Strategic Management: UNIT 2

Strategy Formulation- Understand strategic management

process business definition & Organization values that build
mission statement. Describe strategic vision, mission, goals,
and long term objectives.
Strategy Implementation and control: Process of
Implementation, Stages of corporate development, Staffing
and Leading,. Organizational design, structures and controls.
Importance of integrating strategy implementation and
strategy formulation. Organizational structures used to
implement at different business level strategies. Organizational
structures used to implement different corporate level
strategy, Balance Core card.
 Strategic Management
Meaning
Meaning:
• Strategic management provides overall direction by
developing plans and policies designed to achieve
objectives and then allocating resources to implement the
plans. Ultimately, strategic management is for organisations
to gain a competitive edge over their competitors.
• Strategic management is the process of setting goals,
procedures, and objectives in order to make a company or
organization more competitive. Typically, strategic
management looks at effectively deploying staff and
resources to achieve these goals.
 Strategic Management: Definition
• Strategic management is the process by which top
management determines the long-term direction of the
organization by ensuring that careful formulation,
implementation and continuous evaluation of strategy
takes place.

The strategic management process can be broken down into

three phases;
• Strategy formulation
• Strategy implementation
• Strategy control
Microsoft’s Business Model
Employ a cadre of highly skilled programmers to develop proprietary
code; keep source code hidden from users

Sell resulting OS and software packages to PC makers and users at

relatively attractive prices to achieve a 90% or more market share

Most costs in developing software are fixed; variable costs are small;
once break-even volume is reached, revenues from additional sales
are almost pure profit

Provide
Provide modest
modest level
level of
of technical
technical support
support to
to users
users at
at no
no cost
cost

Rejuvenate
Rejuvenate revenues
revenues by
by periodically
periodically introducing
introducing next-generation
next-generation
software
software with
with features
features inducing
inducing PC
PC users
users toto upgrade
upgrade their
their operating
operating
systems
systems
Red Hat’s Business Model

Rely on collaborative efforts of volunteer programmers to create the

software

Collect and test enhancements and new applications submitted by

volunteer programmers for evaluation and inclusion in new releases
of Linux
Market upgraded and tested family of Red Hat products to large
companies, charging a subscription fee that includes 24/7 support
within 1 hour in 7 languages

Make
Make source
source code
code open
open and
and available
available to
to all
all users
users

Capitalize
Capitalize on
on specialized
specialized expertise
expertise required
required to
to use
use Linux
Linux by
by
providing
providing fee-based
fee-based training,
training, consulting,
consulting, software
software customization,
customization, and
and
client-directed
client-directed engineering
engineering to
to Linus
Linus users
users
For Discussion: Your Opinion

Who has the best business model –

Microsoft or Red Hat?
 Test Your Knowledge
The nitty-gritty issue surrounding a company’s business model is whether
A. the strategy is capable of producing sustainable competitive
advantage.
B. it matches the company’s external and internal situation.
C. the chosen strategy makes good business sense from a money-
making perspective.
D. the company’s strategy and strategic moves are mostly proactive.
E. the company’s strategy stands a really good chance of hitting a
home-run in the marketplace.
 Understand Strategic Management Process

• Let us understand how to set vision and

mission statements for an organization.
 Vision Statement
• A vision statement is a document that states the
current and future objectives of an organization.
• The vision statement is intended as a guide to
help the organization make decisions that align
with its philosophy and declared set of goals.
• It can be thought of as a roadmap to where the
company wants to be within a certain timeframe.
 Best Practices for Writing a Vision Statement
There is no template to writing a vision statement, however a common
structure for successful ones includes these traits:
• Be Concise: This is not the place to stuff a document with fluff statements. It should be
simple, easy to read and cut to the essentials, so that it can be set to memory and be
repeated accurately.
• Be Clear: A good rule of thumb for clarity is to focus on one primary goal, rather than
trying to fill the document with a scattering of ideas. One clear objective is also easier
to focus on and achieve.
• Have a Time Horizon: A time horizon is simply a fixed point in the future when you will
achieve and evaluate your vision statement. Define that time.
• Make it Future-Oriented: Again, the vision statement is not what the company is
presently engaged in but rather a future objective where the company plans to be.
• Be Stable: The vision statement is a long-term goal that should, ideally, not be affected
by the market or technological changes immediately.
• Be Challenging: That said, you don’t want to be timid in setting your goals. Your
objective shouldn’t be too easy to achieve, but also it shouldn’t be so unrealistic as to
be discarded.
• Be Abstract: The vision statement should be general enough to capture the
organization’s interests and strategic direction.
• Be Inspiring: Live up to the title of the document, and create something that will rally
 A Mission Statement
• A mission statement defines what line of
business a company is in, and why it exists or
what purpose it serves. Every company should
have a precise statement of purpose that gets
people excited about what the company does
and motivates them to become part of the
organization. A mission statement should also
define the company’s corporate strategy and
is generally a couple of sentences in length.
The mission statement guides the management team
in implementing strategies that help reinforce the
company’s identity and achieve its goals.

It is important for:
• Motivating employees
• Inspiring customers
• Strategic planning
• Setting values
• Understanding why a business exists
• Mission and vision statements play three critical roles:
(1) communicate the purpose of the organization to
stakeholders,
• (2) inform strategy development, and
• (3) develop the measurable goals and objectives by which
to gauge the success of the organization's strategy.

• The vision and mission statements provide a focal point

that helps to align everyone with the organization, thus
ensuring that everyone is working towards a single
purpose. This helps to increase efficiency and productivity
in the organization.
 A strategic vision statement
• A strategic vision statement supports the
mission statement.
• It describes an achievable future state of an
organization—exact timelines may vary, but
typically range from three to 10 years.
• This statement should help you and your
employees visualize where the organization is
headed.
 Goals and Objectives:
• Goals are the outcomes you intend to achieve,
whereas objectives are the specific actions
and measurable steps that you need to take to
achieve a goal.
• While goals create a vision with a wide range,
objectives focus on the individual, achievable
outcomes.
• Objectives are the concrete deliverables that
make the goal come to life.
 Goals
• Goals can be somewhat abstract and big picture, but they set a
wide, over arching target for the company to set their eyes on as a
whole.
• Goals define the general intentions and ambitions of the business
but can be difficult to measure.

For example,
• a company may have a goal of becoming the most profitable
advertising agency in the country.
• Objectives related to this goal might include increasing their new
business sales by five percent each quarter, growing their market
share by a set time frame, improving client retention rates by 10
percent each month or adding two new products to their product
line by the end of the fiscal year.
 Nature of Goals are:
• Broad in nature
• Valuable for setting a general direction or vision
• Difficult to measure
• Abstract ideas
• Longer term
• The end result

Examples of goals include:

• I want to become known as an expert in business strategy

• I will commit to my career development and learn how to increase sales
• I want to be more confident
 Nature of Objectives are:

• Narrow in scope Specific steps

• Associated with a schedule and time frame
• The means to the end result
• Easy to measure
• Short term or medium term

Examples of objectives include:

• I will speak at five conferences in the next year

• I will read one book about sales strategy every month
• I will work with a coach to practise my networking skills by the end
of this month
Strategy Implementation: Definition

• Strategy implementation is the process by

which an organisation translates its
chosen strategy into action plans and
activities, which will steer the organisation in
the direction set out in the strategy and
enable the organisation to achieve
its strategic objectives.
 Strategy Implementation
• It is the fourth stage of the Strategic Management process,
the other three being a determination of environmental and
organisational analysis, strategic vision, mission and
objectives, and formulating of the strategy. It is followed by
Strategic Evaluation and Control.
• The process of strategy implementation has an important role
to play in the company’s success. The process takes places
after environmental scanning, SWOT analyses and
ascertaining the strategic issues.
 Prerequisites of Strategy
• Building an organization, that possess the capability to
put the strategies into action successfully.
• Supplying resources, in sufficient quantity, to strategy-
essential activities.
• Developing policies which encourage strategy.
• Such policies and programs are employed which helps
in continuous improvement.
• Combining the reward structure, for achieving the
results.
• Using strategic leadership.
 Process of Strategy Implementation
• Institutionalization of Strategy: First of all the strategy is to be
institutionalized, in the sense that the one who framed it should
promote or defend it in front of the members, because it may be
undermined.
• Developing proper organizational climate: Organizational climate
implies the components of the internal environment, that includes the
cooperation, development of personnel, the degree of commitment
and determination, efficiency, etc., which converts the purpose into
results.
• Formulation of operating plans: Operating plans refers to the action
plans, decisions and the programs, that take place regularly, in different
parts of the company. If they are framed to indicate the proposed
strategic results, they assist in attaining the objectives of the
organization by concentrating on the factors which are significant.
• Developing proper organisational structure: Organization
structure implies the way in which different parts of the
organisation are linked together. It highlights the relationships
between various designations, positions and roles. To
implement a strategy, the structure is to be designed as per
the requirements of the strategy.
• Periodic Review of Strategy: Review of the strategy is to be
taken at regular intervals so as to identify whether the strategy
so implemented is relevant to the purpose of the organisation.
As the organization operates in a dynamic environment, which
may change anytime, so it is essential to take a review, to know
if it can fulfil the needs of the organization.
Strategy at various levels of business
 Corporate-level strategy
• 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.
 The 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?”.
• In order to answer these questions it is important to first
have a good understanding of a business and its external
environment.
• 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.
 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
department, workers often refer to their ‘Marketing Strategy’,
‘Human Resource Strategy’ or ‘R&D Strategy’.
• The goal is to align these strategies as much as possible with
the greater business strategy. 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.
Stages of Business Development
 Stages of Business Development
Start-Up Stage
• The start-up phase represents the "birth" of the business.
• The entrepreneurs, much like expectant parents, devote
massive amounts of time, money and emotional
investment in launching their new venture.
• At this early stage, the owners use much of their energy to
establish a sizable customer base, purchase inventory, open
bank accounts and hire employees.
• As with parenting, the start-up phase brings many sleepless
nights from a combination of worries about the future and
expectations for developmental milestones.
 Stages of Business Development
Growth Stage
• After the start-up stage, a successful business often achieves a
level of expanded capabilities.
• The company establishes a reputation, encounters increased
demand and stabilizes its business practices.
• This growth phase has its share of both issues and
opportunities.
• The company may require an infusion of capital, either through
taking on debt or selling off equity, to meet increased demand.
• The company also usually encounters higher sales totals and
better profit margins as it builds its visibility in the market.
 Stages of Business Development
Maturity Stage
• Just as a young person reaches adulthood, a prosperous
business also reaches a more mature stage during its life
cycle.
• The increased capabilities encountered during the growth
phase lead to the company achieving a stable presence in
its industry.
• At this stage, the owners no longer need to pour their
energy into every aspect of the company.
• They can choose either to stay with the business or allow
new management to take over its operations.
 Stages of Business Development
Decline Stage
• Every year, thousands of businesses close their doors for the
last time.
• The "death" of these businesses can be attributed to many
factors, including poor management, government regulation
or changes in the industry. During this stage, businesses
often see declining sales, decreased profits or steep losses.
• The company may fall out of favor with its customers, carry
high debts or encounter cash flow issues. Any of these
issues can lead to the company's eventual decline and
closure.
 Staffing and Leading:
• The managerial function of staffing & leading
is managing the organization’s manpower by
means of suitable and active choice,
assessment, and progression of the employees
who fill the desired roles and positions.
• “Staffing pertains to recruitment, selection,
development, and compensation of
subordinates.”
 8 Steps Involved in Staffing Function of Management

• Manpower Planning
• Recruiting & Selecting
• Workforce Orientation
• Training and Development
• Performance Appraisal
• Compensation
• Promotion
 Organizational design, structures and
controls
• organizational structure: The system of task
and reporting relationships that control and
motivate colleagues to
achieve organizational goals.
• organizational design: The process by which
managers define organizational structure and
culture so that the organization can achieve
its goals.
 Types of organizational structures / designs
• (i) Line organisational structure.
• (ii) Staff or functional authority organisational
structure.
• (iii) Divisional organisational structure.
• (iv) Project organisational structure.
• (v) Matrix organisational structure and
 (i) Line organisational structure.
• A line organisation has only direct, vertical relationships between different levels in the
firm.
• There are only line departments-departments directly involved in accomplishing the
primary goal of the organisation.
• For example, in a typical firm, line departments include production and marketing. In a
line organisation authority follows the chain of command.
Features:
• Has only direct vertical relationships between different
Advantages:
• Tends to simplify and clarify authority, responsibility and accountability relationships,
• Promotes fast decision making
• Simple to understand.
Disadvantage:
• Neglects specialists in planning
• Overloads key persons.
• Managers may have to become experts in too many fields.
Line organisational structure.
 (ii) Staff or functional authority
organisational structure.
• The jobs or positions in an organisation can be categorized as:
• (i) Line position: a position in the direct chain of command that is
responsible for the achievement of an organisation’s goals and (ii) Staff
position:
• A position intended to provide expertise, advice and support for the line
positions.
• The line officers or managers have the direct authority (known as line
authority) to be exercised by them to achieve the organisational goals.
The staff officers or managers have staff authority (i.e., authority to
advice the line) over the line. This is also known as functional authority.
• The principle of unity of command is violated when functional authority
exists i.e., a worker or a group of workers may have to receive
instructions or orders from the line supervisor as well as the staff
specialist which may result in confusion and the conflicting orders from
multiple sources may lead to increased ineffectiveness.
(ii) Staff or functional authority organisational
structure.
 (iii) Divisional organisational structure.
• In this type of structure, the organisation can
have different basis on which departments are
formed. They are:
• (i) Function,
• (ii) Product,
• (iii) Geographic territory,
(iii) Divisional organisational structure.
 (iv) Project organisational structure.

• A project organisation is a temporary organisation designed to achieve

specific results by using teams of specialists from different functional areas
in the organisation.
• The project team focuses all its energies, resources and results on the
assigned project. Once the project has been completed, the team members
from various cross functional departments may go back to their previous
positions or may be assigned to a new project.
Project organisational structure is most valuable when:
• (i) Work is defined by a specific goal and target date for completion.
• (ii) Work is unique and unfamiliar to the organisation.
• (iii) Work is complex having independent activities and specialized skills are
necessary for accomplishment.
• (iv) Work is critical in terms of possible gains or losses.
• (v) Work is not repetitive in nature.
(iv) Project organisational structure.
 (v) Matrix organisational structure
• It is a permanent organisation designed to achieve specific results by using teams of
specialists from different functional areas in the organisation.
Advantages:
• 1. Decentralised decision making.
• 2. Strong product/project co-ordination.
• 3. Improved environmental monitoring.
• 4. Fast response to change.
• 5. Flexible use of resources.
• 6. Efficient use of support systems.
Disadvantages:
• 1. High administration cost.
• 2. Potential confusion over authority and responsibility.
• 3. High prospects of conflict.
• 4. Overemphasis on group decision making.
• 5. Excessive focus on internal relations.
• This type of organisation is often used when the firm has to be highly responsive to a
rapidly changing external environment.
(v) Matrix organisational structure
 Importance of integrating strategy implementation
and strategy formulation

For an organization to realize its goals, it

should integrate the formulation and implementati
on of strategies.
• Communication plays a vital role in integrating
the formulation and implementation.
• Brings a cohesion / understanding amongst
people working at various levels of organization.
• Brings in clarity and seizes the work frame (what
is their expected roles and responsibilities)
 Importance of integrating strategy
implementation and strategy formulation
• Facilitates Effective Decision Making at:
• Corporate level
• Business Level
• Functional Level
• Facilitates high performing teams.
• Improved Business standards.
• Enhances business managers with better problem
solving abilities.
• Enhances profitability of business by enabling the
business to tackle competition easily.
Organizational structures used to implement different business
level strategies and corporate level strategies.

• Traditional organizational structures come in

four general types – functional, divisional,
matrix and flat – but with the rise of the digital
marketplace, decentralized, team-based org
structures are disrupting old business models.
• Before you establish an innovative way to
manage your enterprise, take some time to
understand the old mould – then blaze a trail.
 Functional Organization Structure

• Under a functional organization structure, people who do

similar tasks are grouped together based on specialty.
• So all the accountants are placed in the finance
department and so on for the marketing, operations,
senior management and human resources departments.
• The advantages of this kind of structure include quick
decision making, because the group members can easily
communicate. They can also learn from each other, since
they already possess similar skill sets and interests.
Divisional Structure Based on Products
• In a divisional structure, your company groups
workers into teams based on the products or projects
that meet the needs of a certain type of customer.
• For example, a bakery with a catering operation
might structure the workforce based on key clientele,
such as a wedding department and a wholesale-retail
department.
• The division of labor in this kind of structure ensures
workers making similar products can achieve greater
efficiency and higher output.
Matrix Structure Combines Functional and
Divisional Models
• A matrix structure combines elements of the functional and
divisional models, so it’s more complex. It groups people into
functional departments of specialization, then further
separates them into divisional projects and products.
• In a matrix structure the team members are given more
autonomy and expected to take on more responsibility for their
work.
• This increases the productivity of the team, fosters greater
innovation and creativity, and allows managers to cooperatively
solve decision-making problems through group interaction.
• This type of organizational structure takes lots of planning and
effort, making it appropriate for large companies that have the
resources to devote to managing a complex business
framework.
 Flat Organizational Structure
• A flat organizational structure attempts to disrupt the
traditional top-down management system of most
companies. Management is decentralized so there is no
everyday “boss.”
• Each employee is the boss of themselves, eliminating
bureaucracy and red tape and improving direct
communication.
• For example, an employee who has an idea doesn’t have to
wade through three levels of upper managers to get the idea
to the key person making the decision. The employee simply
communicates directly with the target on a peer-based level.
 Balanced scorecard
The balanced scorecard involves measuring four
main aspects of a business: Learning and
growth, business processes, customers, and
finance. BSCs allow companies to pool
information in a single report, to provide
information into service and quality in addition
to financial performance, and to help improve
efficiencies.
Framework
of Balance
Score Card
Thank you