objectives of an
organisation, or a subsystem of it, should be achieved in the most efficient and economical
way. We can say that plans are roots to objectives.

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PRINCIPLES OF STRATEGIC MANAGEMENT THE PROCESS OF MANAGEMENT

The managements of most modern organisations have integrated Fayols ideas into their
strategies, and they undertake both long-term and short-term planning on an organisation-
wide basis.

1.3.2 TO ORGANISE

Organising involves putting the plans into practice, implementing the managerial decisions
made, and so arranging the work which is to be performed that the organisations objectives
will be achieved as laid down in the plans. Fayol used the term organise to mean the
integration of the material resources and the human resources of the organisation. Not only
does this include the purchasing processes for materials and services, and the recruitment
procedure for personnel, but also the task of dividing up of the work specialisation
among the workforce, determining the function and sphere of action of each worker or
workgroup, and giving the appropriate training. All these activities lead to the most efficient
use of resources.

We can say that organising involves ensuring that the right workers, the right materials
and the right machinery and equipment are in the right places at the right times in the
right quantities, so that work will proceed in accordance with the formulated plans without
delays, hold-ups or stoppages.

1.3.3 TO COMMAND

Fayol was conscious of the need to keep everyone on their toes, to keep the organisation in
an active, rather than a passive state. Commanding implies knowing the workers well and
the business thoroughly, and issuing instructions in such a way that a high level of activity
by the workforce is maintained. By using the leadership skills, a manager aims to get the
best possible performance from his/her subordinates.

1.3.4 TO COORDINATE

Fayols underlying theme in this connection was harmony. Each managers efforts must
dovetail with those of others, and he/she must keep their section/department in line with
the total, overall objectives of the organisation. A regular exchange of information what
we today refer to as horizontal communication is necessary.

We can say that coordination involves ensuring that all efforts move smoothly together in
the same direction, that is, towards the achievement of the organisations objectives.

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PRINCIPLES OF STRATEGIC MANAGEMENT THE PROCESS OF MANAGEMENT

1.3.5 TO CONTROL

Fayol was emphatic that it is not enough to order activity into motion; management must
be certain that what is being done is in conformity with the plan. A control system is
essential. An inspection section is necessary to set standards, to monitor performance, and
to take corrective action if and when it is needed.

Control also includes the recording of performances to provide a guide for similar activities
in the future.

1.4 CONTEMPORARY VIEWS ON MANAGEMENT FUNCTIONS

Various ideas have been put forward during the last 100 years as to what a managers job
is, or what it comprises; but they can all be traced back to Fayols ideas.

1 2 3 4 5

Forecast Plan Plan Set Create

and plan objectives

Organise Organise (incl. Organise Organise Plan

staffing) staff

Command Direct Direct Motivate Organise

Coordinate Control (incl. Coordinate Communicate Motivate

staffing)

Control Report Measure Communicate

Performance

Budget Develop Control

subordinates

Fig. 1/1: Five different perspectives of a managers job

The table in Fig. 1/1 provides five different suggested aspects of a managers job. Fayols list
is at No. 1 on the extreme left.

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PRINCIPLES OF STRATEGIC MANAGEMENT THE PROCESS OF MANAGEMENT

There is no complete agreement as to what precisely a managers job is, but it could be
said that different managerial jobs call for all the listed activities, but with vastly different
emphasis at different times and in different circumstances.

For example, any manager in any type of organisation will command, direct, coordinate,
control and measure performance most of the time, but at other times he/she will need to
plan their work, report to superiors and motivate their subordinates. A technical manager will
probably be more concerned with organising, with the setting of objectives, with measuring
performance, and with communicating, but at times he/she will need to plan ahead, to be
creative and to motivate their subordinates. However, there is a degree of overlap between
the terms, and between all five lists. The final one on the extreme right (No. 5) seems
closest to a complete survey of a managers role, including: creating, planning, organising,
motivating, communicating, and controlling.

Fayols early 20th century list of five Elements of Management conspicuously omitted
motivating. Today, of course, the correct motivation of subordinates is regarded as a very
important element or function of management in its own right.

1.4.1 CREATING

In the past, there was a generally held view that most people were not creative. The notion
that creativity only belonged to a small special group was dispelled by, among others,
Douglas McGregor (1985) who concluded, The capacity to exercise a relatively high degree
of imagination, ingenuity and creativity in the solution of organisational problems is widely,
not narrowly, distributed in the population.

What we broadly call creativity, can include innovation, synthesis and development.

Innovation refers to finding new or alternative ways of thinking about or doing

something. It is one thing, however, to have plenty of time to think about something
new, but quite another to improvise quickly on the shop floor. But when a manager
or supervisor uses an alternative material for a job in an emergency, finds a quicker
way round a job, works out a new procedure, he/she is being innovative or creative.
Synthesis occurs when ideas are input from several different sources and combined
or pooled. A person doing a project at work or for an examination is usually
engaged in this type of problem-solving exercise. A companys sales manager might
call upon its production manager for advice on satisfying the needs of a customer,
who might need to ask for ideas from the purchasing manager or other executives,
or even from experts outside the company.

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PRINCIPLES OF STRATEGIC MANAGEMENT THE PROCESS OF MANAGEMENT

Development occurs when a basic idea or product is expanded upon or extended.

For example, the computer was originally designed and built to perform complex
mathematical calculations. But today, the original concept of the computer has
been developed out of all recognition, and computer systems are found to have
innumerable different guises and sizes in all walks of life.

1.5 PLANNING IN MANAGEMENT

Basically planning is a decision-making process by which the top management of an
organisation decides:

What the organisation is to achieve what its aims, goals, or objectives are to be;
What the organisations policies are to be the policies laid down stipulate:
-- How it is intended that the organisation will achieve its objectives; and
-- In what manner the organisation will operate to achieve them.

Management planning can therefore be seen as a formulation process, concerned with

ends, means and conduct.

1.5.1 PRINCIPLES OF PLANNING

Whatever may be the planning period, certain principles are involved. They are as follows:

The purpose of a plan must be determined. Goals to be achieved must be

clearly identified.
Plans must be formulated on clearly defined data and information. Forecasts help
in this connection, but other data sources must also be used, such as past records,
performance experience etc. The planners own past experiences can be utilised, but
in this connection it is vital to separate fact from opinion or prejudice.
The plans of the various functions or subsystems of the organisation must be
coordinated to avoid confusion. Coordination becomes progressively more difficult
as it reaches the level of long-term tactical planning, largely because the personnel
involved are remote from the operational level. The ultimate aim should be total
coordination, which is one of the aims of corporate planning.
Standards to be achieved by the plans must be set, and performance must be monitored.
Plans must be flexible to allow for modification in the light of experience of their
practical implementation.
Full communication between all personnel concerned in operating the plans, at
any level, is essential. Involvement by all people concerned is an important factor
in successful planning.

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PRINCIPLES OF STRATEGIC MANAGEMENT THE PROCESS OF MANAGEMENT

Plans must be seen to be achievable. Over-ambition must be avoided as that

tends to lead to discouragement and frustration at the failure to attain the goals
set. On the other hand, under-ambition in planning provides no incentive, and
encourages inefficiency.

1.5.2 IMPORTANCE OF PLANNING

Operational and short-term planning is important because they relate directly to the day-
to-day activities of the organisation. This type of planning is also carried out at the lower
levels of management and supervision, with the emphasis being on practical application
and implementation.

Long-term planning both strategic and tactical is also of vital importance, and is the
only means of setting and keeping an organisation on course for the attainment of its
principal objectives.

Every aspect of the organisation should be subject to planning in order to make the utmost
use of resources, to stimulate programmes for management and non-management training,
to provide for and reach production, sales and financial targets, to ensure a reasonable return
on capital and investment, and generally to guide the organisation in the attainment of its
objectives. The development of well-considered plans enables management at all levels to
take a hard look at itself and the organisation in which it operates.

1.5.3 RESPONSIBILITY FOR PLANNING

Operational and very short-term planning are usually carried out by the managers and/or
supervisors actually concerned with the activities involved. For example, a sales manager
will formulate the plans necessary for the effective activities of the entire salesforce over the
short-term, say, a week. The sales team leaders or supervisors will take the responsibility for
planning the operations and activities of their respective teams over each day of the week.

Long-term tactical planning will be carried out by the more senior executives in areas
such as marketing and production. Forecasts in the areas concerned will also be taken into
account, and there might be, in a large organisation, the output of a special department
staffed by experts, such as operational research. In smaller organisations, senior executives
and their immediate subordinates will have the responsibility for gathering the necessary
forecasts through perusing trade journals, government reports etc.

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PRINCIPLES OF STRATEGIC MANAGEMENT THE PROCESS OF MANAGEMENT

Long-term strategic planning will be undertaken by the governing body with the assistance
and advice of its senior executives. Forecasts from internal and external sources will be utilised
as well as analysed of the past performance of the organisation, and managerial experience.

In both tactical and strategic planning, however, the actual activity is often delegated to a
planning committee or, if the organisation is sufficiently large, to a planning department.
This means that more uninterrupted time can be allotted to the planning exercise than would
be the case if the directors or senior executives tried to formulate plans while still engaged in
their day-to-day activities. Effective planning needs the undivided attention of the planners.
Nevertheless, whosoever draws up the plans, it is the chief executive who must assume
ultimate responsibility for long-term planning either strategic or long-term or tactical.
The approval of and authority to implement plans are the chief executives responsibility.

1.5.4 STAGES IN PLANNING

The activity of planning starts by defining ends the aims and objectives of the organisation.
This activity requires an assessment to be made of the external environment of the organisation
and its internal structure, processes and resources.

Planning also involves taking steps to agree on the means by which the organisations aims
and objectives will be fulfilled. This is as much concerned with decision-making processes
as with the provision of resources and the allocation of time schedules.

Part of the planning process is concerned with the manner in which plans will be carried
out, that is, the conduct of the organisation. This aspect of planning has received greater
prominence in recent years as organisations have striven towards meeting objectives associated
with such concepts as customer satisfaction and excellence.

Planning is a closed-loop activity, in which the results of earlier decisions provide feedback
to the other parts of the process. Such a cycle provides crucial information which can be
taken into account by management when assessing the earlier aims and objectives set, the
means used to achieve them, and the manner in which those means were implemented
in practice.

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 PRINCIPLES OF STRATEGIC MANAGEMENT THE PROCESS OF MANAGEMENT

1.5.5 RELATIONSHIP BETWEEN FORECASTING AND PLANNING

Forecasting is an essential accompaniment of planning in order for management to be

able to carry out effectively its planning function. Forecasting becomes fruitful only when
its findings are utilised in the formulation of plans for the future. The more accurate the
forecasting, the higher is the possibility of formulating reliable plans, and the greater is the
likelihood of the organisation achieving its preset goals.

The planners will rely heavily on forecasts. They will, therefore, combine their own experience
and knowledge of their organisation and its industry with the forecasts available. By this
means they will produce both short-term and long-term plans in which they have confidence,
and which they will set and maintain the organisations course towards the achievement of
its objectives. It is not sufficient merely to implement plans, set them in motion, and expect
them to run smoothly. The progress of the plans must be constantly monitored, checked
and
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particular planning area demand.

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PRINCIPLES OF STRATEGIC MANAGEMENT THE PROCESS OF MANAGEMENT

1.5.6 EVALUATING FOR PRE-PLANNING FORECASTS AND INFORMATION

The information on which to base the planning operation is rather like any other research.
There is a tendency to collect too many statistics, forecasts and other material that will be
likely to affect the planning. This has two effects:

They are likely to contain a mass of detail, and might even specify slightly conflicting
actions where the source material has been in some way contradictory. This may
lead to plans being imprecise and difficult to understand clearly.
If the information is in abundance, there might be a tendency for the planners
to detail too many specific courses of action to deal with possible deviations from
their plans.

To remedy this situation, the planners must ruthlessly discard any material which does not
have a precise and definite bearing on the plans they are preparing. Contradictory information
must be evaluated, and decisions must be made as to what is really relevant and pertinent.

Moreover, the planners must differentiate between opinion and fact and discard the former
in favour of the latter where there is conflict, however informed the opinion might be. In
this way, the source material will be reduced to manageable proportions, and will therefore
assist in the preparation of plans which are clear, understandable and easy for all managers
and supervisors concerned to assimilate.

1.5.7 LEVELS OF PLANNING

In formal management theory it is usual to consider that there are three basic levels of
planning. They are:

Top-level planning: This is undertaken by top management, and is commonly

termed strategic planning. It emphasises the long-term objectives and policies of
the organisation, and it is concerned with corporate that is, organisation-wide
results, rather than with sectional or functional achievements. Strategic planning
also involves corporate planning.

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PRINCIPLES OF STRATEGIC MANAGEMENT THE PROCESS OF MANAGEMENT

Second-level planning: This is carried out by senior executives and is commonly

called tactical planning. Tactical planning involves planning the deployment of
resources (human and material) to the best advantage. Tactical planning is concerned
mainly, but not exclusively, with long-term planning, but its nature is such that the
time spans are usually shorter than those of strategic planning. This is because its
attention is usually devoted to the step-by-step attainment of the organisations main
objectives. Thus the very long-term plans of top management are broken down.
Tactical planning is, in fact, orientated to individual functions and departments
rather than to the organisation as a whole.
Third-level planning: This is frequently termed operational or activity planning,
and is the concern of departmental managers and supervisors. It confines itself to
the very short term. It involves sectional and departmental operations and also
individual assignments, and it establishes performance controls.

Although there are three categories of planning, in practice there will be more than three
levels of management and supervision, and to a certain extent there will be some overlap
of the planning activity.

1.6 STRATEGIC, TACTICAL AND OPERATIONAL PLANNING

Of necessity, the three levels of planning react upon each other, but the resulting effects are
different in each case. Operational planning might impose restraints on tactical plans because
of practical difficulties arising from time to time. The effect of a necessary alteration in an
operational plan, because of the short term involved, is likely to be more of an inconvenience
than a reason for abandoning a tactical plan. Operational plans are unlikely to have any
effect on strategic planning, as they are relatively remote from each other. On the other
hand, strategic planning will, although remote, have some effect on operational planning
because the mode of operational activities will to some extent depend upon strategic plans.

There is a clear relationship between operational planning and tactical planning, because
the former arises very directly out of the latter. A change of tactics might very well impose
adjustments to operational plans. For example, a small change in the design of a product a
tactical decision to combat new competition might well cause production plans at shop floor
level to be drastically revised. On the other hand, unless tactical planning has been very rigid,
modifications in operational planning can often be absorbed at this level without difficulty.

A similar relationship exists between strategic planning and tactical planning. The strategic
plan might remain constant despite the fact that the tactics employed to achieve it might
have to be modified from time to time. In other words, tactics can change without alteration
to the strategic plan becoming necessary. However, if the strategic plan is altered, the tactical
plans will invariably have to be changed to meet the new situation.

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PRINCIPLES OF STRATEGIC MANAGEMENT MEANING AND NATURE OF STRATEGIC MANAGEMENT

2 MEANING AND NATURE OF

STRATEGIC MANAGEMENT
2.1 INTRODUCTION
Strategic management has become widely established in all sectors of modern economies,
although mainly in larger organisations. The prescription view of strategic planning
emphasised the importance of the organisational environment as a source of threats and
opportunities, and the need for effective responses was expressed in a plan. Typically this
plan formulated major decisions about entry to new industries or the development of new
products or services and was guided by sets of objectives and goals. The study by Quinn
(1980) had a more descriptive intent than some earlier studies of strategic management,
and emphasised the emergent but rational quality of strategy formulation. This meant that
strategic thinking was logical but issues of organisational politics and managerial ignorance
affected the way in which strategy might be implemented. This and other studies alerted
managers to the issues of strategic implementation.

2.2 DEFINITION
Ohmae (1982) has drawn attention to three key groups the corporation, the customer,
and the competitors. Strategic management might be defined, therefore, as the pursuit
of superior performance by using a strategy that ensures a better or stronger matching of
corporate strengths to customer needs than is provided by competitors.

Ohmae also emphasises the importance of moving from abstract ideas of strategy to
concrete planning of implementation. This suggests that strategic management is based on
an interdependent relationship between strategic ideas and operational level changes.

2.3 NEED FOR STRATEGIC MANAGEMENT

The last few decades have seen a growth in the importance of the strategic dimension of
management in response to the necessity for business organisations to become ever more
complex. This has happened because of the following factors:

Increased expectations of customers for quality and variety of consumer goods and
personal services;
Advancement in technology for example, Internet which has resulted in speeding
up the process of availability of goods and services;
Increased competition among businesses;

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PRINCIPLES OF STRATEGIC MANAGEMENT MEANING AND NATURE OF STRATEGIC MANAGEMENT

The entry of low-cost manufacturing businesses mainly in Asian countries;

Increased awareness of the need for protection of natural resources, leading to
development of alternative materials and sources of energy;
Greater emphasis on consumer rights;
Improvement in worldwide communication;
Greater interconnection between the nations and peoples due to commercial activities
of multinational corporations, and political and economic associations, such as
European Union (EU), the Oil Producing and Exporting Countries (OPEC), and
the General Agreement on Trade and Tariffs (GATT).

2.3.1 THE CHALLENGE FOR TOP MANAGEMENT

The scenario with regard to several industrial and commercial organisations is quite complex.
The managements of these organisations need to have longer-term view. Strategic thinking
has to address the following questions:

What is our core business?

Where do we want the organisation to be in 5, 10 or 20 years time?
What do we have to achieve in order for the organisation to get there?
What resources are we likely to require?
What changes are we likely to have to cope with in our operating environment?
How can we gain and/or retain a competitive advantage over other businesses?

These questions can form the principal challenge to the top management of an organisation.
They have to concentrate on the positive aspect of strategic management, that is, planning
for growth and development. However, it is important to recognise that in circumstances
in which a once major industry for example, shipbuilding, coal mining, or steel
manufacturing is in steady decline, the issues are how to make the operation a viable
business and yet demonstrate responsibility to the local communities concerned. Often, in
such circumstances, the governments of the nations concerned intervene on behalf of those
communities affected.

2.3.2 KEY ISSUES IN STRATEGIC MANAGEMENT

Leading academics make the assumption that strategic management is about:

reconciling the often conflicting forces present in the formulation and implementation
of strategy;
developing agreed goals and objectives;
adopting a viable internal organisational structure; and
meeting the demands of the external world.

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PRINCIPLES OF STRATEGIC MANAGEMENT MEANING AND NATURE OF STRATEGIC MANAGEMENT

Figure 2/1 below shows a simplified working model of strategic management highlighting
the key issues.

Business strategy

Corporate strategy

Formulation Strategy Implementation

Leadership
Decision-making
Communication
THE STRUCTURE
MANAGEMENT
Structure CHALLENGE Goals/Objectives

Individual values
Internal resources

Communities
Markets ENVIRONMENT (incl. governments)

Fig. 2/1 Key issues in strategic management

This model highlights the following points:

It separates strategy from goals/objectives, and implies that strategy is a means to

an end, and so should be separate from the defining of ends. Not all theorists may
agree to this.
It suggests that goals/objectives are not set only for the long term. Shorter-term goals
might also be set in response to changes in the operating environment. Thus part
of strategic thinking involves reacting quickly to cope successfully with unexpected
changes in business conditions.
A key element of strategic management is the development of a viable structure of
leadership and reliable decision making to promote and sustain the implementation
of strategy.

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PRINCIPLES OF STRATEGIC MANAGEMENT MEANING AND NATURE OF STRATEGIC MANAGEMENT

The external environment is composed not only of markets but also of communities
of people (including governments) who have needs and priorities which are of a
non-market nature, and who might have power to force change on the organisation.
This model suggests that the role, or challenge, of strategic management is to
coordinate all these diverse elements into an overall master plan for the success
of an organisation.

2.4 THE THEORISTS AND THEIR THEORIES

Some writers, who have made special studies of the concepts of strategy and strategic
management, have developed their ideas mainly from the results of their research into active
business organisations. They are the following.

2.4.1 ALFRED D. CHANDLER

An important early definition of strategy was provided by Chandler (1962) as being:

the determination of basic long-term goals and objectives of all enterprise, and the adoption
of courses and the allocation of resources necessary for carrying out these goals.

A prime element in Chandlers study of large corporations was the link between strategy
and organisational structure. It stated that structure follows strategy, that is, the adoption
of a strategy has inevitable implications for the kind of organisational structure which is
needed to deliver the aims and goals of the strategy.

According to Chandler, growing organisations can pass through a number of phases of

development from the single-location, single-product and single-entrepreneur organisation
through geographic expansion to vertical integration and then to functional divisionalisation,
and finally to diversification in a multi-dimensional organisational structure.

2.4.2 KENNETH ANDREWS

He also combines goal-setting with the policies and plans needed to achieve the organisations
goals. He distinguishes between:

Corporate strategy which he defines as the type(s) of markets an organisation

is to compete in; and
Business strategy which, according to him, determines how the organisation will
compete in a given type of market.

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PRINCIPLES OF STRATEGIC MANAGEMENT MEANING AND NATURE OF STRATEGIC MANAGEMENT

Andrews states that business strategy is subordinate to corporate strategy, although both are
seen as the outcomes of strategic management. His view of corporate strategy is that it is:

a pattern of decisions, which represents the unity, coherence and internal consistency of
a companys strategic decisions that position a company in the environment and give the
organisation its identity, its powers to mobilise its strengths, and its likelihood of success
in the marketplace.

2.4.3 H.I. ANSOFF

Ansoff (1965) prefers to separate objectives from strategy. However, he envisages a close
relationship between the two, in which an objective is followed by a strategy, which after
evaluation might lead to a revision of the original objective.

Ansoff argues that three types of decisions need to be made: strategic, administrative and
operative decisions. He has suggested a matrix of product-market alternatives which has been
widely used. In basic terms the matrix offers the alternatives illustrated below in Fig. 2/2.

Present New
Products Products

Present Market Product

Markets Penetration Development

New Market
Diversification
Markets Development

Fig. 2/2 Ansoffs product-market growth strategies

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PRINCIPLES OF STRATEGIC MANAGEMENT MEANING AND NATURE OF STRATEGIC MANAGEMENT

The matrix suggests the following growth strategies:

Managements of organisations which choose to stay in their present markets with

current products are basically presented with a strategy of market penetration, that
is, aiming for an increased market share.
Managements of organisations seeking new products in their present markets will
focus on developing appropriate new products or brands.
Managements of organisations aiming to take existing products into new markets
will concentrate on sustaining market development activities.
Managements of organisations which intend to develop new products in new
markets will pursue a strategy diversification.

Ansoff (1984) redefined strategic management as being:

a systematic approach for managing change which consists of: positioning the organisation
through strategy and capability planning, real-time strategic response through issue
management, systematic management of resistance during strategic implementation.

2.4.4 THE BOSTON CONSULTANCY GROUP (BCG)

The BCG matrix, also known as portfolio framework, is based on three major variables:

An organisations relative market share;

The growth rate of its market(s);
The cash flow (negative or positive) generated by the organisations activities.

The matrix yields four alternative outcomes for an organisation, expressed as stars, cash
cows, dogs or question marks.

22
PRINCIPLES OF STRATEGIC MANAGEMENT MEANING AND NATURE OF STRATEGIC MANAGEMENT

High
Market Growth Rate

Star Question Mark

Low

Cash Cow Dog

High Low

Relative Market Share

Fig. 2/3 Outline of the BCG Matrix

Stars are businesses which have a high market share in an expanding market and
could be profitable, but where there might be a negative cash flow because of the
need to keep up investment to keep pace with market growth.
Cash cows are businesses which have a high share of a slow-growing market and
which are usually very profitable and generate a positive cash flow.
Dogs are businesses with a low share of a slow-moving market and might produce
either a modest positive cash flow or an equally modest negative cash flow.
Question marks are those businesses which have a low share of a fast-growing
market and which require considerable investment to keep up with the growth in
the market, thus producing negative cash flow. Yet it is precisely these businesses
which might have the potential to exploit the growing market and go on to achieve
greater market share, healthy cash flow and adequate profitability.

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PRINCIPLES OF STRATEGIC MANAGEMENT MEANING AND NATURE OF STRATEGIC MANAGEMENT

The BCG growth-share Matrix composes levels of growth with levels of competitive position.
Those are the benefits of profit strategy. Those which are high in position and growth are
stars. Those which are high in growth but low in market position are question marks.
Those which are low in both categories are dogs.

Eventually a successful question mark can turn into a star, and then into a cash cow.
However, this outcome depends on an appropriate management strategy, including
adequate funding.

2.4.5 GES BUSINESS SCREEN

GEs (General Electric) Business Screen is a more complex version of the BCG. It makes a
classification of SBUs into nine cell matrix based on the following indicators:

Industry/market indicators:
Market factors size, growth rate, seasonality;
Competition type of competition, degree of concentration;
Financial and economic margins of contribution, barriers to entry;
Technological patents and copyrights;
Social and political social attitudes, laws.

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24
PRINCIPLES OF STRATEGIC MANAGEMENT MEANING AND NATURE OF STRATEGIC MANAGEMENT

Business strength indicators:

Market companys market share;
Competition price, promotion, distribution;
Financial economies of scale;
Technologies technological skills, ability to manage change;
Social and political companys ability to respond to social factors and
government rules and regulations.

Industry Business Strength Indicators

Indicators Strong Average Weak

High Grow Grow Hold

Medium Grow Hold Harvest

Low Hold Harvest Harvest

High Medium Low

Fig. 2/4 GE Business Screen

2.4.6 M.E. PORTER

Michael Porter (1980) proposed a different approach to developing corporate strategy,

taking competitive advantage as his focus. He suggested that the competitive environment
should be analysed using a Five Forces Analysis. This involved scanning the environment
for various pressures. Michael Porters Five Forces tool is a simple but powerful tool for
understanding where power lies in a business situation. This is useful because it helps the
organisation to understand both the strength of its current competitive position and the
strength of a position it is considering moving to.

25
PRINCIPLES OF STRATEGIC MANAGEMENT MEANING AND NATURE OF STRATEGIC MANAGEMENT

With a clear understanding of where power resides, an organisation can take advantage
of a situation of strength, improve a situation of weakness, and avoid taking wrong steps.
According to Porter, there are five important factors which decide power in a business
situation. They are the following:

Supplier power: Here it is assessed how easy it is for suppliers to increase prices.
This is done by the number of suppliers of each key input, their strength, and the
cost of changing from one to the other. If the choices of suppliers are less, the
organisation needs more help from them. This makes the suppliers more powerful.
Buyer power: Buyers may bring the prices down. This can be done by the number
of buyers, the importance of each buyer and the cost of changing buyers. If an
organisation deals with less number of buyers, they are more powerful and buy
products or services on their own terms.
Competition: If the organisation has many competitors who offer similar products
or services, the suppliers and buyers will go to other organisations. They will remain
with the same organisation if they get a better deal from it. But an organisation
has great strength if it can offer what no other can.
Threat of substitution: If the organisations customers have the ability to find a
different way of doing what this organisation does, they may use substitute methods.
For example, if an organisation supplies particular software that automates a process,
people may find a substitute in doing it manually, or may outsource the process.
This makes the organisations position weak.
Threat of new entry: If more people are easily able to enter an organisations
market, the power of the organisation is affected. If it costs little time and money
to compete with an existing organisation, new competitors will enter the market,
and thus weaken its position. On the other hand, if an existing organisation has
strong barriers, its position will be maintained.

26
PRINCIPLES OF STRATEGIC MANAGEMENT MEANING AND NATURE OF STRATEGIC MANAGEMENT

Threat of new entry

The Industry

Supplier Buyer
Power Power

Competition

Threat of substitution

Fig. 2/5 Porters view of competitive forces

Porters Five Forces can be utilised by organisations in strategy formulation, and particularly
in their SWOT analysis their assessments of their strengths and weaknesses, opportunities
and threats. Any such analysis is most likely to start with an examination of the organisations
industry competitors. For example, at a time of intense rivalry, competitors advertise
strongly, offering incentives to buyers and devising ways of differentiating their products.
The managements of organisations have to consider how they are going to respond to their
immediate threats to their sales from rivals.

In such circumstances, suppliers are in a relatively weak position in relation to the organisation
since their sales are dependent on the end product being sold. For example, it is bad news
for its suppliers if a manufacturing business is stockpiling products because their own long-
term sales will be affected.

27
PRINCIPLES OF STRATEGIC MANAGEMENT MEANING AND NATURE OF STRATEGIC MANAGEMENT

Conversely, buyers are in a strong position in those same circumstances, and can therefore
drive harder than usual bargains with dealers, for example, by seeking larger discounts,
longer periods of credit, free delivery, etc. Assuming an intensity of competition, with low
profit margins all around, new entrants to the industry are unlikely, because the costs of
entering would be high and their returns low.

2.4.7 HOFER AND SCHENDEL

Hofer and Schendel (1978) are particularly interested in the adaptations that successful
businesses make to their specific environment that is, the survival of the fittest compared
with unsuccessful businesses. They are also keen to emphasise the difference between
effectiveness and efficiency. They see:

effectiveness as referring to the extent to which an organisation achieves what it

has set out to achieve (actual versus desired outputs); and
efficiency as referring to the ratio between outputs and inputs.

Hofer and Schendel concluded that when businesses adapt to events in their external
environment, the results are more likely to make an impact on effectiveness. In contrast,
they state, when businesses adapt their structures and ways of working by responding to
the internal environment, the impact is more likely to be felt on efficiency.

On a day to day basis, managers are interested mainly in efficiency. But so far as strategic
management is concerned, it is effectiveness which is the more important, they claim, and
this implies the necessity for attention to the external environment of the business.

Hofer and Schendel prefer to separate goal-setting from strategy formulation, and they see
strategy as:

a pattern of present and planned resource deployments and environmental interactions

that indicates how the organisation will achieve its objectives.

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PRINCIPLES OF STRATEGIC MANAGEMENT MEANING AND NATURE OF STRATEGIC MANAGEMENT

For them, strategy is clearly to do with means rather than with ends. They conclude that
strategy has four components:

Scope or domain: This is the extent of the organisations interactions with its
environment. This could, for example, be represented by its product-market position.
Resource deployments: They are both past and present resources and skill
developments that help to achieve organisational goals. These are also referred to
as the organisations distinctive competencies.
Competitive advantages: These refer to the unique competitive position developed
by an organisation through the pattern of resource deployment and scope decisions.
Synergy or the 2 + 2 = 5 effect: This refers to the total effect sought by the
organisation through its entire strategic decision making. The expression 2 + 2 =
5 effect refers to the sum being greater than the total of the parts.

2.4.8 THOMPSON AND STRICKLAND

Thompson and Strickland (1999) suggest that there are five tasks of strategic management,
which can be summarised as follows:

Task 1: It is to define the overall business, and to develop a mission. This is an

entrepreneurial task involving vision, risk and judgment.
Task 2: It is to break down the mission statement into specific performance objectives.
Thompson and Strickland see this task as a separate objectives-setting exercise.
Task 3: It is the crafting of a strategy, that is, the pattern of organisational moves
and managerial approaches used to achieve organisational objectives..and mission.
At this stage the activities are those of business planning in support of the goals
and objectives, and will be concerned both with effectiveness and efficiency.
Task 4: It is to implement and execute the strategy. This stage will be more concerned
with team leadership, efficiency and other operational matters.
Task 5: It is to evaluate, review and adjust the implementation activities, as necessary.
A key consideration at this point is organising the feedback of the results of the
review, and the model described by Thompson and Strickland allows for feedback
to connect with every previous task.

Thompson and Stricklands model is useful in showing the link between top-level strategy
formulation and lower-level strategy implementation.

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PRINCIPLES OF STRATEGIC MANAGEMENT HISTORY AND RELEVANCE OF STRATEGIC MANAGEMENT

3 HISTORY AND RELEVANCE OF

STRATEGIC MANAGEMENT
3.1 INTRODUCTION
Prior to World War II, whatever planning that occurred in the vast majority of business
organisations was concerned typically with physical operations in manufacturing: the
design and construction of facilities, the introduction of technologies, processes, tools and
equipment, and the like.

3.2 HISTORY OF IMPLEMENTATION

True business planning began with the introduction of general forecasting of economic
conditions and detailed proposals for individual projects for appropriating capital expenditures.
The practice of capital and expense budgeting spread fast and was taken up more broadly by
business organisations after World War II. Until mid-century the main purpose of budgeting,
however, was not enhancing managements ability to provide for the firms future success.
Rather, budgeting was focused more on controlling expenditures in the near term.

After World War II three major trends began transferring businesses, and the way they were
managed. They were the following:

Marketing began to emerge as an increasingly important element of doing business.

The impact of new technologies started spreading at an accelerating pace especially
in electronics, information, communications and materials.
Pent-up consumer demand created growth opportunities for business organisations.

3.2.1 LONG-RANGE PLANNING

At first each department was asked to plan for the next several years rather than only for
the next year. It was assumed that functional specialists at departmental level were best able
to anticipate future developments and what it would take to deal with them. It was further
assumed that a viable long-range plan for the company could be achieved by aggregating
all the departmental long-range plans.

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PRINCIPLES OF STRATEGIC MANAGEMENT HISTORY AND RELEVANCE OF STRATEGIC MANAGEMENT

In the late 1950s, bottoms-up of long-range planning gave way in more sophisticated
firms to long-range business planning. For the first time four to five year long-range plans
were being developed that focused on a single business, not on a department. A driving
presumption of top managers for long-range business planning was that if they identified
their true strengths as a firm and capitalized on these, and also overcame their weaknesses,
the success of the business would be assured.

3.2.2 EXTERNAL AND INTERNAL CHANGES

By 1970, external environment of firms was becoming more complex and uncertain. The
world was changing rapidly. Both competition and opportunities were becoming global
rather than national. Many international competitors were playing the game by unfamiliar
rules, created by more patient investors, more supportive regulatory and labour conditions,
and dramatically lower labour costs. Capital and energy costs were increasing dramatically.
The regulatory environment was changing with many new areas subject to regulation for
example, environment, working hours and conditions, employment of minors, product safety
etc. and many industries being deregulated, for example, airlines, telecommunications etc.

There were changes taking place in social values, consumer behaviour and technology.
Consumers were becoming more aware and demanding of products and services. The rapid
development of computer and telecommunications technologies was revolutionizing the
availability and management of information.

In response to external changes, major changes were taking place inside organisations. Many
corporations became engaged in many, often diverse businesses. Global competition led to
global sourcing and geographic dispersion. Large firms adopted complex multi-business,
multi-divisional, multi-layered and multi-national structures. Changes in consumer behaviour
coupled with changes in technology led both to proliferation of products and services to
meet specialised market demands, and to shorter product and service life cycles. The need
for organisations more frequently to design, develop and market many more products and
services placed unprecedented strain on business firms.

Another area within organisations that changed was the nature of the workforce. Many
firms experienced a dramatic increase in the proportion of women and professionals in the
workforce, while the proportion of more traditional blue-collar workers declined. Better
educated and more demanding than the typical workforce of the 1950s and 1960s, the new
workforce was no longer content to be dealt with as unthinking instruments of production.
Rather, they demanded immediate, positive satisfaction from both their work and their
working environment.

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PRINCIPLES OF STRATEGIC MANAGEMENT HISTORY AND RELEVANCE OF STRATEGIC MANAGEMENT

All these changes had a profound effect on most firms cost structures. Furthermore, the
cost of fringe benefits, especially for health care, had risen substantially.

The cumulative effect of all these external and internal changes on management, especially
top executives, was enormous. No manager had been prepared, either through education
or experience, to deal with the levels of external volatility and uncertainty, together with
internal complexity. Senior management wanted new means and tools to cope. Strategic
planning appeared to offer some answers to meet this urgent need.

3.3 STRATEGIC PLANNING

Business leaders, initially in the USA and soon after in the UK and Western Europe, realised
that they needed more sophisticated information about the firms external environment
as a basis for establishing the direction for the business, setting priorities and allocating
resources. Strategic alternatives were then identified and evaluated. Corporate strategy in
multi-business firms was developed by reconciling:

the opportunities, threats, intended strategies and promised performance for each
of the corporations separate businesses; and
objectives, priorities and resources of the corporation as a whole.

The adoption of strategic planning in the 1970s by the managements of the largest enterprises
was driven by management consultants. They provided the conceptual frameworks and
analytical methods and tools necessary to address the complexities of each firms external
environment. The new emphasis on external research and analysis caused the managements
of the worlds leading corporations to establish large number of corporate and business unit
planners. To them was delegated the task of formulating business and corporate strategies.
By 1981 one survey estimated that about half of the top Fortune 1000 firms were actively
engaged in strategic planning.

However, it was found in the early 1980s that there was constant failure in implementing the
strategy once formulated. A frequent cause for this failure was that strategic planning was in
the hands of planners, often former consultants, who were focused on theory and analytical
methods, and who were far removed from the realities of the competitive marketplace. By
the early 1980s, many leading firms had already begun to dismantle their planning personnel
and shift the primary responsibility for formulating strategy to line executives.

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PRINCIPLES OF STRATEGIC MANAGEMENT HISTORY AND RELEVANCE OF STRATEGIC MANAGEMENT

3.3.1 BENEFITS OF STRATEGIC PLANNING

There have been numerous studies of strategic planning and performance. One study
indicated organisations that planned performed better than organisations that did not plan.
A study by Ansoff and colleagues (1979) found that deliberate and systematic preplanning
of acquisition strategies was correlated with better financial performance. Overviews of such
empirical studies usually conclude that there is a preponderance of evidence in favour of a
link between company performance and planning.

3.3.2 PRACTITIONERS

Most practitioners think that there is definitely a link between formal strategic planning and
better performance, and that it is worthwhile to invest their time and effort in developing
strategic plans. Surveys of practitioners suggest that their experience has confirmed that
investing in strategic planning is a good idea.

3.3.3 A FUNCTIONAL VIEW

Even if academic research finds a correlation between strategic planning and performance,
it might still be objected that the case for strategic planning is unproven. It might be said,
for example, that better performing organisations have the extra managerial capacity needed
to carry out strategic planning. In contrast, organisations that are doing less well may not
have the time or spare attention to think about strategic planning.

3.3.4 STRENGTH AND PERFORMANCE

A key idea in strategic management thinking is that firms should select strategies that make
use of their strengths. If this idea is usually taken as self-evidently true, then the application
of strategic management in ways that involve an organisation making use of its strengths
should result in better performance. There is some empirical evidence linking strengths and
performance. For example, Vasconcellos and Hambrick (1989) found that organisations that
rated highest on key success factors for an industry were better performers.

3.3.5 BENEFITS OF STRATEGIC INNOVATION

Innovation has come to be seen as the key driver of growth and profitability. It is a part
and parcel of the history of business cycles. In the late 18th and early 19th century textiles
and iron were the new industries. In the second half of the 19th century rail and steel
industries became important. In the last century new industries included electricity and
chemicals, and then petrochemicals, electronics and aviation came to the fore. The latest
wave of innovation covering the present period is summed up by describing the period
as the Information Age, meaning that there are new products and services around digital
technology, software and new media.

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PRINCIPLES OF STRATEGIC MANAGEMENT HISTORY AND RELEVANCE OF STRATEGIC MANAGEMENT

3.4 THE STRATEGIC MANAGER

The essence of strategic planning is to help a company develop and sustain advantages in the
marketplace through unique resources, agility, superior products and/or services. Strategic
planning is strategic because it requires an understanding of how the external environment
impacts a firms ability to create value.

In order to ensure this, strategic managers have lead roles in the strategy planning and
implementation activities of an organisation. They are usually found in higher levels of
management where they have greater authority and can make strategic decisions for the
firm. The CEO is the most visible and critical strategic manager. However, any manager who
has the responsibility for a unit or division, responsibility for profit and loss outcomes, and
direct authority over a major piece of the business is a strategic manager. Strategic manager
needs to be a visionary and should have leadership skills, ability to see the big picture, ability
to see how the parts relate to each other and the big picture, and ability to sell the vision.

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PRINCIPLES OF STRATEGIC MANAGEMENT HISTORY AND RELEVANCE OF STRATEGIC MANAGEMENT

3.5 WHY STRATEGIES FAIL?

Quite often strategic plans fail. The main reasons for the failure are the following:

Failure to understand the customer:

-- Why do they buy?
-- Is there a real need for the product?
-- Inadequate or incorrect market research.
Inability to predict environmental reaction:
-- What will competitors do?
-- Will the government intervene?
Over-estimation of resource competence:
-- Can staff handle the new strategy?
-- Failure to develop new employees and management skills.
Failure to coordinate:
-- Reporting and control relationships not adequate;
-- Organisational structure not flexible enough.
Failure to obtain senior management commitment:
-- Failure to get management involved right from the start;
-- Failure to obtain sufficient company resources to accomplish task.
Failure to obtain employee commitment:
-- New strategy not explained well to employees;
-- No incentives given to workers to embrace the new strategy.
Under-estimation of time requirements:
-- No critical path;
-- Failure to follow the plan.
Failure to manage change:
-- Inadequate understanding of the internal resistance to change;
-- Lack of vision on the relationships between processes, technology and organisation.
Poor communication:
-- Insufficient information sharing among stakeholders;
-- Exclusion of stakeholders.
Failure to focus:
-- Inability or unwillingness to make choices which are true to the strategic mission;
-- Unrealistic expectations.

35
PRINCIPLES OF STRATEGIC MANAGEMENT CORPORATE OBJECTIVES AND PLANNING

4 CORPORATE OBJECTIVES
AND PLANNING
4.1 INTRODUCTION
Planning involves decisions about ends (objectives) as well as means. It also involves decisions
about conduct as well as about results. The objectives for a particular organisation will be
determined and laid down by its top management.

The classification and definition of its prime objectives is vital for any organisation
because they provide it with a sense of direction. Invariably, the objectives of a business
organisation will be based on such concepts as profitability, customer service, the satisfaction
of shareholders and the motivation of employees. In contrast, the objectives of a public
service organisation such as healthcare or education are likely to focus on the efficient
delivery of a service to the community.

4.2 CORPORATE PLANNING

We can think of corporate planning as a process which enables the management of an
organisation to identify the following:

Its purpose and main objectives;

Its strengths and weaknesses;
Opportunities and threats posed by its external environment;
The basis of the long-term plans;
The context of its short-term plans;
The main performance standards that it is seeking to achieve;
The ethical principles it is prepared to support.

There is much which is similar to the process of strategic management. However, there are
major differences between corporate planning and long-term planning. They are:

Corporate planning is organisation-wide, whereas long-term planning focuses on

one part of the organisation at a time.
Corporate planning looks at the future comprehensively, whereas long-term planning
looks at the future selectively.

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PRINCIPLES OF STRATEGIC MANAGEMENT CORPORATE OBJECTIVES AND PLANNING

4.3 CORPORATE OBJECTIVES

There are usually two distinct types of corporate objectives laid down for an organisation.
They are:

Those which set out its overall objectives; and

Those which set out its long-term, strategic, aims.

4.3.1 OVERALL OBJECTIVES

These objectives apply to the organisation as a whole, and might be:

to develop a successful business for the benefit of customers, shareholders, employees,

suppliers, and the country in which the company operates.

The objectives of a public service organisation might be:

to provide an efficient, responsive and considerate nationwide health service (or

education) for all citizens of the country.

Overall objectives are stated in general terms and are usually intended to be permanent.
They are often accompanied by policy statements which outline how the organisation is
to be conducted in the pursuit of its purpose.

4.3.2 STRATEGIC OBJECTIVES

Strategic objectives are normally set for all major functions of an organisation, and taken
together they sum up what position the organisations management intends it to be in during
the foreseeable future. Strategic objectives cover areas such as markets, product development
and profitability or efficiency.

Strategic objectives are usually set for at least five years, so inevitably they have to be set
out in fairly generalised terms. If they were to be specific and highly quantifiable, they
would not then be strategic objectives; they would be operational or tactical objectives.

However, strategic objectives should be carefully worded in such a way that it will be possible
at a later date to determine whether they have been achieved or not. For example, a strategic
objective for the sale and marketing function in an organisation might be set down as being:

37
PRINCIPLES OF STRATEGIC MANAGEMENT CORPORATE OBJECTIVES AND PLANNING

to ensure the continued growth of sales of the companys products nationwide over the
next five years.

This statement says nothing about the volumes of different products to be sold, or the
overall increase in sales by volume, value or percentage which is expected to be achieved.
However, it would be quite possible after the period concerned to assess whether the sales
and marketing department had (or had not) met its long-term aim.

4.4 POLICIES
After setting up the corporate objectives, the top management of the organisation can begin
to specify what the organisation will do in pursuance of its overall objectives. Policies are
not the same as objectives or plans. They differ in the following manner:

Objectives state aims or goals.

Policies outline a framework within which action can take place to achieve
the objectives.
Policies are neither ends nor means; they are statements of conduct. Moreover, they
reflect and contribute to the organisations culture.

The variety of organisational policies can be considerable, but the intention is the same
in all cases. They are meant to guide the managers of the organisations concerned in the
conduct of their particular affairs.

4.5 ETHICS IN BUSINESS

While policy statements tend to concentrate on matters of behaviour, ethical codes tend to
go further and focus on matters of right and wrong. For example, an organisations ethical
code might be that its management will never ignore the discovery of a possible health
risk or safety hazard in or from the use of one of its products. A code of conduct applies
individually as well as collectively to the organisations managers and workers, and affects
its internal affairs as well as those with its external stakeholders. This code of conduct must
be strongly supported by top management.

4.6 SOCIAL RESPONSIBILITY

In addition to their roles as employers and producers, larger businesses are expected by
society to play a direct role in meeting community needs in the arts and education, in
health and environmental affairs, in social welfare, and in various other areas.

38
PRINCIPLES OF STRATEGIC MANAGEMENT CORPORATE OBJECTIVES AND PLANNING

There are two ways to encourage business organisations to develop a sense of social
responsibility: they can be forced by law, or they can be persuaded to act voluntarily. In
many countries the law plays an important role in regulating the relationships between
businesses and their various stakeholders. For example, there might be laws designed to
protect the community from undesirable effects of commercial activities, such as industrial
pollution, unsightly building developments and hazardous products.

However, the term social responsibility refers in general to voluntary measures undertaken
by businesses as part of their wider role in modern day society. The most typical types of
community activities which commercial organisations support include the following:

Job creation schemes;

Welfare programmes;
Support for educational institutions;
Support for the arts;
Support for sports;
Aid in times of national disaster.

4.7 OVERVIEW OF CORPORATE PLANNING

Strategic planning has traditionally been considered to be the province of top management,
tactical planning that of senior executives, and operational planning that of lower levels of
management and supervision. The result of this approach is the fragmentation of the planning
operation. As organisations become larger in size and scope, the fragmentation approach
becomes less efficient, and it has been realised that a different approach is necessary. This
modern approach is called corporate planning, and although it is not a new concept in
itself, it has been slow in being widely adopted.

4.7.1 DEFINITION OF CORPORATE PLANNING

Corporate planning may be defined as:

a systematic and comprehensive process of long-term planning taking account of the

resources and capability of the organisation and the environment within which it has to
operate, and viewing the organisation as a total, corporate, system.

By its nature, corporate planning takes the long view, and its time span is normally over a
minimum period of five years and frequently extends very much longer than that sometimes
up to 20 or more years ahead.

39
PRINCIPLES OF STRATEGIC MANAGEMENT CORPORATE OBJECTIVES AND PLANNING

Furthermore, the corporate plan must be frequently updated, and it is usual to review
performance and adherence to the corporate plan at least annually so that modifications
may be made in the light of experience gained from its implementation in practice.

4.7.2 NEEDS OF CORPORATE PLANNING

There are a number of factors essential to an organisations survival and growth. The
management needs to:

identify specifically the attainable long-term objectives, and to decide which to pursue;
evaluate all the internal resources of the organisation;
appraise the external environment of the organisation within which it operates;
coordinate all activities and plans throughout the organisation;
establish the internal strengths and weaknesses of the organisation, and the possible
external opportunities and threats SWOT approach;
establish a formal planning procedure with an effective feedback mechanism; and
recognise that, although it is essentially long-term in approach, to be effective
corporate planning requires constant reviewing and updating.

4.8 FACTORS IN CORPORATE PLANNING

The long-term strategic objectives having been decided upon, the following actions will
be taken:

Appraisal: This involves an examination of the existing internal situation of the

organisation such as financial position, return on investment, production capacity,
marketing effectiveness, research and development, utilization of workforce, training
programmes etc.
Evaluation: This involves the evaluation of the present and future competition.
Assessment: This means analysing the economic factors surrounding the
organisations activities.
Review: It involves the review of:
-- the organisations position in the marketplace;
-- the legal aspects of operating the organisation;
-- the effect of immediate and possible future government action.

The results arising out of the above will be the starting point of corporate planning. The
manner of obtaining the information will differ from organisation to organisation. Two
commonly used techniques are top-down and bottom-up given below.

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PRINCIPLES OF STRATEGIC MANAGEMENT CORPORATE OBJECTIVES AND PLANNING

4.8.1 TOP-DOWN PLANNING

In this method the planning process starts at the top in the planning committee or
department. The long-term strategic plans are formulated by the specialist planners. The
corporate plan is then broken down for use by the various divisions or departments of the
organisation, each receiving its own sectional strategic plan from the top.

While this method has the advantage of the use of highly specialised skills and is widely
used, it does have the following possible drawbacks:

Often there is no involvement in the planning by the operating managers, thereby

causing resentment on the part of the personnel who have the task of putting the
plans into practice.
Where operational research models have been used, the operating managers might
not understand the mathematical techniques involved, and so might lack confidence
in the plans.

4.8.2 BOTTOM-UP PLANNING

In this method, the various divisions or departments of an organisation are required to

produce their own separate plans, and those are then considered together by the central
planners. After appraisal and modification or rejection as considered necessary, the divisional
or departmental plans are used as ingredients in the corporate plan.

This method has the advantage of ensuring the involvement in the organisations strategic
planning of all those who will be required to implement their own parts of it.

However, a possible disadvantage is that top management might pay only lip-service to the
sectional offerings and might pursue strategies outside the corporate plan so evolved.

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PRINCIPLES OF STRATEGIC MANAGEMENT THE ANATOMY OF IMPLEMENTATION

5 THE ANATOMY OF
IMPLEMENTATION
5.1 INTRODUCTION
There is a subtle basis for success or failure in implementation plans. Implementation success
depends on the fact that strategic plans require major changes in the work environment of
organisations. The successful achievement of these changes requires durable and far-reaching
changes both in how the organisation works as a whole and how individuals behave in
that system.

5.1.1 REQUIRED CHANGES IN THE EXISTING SYSTEM

Most strategies aim to improve business performance faster growth, larger market share,
higher profits etc. This necessitates that an organisation has to operate differently including
all its departments and the people in these departments. For example, one strategy may
require new products and/or services in order to meet customer demands.

Another strategy may require extensive improvement in the quality of products/services.

This will mean aggressive pricing and reduced costs.

If strategies are to succeed, fundamental changes are to be made in the behaviour of the
existing organisation or its operating system. Though each operating system has its own
culture and performance capabilities, including an inherent ability to resist change, it is for the
management to take measures in order to ensure that resistance to change is eliminated with
persuasion and creation of awareness about the issues involved. An extraordinary managerial
effort is sure to achieve desired changes in the behaviour of all involved in the process.

5.1.2 KEY ISSUES

Managements need to address the following key issues in order to bring about changes in
the whole organisation and its operating system:

How thoroughly does everyone involved understand?

-- What are the needs of customers?
-- What is to be achieved, and why?
-- How is the strategy to be accomplished?
-- What is the timetable?
-- What resources are to be applied?
-- What specific changes are required in the behaviour of personnel?

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PRINCIPLES OF STRATEGIC MANAGEMENT THE ANATOMY OF IMPLEMENTATION

How strong is the commitment of managers and employees?

-- How do they look at the objectives?
-- To what extent do they own the objectives?
-- What has been their participation level in the process?
-- How is commitment to be sustained?

How successfully have the resources been identified and provided?

-- Funds
-- Tools
-- Skills
-- Time

How systematic a process has been instituted for tracking implementation progress?
-- How will the projected gains be measured, monitored and communicated?
-- How will timely revisions be made?

How consistent is a climate of accountability maintained?

-- How clearly do the personnel believe in sustaining their commitment?
-- What will be the consequences for success or failure?
-- How visible and consistent is leadership behaviour?

5.1.3 ACTION STEPS

Action of implementation is broadly based on the following steps:

Eliminate factors that the industry takes for granted but add no perceived value
to customers.
Reduce factors well below the industrys standard to avoid mistake of over-delivering
in order to beat the competition.
Raise factors well above the industrys standard so the customers wont have to
make compromises.
Create new sources of value that the industry has never offered.

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PRINCIPLES OF STRATEGIC MANAGEMENT THE ANATOMY OF IMPLEMENTATION

5.2 STRATEGY IMPLEMENTATION WITH OPERATING PLANS

Operating plan is the most appropriate medium both for specifying what changes need to be
made in the operating system and for directing management how these are to be installed.
Operating plans differ from strategic plans in the following manner:

A strategic plan lays down the moves the firm wants to make in the marketplace
in order to improve its position in all respects.
A strategic plan outlines whatever internal organisational actions are needed to
support the external strategy.
Operating plans are orientated primarily to the firms internal environment.
An effective operating plan lays down in considerable detail the work required
to change how things are done within the organisation in order to support the
achievements of the firms strategic business objectives.

5.2.1 DETERMINING THE NUMBER OF OPERATING PLANS

The number of operating plans should be determined by the need to address the special
characteristics of each facility or group of facilities. Operating plans should be formulated
immediately following the development of the strategic plan.

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PRINCIPLES OF STRATEGIC MANAGEMENT THE ANATOMY OF IMPLEMENTATION

In smaller organisations, the operating and strategic plans can be integrated into a single
plan. The same group of managers can develop first the business strategy and then the
operating plan in a single integrated process.

5.2.2 KEY ISSUES FOR OPERATING PLANS

In order to ensure successful implementation of operating plan, management has to deal

with the following key issues concerned with:

Understanding;
Commitment;
Resources;
Measuring and monitoring; and
A climate of accountability.

Management can use the operating plan as an effective mechanism to address all these issues
except the last one i.e. a climate of accountability. This factor depends on the quality of
top level leadership and middle and lower management throughout the implementation
period. All other issues can be effectively addressed because a good plan will answer many
questions those affected might have. It helps both to allay any fears that might encourage
resistance to the intended changes and to establish credibility.

5.3 SETTING THE STAGE

Before formulating an operating plan, it is necessary to define the scope of the operating
system, which will be addressed by the operating plan. The scope will also help in identifying
the senior executive who will be accountable for the effective implementation of the
operating plan.

5.3.1 DEFINING THE SCOPE

It requires a two-stage process:

First, the operating system relevant to a single SBU is defined.

If this scope proves to be very large and complex as to be unmanageable, a second-
stage analysis is required to unbundle the macro system into more manageable
sub-systems.

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PRINCIPLES OF STRATEGIC MANAGEMENT THE ANATOMY OF IMPLEMENTATION

Determining the scope is a matter first of setting the boundaries of the macro system, and
then establishing what must be addressed within these boundaries. Boundaries should be
drawn to include all organisational functions, activities, workflows and supporting processes,
systems and procedures required to carry out the strategy for a single SBU.

However, when the SBU is large, involving a number of different facilities (or it is a multi-
business operation), the problem of determining scope becomes even more complex.

5.3.2 FORMING THE PLANNING GROUP

After deciding the scope of an operating system, a planning group needs to be set up in
order to formulate a plan. It could include around 1218 people. Members of this group
should have understanding of all significant components of the operating system and how
they work together dynamically. Even though each member will be familiar with only one
part of the operating system, they will have perceptions and assumptions about the other
elements of the system. However, the group should be able to reach a common understanding
of the system in its entirety.

The group should include managers from senior level to lower middle level. There should
be some representation from first-line supervision also. It is important to include personnel
from all levels because successful implementation of most strategies ultimately depends on the
whole-hearted support of all. It will also help to gain credibility and support with supervisors
throughout the organisation. Another reason to include supervisors in the planning group
is their expertise as they are the part of management closest to where the work is actually
done. Their detailed knowledge of how the operating system really works at the level where
things get done is especially valuable in formulating action plans to support each strategy.

5.3.3 SPONSORSHIP

The next step is the designation of a sponsor for the operating plan and his/her role in
formulating and implementing the plan.

Ordinarily the sponsor is a senior level manager who has direct authority for the greatest
number of key functions in the operating system. In smaller organisations, the sponsor is
typically the chief executive officer, managing director or chief operating officer.

The sponsor may not actually participate directly as a member of the planning group.
However, he/she has an important role to play in setting the stage for formulating the
operating plan.

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PRINCIPLES OF STRATEGIC MANAGEMENT THE ANATOMY OF IMPLEMENTATION

The sponsor must:

validate the definition of the operating system;

ensure that all key functions, processes, systems, workflows, interactions, etc. are
included within the boundaries of organisational territory to be addressed by the
operating plan;
determine whether a single operating plan is sufficient or manageable, or whether
more than one operating plan will be required;
decide which functions, activities, systems, etc. must be represented in each planning
group, and validate the prospective members;
establish a supportive climate for members involvement.

In order to ensure successful implementation of the plan, it is necessary that the sponsor
should believe in and be comfortable with the following:

There is a need for a carefully conceived, comprehensive and integrated approach

towards the plan.
Improving the performance of large, complex operating system requires investment
in time and effort required to formulate a sound, credible plan.
There needs to be vigorous, open debate about key issues and decisions made.
Managers who are key to carrying out the plan should be directly involved in
its formulation.

5.3.4 CHOOSING THE PLANNING GROUP LEADER

The planning group leader should have the ability to:

deal with difficult situations;

think broadly, creatively, and with an integrative approach;
sustain a perspective that references the strategic business imperatives as the framework
for reaching conclusions.

Such leaders are more likely to be found outside the operating system, probably at corporate
level, such as those belonging to planning, organisational development or human resources.

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PRINCIPLES OF STRATEGIC MANAGEMENT THE ANATOMY OF IMPLEMENTATION

5.4 SETTING THE RIGHT PRIORITIES AND OBJECTIVES

The purposes of an operating plan are:

to describe what changes are required of the operating system to enhance its support
of the SBUs business strategy; and
to outline how these changes are to be achieved.

For an operating plan to achieve these purposes, it must be closely aligned with the
business strategy.

5.4.1 KEY ISSUES IN ACHIEVING ALIGNMENT

The following issues must be addressed to ensure a correct alignment of operating plans
with business strategies:

Often business strategy is determined by senior executives. However, when most

company assets and a substantial portion of the payroll are in operations and in
technical functions, these often develop their own sense of priorities and momentum,
which are often at odds with the business strategy.
Cost reduction is not necessarily the only or even the primary objective of an
operating plan. Cost reduction should have top priority only when the business
strategy requires a reduction in operating costs or the cost of goods and services sold.
When a single operating plan serves two or more businesses, each with its own
strategy, differentiated priorities must reflect any different strategic imperatives.
Each business strategy must be supported by an appropriate operating plan that
addresses its special requirements.

5.4.2 HOW TO ENSURE ALIGNMENT

It is crucial that the management group responsible for implementing an operating plan
share a common understanding of the business strategy they are supporting. The following
steps are crucial for developing consensus about operating system priorities:

Operating system managers need to make explicit whatever perceptions they have
about the priorities that are actually driving current decisions.
The planning group reviews the current strategy to identify the strategic business
imperatives for the operating system.

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PRINCIPLES OF STRATEGIC MANAGEMENT THE ANATOMY OF IMPLEMENTATION

In the light of these strategic imperatives and the capabilities of the operating
system to perform against these imperatives, the planning group discusses and
reaches consensus on what the operating system priorities should be, in order to
support the business strategy.
The planning group compares their consensus with the perceptions of current actual
priorities. The nature and extent of any difference will determine the actions required
to reorient and redirect all managers and supervisors in the operating system.

5.5 SWOT ANALYSIS

SWOT is the acronym for Strengths, Weaknesses, Opportunities and Threats. It is in
effect a distillation of all the steps and considerations that should be taken to formulate an
effective corporate strategic plan.

5.5.1 STRENGTHS

In this area will be found all the advantageous aspects of the organisation, for example,
exceptional customer goodwill and brand loyalty, ideal location of its stores, highly efficient
technical personnel, adequate financial resources, enthusiastic sales force, etc. The strengths
represent the foundations on which the organisations continued success and prosperity can
be built.

5.5.2 WEAKNESSES

These must be honestly investigated and faced because they represent influences which could
retard the growth and success of the organisation. Remedies must be sought to overcome
weaknesses once they are identified.

Weaknesses can occur in any or all areas of an organisation depending on the particular
organisation and its activities. Examples of weaknesses could be obsolescent machinery, lack
of provision for senior management succession, skills shortages, inadequate research and
development facilities resulting in lack of new products to succeed current production models.

The remedies to be applied will, of course, depend upon the weaknesses involved. Top
management of the organisation concerned should consider carefully about investing in new
machinery, the promotion of management training programmes, and increased investment
in research and development. If its financial position is one of the organisations strengths,
then these remedies would not be difficult to implement. If finance is one of the weaknesses,
that aspect would need to be given attention first.

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PRINCIPLES OF STRATEGIC MANAGEMENT THE ANATOMY OF IMPLEMENTATION

5.5.3 OPPORTUNITIES

Whereas strengths and weaknesses emanate chiefly although not entirely from inside the
organisation, opportunities are usually external. They might come about fortuitously or by
an application of research. The important factor is that opportunities should be recognised
and grasped firmly when they arise.

Some examples of opportunities are a new market opening up that could be filled from
existing resources, the opportunity to take over another company which would improve
the organisations capabilities, such as a manufacturer taking over a retailing chain, or the
opportunity to take on to the management team an expert in some appropriate field who
would improve the organisations performance.

Opportunities abound if they are actively sought and recognised. They are important for the
organisation, and its management should be ready for them so that they are able to be seized
on when they occur, provided they coincide with the main objectives of the organisation.

5.5.4 THREATS

Most threats to an organisation are from external sources, and they must be identified,
and steps must be taken to deal with them. Though the actual threats are mostly external,
their disadvantageous repercussions on the organisation are chiefly due to weak or inept
management and management planning. Some examples of threats could be technological
developments, thrusting competition (especially from other countries), economic and
political uncertainty.

Two very important threats which can arise internally must not, however, be overlooked.
The first is management complacency, and the other is inadequate financial management.
Complacency results from the assumption that things will always remain as they are
and therefore management has the plans to meet technological or other changes, or the
consequent strong competition.

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PRINCIPLES OF STRATEGIC MANAGEMENT THE ANATOMY OF IMPLEMENTATION

5.5.5 ADVANTAGES OF SWOT APPROACH

The advantage of SWOT approach to corporate planning is that it requires management

to look very closely and analytically at every aspect of the organisations operations so that
objectives can be assessed as attainable, and a clear picture can be built up of the strategies
that must be adopted to achieve them. Even strategy must also be examined with care, so
that the constraints under which operations have to be conducted will be recognised. Some
of these constraints, which might cause certain strategies to be abandoned, will be external
and some will be internal.

Some external constraints might be outside managements control altogether. These would
include raw material price rises, government legislation, and the economic climate. Others
might be circumvented. Examples could be substitution of an alternative material for one
whose supply has ceased, or finding a new outlet for products whose overseas market has
ceased to exist because, say, of import controls.

Internal constraints include lack of specialist labour, poor industrial relations, faulty products
owing to poor quality control and lack of research and development support. Such
constraints might require the re-examination of corporate strategies, and the planners and
management will have to consider the alternatives of either abandoning some strategies or
of remedying the constraints.

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PRINCIPLES OF STRATEGIC MANAGEMENT TRACKING STRATEGY IMPLEMENTATION

6 TRACKING STRATEGY
IMPLEMENTATION
6.1 INTRODUCTION
Strategy implementation is an on-going, integrated process requiring continuous reassessment.
It involves the following:

Allocation of sufficient resources financial, personnel, time, I.T. support;

Establishing a chain of command;
Managing the process by monitoring results, comparing to benchmarks, evaluating the
efficiency of the process, controlling for variances, and making necessary adjustments;
Developing the process involving training, process testing, documentation and
integration with legacy processes.

6.2 ISSUES INVOLVED

In order to achieve successful implementation it is also necessary to understand the relationship
between performance measures, monitoring progress and implementation success.

These issues are:

Every organisation has a set of some performance measures. Some are at departmental
or functional level while others are those that relate to work processes.
These measures may not always align with planned future strategies.
Behavioural norms consistent with these established measures can be barriers to
changes in the operating system.
Performance measures can be most effective at three levels:
-- The SBU level
-- The operating system
-- Departmental or functional level.

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PRINCIPLES OF STRATEGIC MANAGEMENT TRACKING STRATEGY IMPLEMENTATION

6.3 COMPLEX SYSTEMS

There are several issues which need to be considered because of the complexity in SBUs
and operating systems. They are:

Those involved need to assess whether the investments in their strategies effort,
time and resources are actually paying off in terms of the desired gains.
They need to have the ability to measure with reasonable precision, cause-effect
relationships within complex systems in the context of performance improvement.
These measures must be made at all levels against business objectives, against
operating system objectives, and against departmental objectives.
The managers need to get unambiguous answers about accountability.
They need to understand that the ultimate measure of any operating systems
performance lies in its marketplace. When the system supports an SBU, that
marketplace is outside the organisation. When the system is focused on a support
function within the organisation (e.g. Human Resources, Finance, Maintenance,
etc.), its marketplace is its internal clients.

6.4 MEASUREMENT OF PERFORMANCE

There is a gap between the managements need for precision and clarity in measuring system
performance and anyones ability to meet this need. For example, almost every attempt to
measure the performance of single elements within organisations, in actuality measures much
more than it was intended to measure. Moreover, the act of applying a measure influences
the outcome sometimes in unproductive ways.

6.4.1 PRACTICAL APPROACH

A practical approach to measuring performance improvement in operating systems requires

an understanding of the dilemma of gap between the managements need for precision and
the ability to meet this need. This means that the management must recognise the current
limitations of measuring performance and cause-effect relationships in operating systems.
They must therefore be willing to settle for something less than precise gains resulting from
specific changes. However, the usefulness and effectiveness of performance measures can be
improved over time by trial and error. Often the measures in use at the end of the first year
of plan execution are quite different from the ones applied at the outset of the application.

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PRINCIPLES OF STRATEGIC MANAGEMENT TRACKING STRATEGY IMPLEMENTATION

6.4.2 SPECIFIC MEASUREMENT PACKAGE

There are two requirements for a practical approach to measuring any performance improvement
in an operating system resulting from the implementation of an operating plan:

A package of different types of measures can be used, rather than a single measure.
A consistent picture stemming from a multi-dimensional approach is more reliable
than a similar picture derived from only one type of measure.
The measurement package need not be standardised, but rather tailored to and
derived from the specific operating plan.

6.4.3 TYPES OF MEASURES

The tailored and specific package should contain the following measures:

Global measures: When the operating system centres on a function that provides
services within rather than on revenues:
-- Net units processes divided by total person-hours worked; or
-- Net units of output (provided to client departments) divided by total person-
hours worked.

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PRINCIPLES OF STRATEGIC MANAGEMENT TRACKING STRATEGY IMPLEMENTATION

Strategic Performance Gap (SPG): It is focused on the implication of any Strategic

Performance Gap (SPG) that may exist between the level of system performance
required to meet strategic business objectives and the current level of performance.
Targeted measures: It means a set of targeted measures for each strategy in the
operating plan. It is the opposite of a global measure. A targeted measure illuminates
improvements only in certain elements of the operating system. The development
of targeted measures for a tailored measurement package is more likely to require a
selection from measures already in use than the invention of entirely new measures.
Detailed action programmes: A well-developed action programme specifies tasks,
start and completion dates and accountabilities. Performance against the action
programme is a qualitative indicator of how reliably the commitments to perform
planned work are actually met.
Cost systems and work standards: Tracking variances from both work and cost
standards can add another dimension of measurement provided that the standards
have some validity and have been well maintained.

6.5 DEVELOPMENT OF MEASUREMENT PACKAGE

In order to develop the tailored package of measures for their operating plans, a planning
group needs to consider how they want to use these measures. Moreover, measures can be
a powerful force to enhance employee motivation. In that case, the measures must meet a
set of special criteria:

They must be easy to understand;

They should have a high degree of credibility;
Feedback must be more frequent than that used for monitoring implementation progress.

No operating plan can be considered complete without an initially defined tailored

measurement package designed to track implementation progress.

To develop the measurement package, the planning group is involved in the following process:

They review the action programme, and identify the source of expected gains.
They estimate the probable magnitude of these gains after the first and then the
second year of plan implementation.
They need to select the global and targeted measures, and calculate the SPG
(Strategic Performance Gap).

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PRINCIPLES OF STRATEGIC MANAGEMENT TRACKING STRATEGY IMPLEMENTATION

The following questions can serve as a useful checklist against which to test an initially
formulated tailored measurement package:

To what extent are these measures focusing on the areas that really count in achieving
the desired changes to the operating system?
How practical are these measures in terms of the relationship between the effort
required and their expected value?
Are the measures sufficiently comprehensive?
Will we be able to get performance feedback soon enough to help us make any
needed mid-course corrections?
To what extent are these measures easy to understand?
How credible will these measures be?

6.5.1 CONGRUENCE WITH BUDGETS AND REWARDS

In some organisations, the budget is a more deeply extended and respected system than
strategic and operating plans. Thus it is the budget that prevails and the plan that suffers.

Plans are likely to be implemented successfully when there is a close alignment and linkage
among the business strategy, operating plan and systems of budgets and rewards.

However, several large corporations have begun to address this problem by radically changing
their budget development process so as to base budgets on strategy. This type of budget
avoids any possible conflict or incongruence with the business strategy and operating plan.

In a strategy-based budgeting process, each function or department carries out the

following steps:

It must be able to meet the specific demands of any strategy.

For each step of action programmes, estimates are made for associated expense and
any revenue that might accrue to a department.
For each strategy and its associated action programme, the department totals the
expenses by line item and offsets these with any anticipated revenues.

6.5.2 REWARD SYSTEM

In order to ensure that strategy implementation is integrated into day-to-day operations,

it is essential that the reward system is congruent with the strategies being implemented.

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PRINCIPLES OF STRATEGIC MANAGEMENT TRACKING STRATEGY IMPLEMENTATION

For example, for each manager:

Merit increases are geared directly to the extent, to which he/she exceeds, meets or
slips commitments regarding action plan implementation.
Executive bonuses are awarded on the basis of the extent to which specific strategic
or tactical goals are achieved, exceeded or missed.
Stock option awards are based on performance against individual commitments
met in implementing strategies.
Advancement within the organisation is based on performance on strategy
implementation.

Thus, by gearing personal rewards directly to the achievement of strategic objectives, everyone
affected has a strong personal stake in achieving successful implementation outcomes.

6.5.3 SYSTEMATIC MONITORING PROCESS

The process for systematically monitoring implementation progress needs to be established.

There should also be scope for updating and modifying the plan when necessary. No plan
can be expected to remain valid for a long time. There may be unanticipated events both
within and outside the organisation, and these may call for changes in strategy.

Management, therefore, require:

a clear delineation of the course they intend to take;

signals to inform them when they are no longer on that course; and
regular opportunities to take stock of the situation and decide what action to take.

6.5.4 SIGNAL GENERATORS

A planning group can implant some signal generators in the operating plan to complement
their measurement package.

These are:

A set of explicit assumptions made by the planning group on which successful plan
implementation depends;
A summary of the major qualitative changes that are expected to occur to the
operating system once the operating plan is successfully implemented;
An analysis and measurement of the risk that management will fail to implement
the operating plan as intended.

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PRINCIPLES OF STRATEGIC MANAGEMENT TRACKING STRATEGY IMPLEMENTATION

The planning groups first identify and note any major obstacles to implementation success;
Next they assess the risk of failure by recording their consensus in answering the
questions regarding the following:
-- Defined objectives to successful implementation;
-- Ambitiousness of plan objectives;
-- Managements familiarity with strategies in the operating plan;
-- Managements past record in successfully changing the operating system;
-- Overall management competence;
-- Organisational responsiveness;
-- Conflict with established culture;
-- Overall risk assessment.

6.5.5 PROGRESS REVIEWS

Management need to complete their monitoring/updating process by establishing regular

opportunities to review the progress and decide on appropriate actions, if necessary. For
this purpose, a strategy manager/coordinator needs to be designated. He/she will regularly
meet the members of the particular group, and review and report on the following:

Progress achieved in completing the task;

Any problems or obstacles encountered;
Any changes required to the timetable;
Any suggested additional tasks that should be undertaken;
Anything else that should be shared.

After each manager, who is accountable, reports on his/her action step, the entire group
meets to discuss the reports. Depending on what the group learns from their review of
implementation status, they consider whether or not any changes are required to the plan.

This process enables the group to maintain a relevant, vital plan by continuously injecting
updates, additions and modifications. In this way, the operating plan remains a vital
mechanism for managing the organisation.

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PRINCIPLES OF STRATEGIC MANAGEMENT IMPLEMENTING STRATEGY

7 IMPLEMENTING STRATEGY
7.1 INTRODUCTION
Implementing a strategy requires initiating a number of changes in the operating system(s)
that support each Strategic Business Unit (SBU). This can be achieved by:

carefully formulating a plan for change; and

implementing that plan in a systematic way.

For formulating an operating plan, it is necessary to:

make a decision about its scope; and

decide upon the Sponsor.

7.1.1 SCOPE

It means reaching a workable compromise among the following considerations:

Ensuring that the operating system contains all the key functions, workflows,
supporting systems, practices, procedures etc.;
Avoiding a complex definition of scope;
Ensuring to effectively address significant differences of place, technology and other
organisational characteristics.

7.1.2 THE SPONSOR

The designated Sponsor, who is a senior executive, sets the stage for operating plan formulation.
He/she reviews and validates or modifies the plan proposed by the planning group. He/she
helps to ensure that focus and momentum are sustained. It is his/her job to resolve any
issues identified by the planning group, and to maintain a climate of accountability for the
managers and supervisors involved with implementing the operating plan.

7.2 THE PLANNING GROUP

The operating plan is formulated by a group of managers and supervisors 20 to 30 in the
operating system. They represent all key functions and departments in the operating system.

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PRINCIPLES OF STRATEGIC MANAGEMENT IMPLEMENTING STRATEGY

It is important for these managers and supervisors to be directly involved in developing an

operating plan because of the following reasons:

They are able to bring knowledge and expertise of the operating system;
They have the operational details of the systems elements;
They are in a position to establish a strong foundation for successful implementation
of the operating plan.

For very large organisations, these managers and supervisors constitute a core which can be
subsequently expanded once implementation begins.

7.3 PLANNING GROUP WORKING SESSIONS

A planning group usually works in a structured process. There are three full-group sessions
which are held off-site in order to ensure that there are no distractions or interruptions.
First, there are two two-day sessions. Second, there is a one-day session. Each of these sets
of sessions is held four to five weeks apart. These sessions are really productive if they are
conducted by someone who is outside the operating system, and so can think objectively.

Before the first two-day session, two critical inputs are prepared:

Straw-person situation characterization: This is a description of the operating

system, and describes:
-- the context of the operating system;
-- its components; and
-- the working of the system.

This is developed from research based on interviews with managers, supervisors and employees
in the operating system.

Analysis of demands made by business strategy: This is an analysis of demands

as perceived by managers in the operating system.

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PRINCIPLES OF STRATEGIC MANAGEMENT IMPLEMENTING STRATEGY

Straw-person Situation Business Strategy

Characterization Demands

High Leverage Targets of

Work Session I
Opportunity
2 days

Priorities

Strengths &
Weaknesses

Options /
Strategies

Barriers

Issues

Fig. 7/1 Operating Plan Formulation Process I

7.3.1 INITIAL WORKING SESSION

The planning group devotes most of the first day to reviewing, modifying and validating the
Straw-person situation characterization. Each member of the planning group completes an
Organisation and Management Readiness Assessment (OMRA) questionnaire. This is done
by them individually and anonymously, and their responses are analysed at the beginning
of work on the second day.

The second day is devoted to consensus building and identifying priorities necessary to drive
the operating system in support of the business strategy. Then the highest priority targets
are translated into objectives for the operating plan.

This is followed by assessing the capabilities of the operating systems management to

implement successfully strategies for improving system performance. In this process, past
system change efforts are reviewed and an effort is made to draw some general conclusions
regarding future improvement efforts. The group then discusses the feedback from their
responses to OMRA (Organisation and Management Readiness Assessment) questionnaire,
and identifies specific areas of strength and weakness. Then they select the strategy options
on which to base their operating plan.

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PRINCIPLES OF STRATEGIC MANAGEMENT IMPLEMENTING STRATEGY

The planning group then identifies obstacles that might interfere with the selected strategies.
For each strategy in the operating plan a task group is formed to develop a proposed sequence
of action steps outlining the work required to implement each strategy.

Work Session I

Task Groups

Actions
Work Session II
(2 days) Responsibilities

Timing

Resources

Gains

Measures

Monitoring Plan

Assumptions

Issues

Risks

Fig. 7/2 Operating Plan Formulation Process II

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PRINCIPLES OF STRATEGIC MANAGEMENT IMPLEMENTING STRATEGY

7.3.2 SECOND WORKING SESSION

During this session the proposals of task groups are discussed, and the planning group
formulates detailed action programmes. These programmes also include a plan for monitoring
the implementation progress. In short, the planning group:

identifies issues requiring help from the Sponsor;

states the assumptions regarding successful implementation;
summarizes the expected change in the operating system; and
identifies and assesses the extent of risk involved in successful implementation.

7.3.3 FINAL WORKING SESSION

Before the final working session, a draft proposed operating plan is prepared, and the same is
reviewed and completed. Before doing this, the group may make any necessary modifications
to the plan document to ensure that it:

reflects the groups consensus accurately;

communicates clearly the plan rationale; and
provides a comprehensive roadmap for implementation.

Work Session II

Draft Plan
Loose Ends

Review Session (1 day)

Fig. 7/3 Operating Plan Formulation Process III

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PRINCIPLES OF STRATEGIC MANAGEMENT IMPLEMENTING STRATEGY

7.4 SPONSOR APPROVAL AND PLAN IMPLEMENTATION LAUNCH

A final plan document is submitted to the Sponsor for review and validation, or modification
(if necessary). This is done only when the Sponsor has not participated directly in the
planning group. After validation the operating plan document is distributed to managers
and supervisors in the operating system, and to other selected executives and managers.
Meetings are held with all employees in the operating system to explain the plan.

7.5 IMPLEMENTING THE OPERATING PLAN

At the initial stages of implementation the Sponsor works to resolve any critical issues.
Managers and supervisors are involved in formulating more detailed action plans. This
makes it possible for a majority of the management group to believe in the plan and they
are determined to achieve its objectives.

As implementation proceeds, regular executive staff meetings are held to review and discuss
implementation progress on key action steps.

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PRINCIPLES OF STRATEGIC MANAGEMENT IMPLEMENTING STRATEGY

Review Session

Proposed
Summary & Plan

Tasks
Sponsor Review
& Approval Formal Reviews

Revise/Update
actions
Integrate with
Reward System
Integrate with
Implement
Budgets

Fig. 7/4 Operating Plan Formulation Process IV

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PRINCIPLES OF STRATEGIC MANAGEMENT MULTI-BUSINESSES

8 MULTI-BUSINESSES
8.1 INTRODUCTION
In modern times alliances between different business organisations have become a regular
feature. There are some successes while there are some failures, too, for various reasons.
However, it stands to reason that when an alliance doesnt seem to be working it is better
to end it before any further damage can be caused.

8.2 THE CORPORATE GAP

Corporate planning is a long-term one. Hence an organisations strategies need to be reviewed
at frequent intervals in order to be able to introduce necessary modifications. Flexibility in
approach to corporate planning goes a long way in the achievement of objectives.

During these reviews the actual results of the existing activities of the organisation are
compared with those required at the same juncture by the corporate plan. Where actual
results fall short of planned results, it is termed the corporate gap.

The extent of the gap signifies the amount of effort required to achieve the planned objectives.
In order to ensure this, strategies have to be adjusted by the planners after re-examination.

8.3 ENTREPRENEURIAL ACTIVITY AND CORPORATE PLANNING

It is believed that corporate planning can have a negative effect on entrepreneurial activity.
An entrepreneur has to be ready to exploit the market opportunities as they occur. He/she
needs to have complete freedom of action within the resources available.

The restrictions imposed by a rigid corporate plan could hamper the exploitation of such
opportunities. Hence it is necessary that corporate planning should not be restrictive. Change
and adaptability are vital to continued progress. The planners should ensure that there is
little or no conflict between entrepreneurial pursuits and the strategic plan. Corporate plan
is not an end in itself; it should be the means to pursue the ultimate objectives of the
organisation. Therefore, top management should ensure sufficient flexibility in the strategic
planning. However, such activities need to be kept within reasonable limits and within the
resources available.

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PRINCIPLES OF STRATEGIC MANAGEMENT MULTI-BUSINESSES

8.3.1 ADVANTAGES OF CORPORATE PLANNING

The advantages of an efficient strategic planning can be summarised as follows:

Strategic planning requires top management to make an analytical examination of

the entire organisation.
Strategic planning ensures continued progress of the organisation if it is carefully
carried out and implemented.
When personnel at all levels of management are involved in the planning operations
and procedures, personal interest of those concerned is generated.
Strategic planning requires that adequate attention is paid to the future over the
long period.
It becomes necessary to have an effective management information system.
Strategic planning broadens the horizon of those who are mainly concerned with
tactical planning.
Those at the lower levels of management and supervision are also enabled to
appreciate how the operational plans fit into the scheme of the organisation.

8.4 BUSINESS PLANNING

The basis of business planning is the strategic or corporate plan which identifies the direction
which the organisation is to take over the next ten years or more, and the resources needed
for the achievement of planned objectives.

Since external business environment is variable, the managements of most business organisations
work on a rolling five-year plan basis. In this method, only the following years budgets are
expressed in detail, and the remaining four years are set out in flexible terms. This allows
for a number of unexpected contingencies.

8.5 HOW SHOULD MULTI-BUSINESSES COMPETE?

Portfolio management by Porter (1985) as the concept of corporate strategy is mostly in
use. The most famous concept of portfolio management was the Boston Consulting Group
(BCG) growth share matrix.

(Note: This has been described in detail in 2.4.4)

The use of the matrix can also be made when a business is being transferred from one to
another. This presents a good opportunity for the whole business to be examined with
decisions on future investment and/or disinvestment.

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PRINCIPLES OF STRATEGIC MANAGEMENT MULTI-BUSINESSES

There has been a change in the way businesses pursue high growth strategies. There is
a greater realisation that innovation is at the centre of achieving high growth. However,
innovation requires a change in the mindset of strategists.

Associated with the emphasis on innovation comes an emphasis on core competencies.

They are the building blocks for successful innovation. To ensure this across the multi-
business, core competencies have to be seen as a corporate resource, and be available to all
in the organisation.

8.6 THE CORPORATE CENTRE

Large organisations usually have several different business units producing a number of
varied products. In some cases, they have operation centres in other countries, too. At the
centre of all there is the corporate headquarters. It is here that all the major decisions are
taken and strategies are formulated. One of the main tasks is to ensure introduction of
innovative products in the market. This can be done in two ways.

Producing and marketing new and creative products developed by the existing staff
or by hiring fresh talent;
Having an alliance or merger with another business organisation which has the
capacity and capability to add value to the organisation.

However, alliance or merger may have certain negative implications. The existing personnel
may resent the power and authority of newcomers joining from the other organisation.
In this situation, the top management of the parent organisation must ensure that the
existing team gets positively merged with the incoming team. This will require a great deal
of leadership and team building skills.

8.7 THE BOARD

The Board of Directors of an organisation has the following responsibilities:

To create the vision and mission of the organisation;

To monitor the work of top managers;
To approve the use of resources;
To protect the interests of shareholders;
To ensure that the Chief Executive is able to provide strategic leadership;
To ensure the balance between the executive and non-executive members of the
Board. (There is always a concern that non-executive members either do not have the
requisite capabilities or do not give sufficient time to the deliberations of the Board.)

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PRINCIPLES OF STRATEGIC MANAGEMENT MULTI-BUSINESSES

The Board needs to be pro-active and not a rubber stamp on the actions of the Chief
Executive. The Board members must be able to question the actions and decisions of the
Chief Executive, if it is required under certain circumstances.

8.8 INTEGRATION OF BUSINESS UNITS

Organisations having several diversified business units often scattered around the world
have a problem of control. They need to decide from among the following options:

Should they have one large corporate centre to take decisions regarding the working
of all units?
Should they have a small corporate centre, and have a decentralised structure?

Though it may seem logical to have one corporate centre and all decisions to flow from it,
in practice it may prove to be counter-productive. Different units may have to operate under
different cultural and market conditions. It will not be prudent to impose decisions taken
at the corporate centre on all units without taking into consideration the specific realities
of a particular market segment.

The most logical system would be to keep decision-making authority on over-all strategy
at the corporate centre but decentralise the operation aspects. However, the corporate
headquarters can add value to the activities of a particular unit by identifying and facilitating
the horizontal relationships between businesses, such as transferring skills, technologies and
core competencies and sharing activities.

8.9 THE GLOBAL BUSINESS

Global businesses face an interesting situation. How should they respond to local culture? It
is necessary to think about this problem because what is liked in one country may not find
favour in another. For example, what attracts the consumers in USA or UK may not attract
those in Japan, or the product preferred in Europe may not find buyers in India or China.

Some global organisations e.g. McDonald, KFC, and Pizza Hut are good examples of
this phenomenon. They have added regional tastes in their offerings and have been able to
create markets in whichever country they have gone to.

It virtually means integrating local culture with the corporate culture. A smart global
organisation somehow finds its way through these two extremes to be able to function
effectively in various markets throughout the world.

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PRINCIPLES OF STRATEGIC MANAGEMENT MULTI-BUSINESSES

8.10 STRATEGIC ALLIANCES

In the modern business world strategic alliances between various business organisations have
become commonplace. Strategic alliances are made for a variety of reasons.

They are:

To help with entry to the new market;

To help with the cost of Research and Development (R&D);
To help companies acquire core competencies.

Some examples of such alliances are: AT&T of USA with Microsoft, Sony and Philips, BT
of UK with other partners, Walmart of USA with Citra in Mexico, etc.

Strategic alliance is quite often considered to be a better option than acquiring companies.
These alliances may be:

Joint ventures;
Supplier-buyer relationships;
Cross shareholding;
Sharing R&D.

However, strategic alliances have to be managed carefully. Conflicts do emerge as partners

start to feel they are getting the worst of the arrangement. Mutual trust is important but
practically it is hard to maintain in the long term.

8.11 SELECTING PARTNERS

In order to select the right partner(s), it is essential to do a thorough research and evaluation.
The resources to use could be company reports, market surveys, online searches, trade
journals, value of stocks and shares etc.

The dimensions of the company profile might include the following:

Size of the company;

Products/services;
Market position;
Technological capabilities;
Style and strength of management;
Production capabilities, etc.

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PRINCIPLES OF STRATEGIC MANAGEMENT MULTI-BUSINESSES

8.12 MAKING STRATEGIC ALLIANCES WORK

This involves the work of identifying goals and negotiating positions. Negotiations could
include the following matters:

Objectives of partnership;
Legal and managerial arrangements;
Financing;
Contributions;
Benefits;
Decision-making procedures, etc.

Implementing a strategic alliance agreement requires the complete management structure.

It will include the following:

Continued sponsorship of the alliance by the top management;

Monitoring the strategic alliance against specified targets;
Training and briefing of personnel;
Conflict-handling mechanism;
Capacity to improve the partnership.

8.13 ALTERNATE CORPORATE STRATEGIES

After the SWOT analysis is completed, the next step is usually to develop a list of corporate
strategies which will form the basis for the final corporate plan.

Strategies are developed for two purposes:

Those aimed at producing actions to fulfil objectives; and

Those aimed at ensuring the resources to support these actions.

Strategies, therefore, are usually developed with the following considerations:

In terms of products and markets where action will be required, and sometimes
not required;
In terms of size, structure, financing and staffing.

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PRINCIPLES OF STRATEGIC MANAGEMENT MULTI-BUSINESSES

Typical corporate strategies could be from among the following:

Expand into new markets with existing products;

Continue to maintain the present market share in existing markets with
existing products;
Add to product range through acquisition of a competitive business;
Seek long-term low-interest loans;
Re-organise the company into separate profit centres;
Divest no-core business.

Such strategies point the direction in which an organisation is to move over the medium term.

8.14 THE FINAL STAGES

The final stages of corporate planning cover the issue of key targets in a year-on-year format
to the various subsystems sections, departments or divisions of the organisation.

Targets may be expressed in relation to the following:

Budgets e.g. sales revenue, direct and indirect costs, trading profit;
Output per employee;
Percentage utilisation of machines;
Percentage increase in market share costs as a percentage of shares.

It is not sufficient merely to set targets; they need to be monitored, and then revised as and
when required. If revisions are made, the whole plan is rolled forward as a consequence.
Hence the long-term perspective is maintained, but the entire business plan is kept up to date.

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PRINCIPLES OF STRATEGIC MANAGEMENT SMALL BUSINESSES

9 SMALL BUSINESSES
9.1 INTRODUCTION
It is commonly believed that management in small business is flexible, intuitive and based
on the personal energy and capability of the owner/manager. These qualities are used:

To make sure the business survives; and

To grow the business.

When the business grows, the intuitive style of management has to be replaced by a more
systematic one including some formalization of strategy. Other managers may also have to
be hired in order to look after the expanded business.

9.2 ENTREPRENEURS
People who are fed up with the constraints of large bureaucratic businesses often start new
ones. Sometimes they do so because in large businesses they are bound by too many archaic
rules and regulations which hamper their innovative and entrepreneurial vision. However,
quite often such small entrepreneurial businesses ultimately do tend to grow into very large
ones, and so the initial concept is lost, and they are not able to keep being entrepreneurial,
for example, Richard Branson (Virgin Group), Bill Gates (Microsoft), Anita Roddick (The
Body Shop), Larry Page and Sergey Brin (Google).

Given below are examples of some of the most valuable startups around the world:

Uber (ride-hailing)
Xiaomi (smartphone)
Airbnb (home renting)
Flipkart (e-commerce)
Palantir (data analysis)

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PRINCIPLES OF STRATEGIC MANAGEMENT SMALL BUSINESSES

However, there is a difficulty with the notion that all startups, or for that matter all small
businesses, are entrepreneurial. An entrepreneur is creative, interested in innovation and
willing to take risks to bring about innovation and business growth. In the case of many
small business owners these attributes are largely lacking. Many of them say that they do
not want their business to grow beyond its present size. Many small firms stay about the
same size for most of their lives with the owner-manager unwilling to take further risks.

9.3 PLANNING AND STRATEGIC MANAGEMENT IN SMALL FIRMS

A business plan is invariably requested by a bank or a financial institution when a firm is
trying to raise loan. Quite often these firms are not in a position to come up with a credible
business plan, and that is the end of their business venture. Therefore, it is necessary for
them to prepare a realistic and viable plan prior to startup.

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PRINCIPLES OF STRATEGIC MANAGEMENT SMALL BUSINESSES

The principal value of strategic planning to these firms is that they have a framework for
their assessments of overall performance. This means the managerial will to improve planning
facilities, comparisons with alternative futures and opportunities. In fact, the most dynamic
and progressive firms embrace management as a way of nurturing their own entrepreneurial
motivation. This is consistent with the view held by Wheelan and Hunger (1995) that to
be an entrepreneur requires strategic vision. They argue that an entrepreneurial business
is more oriented towards growth and innovation than other small firms do. So, far from
seeing strategic planning as an impediment to entrepreneurial and innovatory behaviour,
they see it as a necessary part of it.

9.4 THE NATURE OF STRATEGIC MANAGEMENT IN SMALL FIRMS

While some small businesses might have well-developed strategic management, the usual
assumption is that strategic management in small businesses typically needs to be a simplified
version of that of a large business. Small firm managers, it is assumed, lack the skill to do
what their counterparts in large organisations do.

However, it is not always so. There are innumerable small firms around the world that
prepare strategic plans though on a scale smaller than large organisations and deploy
similar systems of planning, implementation and operation.

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PRINCIPLES OF STRATEGIC MANAGEMENT E-BUSINESS

10 E-BUSINESS
E-business (electronic business) is the conduct of business on the Internet, not only buying
and selling but also servicing customers and collaborating with business partners. Companies
are using the Internet to buy parts and supplies from other companies, to collaborate on
sales promotions, to do joint research. Exploiting the convenience and world-wide reach of
the Internet, a large number of companies have already discovered how to use the Internet
successfully, for example, amzon.com, eBay, flipcart, bookboon.com, to name a few.

10.1 THE GROWTH OF E-BUSINESS

In the last few years there has been an astonishing growth of e-business all over the world.
Now banks, insurance firms, book retailers, travel companies, hotels, airlines, and innumerable
various other kinds of businesses have moved quickly to establish their presence on the
Internet. Now one can access the Internet virtually for anything they want. However, many
companies may have done so because they saw opportunities. Many may have joined the
Internet band wagon simply in order to keep up with what their rivals are doing, or might
soon do.

The e-businesses have grown extraordinarily fast, often returning growth rates that until
recently were unimaginable.

10.2 ISSUES FOR NEW E-BUSINESS

E-businesses, like any other kind of business, initially face the issue of raising the capital
necessary to start and keep them going until they have sufficient sales revenue from customers.
However, the difficulties of obtaining startup capital to start an e-business may vary from
one country to another.

Once the e-business has begun operating, another issue is how to build its share of the
Internet market. Some spend money on offline advertising to build an online brand, which
can be very expensive. Some others adopt a different approach to building a market share,
and compete in price. This practice is usually adopted by providers of Internet and mobile
phone services.

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PRINCIPLES OF STRATEGIC MANAGEMENT E-BUSINESS

10.3 CONSOLIDATION
The development of e-business has been so rapid that issues of consolidation are already
starting to emerge. Netscape, General Motors, Ford, Volkswagen, AOL are good examples
of this phenomenon. These firms combined the resources and skills of other firms in order
to offer services to companies.

10.4 OPERATIONAL EFFICIENCY

The Internet offers established firms new ways of operating. They can increase efficiency by
moving to electronic procurement. They can also have closer integration with business customers.

10.5 E-BUSINESS STRATEGIES FOR ESTABLISHED FIRMS

Firms may decide to make a strategic response to the opportunities of the Internet. If they
decide to do so, they have at least two options:

They can respond by maintaining their existing business design but adding a
Website; or
Launch their e-business.

However, firms that create a presence on the Internet but do not substantially change the
way they operate have business processes quite different from their e-business counterparts.
Established firms facing the challenge of e-business might have to dismantle parts of their
organisation and transform the way they operate.

10.6 STRATEGY PROCESS AND E-BUSINESS

A firm may decide it needs an e-business strategy to ensure that it keeps up with the
development of the e-economy. This leads to e-business becoming very important in terms
of the corporate business strategy.

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PRINCIPLES OF STRATEGIC MANAGEMENT E-BUSINESS

10.7 VALUE CHAIN ANALYSIS

Value chain analysis may be useful as a way of thinking about the use of Internet technology
to obtain competitive advantages.

The main support activities in the value chain identified by Porter (1985) are:

Inbound logistics;
Operations;
Outbound sales;
Marketing and sales;
Service;
Firm infrastructure;
HR management;
Technology development;
Procurement.

The Internet can be used in a number of these activities to reduce costs or improve the value
as perceived by the customer. In fact, e-business is more than just e-commerce. It involves
business processes spanning the entire value chain: electronic purchasing and supply chain
management, processing orders electronically, handling customer service, and cooperating
with business partners. Special technical standards for business facilitate the exchange of
data between companies. E-business software solutions allow the integration of intra and
inter-firm business processes. E-business can be conducted using the Internet, intranets,
extranets, or some combination of these.

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PRINCIPLES OF STRATEGIC MANAGEMENT REFERENCES

REFERENCES
Ansoff, H.I., Corporate strategy: An analytical approach to business policy growth and
expansion, McGraw-Hill, New York, 1965.
Ansoff, H.I., Implanting strategic management, Prentice-Hall, New York. 1984.
Ansoff, H.I. & colleagues, Strategic management, John Wiley & Sons, New York,
1979.
Andrews, Kenneth R., the Concept of Corporate Strategy, Irwin, Homewood, 1971.
Cole, Gerald A., Strategic management: theory and practice, D.P. Publishers,
London, 1994.
Chandler, Alfred D., Strategy and structure: Chapters in the History of the American
Enterprise, M.I.T. Press, MA, 1962.
Fayol, Henri, Industrial and general administration, translated by J.A. Coubrough,
Sir Isaac Pitman & Sons, London, 1930.
Hofer, C.W. & D. Schendel, Strategy formulation: Analytical concepts, West Publishing,
MN, 1978.
McGregor, Douglas, the Human Side of Enterprise, McGraw-Hill, New York, 1985.
Ohmae, Kenichi, the Mind of the Strategist: The Art of Japanese Business, McGraw-
Hill, 1982.
Porter, M.E., Competitive Strategy, Free Press, New York, 1980.
Porter, M.E., Competitive Advantage, Free Press, New York, 1985.
Quinn, James Brian, Strategies for Change, Irwin, 1980.
Thompson, A. & A. Strickland, Strategic management: concepts and cases, 11th ed.,
McGraw-Hill/Irwin, Boston, 1999.
Vasconcellos, J.A. & D.C. Hambrick, Key success factors: Test of a general framework
in the mature industrial product sector, Strategic Management Journal, 10(4), 1989,
pp. 367382.
Wheelan, Thomas L.&J. David Hunger, Strategic Management and Business Policy,
Addison-Wesley, 1995.

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PRINCIPLES OF STRATEGIC MANAGEMENT About the Author

ABOUT THE AUTHOR

Dr. Manmohan Joshi, M.A., M.Ed., Cert. EA, Dip. HRD, Dip. Mgmt. (UK), MBA, Ph.D.,
has over 45 years teaching, training and administrative experience. He has worked as Principal
of large and reputed educational institutions in India, Kuwait and the Sultanate of Oman.

For his work on Innovative Practices in Value Education he was awarded by the National
Council of Educational Research and Training, India.

He is also the recipient of the Best Teacher Award from the Govt. of Tamilnadu as well as
the Central Board of Secondary Education, India.

He has presented papers at various national and international conferences under the auspices
of UNESCO. He has also conducted various workshops for teachers, students, parents
and administrators. The topics covered a wide area viz., Leadership and Team Building,
Value Education, Administration Skills, Choosing a Career, Effective Decision Making in
Administration, Effective Communication Skills, Interpersonal Relationships, Continuous
Comprehensive Evaluation, Skills in Dealing with Managers, Secretarial Skills. He has also
authored several books on different subjects.

He has also worked as Acting Chief Executive & Consultant for a reputed Training Institute
in the Sultanate of Oman.

He is now Head-Content Development at Acharya Education Services, Bangalore, India, and

conducts workshops and training programmes for college professors, teachers and teacher
educators. He is actively involved in teaching students of MBA as well as Law.

He can be contacted through e-mail: [email protected]

Website: http://manmohan-joshi.webs.com

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