Concept of Strategy

UNIT 1 CONCEPT OF STRATEGY

Objectives
After reading this unit you should be able to:
 Define strategy and understand its meaning;
 Explain the relationship of strategy with that of policy and tactics;
 Differentiate between different levels of strategy;
 Know the importance of strategy.

Structure
1.1 Introduction
1.2 Meaning of Strategy
1.3 Features of Strategy
1.4 Strategic Management: Concept
1.5 Strategy vs. Policy
1.6 Strategy vs. Tactics
1.7 Levels of Strategy
1.8 Importance of Strategy
1.9 Summary
1.10 Key Words
1.11 Self Assessments Questions
1.12 References and Further Readings

1.1 INTRODUCTION
The top management of an organization is concerned with selection of a course
of action from among different alternatives to meet the organizational objectives.
The process by which objectives are formulated and achieved is known as strategic
management and strategy acts as the means to achieve the objectives. Strategy is
the grand design or an overall ‘plan’ which an organization chooses in order to
move or react towards the set objectives by using its resources. An organization
is considered efficient and operationally effective if it is characterized by
coordination between objectives and strategies. Strategy helps the organization
to meet its uncertain situations with due diligence and without an effective strategy,
the organization is like a ship without a rudder. There are different concepts
which actually describe strategy. There is no one definition of strategy as it
changes with the needs and requirements of the organization. In this unit we
will learn different aspects of strategy.

1.2 MEANING OF STRATEGY

The strategy is defined as a plan deployed at each level of management for the
attainment of objective and realization of long-term goals of the organization. It 9
Introduction to Strategic is a set of coherent actions which are performed in order to gain a sustainable
Management
competitive advantage. The term strategy was primarily used in military and
was later adapted to the field of business and management. It was derived from
a Greek word ‘Strategos’, where ‘Stratos’ means army and ‘agos’ implies to lead.
In management, the concept of strategy is taken in broader terms. Strategies are
used to acquire a competitive advantage over others in any field. There can be
general or specific strategies depending upon the situation. Organization deploys
strategies for several purposes such as for satisfying customers, surviving in the
market, expanding the business, improving market share, increasing profitability
and ultimately to attain objectives of the organization. According to Glueck,
“Strategy is the unified, comprehensive and integrated plan that relates the
strategic advantage of the organization to the challenges of the environment
and is designed to ensure that basic objectives of the enterprise are achieved
through proper implementation process.”
It lays stress on the following:
 Unified comprehensive and integrated plan;
 challenges of environment;
 proper implementation for achieving basic objectives.
Strategies are used as a response to the change in environment. They are adopted
in accordance with the strength and weakness of the organization. The main aim
of framing strategies is to seek out the opportunities favoured by the external
environment and mitigate the threats simultaneously. The organization can adopt
strategies to achieve the desired position in the industry. There are number of
definitions given by different experts at different point of time. One such
definition relates strategy to its environment. It says “Strategy is organization’s
pattern of response to its environment over a period of time to achieve its goals
and mission.”
This definition lays stress on the following:
 Organization’s pattern of response to its environment;
 Achieving goals and mission.
However, various experts do not agree about the precise scope of strategy. Lack
of consensus has led to two broad categories of definitions: strategy as action
inclusive of objective setting and strategy as action exclusive of objective setting.
Strategy as Action Inclusive of Objective Setting
In 1960s, Chandler made an attempt to define strategy as “the determination of
basic long term goals and objective of an enterprise and the adoption of the
courses of action and the allocation of resources necessary for carrying out these
goals.”
This definition provides for three types of actions involved in strategy:
 Determination of long term goals/objectives;
 Adoption of course of action;

10  Allocation of resources.
Strategy as Action Exclusive of Objective Setting Concept of Strategy

This is another view in which strategy has been defined in a way in which the
organization, reacting to its environment, deploys its principal resources and
siphons its efforts in pursuit of its purpose. Michael Porter has defined strategy
as “Creation of a unique and valued position involving a different set of activities.
The organization that is strategically positioned performs different activities from
rivals or performs similar activities in different ways.”
The people who believe this version of the definition call strategy a unified,
comprehensive and integrated plan relating to the strategic advantage of the
organization to the challenges of the environment.
After considering both the views, strategy can simply be put as management’s
plan for achieving its objectives. It basically includes determination and evaluation
of alternative paths to an already established mission or objective and eventually,
choice of best alternative to be adopted.

1.3 FEATURES OF STRATEGY

As we now know that strategy is an integral part of any managerial activity. At
this point of time we need to know the basics of strategy before we move further.
To explain strategy we usually say that it is a plan of action. This explanation
tries to tell about the future course of action of strategy. This involves different
parameters which actually defines the strategy. Mintzberg (2005) has given 5
Ps for strategy which integrates the past, present and the future course of
action. These 5Ps are:
1. Pattern
2. Plan
3. Position
4. Perspective
5. Ploy
1. Pattern: When we say that strategy is a pattern, we meant to say that the
organization has been consistent in following a particular course of action
e.g. an organization which markets responsive products usually follows a
high-end-strategy and this pattern is repetitive in nature. Pattern shows the
past behaviours. This becomes the realized strategy.
2. Plan: When we see strategy as a plan, it means preparing for future or
looking ahead. This becomes an intended strategy. Usually the
organizations witness quite a contrast between the intended strategy and the
realized strategy.
Here, if the intended strategy becomes a realized strategy then it becomes a
deliberate strategy otherwise it is termed as unrealized strategy. In certain
cases strategy becomes an emergent strategy where the plans are
followed but in steps. For e.g.an organization plans to diversify but it does
not take the decision of diversification at one go instead it moves towards
diversification in a step-wise manner. 11
Introduction to Strategic 3. Position: In certain cases, especially in the niche markets, strategy is a
Management
position. For e.g. fast food chain wants to locate particular products in
specific markets. Michael porter has discussed the concept of positioning
there by increasing the value of organization quite categorically.
4. Perspective: Strategy is a perspective which means that strategy looks at
the vision of the organization. In position it looks at the external environment
whereas in perspective it looks at the internal environment.
5. Ploy: This is another way of looking at strategy. Ploy is the tactic used by
the organization to outwit its competitors. These five P’s of strategy
explain the concept of strategy under different situations. Therefore
strategy:
 Sets direction;
 focuses effort
 defines the organization
 provides consistency.
The different features of strategy are depicted in figure 1.1.

Figure 1.1: Features of Strategy

NATURE OF STRATEGY
We learnt how strategy can be perceived in different ways. The various views
summarize the nature of strategy which is as follows:
 Strategy involves both organization and environment and both
are inseparable;

12  Strategy is like a Mosaic. It cannot be structured, programmed, routine

and repetitive.
  Strategy is futuristic in nature. Concept of Strategy

 Strategy is a combination of content and process both.

 Strategies are formulated at different levels.
 Strategy is an integration of concept with analysis for decision making.
Therefore, we can say that strategy as a whole is the combination of 5 P’s which
can be customized as per the requirement of the organization. The purpose
of strategy is to determine and communicate a picture of enterprise through a
system of major objectives and policies. Strategy is concerned with a unified
direction and efficient allocation of an organization’s resources. A well-made
strategy guides managerial action and thought. It provides an integrated
approach for the organization and aids in meeting the challenges posed by
environment.

1.4 STRATEGIC MANAGEMENT: CONCEPT

We now know that strategy is a series of steps based on an organization’s vision,
mission, goals and objectives. Strategic Management is concerned with the
effective deployment of business strategies for the achievement of the
organizational objectives for the purpose of reaching the desired goal. Strategic
management involves making strategic decisions at various levels of the
organization. However, strategic decisions are taken at the top level of
management and then transferred to lower level management. These decisions
are related to moving from the present state of an organization to a future state. It
basically develops a framework within which an organization functions. In other
words, strategic management defines organizational capability, forms of value
addition and the purpose of the existence of an organization.

Strategic management:
 is a medium and long-term process;
 begins with the formulation of a desirable future position for the
organization, followed by decisions regarding what is at the core of the
organization;

 setting up targets for reaching the future state;

 enables an organization to obtain an edge over its competitors in the
market by analyzing the resources available with the organization;
 is formulating strategies for effective and efficient utilization of resources;

 matches the organizational capabilities with the environmental

opportunities;
 is futuristic and organization wide process.
Therefore, we can say that strategic management is the process of
formulation and implementation of strategies lying within the boundaries of the
organizational resources in response to the environmental opportunities and
threats so as to achieve sustainable competitive advantage over competitors.
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Introduction to Strategic Activity 1
Management
Discuss the nature of strategy with respect to 5Ps.
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1.5 STRATEGY VS POLICY

We have understood the concept of strategy. Now we will learn the difference
between strategy and policy. In earlier times when strategy was not in
organized form, the concept of business policy was more in use. Strategy was
often used as a synonym of policy despite the fact that both are not similar in
nature. Strategy is a plan of action whereas policy is a set of rules and procedures.
Policy is a part of strategy therefore at times it becomes important to
differentiate the two.
Table 1.1 gives a birds’ eye view of the difference between strategy and policy
based on certain parameters.
Table 1.1: Difference between Strategy and Policy

Basis of Strategy Policy

differentiation
Concept Strategy is a plan of Policy is the guidelines for
action for achieving certain actions and decision
organizational goals. to be taken part of the
organization.
Specification Plan of action Principles of action.
Nature Flexible Fixed barring exceptions
Application Related to decision Related to the rules of the
making of the organization for the repetitive
organization for future activities; governs and
situations; or situation controls managerial action.
which may occur in
future.
Direction Action oriented Decision oriented
Formulation Top and middle level Top level Management
management
Coverage External environment Internal environment
Description Plan of action use to Set principles description
achieve the goals do’s and don’ts. It is
considered to be a mini
mission statement.
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It is very important to understand role that policy has to be interpreted with Concept of Strategy
strategy for effective implementation. Policy can be general or specific,
organizational or functional, written or implied depending on the need of
the organization .For example, when the performance of two employees is
similar, the promotional policy may require the promotion of the senior
employee and hence s/he would be eligible for promotion. Strategy has often
been used as a synonym of policy. However, both are different and should not
be used interchangeably. Policy is the guideline for decisions and actions on the
part of subordinates. It is a general statement of understanding made for
achievement of objectives.
Strategies and polices both are the means towards the end. In other words, both
are directed towards meeting organizational objectives. Strategy is a rule for
making decision while policy is contingent decision.

1.6 STRATEGY VS TACTICS

Sun Tzu is his book ‘The Art of War’ wrote “Strategy without tactics is the
slowest route to victory. Tactics without Strategy is the noise before the defeat.”
This shows the importance of tactics in accomplishing a specific Strategic
decision. Strategies is on one end of the organizational decisions spectrum while
tactics lie on the other end.
Carl Von Clausewitz, a Prussian army general and military scientist defines
military strategy as ‘making use of battles in the furtherance of the war and the
tactics as “the use of armed forces in battle”. A few points of distinction between
the two are as follows:
 Strategy determines the major plans to be undertaken while tactics is the
means by which previously determined plans are executed.
 The basic goal of strategy according to military science is to break the
will of the army, deprive the enemy of the means to fight, occupy territory,
destroy or obtain control of resources or make them surrender. The goal
of tactics is to achieve success in a given action and this forms one part
of a group of related military action.
 Tactics can be delegated to all the levels of an organization while strategic
decisions cannot be delegated too low in the organization.
 Strategy is formulated in both a continuous as well as irregular manner.
The decisions are taken on the basis of opportunities, new ideas etc.
Tactics is determined on a periodic basis by various organizations. A
fixed time table may be made for following tactics.
 Strategy has a long term perspective and occasionally it may have short
term duration. Thus, the time horizon in terms of strategy is flexible but
in case of tactics, it is short run and definite.
 The decisions taken as part of strategy formulation and implementation
have a high element of uncertainty and are taken under the conditions of
partial ignorance. In contrast tactical decisions are more certain as they
work upon the framework set by the strategy. So the evaluation of strategy
is difficult than the evaluation of tactics.
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Introduction to Strategic  Since an attempt is made in strategy to relate the organization with its
Management
environment, the requirement of information is more than that required
in tactics. Tactics uses information available internally in an organization.
 The formulation of strategy is affected considerably by the personal
values of the person involved in the process but the same is not the case
in tactic implementation.
 Strategies are the most important factor of organization because they
decide the future course of action for organization as a whole. On the
other hand, tactics are of importance only with specific part of the
organization.
Table 1. 2 gives the levels of comparison between strategy and tactics.
Table 1.2: Comparison of Strategy and Tactics
Basis of Comparison Strategy Tactics
Goal Control of resources Achieve success
Delegation Top and middle All levels
Formulation Flexible and continuous Fixed and periodic
Perspective/time frame Long term Short term
Level of certainly High Low
Environment External Internal

An effective strategy is based on the strengths of the organization and also

creating strengths of the organization. When it comes to creating
strengths of the organization, then the tactics comes into play. For e.g. the
marketing strategy of an organization is to improve its performance on the
social media, Then the tactics of the organization should be using an
appropriate social media so as to communicate the message in the most
effective way possible. Therefore, it is important that strategy and tactics
should align themselves in such a way so as to make the strategy effective.
Activity 2
1. Choose the organization of your choice and list the policies of any
organization and also state the strategies it undertook.
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2. Distinguish between strategy and tactics.
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 ……………………………………………………………………………… Concept of Strategy

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3. Distinguish between strategy and policy.
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1.7 LEVELS OF STRATEGY

It is believed that strategic decision making is the responsibility of top
management. However, it is considered useful to distinguish between the levels
of operation of the strategy. Strategy operates at different levels. These are:
 Corporate Level
 Business Level
 Functional Level
There are basically two categories of organizations- one, which have different
businesses organized at different directions or product groups known as profit
centres or strategic business units (SBUs) and other, which consists of
organizations which are single product organizations. The example of first
category can be that of an organization which is a highly integrated producing
textile, yarn, and a variety of petro chemical products and the example of the
second category could be an organization which is engaged in the manufacturing
and selling of heavy commercial vehicles. The SBU concept was introduced by
General Electric Organization (GEC) of USA to manage product business. The
fundamental concept in the SBU is the identification of discrete independent
product/ market segments served by the organization.
Features of SBU
 Because of the different environments served by each product, a SBU is
created for each independent product/ segment.
 Each and every SBU is different from another SBU due to the distinct
business areas (DBAs) it is serving.
 Each SBU has a clearly defined product/market segment and strategy. It
develops its strategy according to its own capabilities and needs with
overall organizations capabilities and needs.
 Each SBU allocates resources according to its individual requirements
for the achievement of organizational objectives.
 As against the multi-product organizations, the single product
organizations have single Strategic Business Unit. In these organizations,
corporate level strategy serves the whole business.
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Introduction to Strategic  The strategy is implanted at the next lower level by functional strategies.
Management
In multiple product organization, a strategy is formulated for each SBU
(known as business level strategy) and such strategies lie between
corporate and functional level strategies.
The three levels are explained below.
Corporate level strategy
At the corporate level, strategies are formulated as per the policies of the
organization.

Characteristics
 These are value oriented, conceptual and less concrete than decisions at
the other two levels.
 These are characterized by greater risk, cost and profit potential as well
as flexibility.
 Mostly, corporate level strategies are futuristic, innovative and pervasive
in nature.
 They occupy the highest level of strategic decision making and cover
the actions dealing with the objectives of the organization. Such decisions
are made by top management of the organization. The example of such
strategies includes acquisition decisions, diversification, structural
redesigning etc.
 The board of Directors and the Chief Executive Officer are the primary
groups involved in this level of strategy making.
 In small and family owned businesses, the entrepreneur is both the general
manager and chief strategic manager.
Business level strategy
The strategies formulated by each SBU to make best use of its resources given
the environment it faces, come under the gamut of business level strategies.

Characteristics
 At such a level, strategy is a comprehensive plan providing objectives
for SBUs, allocation of resources among functional areas and
coordination between them for achievement of corporate level objectives.
 These strategies operate within the overall organizational strategies i.e.
within the broad constraints and polices and long term objectives set by
the corporate strategy.
 The SBU managers are involved in this level of strategy.
 The strategies are related with a unit within the organization.
 The SBU operates within the defined scope of operations by the corporate
level strategy and is limited by the assignment of resources by the
corporate level.
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  Business strategy relates with the “how” and the corporate strategy relates Concept of Strategy
with the “what”.
 Business strategy defines the choice of product or service and market of
individual business within the organization. The corporate strategy has
impact on business strategy.
Functional level strategy
This strategy relates to a single functional operation and the activities involved
therein. This level is at the operating end of the organization.
Characteristics
 The decisions at this level within the organization are described as tactical.
 The strategies are concerned with how different functions of the
enterprise like marketing, finance, manufacturing etc. contribute to the
strategy of other levels.
 Functional strategy deals with a relatively restricted plan providing
objectives for specific function, allocation of resources among different
operations within the functional area and coordination between them
for achievement of SBU and corporate level objectives.
Sometimes a fourth level of strategy also exists. This level is known as the
operating level. It comes below the functional level strategy and involves actions
relating to various sub functions of the major function. For example, the functional
level strategy of marketing function is divided into operating levels such as
marketing research, sales promotion etc.
Three levels of strategies have different characteristics as shown in the table 1.3.
Table 1.3: Strategic Decisions at Different Levels
DIMENSIONS LEVELS
CORPORATE BUSINESS FUNCTIONAL
TYPE OF CONCEPTUAL MIXED OPERATIONAL
DECISION
Impact Significant Major Insignificant
Risk Involved High Medium Low
Profit Potential High Medium Low
Time Horizon Long Medium Low
Flexibility High Medium Low
Adaptability Insignificant Medium Significant

1.8 IMPORTANCE OF STRATEGY

With the increase in the pressure of external threats, organizations have to make
clear strategies and implement them effectively so as to survive. There have 19
Introduction to Strategic been organizations that have completely become extinct and some
Management
organizations which were non-existent earlier and now have become the
market leaders. The basic factor responsible for differentiation has not been
governmental policies, infrastructure or labour relations but the type of
strategic thinking that different organizations have shown in conducting the
business. This is where the importance of strategy comes into picture.

Strategy provides various benefits to its users. These are:

 Strategy helps an organization to take decisions on long range forecasts.

 It allows the organization to deal with a new trend and meet competition
in a effective manner.

 Strategy helps the management to be flexible and meet the uncertain

situations.

 Efficient strategy formulation and implementation result into

financial benefits to the organization in the form of increased profits.

 Strategy provides focus in terms of organizational objectives and thus

provides clarity of direction for achieving the objectives.

 Organizational effectiveness is ensured with effective implementation

of the strategy. It gets managers into the habit of thinking and thus makes
them, proactive and more conscious of their environment.

 It provides motivation to employees as it paves the way for them to

shape their work in the context of shared corporate goals and ultimately
they work for the achievement of these goals.

 Strategy formulation & implementation gives an opportunity to the

management to involve different levels of management in the
process.

 It improves corporate communication, coordination and allocation of

resources.

With all the benefits listed above, it is quite clear that strategy forms an integral
part of an organization and is the means to achieve the end in an efficient and
effective manner.

Activity 3

1. Identify the benefits which an organization may have after implementing

strategies.

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2. Distinguish corporate level strategy and business level strategy. Concept of Strategy

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3. State three benefits of strategy.
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1.9 SUMMARY
In this unit we introduced the concept of strategy. Strategy is the conscious and
rational management exercise which involves defining and achieving
organizations’ objectives and implanting its mission. Strategy is a major course
of action and is a blend of internal & external factors and is particular to a
specific situation. It is dependent on environmental variables and is futuristic
in nature. Strategy is a series of action plans which are adopted by an organization
to achieve the ultimate goal of profitability, growth and survival. Strategy is
based on 5Ps i.e. pattern, plan, position, perspective and ploy and is operational
at three levels -Corporate level, Business level and Functional level. Strategies
are lifeblood of business activities.

1.10 KEYWORDS
Effectiveness - The ability to complete a job within the given time-
frame while using limited resources.
Efficiency - The ability to use less resources or minimizing the waste
of resources while performing any job.
Strategy - A unified, comprehensive and integrated plan that relates
the strategic advantage of the organization to the
challenges of the environment.
Policy - Guideline for decisions and actions on the part of
subordinates and is a general statement of understanding
made for the achievement of objectives.
Tactics - It is the means by which previously determined plans
are executed.
Rules - A principle to which an action or a procedure conforms
or is intended to conform.
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Introduction to Strategic
Management 1.11 SELF-ASSESSMENT QUESTIONS
1) What do you mean by strategy? Explain the nature of strategy.
2) “Strategy is synonymous with policies” Comment on the statement.
3) What are the various levels at which a strategy may exist?
4) Discuss the importance of strategy?

1.12 REFERENCES AND FURTHER READINGS

Henry, A. E. (2018). Understanding Strategic Management (3rd ed.). Oxford,
United Kingdom: Oxford University Press.
Haberberg, A. &Rieple, A. (2010). Strategic Management (2010ed.). New York:
Oxford University Press.
Kazmi, A. (2008). Business Policy and Strategic Management (3rd ed.). Delhi:
Tata Mcgraw Hill Publishing Co, Ltd.
Kishor, R. M. (2016). Strategic Management (2015 ed.). Delhi: Taxmann
publication.
Mintzberg, H., Ahlstrand, B. &Lampel, J. (2005). Strategy Safari (2005 ed.).
New York: Free Press.
Nag, A. (2011). Strategic Management (1st ed.). Delhi: Vikas publishing house.
Prasad, L.M. (2002). Business Policy: Strategic Management. Delhi: Sultan
Chand & Sons.
Shrivastava, R. M. (2017). Management Policy and Strategic Management (3rd
ed.). Mumbai: Himalaya Publication House.

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