BBA TY- STRATEGIC MANAGEMENT Notes

Course Code: GC601. Semester- VI Credits: 4 Marks: 100

Unit I Introduction to Strategic Management.

1.1 Define Strategy, Strategic Management Process.

1.2 Levels of Strategies - Corporate, Business and Operational Level, Types of Strategies - Functional
Strategies, H. R. Strategy, Marketing Strategy, Financial Strategy, Operational Strategy.

1.3 Benefits and Risks of Strategic Management

1.4 Formulation of Strategy and Strategic Implementation.

1.5 Business Environment, Components of Environment,

1.6 Environmental Scanning, Analysis of Strategies and Choice of Strategy.

Introduction:
Strategic management is the concept of identification, implementation, and management of
the strategies that managers carry out to achieve the goals and objectives of their organization.
It can also be defined as a bundle of decisions that a manager has to undertake which directly
contributes to the firm’s performance. The manager responsible for Strategic management
must have a thorough knowledge of the internal and external organizational environment to
make the right decisions.
The basic concept of strategic management consists of a continuous process of planning,
monitoring, analyzing, and assessing everything that is necessary for an organization to meet its
goals and objectives. In simple words, it is a management technique used to prepare the
organization for the unforeseeable future. Strategy management helps create a vision for an
organization that helps to identify both predictable as well as unpredictable contingencies. It
involves formulating and implementing appropriate strategies so the organization can attain
sustainable competitive advantage.
1.1 Define Strategy:
The concept of strategy is undoubtedly the most significant concept in business policy and
strategic management. The concept of strategy is derived from military principles. In military
context, the strategy is a plan of action to win a war. Here the military identifies the quality and
quantity of resources to be mobilized and used at the most appropriate time in a suitable and
convenient manner to win a war.
strategy is used for number of things like mobilizing and deploying resources systematically and
attain organizational goal or 3 the pattern of common thread related to the organization’s
activities which are derived from the policies, objectives, and goals. It is related to pursuing
those activities which move an organization from its current position to its desired future state.
It also relates to resources necessary for implementing a plan or following a course of action.
The literal meaning of the strategy is “In anticipation of opponents move, designing one’s own
way of action”. As it has different interpretations and is difficult to fathom what strategy
means. So, we can conclude that it is the means to achieve organizational goals

Definitions: -
1.“Strategy is the determination of the basic long-term goals and objectives of an enterprise
and the adoption of the course of action and the allocation of resources necessary for carrying
out these goals.” Alfrred D. Chandler.
2.“A strategy is a unified, comprehensive, and integrated plan that relates the strategic
advantages of the firm to the challenges of the environment. It is designed to ensure that the
basic objectives of the enterprise are achieved through proper execution by the organization.”
Lawrence R. Jauch & William F. Glueck..
NATURE AND CHARACTERISTICS OF BUSINESS STRATEGY
Following are the features of strategic management.
1. Objective. 2. Future oriented. 3. Availability and allocation of resources. 4. Influences of
Environment. 5. Universal applicability. 6. Levels of strategy. 7. Review.
1. Objective Oriented: The business strategies are objectively oriented and are directed
towards organizational goals. To formulate strategies the business should know the objectives
that are to be pursued. For example, if any business wants to achieve growth, then it must set
the following objectives.
a) To increase market share.
b) To increase customer satisfaction.
c) To enhance the goodwill of the firm
2. Future Oriented: Strategy is a future oriented plan and formulated to attain the future
position of the organization. Therefore, strategy enables management to study the present
position of the organization and decides to attain the future position of the organization. This is
possible because strategy answers questions relating to the following aspects. a) Prosperity of
the business in future. b) The profitability of the business in future. c) The scope to develop and
grow in future in different businesses.
3. Availability and Allocation of Resources: To implement strategy properly there is a need for
adequate resources and proper allocation of resources. If it is done, then business can attain its
objectives. There are three types of resources required by business namely physical resources,
i.e., plant and machinery, financial resources i.e., capital, and human resources i.e., manpower.
If these resources are properly audited/evaluated and find out their strengths and weaknesses
and coordinate well then management can do better strategy implementation.
4. Influence of Environment: The environmental factors affect the formulation and
implementation of strategy. The business unit, by analyzing internal and external environment,
can find out its strengths and weaknesses as well as opportunities and threats and can
formulate its strategy properly.
5. Universally Applicable: Strategies are universally applicable and accepted irrespective of
business nature and size. Every business unit designs a strategy for its survival and growth. The
presence of strategy keeps business moving in the right direction.
6. Levels of strategy: There are companies that are working in different business lines with
regards to products /services, markets or technologies and are managed by the same top
management. In this case such companies need to frame different strategies. The strategies are
executed at three different levels such as –
a) corporate level b) Business level c) Functional/operational level corporate level strategies are
overarching plan of action covering the various functions that are performed by different SBUs
(strategic business unit, which involved in a signal line of business) the plan deals with the
objectives of the company, allocation of resource and co-ordination of SBUs for best
performance. Business level strategy is comprehensive plan directed to attain SBUs objectives,
allocation of resources among functional areas and coordination between them for giving good
contribution for achieving corporate level objectives. Functional level strategy is restricted to a
specific function. It deals with allocation of resources among different operations within that
functional area and coordinating them for better contribution to SBU and corporate level
achievement.
7. Revision of strategy: Strategies are to be reviewed periodically as in the process of its
implementation certain changes are going to take place. For example, while implementing
growth strategy there could be shortage of resources because of limited resources or recession
during the period so retrenchment strategy should be considered. 8. Classification of strategy:
Strategies are classified into four major categories known as – a) Stable growth strategy b)
Growth strategy c) Retrenchment strategy d) Combination strategy.
STRATEGIC MANAGEMENT PROCESS:
Strategic management is a dynamic process. It is a continual, evolving, iterative process. It
means that it cannot be a rigid, stepwise collection of a few activities arranged in a sequential
order, it is a continually evolving mosaic of relevant activities. Managers perform these
activities in any order contingent upon the situation they face at a particular time. And this is to
be done again & again over time as the situation demands. There are four major phases of the
strategic management process which are as below.
A) Establishment of strategic intent.
B) Formulation of strategies.
C) Implementation of strategies.
D) Strategic evaluation
A. Establishment of strategic intent: It is the first step in the strategic management Process. It
involves the hierarchy of objectives that an organization sets for itself. It includes vision,
mission, business definition and objectives establishing the hierarchy of strategic intent which
includes - 1. Creating and communicating a vision. 2. Designing the mission statement. 3.
Defining the business. 4. Adopting the business model. 5. Setting objectives. The hierarchy of
strategic intent lays the foundation for strategic management of any organization. The strategic
intent makes clear what the organization stands for. In the hierarchy, the vision intent serves
the purpose of stating what the organization wishes to achieve in the long run. The mission
relates the organization to society. The business definition explains the business of the
organization in terms of customer needs, customer groups and alternative technologies. The
business model clarifies how the organization creates revenue. And the objectives of the
organizations state what is to be achieved in each period.
B. Formulation of strategy: Formulation of strategy is relating to strategic planning. It is done
at different levels i.e., corporate, business, and operational level. The strategic formulation
consists of the following steps. 1. Framing of mission statement: Here the mission states the
philosophy and purpose of the organization. And most all business frames the mission
statement to keep its activities in the right direction. 2. Analysis of internal & external
environment: The management must conduct an analysis of internal and external environment.
Internal environment consists of manpower, machines, and other sources which resides within
the organization and easily alterable and adjustable. These sources reveal the strengths and
weakness of the organization. External environmental factors include government,
competitions, consumers, and technological developments. These are not adjustable and
controllable and relate to organizations opportunities and threats
3. Setting of objectives: After SWOT analysis, the management can set objectives in key result
areas such as marketing, finance, production, and human resources etc. While setting
objectivities in these areas the objectives must be realistic, specific, time bound, measurable,
and easy attainable.
4. Performance comparison: By undertaking gap analysis management must compare and
analyze its present performance level with the desired future performance. This enables the
management to find out the exact gap between the present and future performance of the
organization. If there is an adequate gap then, the management must think of strategic
measures to bridge the gap.
5. Alternative strategies: After making SWOT analysis and gap analysis management needs to
prepare (frame) alternative strategies to accomplish the organizational objectives. It is
necessary as some strategies are to be hold and others to be implemented. 6. Evaluation of
strategies: The management must evaluate the benefits and costs of every alternative strategy
in term of sales, market share, profit, goodwill, and the cost incurred on the part of the strategy
in terms of production, administration, and distribution costs. 7. Choice of strategy: It is not
possible to any organization to implement all strategies therefore management must be
selective. It must select the best strategy depending on the situation and it must consider in
terms of its costs and benefits etc.
C. Strategy Implementation: Once the strategies are formulated the next step is to implement
them. The strategic plan is put into action through six sub processes known as project,
procedural, resource allocation, structural, behavioral, and functional implementation. The
project implementation deals with the setting up of organization. Procedural implementation
deals with the different aspects of the regulatory framework within which organizations must
operate. Resource allocation relates to the procurement and commitment of resources for
implementation. The structural aspect of implementation deals with the design of
organizational structures and systems and reorganizing to match the structure to the needs of
strategy. The behavioral aspects consider the leadership style for implementing strategies and
other issues like corporate
culture, corporate politics, and use of power, personal values and business ethics and social
responsibilities. The functional aspects relate to the policies to be formulated in different
functional areas. The operational implementation deals with the productivity, processes,
people, and pace of implementing the strategies for any strategy implementation. There are
five major steps. Such as
1. Formulation of plans.
2. Identification of activities.
3. Grouping of activities.
4. Organizing resources.
5. Allocation of resources.
D. Strategic Evaluation: Strategic evaluation appraises the implementation of strategies and
measures organizational performance. The feedback from strategic evaluation is meant to
exercise control over the strategic management process. Here the managers try to ensure that
strategic choice is properly implemented and meets the objectives of the firm. It consists of
certain elements which are given below.
1. Setting of standards: - The strategists need to set standards and targets to implement the
strategies. It should be in terms of quality, quantity, costs, and time. The standard should be
definite and acceptable by employees as well as should be achievable.
 2. Measurement of Performance: - Here actual performances are measured in terms of
quality, quantity, cost, and time.
3. Comparison of Actual Performance with Set Targets: - The actual performance needs to be
compared with standards and find variations, if any. 4. Analyzing Deviation and Taking
Corrective Measures: - If any deviation is found then higher authorities try to find out the
causes of it and accordingly as per its nature takes corrective steps. Here sometimes authority
may re-set its goals, objectives or its planning, policies, and standards.

1.2 Levels of Strategies - Corporate, Business and Operational Level, Types of

Strategies - Functional Strategies, H. R. Strategy, Marketing Strategy, Financial
Strategy, Operational Strategy.
Strategy is at the foundation of every decision that must be made within an organization. If the
strategy is poorly chosen and formulated by top management, it has a major impact on the
effectiveness of employees in every department within the organization. There are basically
two categories of companies- one, which have different businesses organized as different
directions or product groups known as profit centers or strategic business units (SBUs) and
other, which consists of companies which are single product companies.

There are three levels of Corporate-level strategy,

Business-level strategy,

and Functional-level strategy.

Together, these three levels of strategy can be illustrated in a so called ‘Strategy Pyramid’
(Figure 1). Corporate strategy is different from Business strategy and Functional strategy. Even
though Corporate-level strategy is at the top of the pyramid, we start this article by explaining
Business-level strategy first.
Business-level strategy:
The Business-level strategy is what most people are familiar with and is about the question
“How do we compete? “How do we gain (a sustainable) competitive advantage over rivals?”. To
answer these questions, it is important to first have a good understanding of a business and its
external environment. At this level, we can use internal analysis frameworks like the Value
Chain Analysis and the VRIO Model and external analysis frameworks like Porter’s Five Forces
and PESTEL Analysis. When good strategic analysis has been done, top management can move
on to strategy formulation by using frameworks such as the Value Disciplines, Blue Ocean
Strategy and Porter’s Generic Strategies. In the end, the business-level strategy is aimed at
gaining a competitive advantage by offering true value for customers while being a unique and
hard-to-imitate player within the competitive landscape.

Definition: Business level strategies refer to the combined set of moves and actions taken with
an aim of offering value to the customers and developing a competitive advantage, by using the
firm’s core competencies, in the individual product or service market. It determines the market
position of the enterprise, in relation to its rivals.
Business-Level Strategies are concerned with the firms having multiple businesses and each
business is considered as Strategic Business Unit (SBU).
It determines how the firm is going to compete in the market within each Line of Business, i.e.,
SBU. Further, it focuses on how the firm will compete successfully in each line of business and
how to effectively manage the interest and operations of a specific unit.
So, these strategies are the course of action selected by a firm for each line of business or SBU
individually and intend to attain competitive advantage, in separate lines of business, which the
firm is having in its portfolio currently.
Business Level Strategies:
Effective Business-Level Strategies entail developing distinctive competencies and
implementing them to have an upper hand over its rivals. Michael Porter has propounded
three business-level strategies in the year 1998, which are discussed as below:

Cost Leadership
This strategy stresses manufacturing standardized products, at a low cost for the price-sensitive
consumers.
Cost leadership strategy tends to focus on the broad mass market. And for this, the firm
continuously and rigorously strives for cost reduction in different areas, whether it is
procurement, production, packaging, storage, distribution of the product while achieving
economies in overheads.
To gain cost leadership, firms often follow forward, backward and horizontal integration.
Ways to achieve Cost leadership

 Quick demand forecasting for the product or service.

 Effective utilization of the firm’s resources to avoid wastage.
 Attaining economies of scale which results in lower per-unit costs.
 Investing in high-end technology for smart working.
 Product standardization for mass production, which leads to economies of scale.
Differentiation
As the name suggests, differentiation strategy aims at producing and offering industry-wide
distinctive products and services to the customers, to target price-insensitive customers.
This strategy is also directed for the broad mass market, which encompasses the development
of a unique product. Unique means uniqueness with respect to design, brand image,
specifications, customer service, technology used, etc.
Further, this strategy may or may not lead to competitive advantage, mainly because the
customer’s needs are satisfied by standard products or if the rivals imitate the product or
service quickly.
Hence, the strategy should be followed with proper market research and study of the buyers to
ascertain their needs and preferences and adding differentiating features to the product.
Ways to achieve Differentiation

 Providing utility to the customers that match their taste and preference.
 Increasing product performance.
 Product innovation
 Setting up product prices based on differentiated features of the product and
affordability of the customers
Focus:
This strategy is used by the firms to produce products and services, which fulfils the need of
small consumer groups. The strategy relies on the segment of the industry, which is
considerable in size, has higher growth potential and is not important to the success of the
rivals.
This is commonly used by small or medium-sized enterprises. This strategy works only when
consumers have varied tastes and competitors do not try to specialize in that segment.
Ways to achieve Focus

 Choosing a particular niche, often avoided by cost leaders and differentiators.

 Excel in catering to the specific niche.
 High-efficiency generation to serve those niches.
 Creating new ways for value chain management.
The Business-Level Strategy shows the choices made by the firm regarding the way in which the
firm contemplates competing in the market.
The firm’s core competencies should focus on the needs and wants of the customers, with the
aim of attaining extraordinary returns. And to attain this, business-level strategies play a key
role.
Business level strategies aim at developing competitive advantage, ascertaining responses with
respect to the changing market trends, allocation of resources within the SBU.

Functional-level strategy:
Functional-level strategy is concerned with the question “How do we support the business-level
strategy within functional departments, such as Marketing, HR, Production and R&D?.” These
strategies are often aimed at improving the effectiveness of a company’s operations within
departments. Within these departments, workers often refer to their ‘Marketing Strategy,’
‘Human Resource Strategy’ or ‘R&D Strategy.’

This strategy relates to a single functional operation and the activities involved therein. This
level is at the operating end of the organization. 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.

The goal is to align these strategies as much as possible with the greater business strategy. If
the business strategy is for example aimed at offering products to students and young adults,
the marketing department should target these people as accurately as possible through their
marketing campaigns by choosing the right (social) media channels. Technically, these decisions
are very operational in nature and are therefore NOT part of strategy. As a consequence, it is
better to call them tactics instead of strategies.

Corporate-level strategy:
At the corporate level, strategies are formulated according to organization wise polices. 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 the
top management of the firm. 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.
At the corporate level strategy, however, management must not only consider how to gain a
competitive advantage in each of the line of businesses the firm is operating in, but also which
businesses they should be in in the first place. It is about selecting an optimal set of businesses and
determining how they should be integrated into a corporate whole: a portfolio.

Typically, major investment and divestment decisions are made at this level by top management.
Mergers and Acquisitions (M&A) is also an important part of corporate strategy. This level of strategy is
only necessary when the company operates in two or more business areas through different business
units with different business-level strategies that need to be aligned to form an internally consistent
corporate-level strategy. That is why corporate strategy is often not seen in small-medium enterprises
(SME’s), but in multinational enterprises (MNE’s) or conglomerates.

Example Samsung
Let us use Samsung as an example. Samsung is a conglomerate consisting of multiple strategic business
units (SBU’s) with a diverse set of products. Samsung sells smartphones, cameras, TVs, microwaves,
refrigerators, laundry machines, and even chemicals and insurances. Each product or strategic business
unit needs a business strategy to compete successfully within its own industry. However, at the
corporate level Samsung must decide on more fundamental questions like: “Are we going to pursue the
camera business in the first place?” or “Is it better to invest more into the smartphone business or
should we focus on the television screen business instead?” The BCG Matrix or the GE McKinsey Matrix
are both portfolio analysis frameworks and can be used as a tool to figure this out.
Levels of Strategy in Sum....
The most common level of strategy is Business strategy and exists within strategic business units with
the goal of gaining a competitive advantage in a certain market. If a company has multiple SBU’s, there
needs to be an overarching corporate strategy that ties all SBU’s together through corporate
configuration. Here, top management must decide on resource allocation and where to invest and
where to divest. Lastly, Functional strategies exist within departments such as Marketing, HR, and
Production. Ideally, we should refer to tactics instead of strategies because of the operational nature of
the decisions made within these departments.

1.3 Benefits and Risks of Strategic Management:

There are many benefits of strategic management, and they include identification,
prioritization, and exploration of opportunities. For instance, newer products, newer markets,
and newer forays into business lines are only possible if firms indulge in strategic planning.
Next, strategic management allows firms to take an objective view of the activities being done
by it and do a cost benefit analysis as to whether the firm is profitable. To differentiate, by this,
we do not mean the financial benefits alone (which would be discussed below) but also the
assessment of profitability that has to do with evaluating whether the business is strategically
aligned to its goals and priorities. The key point to be noted here is that strategic management
allows a firm to orient itself to its market and consumers and ensure that it is actualizing the
right strategy.
Financial Benefits It has been shown in many studies that firms that engage in strategic
management are more profitable and successful than those that do not have the benefit of
strategic planning and strategic management. When firms engage in forward-looking planning
and careful evaluation of their priorities, they have control over the future, which is necessary
in the fast-changing business landscape of the 21st century. It has been estimated that more
than 100,000 businesses fail in the US every year and most of these failures are to do with a
lack of strategic focus and strategic direction. Further, high performing firms tend to make
more informed decisions because they have considered both the short term and long-term
consequences and hence, have oriented their strategies accordingly. In contrast, firms that do
not engage themselves in meaningful strategic planning are often bogged down by internal
problems and lack of focus that leads to failure.
Non-Financial Benefits The section above discussed some of the tangible benefits of strategic
management. Apart from these benefits, firms that engage in strategic management are more
aware of the external threats, have an improved understanding of competitor strengths and
weaknesses and increased employee productivity. They also have less resistance to change and
a clear understanding of the link between performance and rewards. The key aspect of
strategic management is that the problem solving and problem preventing capabilities of the
firms are enhanced through strategic management. Strategic management is essential as it
helps firms to rationalize change, actualize change, and communicate the need to change
better to their employees. Finally, strategic management helps in bringing order and discipline
to the activities of the firm in both its internal processes and external activities
Wheelen, Hunger and Rangarajan stated the 3 most highly rated benefits of Strategic
Management to be:
• Clear sense of Strategic vision for the firm.
• Sharper focus on what is strategically important
• Improved understanding of a rapidly Changing environment
According to Greenley, strategic management has following benefits:
 It allocates for identification, prioritization, and exploitation of opportunities.
 It provides an objective outlook of management problems.  It characterizes a framework for
improved synchronization and control of activities.
 It reduces the effects of adverse conditions and changes.
 It allows major decisions to better support established objectives.
 It allows more effective distribution of time and resources to identified opportunities.
 It permits fewer resources and less time to be devoted to correcting erroneous or ad hoc
decisions.
 It generates a framework for internal communication among personnel.
 It helps integrate the behavior of individuals into a total effort.
 It provides a foundation to clarify individual responsibilities.
 It promotes forward thinking.
 It provides a cooperative, integrated, and enthusiastic approach to tackling problems and
opportunities.
 It encourages a positive attitude toward change.
 It gives a degree of discipline and formality to the management of a business.
Limitations Besides numerous benefits, Strategic Management has the following
disadvantages:
Strategic Management is based on certain principles and if the properties do not hold suitable
the strategy or plans based on them would not be sensible or effectual. SWOT analysis is an
important exercise in Strategic Management which requires a lot of action and information.
When these two are lacking the usefulness of the SWOT analysis is questionable and it could
even lead to formulation of wrong or effective strategies. In Strategic Management, effective
implementation is essential that demands many factors such as resource allocation, leadership
implementation, right structure, and effective evaluation and control. The cause for the failure
of many strategies is the implementation failure. Company may face
serious issues if there is lack of involvement of the internal people in the strategy formulation
and when they are not equally taken into confidence. Strategic Planning is a multifaceted and
complex task which requires people with vision, expertise and commitment and an appropriate
system. Strategic Management is an expensive process. A major drawback of Strategic
Management is that it sometimes makes the organization over determined and resultant failure
to reach the goals cause disturbance. Impractical strategies may lead to serious problems. The
important limitations of Strategic management are the following:
• SM (Services Management) is based on certain premises and if the premises do not hold valid
the strategy or plans based on them would not be realistic or effective.
• SWOT analysis is an important exercise in SM, which requires a lot of exercise and
information. When these two are lacking the utility of the SWOT analysis is questionable and it
could even lead to formulation of wrong or effective strategies.
• In SM effective implementation is vital that demands many things – resource allocation,
leadership implementation, right structure and effective evaluation and control. The reason for
the failure of many strategies is the implementation failure.
• A severe problem arises in a company if there is lack of involvement of the internal people in
the strategy formulation and when they are not equally taken into confidence.
• Strategic Planning is a complex and challenging task which requires people with vision,
expertise and commitment and an appropriate system
• SM is a costly exercise
• One of the most important criticisms against Strategic Management is that it sometimes
makes the organization over ambitious and resultant failure to reach the goals cause
frustration. Unrealistic strategies may land companies in severe problems.
To Sum UP:
Strategic management facilitates an organization to make its decisions based on long-term
prediction. It also allows the establishment to act at an early stage of a new trend and consider
the lead-time for effective management. The study of strategic management stresses the
monitoring and evaluating of external opportunities and threats in the view of a company's
strengths and weaknesses to create and implement innovative strategic direction for the
company.

Strategy is the complex process of determining the action that needs to be carried out to
achieve the organization ‘s purpose. It is focused on the medium- and long-term future
perspective rather than the current operations. Strategy is a major course of action, a blend of
internal and external factors and is particular to a specific situation. It is dependent on external
variables and is futuristic in nature. In recent years, virtually all firms have realized the
importance of strategic management. However, the key difference between those who succeed
and those who fail is that the way in which strategic management is done and strategic
planning is carried out makes the difference between success and failure. Of course, there are
still firms that do not engage in strategic planning or where the planners do not receive the
support from management. These firms ought to realize the benefits of strategic management
and ensure their longer-term viability and success in the marketplace.

1.4 Formulation of Strategy and Strategic Implementation:

Strategy formulation: Refers to the process of choosing the most appropriate course of action
for the realization of organizational goals and objectives and thereby achieving the
organizational vision.
The process of strategy formulation basically involves six main steps:
1. Setting Organizations’ objectives - strategy is a wider term which believes in the manner of
deployment of resources to achieve the objectives.
2.Evaluating the Organizational Environment – The next step is to evaluate the general
economic and industrial environment in which the organization operates. This includes a review
of the organization's competitive position. 3. Setting Quantitative Targets- To compare with
long term customers, to evaluate the contribution that might be made by various product zones
or operating departments.
4. Aiming in context with the divisional plans - In this step, the contributions made by each
department or division or product category within the organization are identified, and
accordingly strategic planning is done for each sub-unit.
5. Performance Analysis - Performance analysis includes discovering and analyzing the gap
between the planned or desired performance. A critical evaluation of the organization's past
performance, present condition and the desired future conditions must be done by the
organization
6.Choice of Strategy -The best course of action is chosen after considering organizational goals,
organizational strengths, potential and limitations as well as the external opportunities.
Strategic Tools for Strategic Formulation
• SWOT Analysis or TOWS Matrix
• BCG Matrix
• Porter’s Five forces Model
• PESTEL Framework
• Ansoff’s product-market matrix
• Porter’s diamond model
• Barlett & Ghoshal internationalization strategies model
• Value chain analysis
Process of strategy formulation

 Corporate Level: The four strategic alternatives are: – Stability Strategy –

Expansion/Growth strategy – Retrenchment strategy – Combination strategy
 Business level
 Functional level
Strategy implementation

Strategy implementation is the translation of chosen strategy into organizational action to

achieve strategic goals and objectives. Strategy implementation is also defined as the way an
organization should develop, utilize, and amalgamate organizational structure, control systems,
and culture to follow strategies that lead to competitive advantage and a better performance.

Organizational structure allocates special value developing tasks and roles to the employees
and states how these tasks and roles can be correlated so as maximize efficiency, quality, and
customer satisfaction-the pillars of competitive advantage. But the organizational structure is
not sufficient to motivate the employees.
An organizational control system is also required. This control system equips managers with
motivational incentives for employees as well as feedback on employees and organizational
performance. Organizational culture refers to the specialized collection of values, attitudes,
norms and beliefs shared by organizational members and groups.
The following are the main steps in implementing a strategy:

Developing an organization having potential of carrying out strategy successfully.

Disbursement of abundant resources to strategy-essential activities.
Creating strategy-encouraging policies.
Employing best policies and programs for constant improvement.
Linking reward structure to accomplishment of results.
 Making use of strategic leadership.

Excellently formulated strategies will fail if they are not properly implemented. Also, it is
essential to note that strategy implementation is not possible unless there is stability between
strategy and each organizational dimension such as organizational structure, reward structure,
resource-allocation process, etc.
Strategy implementation poses a threat to many managers and employees in an organization.
New power relationships are predicted and achieved. New groups (formal as well as informal)
are formed whose values, attitudes, beliefs and concerns may not be known. With the change
in power and status roles, the managers and employees may employ confrontational behavior.
1.5 Business Environment, Components of Environment

Business Environment- Introduction

The most crucial part of any firm is its Environment. Suppliers, competitors, the media, the
government, customers, economic conditions, investors, and a variety of other external
entities make up the business environment. The Business Environment signifies the
collection of individuals, entities and several significant internal and external factors
which control the productivity and performance of a business.
An Environment determines the growth, profitability and even longevity of a business
and gets altered by them as well. These factors influence the operations of a company
directly or indirectly depending on its type.

An awareness of the business Environment helps businesses in assessing

opportunities, assists in planning and the overall growth of an organisation.

Components of Business Environment

 Internal - It combines the factors that exist within the company. These are –
o Human resources
o Value system
o Vision and mission
o Labour union
o Corporate culture
 External - An external Environment includes those outside factors that exercise
an influence on a business’s operations. It is further classified into two segments.
o Macro - Factors like socio-cultural, political, legal, global fall into this
category.
 o Micro - This Environment has a direct and immediate impact on a
business. It consists of customers, investors, suppliers,etc.

Dimensions of Business Environment

The dimension of the business Environment refers to the sum of all factors, enterprises
and forces which constitute direct or indirect influence over Business activities. Such five
key elements are listed below.
 Social Environment
o It implies the tradition, culture, customs, values of a society in which the business
exists.
 Tradition: In India, festivals like Diwali, Christmas, Holi, etc. make provision for a
financial opportunity for several market segments like sweet manufacturers,
gifting products suppliers, etc.
 Value: A company that follows long-held values like social justice, freedom, equal
opportunities, gender equality, etc., excels in that given society.
 Recurrent Trends: It refers to development or general changes in a society like
consumption habits, fitness awareness, and literacy rate, etc. which influence a
business. For example, the demand for organic vegetables and gluten-free food is
increasing; therefore, companies which manufacture food items keep this in
mind attract more crowds.
2. Legal Environment
o It includes the laws, rules, regulations, acts passed by the government. A
company has to operate by abiding by the rule and regulations of laws like the
Consumer Protection Act 1986, Companies Act 1956, etc. A proper understanding
of these laws assists in the smooth operations of a company.
o Example: A cigarette-selling company compulsorily has to put the slogan
“smoking is injurious to health” on every packaging.
 3. Economic Environment
o It involves market conditions, consumer’s need, interest rate, inflation rate,
economic policies, etc.
 Interest Rate- For example, interest rates of fixed-income instruments prevalent
in an economic Environment impacts the interest rate it will offer on its
debentures.
 Inflation Rate- A rise in inflation rate leads to price - hike; hence it poses
limitations to businesses.
  Customer’s Income- If the income of customers increases, the demand for goods
and services will rise too.
 Economic Policies- Policies like corporate tax rate, export duty and import duty
influence a business.

4. Political Environment
It consists of forces like the government's attitudes towards businesses, ease-of-doing-business policies,
the stability of the governing body and peace within the country. All of these factors are extremely
crucial for a company to sustain. If the central, as well as local government sanctions, policies or acts in
favour of businesses, the overall economy of the nation strengthens due to increasing employment,
productivity and import and export of various products.

 Example - A pro-business government will make foreign investments more attractive in that
country.
 Technological Environment

It comprises the knowledge of the latest technological advancements and scientific innovations to
improve the quality and relevance of goods and services. A com A company that keeps track of this news
regularly can mould their business strategies accordingly.

Example: A Watch Company that sells smartwatches along with traditional watches will prosper as
smartwatches are trendy recently.

1.6 Environmental Scanning, Analysis of Strategies and Choice of Strategy.

Organizational environment consists of both external and internal factors. The environment must be
scanned to determine development and forecast factors that will influence organizational success.

Environmental scanning refers to the possession and utilization of information about occasions,
patterns, trends, and relationships within an organization’s internal and external environment. It helps
the managers to decide the future path of the organization. Scanning must identify the threats and
opportunities existing in the environment. While strategy formulation, an organization must take
advantage of the opportunities and minimize the threats. A threat for one organization may be an
opportunity for another.

Internal analysis of the environment is the first step of environment scanning. Organizations should
observe the internal organizational environment. This includes employee interaction with other
employees, employee interaction with management, manager interaction with other managers, and
management interaction with shareholders, access to natural resources, brand awareness,
organizational structure, main staff, operational potential, etc. Also, discussions, interviews, and surveys
can be used to assess the internal environment. Analysis of internal environment helps in identifying
strengths and weaknesses of an organization.

As business becomes more competitive, and there are rapid changes in the external environment,
information from external environment adds crucial elements to the effectiveness of long-term plans. As
the environment is dynamic, it becomes essential to identify competitors’ moves and actions.
Organizations also must update the core competencies and internal environment as per external
environment. Environmental factors are infinite; hence, organizations should be agile and vigile to
accept and adjust to environmental changes. For instance - Monitoring might indicate that an original
forecast of the prices of the raw materials that are involved in the product are no more credible, which
could imply the requirement for more focused scanning, forecasting and analysis to create a more
trustworthy prediction about the input costs. In a similar manner, there can be changes in factors such
as competitor’s activities, technology, market tastes and preferences.

While in external analysis, three correlated environments should be studied and analyzed

 immediate / industry environment

 national environment
 broader socio-economic environment / macro-environment

Examining the industry environment needs an appraisal of the competitive structure of the
organization’s industry, including the competitive position of a particular organization and its main
rivals. Also, an assessment of the nature, stage, dynamics and history of the industry is essential. It also
implies evaluating the effect of globalization on competition within the industry.

Analyzing the national environment needs an appraisal of whether the national framework helps in
achieving competitive advantage in the globalized environment. Analysis of macro-environment
includes exploring macro-economic, social, government, legal, technological and international factors
that may influence the environment. The analysis of an organization’s external environment reveals
opportunities and threats for an organization.

Strategic managers must not only recognize the present state of the environment and their industry but
also be able to predict its future positions.

SWOT Analysis of IKEA

Introduction
This article analyzes the strategy of the world’s leading furniture retailer, IKEA, using the SWOT
Methodology. The company was founded in 1943 and is known for its simple yet effective approach to
retailing with the DIY or the Do-It-Yourself concept, which ensures that the company keeps costs to a
minimum and passes on the value to the customers.

The products sold by IKEA are mostly ready to use and flat packed, meaning that they can be assembled
by the customers themselves. The company has a presence in the online world as well and the total
sales from its online and offline businesses are more than a Billion Dollars per year. The key strategic
driver of IKEA’s success is its no-nonsense approach to retailing that has paid rich dividends for the
company and its shareholders (literally and metaphorically).

Strengths
 The biggest strength that IKEA has is its clear vision, which is to add value to its customers
irrespective of the market conditions. This has translated into an articulate and well-defined
business strategy and an approach to retailing, which is pioneering in its simplicity and deadly in
its targeting of competitors and effective in its positioning.
 Another key strength of the company is its clear concept which translates into an array of
products that can be assembled by the customers themselves leading to humungous cost
 reductions which are then passed on to the customers. With its single-minded focus on cost
leadership, IKEA has emerged as the world’s leading retailer of furniture.
 IKEA measures its strengths using the metrics provided by the KPIs or the Key Performance
Indicators that include increased use of renewable materials, smarter use of raw materials,
establishing and maintaining long-term relationships with suppliers and leveraging the
efficiencies and the synergies from the economies of scale.

Weaknesses
 Given the fact that IKEA operates in multiple countries around the world, it is a high scale and a
large size business meaning that it is difficult to control standards across locations. Though the
company tries its best to implement uniform quality across its product range and throughout its
locations, replicable and scalable control of quality is a key weakness.
 With its obsessive focus on cost leadership, quality sometimes goes for a toss, especially in the
present context where the costs of many inputs and raw materials have gone up and which has
impacted on the profitability of the company. The point to be noted here is that it is sometimes
difficult to maintain quality in the context of increasing costs and the need to replicate
standards across its locations worldwide.
 There are environmental concerns about IKEA’s operations and the company faces challenges in
communicating and articulating its environmental policies to its customers, shareholders, and
other stakeholders.

Opportunities
 With its “green” business model, the company has a huge opportunity waiting in terms of
attracting customers who like to buy such products. The rise of the ethical consumer or the
process of buying known as “Ethical Chic” which means that customers would ideally like to buy
products that are environmentally conscious is an opportunity waiting to be tapped for the
company.
 Perhaps the biggest opportunity that the company has is its cost leadership, which means a
single-minded focus on cost at the expense of everything else. While this has raised concerns
about quality, the customers do not seem to mind as they are getting their money’s worth and
the addition of value for the customers is another significant opportunity.
 The other opportunity lies in the company’s expansion into the emerging markets and the
developing world where it has an untapped customer base that can be leveraged for effective
profitability. IKEA is already drawing up plans to enter markets like China and India with a clear
strategy of cost leadership, which it hopes, would yield benefits to the company.

Threats

 IKEA’s low-cost business model has been imitated and copied by its rivals, which means that the
company needs to constantly innovate if it has to stay ahead of the competition. For instance,
several regional and local companies have caught on to the DIY bandwagon and are also
focusing on costs which means that to stay nimble and agile, IKEA has to come up with newer
strategies.
 With the advent of the internet and online shopping, DIY as a key driver of strategic success is
no longer the sole USP or Unique Selling Proposition of IKEA and with the proliferation of online
 retailers who can provide even lower costs because they do not have a physical presence means
that they are snapping at the heels of IKEA.

Conclusion
IKEA is a well-known global trend and through its innovative business model and its focus on products,
processes, and systems, it has managed to stay ahead of the competition in the furniture retailing
business. The company can diversify into other products and product lines as it can replicate its business
model in other realms as well. To do this would require fresh thinking and a new approach to its strategy
that would combine low-cost leadership with additional drivers of success like scalability and focus on
quality. Finally, the company can enter the emerging markets where its products and its business model
are likely to be met with success and the untapped customer base can be leveraged.

Strategic Choice:
Strategic Choice involves a whole process through which a decision is taken to choose a particular option
from various alternatives. There can be various methods through which the final choice can be selected
upon. Managers and decision makers keep both the external and internal environment in mind before
narrowing it down to one.

Importance of Strategic Choice

Some of the strategic choices make up a part of bigger strategic policies of the company. Hence,
important emphasis is given to them, and decision makers follow due diligence before coming up with a
final strategic choice. At times, the majority shareholder uses his influence for the final strategic choice
benefiting his agendas.

In nutshell, we can summarize that, it’s a combination of intent, analysis and options available.

Strategic Choice Parameters

The initial process involves identifying the problem completely. Once, we have a clear picture of the
problem in hand, and then the process of short-listing various solutions is undertaken. Then comes the
strategic choice process where the decision for final choice is taken considering the various parameters
in mind.

Some of these parameters could be:

1. Feasibility

2. Prudence

3. Consensus

4. Acceptability

Strategic Choice Example:

The following example best describes Strategic Choice:

Suppose a company has a dilemma in front of it of whether to invest in a new inorganic growth process.
There are multiple options available for overtaking purposes. Now the process involved would be
observing the pros and cons of the companies being overtaken. Then after a short listing a few of them
considered the business, their advantages, and their value addition to parent company.
After having the list of few, now the final narrowing down to a single company would be a strategic
choice on the factors mentioned above. Many stakes would be considered considering both internal and
external situations.