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Strategy is a word, which is linked with military science. From a military stand point victory in war depends on strategy such as reformulating the plan to meet the new enemy. The word strategy derived from a Greek word ‘strategia' which implies the science, tact, art, and quality of directing military of forces.
We can define the strategy interpretative planning. It includes evaluation and determination of action, and selection of the best course of action, to achieve the objectives.
According to Randal B. Dunham and jon. L. Pierce “strategic management is systematic, long term planning that positions an organisation with its external environment. It is concerned with achieving an overall integration of an organisation internal division with simultaneously integrating the organisation with its external environment”.
Thus strategic management involves various activities such as determination, formulation, implementation and evaluation of strategy.
Features of strategic management
Strategic management is a modern approach to manage business enterprise successfully and to face future challenges. The following are the main features.
- Organized and systemised method of managing: strategic management is an organized and systemized method of managing enterprises it involves two phases. Strategic planning and execution.
- strategic planning phase involves determination of organisation objectives, strategies to attain objectives, and selecting the best course of action to deploy resources to exploit present and future opportunities and to counter act present and future threats.
- the implementationphase over all activities necessary to execute the strategic plan. It involves development of action plan, implementation and monitoring, recycling and reformulating plan of the enterprise.
- Based on structure of plans: it consists if plans like strategic plans, functional plans, operating plans, and organisational plans.
- Follow systems approach: strategic management concepts follow system approach. It is a treated as a system. In this system, the organisational objectives take precedence over departmental objectives.
- Future oriented: it is related with impact of present decisions on the future product- market path of the organisation.
- Dynamic process: it is a continues dynamic process it reviews the whole planning process continuously.
- Long range time span: the time plan of strategic planning is long range. It means the organisation should plan for a period of 5 to 10 years.
Dimension of strategic management
Strategic management include a set of decisions and actions resulting in the formulation and implementation of strategies designed to achieve the ultimate objectives of an organisation. The strategic management encompasses tasks pertaining strategic planning, implementation planning and monitoring.
- Strategic planning: Planning is deciding in advance the future course of action. It involves projecting the future course of action for the business as a whole and also for the different sections of the organisation. Planning is thus the first step for action. It helps to bridge the gap between future and present.
- Implementation planning: Implementation planning is related with optional aspects of strategic management. To implement strategies suitable organisation structure should be suitably designed. It is designed on the basis of overall objectives of the organisation. While designing organisation structure environmental factors like economic, social and political technological, ethical, competitive, factors should be taken in to consideration. The structure should be designed in such a way that it is able to attain over all objectives on the basis of strategies determined by the top level management.
- Monitoring: Effective formulation of strategy, its implementation through designing of suitable organisational structure, and development of organisation strategies are required for the success of an organisation. Apart from this, to know whether strategy is effective or not, monitoring is required. The management should monitor action plans, and to see whether actual results are matching with plans. It there is any deviation; corrective acting should be taken to modify strategy. Thus monitoring is the essence of strategic management.
Strategic planning encompasses all the functional areas of a business and is affected within the exiting and long term frame work of economic, political, technological, and social factors.
Steps in strategic management.
The strategic management phase involves the following steps.
- Establishing the hierarchy of strategic intent.
- Formulation of strategies.
- Implementation of strategies.
- Performing strategic evaluation and control.
Hierarchy of strategic intent.
Strategic intent refers to the purpose for which the organisation is constituted. These may be objectives and goals of the organisation. The hierarchy of strategic intent lays of the foundation of the strategic management. The organisation expresses its strategic intent through a series of formulations on vision, mission, business definition, objectives and strategies.
Each organisation should have vision. It is the dream or future aspiration of the organisation.
Kotler defines “vision as a description something (an organisation, corporate culture, a business, technology, an activity) in the future. Vision is a powerful motivator for action. It inspires the management to act”.
mission is an important part of strategic intent. Thomson defines mission is the “ essential purpose of the organisation , concerning particularly why it is an existence, the nature of the business it is in, and the customers it seeks to serve and satisfy “
Mission statement can be prepared on the basis of the vision of the organisation. The mission statement indicates the basic reason of the existence of organisation. Once it is formulated, it serves the organisations many years. A mission should have the following features.
- Feasibility: A mission should be realistic & achievable. That means it should be feasible. The feasibility depends upon the availability of resources with the organisation to achieve the vision.
- Precise: it should not too narrow or broad.
- Clear: it should be clear.
- Motivator: it should motivate the organisation to work.
- Distinctive: it should not be indiscriminative.
- Indicator of major components of strategy: it should indicate the major components of the strategy to be adopted by the organization.
For defining the business, first of all the organisation should know what is the business it is going to be conducted. The business is defined at different levels.
d) Goals and objectives
Goals denote what an organisation is expected to accomplish in future period of time.
The objective is the long-term results that an organisation seeks to achieve in basic mission. Objective should not be static they should be dynamic. They are the expected results. Which have to be achieved usually within a specified time period.
Formulation of strategies
It is the second step in strategic management. In this step the following process are to be carried out.
- Environment appraisal
- Organisational appraisal
- Consider alternative strategies
- Analysis, section of the strategies, formulation of strategies and preparation of strategic plan.
External analysis or environmental appraisal
Environmental appraisal helps to find out the opportunities and threats operating in the environment and organisational appraisal or internal analysis helps to find out the strength and weakness of organisation in order to create a match between them. Some of the basic objectives of strategy are to integrate the organisation with environment. For this purpose knowledge of environment is necessity. So an environmental appraisal to be done. It includes collection of relevant information from the environment or environmental issues, interpreting its impact in the future working of the organisation and determines the opportunities offered and threat faced by the organisation in future.
Environmental scanning. To identify opportunities and threats affecting the business it should be monitored properly and to collect data to derive information about opportunities and threats that affect the business. The process by which organisation monitor their significant environment to identify opportunities and threats affecting their business is known as environmental scanning.
Internal analysis of organisational structure
Organisational appraisal related with appraisal of internal environment. The purpose of organisational appraisal is to determine the organisational capability in terms of the strength and weakness that lie in the different functional areas. This is necessary since the strength and weakness have to be matched with the environmental opportunities and threats for strategy formulation. Organisational appraisal helps the organisation to decide about what it can do. The important method used for internal analysis is value chain analysis, bench marking etc.
SWOT analysis is under taken to understand the firm's external and internal environments. A conscious identification of the relevant environment enables an organisation to focus its attention on those factors, which are intimately related to its mission, purpose, objectives, and strategies.
The strength and weakness of the firm is the cornerstone of business policy formulation. SWOT means analysis and comparative strengths and weakness of a firm in relation to competition, and environmental opportunities and threats, which a company may likely to face. So it is a systematic study and identification of those aspects and strategy that best suit the individual company position in a given situation. A proper strategy should improve organisation business strength and opportunities and at the same time reduces its weakness and threats. Strength is the power and excellence, which resumes skills and advantages in relation with competitors and the requirements of the community a company serves. It refers to the competitive advantages and excellence, which a company can exert in a market place.
Weakness is the incapability, limitation and deficiency of resources. It hinders the growth of the organisation.
Consideration of strategic alternatives
After formulating objectives, and having analyzed the strength and weakness of the firm and the environmental opportunities and threats, the next step is to generate possible alternation strategies. Environmental appraisal and organisational appraisal led to the generation of strategic alternatives. There may be different alternative strategies to achieve objectives must be considered to make the choice to be wide.
Strategic analysis and choice
Strategies are to be chosen at the corporate level, business level and functional level. Different types of strategic alternatives are considered to adopt a suitable strategy. This necessitates the evaluation of alternative strategies with reference to certain criteria like suitability and feasibility, adaptability, etc. A strategic choice has to be made from among these alternatives.
Strategic choice is a decision making process. It is the decision to select the best strategy from among the grand strategies to meet the organisation objectives. The process of strategic choice includes focusing on alternatives, considering the selection factors, evaluation of strategic alternatives and making the strategic choice.
After the selection of appropriate strategy it is to be implemented. It is the operation part. Implementation strategy is the process through which a chosen strategy is put into action. It involves the design and management of systems to achieve the best integration of people, structure, process and resources in achieving organisational objectives. The term implementation of is used in a wider sense. So that is encompasses the formulation of plan implement to strategy. Formulation of different level of strategies is an essential and important aspect of important implementations in a multi - unit business.
Three level of strategies are to be formulated.
- Corporate level strategy
- Business level strategy
- Functional level strategy
Corporate strategy the entire process of determining major business activities, the future productsa and services, the market, target customer group, supply, financiers and the tactics to be adopted to challenge the competitors, it is also related to the major outside interest group, expectations of stake holders, information for the future projected performance, and evaluation of the environment and rational behind the organisation. All these are necessary for formulations of organisation's purpose, mission, objectives, goals policies and strategies. It is a long term strategy it is decided by top level management.
Business strategy or competitive strategy
It is the managerial plan for running and directing a business unit. It defines what is the product-market posture of an individual business unit. Business strategy is concerned with strategies pertaining to the product mix. Market segments, competitive edge, how to position the business in the market, alignment of different components of business etc. The top - level executives of the strategic business unit are responsible for determining of business strategies.
it is the plan to manage a principal subordinate activity within a business. Strategies are determined for each functional activities of, an organisations like marketing strategies etc. All the functional strategies should support to the accomplishment of overall business strategy.
Michael Porter's five forces
In his five forces model, market factors can be analysed so as to make a strategic assessment of competitive position of a given supplier in a given market. The five forces that the porter suggests the drive competition are:
- Existing competitive challenge between suppliers.
- Threat of new market entrants.
- Bargaining power of buyers.
- Power of suppliers.
- Threat of substitute products( including technology change)
Typically this five forces model is shown as a series of five boxes.
Generic strategies to counter the five forces
Strategy can be formulated on three levels- corporate level, business unit level and functional level. The business unit level is the primary context of industry rivalry. Michael porter recognized three generic strategies (cost leadership, differentiation, and focus) that can be implemented at the business init level to make a competitive advantage. The proper generic strategy will position the firm of leverage its strength and defend against the adverse effects of the five forces.
Cost leadership strategy
This generic strategy for a given level of quality. The firm sells its products either at average industry prices to earn a profit higher than that of competitors, or below the average industry prices to gain market share. In the event of a price war, the firm can preserve some profitability while the rivalry suffers losses. Even without a price war, as the industry matures and prices refuse, the firms that can produce more cheaply will remain profitable for a longer period of time. The cost leadership strategy regularly targets a broad market.
A differentiation strategy calls for the development of a product or service that suggests unique accredited that are valued by customers and that customers perceive to be better than of different from the products of competition. The value added by the uniqueness of the product may allow the firm to charge a premium price for it. The firm hop that the higher price will more than cover the extra cost incurred in offering the unique product. Because of the product's unique attributes, if suppliers increase their prices the firm may able to pass along the cost to its customers who cannot find alternative products easily.
The focus strategy focus on a narrow segment and within that segment attempts to get either a cost benefit or differentiation. The need of the group can be better serviced by focusing entirely on it. A firm using focus strategy often enjoys a high degree of customer loyalty, and this ingrained loyalty discourages other firms from challenging directly.
Example: Strategies of Reliance Industries Limited.
Here is given an examples of reliance to show how strategies are chalked out to take the maximum benefits of the situation. The success of reliance has perhaps no parallel in the recent years in the history of Indian business. It has grown almost out of proportion. The fantastic growth of company may be attributed to one factor, that is , growth strategy adopted by the company, thereby relating itself appropriately to its environment. The major components are described below.
1. Analysis of environment.
The company's success lies in the fact that it identified the opportunities offered by the environment and acted accordingly. The company was mainly in the business of export and import, export mainly high quality and importing nylon yarn. Over the period of time, it realised that the Indian market was offering slowly the scope for introducing high - priced premium fabrics. Other manufactures did not take up this because they thought that the total market was quite limited. No doubt, market was narrow but slowly it was offering potential for rapid increase. There Reliance entered the field at the right time.
2. Building internal strength
Reliance built up strengths over the period of time. At the initial stage, it had the advantages of doing business in the area of high-priced fabrics because of its export. Its production capacity was limited. There for the company took the steps to increase the production capacity. Following are the various actions taken: expansion of filament yarn twisting capacity, expansion of crimped yarn twisting capacity, expansion of twisting capacity, Expansion of processing department by installing jet dyeing machines, expansion of printing facilities, expansion of spinning capacity.
3. Marketing strategy
The company adopted unique marketing strategy. It concentrated in those area in which the competitors were not doing well, that is, operation in high-priced, high quality, modern designed fabrics. For this purpose, it offered products of matching requirements. Further it offered family buying of fabrics from one store, that is suiting, shirting, sarees and dress materials.
4. Financial strategy
The company needed huge fund for its expansion programme quite frequently. For this purpose it did not depend on the loan from financial institutions. It entered several times in the capital market with convertible debenture issues. Since the capital market was buoyant, it did not have any problem in selling its securities.
Through the above discussions we can understand that a strategy is an essential part of a business environment. Business enterprises in a competitive environment, the top level management may have to bring a change in plans and policies in accordance with tactics followed by its competitors. So the company should follow the above strategies according to change in competitors strategy, social, political and economical strategies.
The business organisation should change their vision, objectives and portfolio of business, markets and competitive strategies to face competitive challenges and to exploit business opportunities. The top level management should adopt the strategic management to face challenges emerging in the management field.