INTRODUCTION TO STRATEGIC MANAGEMENT

Unit Structure:
1.0. Objective
1.1 Introduction
1.2 Meaning and definition of strategy.
1.3 Nature of business strategy
1.4 Strategic management process.
1.5 Benefits of strategic management.
1.6 Summery
1.7 Questions

1.0. OBJECTIVES

After studying this unit, the student will be able to -

 Understand the concept of strategy and strategic management.

 Know the process of strategic management
 Know the levels of strategic management
 Understand the various types of strategies
 Explain its advantages and limitations
 Know the roles, strategists play in strategic management.

1.1. INTRODUCTION

Globalization of economy has brought about revolutionary changes in the

policy framework of both developed and underdeveloped countries. The
liberalization has removed artificial trade barriers and businesses have, now
truly become international and the competition has become very severe. These
developments gave rise to new paradigms in business policies and strategic
thinking. Due to this there are drastic changes in conventional concept of
business. The survival and success of the firm, is influenced significantly by
superior strategies like business have started focusing on customers and their
satisfactions rather than focusing on products and sales early 1960’s corporate
planning

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was popular but after 1980’s its place has taken by strategic management to
face stiff competition arisen by globalization.

There are number of examples where some firms have prospered and other
has perished. The keen study of these cases reveals that the basic reasons of
their success and failure are the types of policy that the firm pursues. This is
known as business policy.

Business policy refers to decisions about the future taken by top management.
It is guidelines given to employees by senior management for functioning. It is
the means and ends, molding of organization’s identity and character and
continuous guidance of actions to attain goal.

Normally the business policy consists of :

1. Study of the functions and responsibilities of senior
management related to the organizational problems affecting on
the success of total enterprise.
2. It determines the future course of action which organizations
have to adopt.
3. Choosing the purpose and defining the problem or need of the
organization.
4. Lastly, it is concerned with the proper mobilization of resources
so that Organization can attain its goal easily.

1.2 MEANING AND DEFINITION OF STRATEGY

Unlike the pure science which have their foundation in experimental research,
management studies draw upon the practical experiences of managers in
defining concepts? Business policy is rooted in the practice of management
and has passes through certain phases before taking its shape of strategic
management.

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 military identify the quality and quantity of resources to be mobilized
and used at the most appropriate time in suitable and convenient manner to
win a war.

In business parlance, there is no definite meaning of strategy and used for

number of things like mobilizing and deploying resources systematically and
attain organizational goal or

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the pattern of common thread related to the organization’s activities which are
derived from the policies and objectives and goals. It is related to pursuing
those activities which move an organization from its current position to desired
future state. It also relates to resources necessary for implementing a plan or
following a course of action.

Strategy literal meaning is “In anticipation of opponents move, designing one’s

own way of action”. As it has different interpretations and really difficult to
fathom what strategy means. So, we can conclude that it is the means to
achieve organizational goal.

Following are some of the definitions with which we will be able to understand
the meaning of strategy.

Definitions: -
“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.”

Alfred D. Chandler.

“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.

1.3 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 objectives oriented and are directed towards
organizational goal. To formulate strategies the business should know the
objectives that are to be pursued. For

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example if any business wants to achieve growth, then it has to set following
objectives.
a) To increase market share.
b) To increase customers satisfaction.
c) To enhance the goodwill of the firm.

2. Future Oriented:
Strategy is future oriented plan and formulated to attain future position of the
organization. Therefore, strategy enables management to study the present
position of organization and decides to attain the future position of the
organization. This is possible because strategy answer question 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 business.

3. Availability and Allocation of Resources:

To implement strategy properly there is need of 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 its strength and weaknesses and co- ordinate 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 strength 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 strategy for its survival and
growth. The presence of strategy keeps business moving in 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 same top
management. In this case such companies need to frame different strategies.
The strategies are executed at three different levels such as –

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 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 sources 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.

1.4 STRATEGIC MANAGEMENT PROCESS

Strategic management is a dynamic process .it is continual, evolving, iterative

process. it means that it cannot be a rigid, step- wise collection of few activities
arranged in a sequential order rather 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 the time as the situation demands. There are four major phases of
strategic management process which are as under.
A) Establishment of strategic intent.
B) Formulation of strategies.

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 C) Implementation of strategies.
D) Strategic evaluation.

A. Establishment of strategic intent:

It is a first step in strategic management Process. It involves the hierarchy of

objectives that an organization set for itself. Generally, 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 organization stand
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 the society. The business definition explains the businesses 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
a given period of time.

B. Formulation of strategy:

Formulation of strategy relates 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 all
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 strength and weakness of the
organization. External environmental factor includes government, competitions,
consumers, and technological developments. These are not adjustable and
controllable and relates to organizations opportunities and threats

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 3. Setting of objectives:
After SWOT analysis, the management is able to 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 exact gap between present and future performance
of the organization. If there is 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 each and 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 has to select the best strategy depending on
the situation and it has to 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 have to 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 so as to match the
structure to the needs of strategy. The behavioral aspects consider the
leadership style for implementing strategies and other issues like corporate

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culture, corporate politics, and use of power, personal values and business
ethics and social he 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 assure that strategic choice is properly
implemented and is meeting the objectives of the firm. It consists of certain
elements which are given below.

1. Setting of standards: - The strategists need to set standards,

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
out 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
some time authority may re-set its goals, objectives or its planning,
policies and standards.

1.5 CORPORATE LEVEL STRATEGY

There are three broad levels of strategy known as-

A) Corporate strategy
B) Business strategy.
C) Functional strategy.

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  CORPORATE LEVEL STRATEGY.

Corporate level strategies are basically related to allocation of resources

among the different businesses of the firm, managing and nurturing portfolio of
businesses etc. it helps to exercise the choice of direction that an organization
adopts. Corporate strategy typically fits within three main categories- stability,
growth, and retrenchment strategy. We will discuss these three strategies in
detail.

Corporate level strategies are principally about the decision related to

dispersion of resources among different businesses of an organization,
transforming resources from one set of business to others and managing and
nurturing a portfolio of businesses such that the overall corporate objectives
are achieved.

1. Stability strategy: -

This strategy is adopted by the firm when it tries to hold on to their current
position in the market. It also attempts at incremental improvement of its
performance by marginally changing one or more of its businesses in terms of
their respective customer group, customer function and technologies either
individually or collectively. it does not mean that the firm don’t wants to have
any growth. Its attempts are at the modest growth in the same business line.
For example, any company offers a special service to a institutional buyers to
increase its sale by encouraging bulk buyer so it is companies strategy of
stability by improving market efficient.

2. Growth Strategy: -

This strategy is also known as expansion strategy. Here the attempts are made
to have substantial growth. This strategy will be pursued when firm increases
its level of objectives upward in a significant increment which is much higher as
compared to its past achievements.

To achieve higher target compared to past the firm may enter into new
/introduces new product lines, enter into additional market segment. it involves
more risk and efforts as compared to stability strategy. The growth strategy is
divided into two parts namely

i) Internal growth strategy and

ii) External growth strategy.

Internal growth strategy mainly consists of diversification strategies and

intensification strategy.

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External growth strategy consists of merger, takeover, foreign collaboration
and joint venture.

The major objectives of adopting of growth strategies are –

i) Survival: - This is natural tendency of every business to grow. if it

does not then new entrants will be there in the market and its life
will be in danger. Survival is also necessary to face challenges of
business environment.

ii)Innovation: - Innovation is important to business as it gives new

product, new methods, new schemes with which business can grow
to a desirable extent. With this business gets high performance,
high results which are indication of growth.

iii) Motivation to employees: - growth strategy generates higher

performance and it enables the firm to motivate employees with
monetary and non-monetary incentives.

iv) Customer satisfaction: - Growth strategy enables the firm to

give more satisfaction by providing good quality products at
reasonable price.

v)Corporate image: - corporate image means creating good image

of the organization in the minds of the all stakeholders. This will be
made possible only with growth strategies of the firm as it gives
quality goods to people, good return to investor, fair wages and
salaries to employees with its increased volume of output and
enhance performance.

vi) Economies of scale: - Due to growth strategy there is increase

demand to a product which results in large scale production, which
in turn brings economies of large scale. It may be in saving labour
cost or material cost.

vii) Efficiency: - Efficiency is the ratio of returns to costs. Due to

growth strategy, there is innovation, up gradation of technology,
training and development of employees and research and
development all these leads to improvement in output and
reduction in cost and increases profit.

vii) Optimum use of resources: - Due to growth strategy there is

increased demand to a product. This leads to large scale
production and distribution. Therefore, the firm can make optimum
use of resources.

viii) Expansion of business: - The growth strategy facilitates

expansion to business unit. Because the performance of business
units improves in terms of sales, market share and profit. Therefore

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the business unit can move from its local level function to national or
international level.

ix) Minimize risk: - due to the expansion of business there is change

in term of product sales, market areas. In this case if business
suffers a loss in one product or market then it will be compensated
in another market or product. Therefore, the business will be
minimizing the risk.

3. Intensification Strategy:

In intensification strategy, the business tries to grow within the existing

businesses through market penetration, market development and product
development.

Market penetration means increasing current market’s sale by undertaking

aggressive efforts like high advertising, price cutting and sales promotion etc.

Market development means entering into new markets along with the current
market. Here business units undertake market research, effective pricing
policy, effective promotion mix and distribution chain. And product development
means introducing improved or substitute’s product. It may be in the same
market or new market.

4. Diversification Strategy:

Diversification is one type of internal growth strategy. It is changing product or

business line. In this case business enters into in the new business service or
product which is extension of existing activity or there could be a substantial
difference in skill technology and knowledge. There are certain reasons
because of company go for diversification. The reasons are as under

a. Spreading of risk: - Diversification enables to spread the risk.

In this the business operates in a different market where in one
market business suffer a loss, that can be compensated in other
market and the levels of profit will be maintained.

b. Improves corporate image: - Corporate image is creating

mental picture of the company in the people’s mind. Through
the diversification company as changes products and
knowledge gives better quality product and services with which
it creates positive impact on people’s mind.

c. Face competition effectively: - Due to the diversification

company introduce wide range of products and services. This
enables company to maintain it’s a sale in the market.

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 d. Utilization of resources: - Diversification enables company to
use the resources optimally as it has excess capacity
manufacturing. If facilities managerial man power and other
resources to production dept and other activities.

e. Economies of scale: - Diversification brings economies of

scale especially in the area of diversification. The company can
combine the distribution old product as well as new products
with the help of same distribution chain.

f. Customer satisfaction: - When the company entered into new

business it assured to give qualitative product and good
services. This leads to customer’s satisfaction.

g. Synergistic advantages: - Synergistic advantages are those

which are gained by putting little bit improvement in the same
product or process which are related to old product and gain
new products. This will be easily attained in diversification.

 TYPES OF DIVERSIFICATION:

There are four major types of diversification knows as:

I) Vertical diversification: - Vertical diversification is the extension of

current business activities. Such extension is of two types known as

a) Backward diversification: - It is a diversification where company

moves one step back from the current line of business for example
cupboard manufacturing unit enter into it’s a raw material supply
unit (Color and Hardware)

b) Forward diversification: - In this case company enters into the

activity which is extension of its current business for example cloth
manufacturer enter into garment manufacturing.

II) Horizontal diversification: - In this case company enters into a

new business which is very closely related with existing line of
business and it is with the help of the same technology and the
market. For example, gent’s garments manufacture enters into
ladies’ garments manufacturing.

III) Concentric diversification: - In this new business is linked to the

existing business which is indirectly related. For example, a car
seller may start finance company to increase his sale.

IV) Conglomerate diversification: - In this type of diversification, the

attempt is made to diversify the present market or product in a
totally new product of market. There is a no linkage between old

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and a new business. For example, Transport operator entered into furniture
manufacturing

5. Turnaround Strategy:

Turnaround strategy means converting loss making unit into a profitable one. It
is possible when company restructure its business operations. it is broad in
nature and including divestment strategy (where business get out of certain
activities or sell off certain units or divisions) Its aim is to improve the declining
sales, market share and profit because of high cost of materials, lower price
utilization for goods and services or increase competitions, recession,
managerial in efficiency.
The turnaround strategy is needed when the following situations arise in
business. Namely: -
I) Liquidity problem
II) Fall in market share
III) Reduction in profit
IV) Underutilization of plant capacity
V) High inventory

6. Divestment Strategy:

Divestment is dropping out or sells off the products, or functions. It involves the
sale or liquidation of a portion of a business or major division or SUB. It is a
part of rehabilitation plan and his adopted when turnaround has been
attempted but has proven to be unsuccessful. There is certain reason for
divestment

a. Withdrawal of obsolete products: - Those products which do

not give adequate return to the firm will be removed. And the
products which are having good market share and profitable will
be continued.

b. Problem of Mismatch: - The business which is undertaken by

the company is not matching with the existing business line.
Therefore, the company may take initiative to gate red of newly
acquired business

c. Problem of competition: - Sometimes due to tough

competition company may withdraw some products from the
market or sell the units producing such products.

d. Negative cash flows: - When business gets negative cash

flows from a particular business. The revenue collected from
such a business is lower as the expenditure incurred on it
therefore it is to be divested

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 e. Technology Up-gradation: - Technology Up-gradation is
important for survival of business. But the cost of up-gradation is
so high which is not affordable to business therefore that
business activity is to be divested

f. Concentration on Core Business: - When business undertake

number of activities at a time, then it may be difficult to the
business to manage all activities satisfactorily. Due to this
business ignore its over activity which leads to loss in business
therefore to concentrate on core business divesting other
activities is essential.

g. Alternative for Investment: - Some time, by divesting certain

activity company can invest its blocked fund into some another
investment alternative which will give good return

h. Returns to Shareholders: - Company, by divesting may

increase shareholders return by giving shareholder hefty
dividend.

i. Attractive Offers from Other Firm: - Sometimes it happens

company may get offer from another company. To invest in a
good return giving from company may divest current activity.

7. Liquidation Strategy:

This is extreme case of divestment strategy and is undertaken in the situation

when all the efforts of reviving the company have come to an end. There is no
possibility that the business can made profit making unit again. In such
situation business takes decision to sell its entire business and the amount
realized from it can be invested in another business. When it is done it is
known is liquidation. This is generally done by small businesses.

There are certain reasons because of the liquidation has taken place that
reasons are –

i) When the business continuously suffered loss and all efforts

have failed to make it profitable again.
ii) When there is good offer from other businesses
iii) When business found that there are difficulties to deal with the
present business
iv) When the business unit has taken over new business and the
current business is not coping with or matching and current
business is not profitable.

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Whenever such type of situation has occurred, business, as per company act
1956 can go for liquidation.

The relief gained on the part of liquidation to the company is

i) It gives relief to financial institution as financial institutions are
able to get their funds back.
ii) It enables the firm to enter into new business.
iii) It enables to the acquirer to consolidate its market.
iv) The shareholders of liquidating company may get shares or
compensation from new company or acquirer.
v) The employees may not lose their job as the new management
can continue them in new business.

8. Modernization strategy:

Modernization is nothing but it is improvement/up-gradation of existing physical

facilities (plant, machinery, process etc) it is done to have improved quality of
products and offer customer value. It is also undertaken to face competition on
proactive basis and take competitive advantages. At present every firm is
undertaking this on continuous basis to be there in competitive business era
and ensure its survival, growth and prosperity

It is to be noted that while doing modernization, it incurred a cost, so before

introducing it the firm must go through cost analysis and find out its impact in
long term or short term basis and then take decision. However, modernization
has some advantages

i) Modernization can improve both product quality and over all

organizational efficiency.
ii) There will be proper utilization of plant capacity, qualitative
products will be produced and there will be increase in sale.
iii) Modernization helps business to face competition in the market.
In fact, due to introduction of liberalization MNC, s and TNC’s
are entering in market with sophisticated technology and
competing them is not an easy task to Indian business here
modernization helps.
iv) It also helps to build good corporate image in the market as
good quality is the result of modernization.
v) Modernization also leads to economy in production by reducing
cost of production per unit. This is because of reduction in
wastages and increase in efficiency.

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 9. Merger Strategy:

Merger refers to combination of two or more companies where one company

survives and another company ceases to exist. The merger takes place for
consideration. Here the acquiring company pays it either in cash or its shares.
Advantages of Merger :
i) It enables the pooling of resources and streamlining of
operations, thereby, resulting in improved operational
efficiencies.
ii) Merger can bring out a revival of sick units. The sick units can
be merged with strong companies, and therefore the problem of
industrial sickness can be avoided.
iii) Merger provides faster growth to business as it offers
advantages in several areas such as marketing, production,
finance, R&D and so on.
iv) Merger can be used as effective source of tax planning,
especially, when one of the merged entities was having
accumulated losses.
v) There are some finance related advantages as merger results in
integration of assets and other resources and provides stability
of cash flows and serves as leverage for raising more funds
from the market.

10. Joint Venture Strategy:

Joint venture could be considered as an entity resulting from a long term

contractual agreement between two or more parties, undertaken for mutual
benefits. It is a type of partnership and when both parties establishing new units
that time they are exercising supervising and control over the new business.
Joint venture also involves the sharing of ownership.
Now a days joint ventures are very popular as there is sharing of development
cost, risk spread out and expertise combined to make effective use of
resources. It is best way to enter into foreign collaboration. Generally Indian
firms are entering into foreign collaboration with the help of joint ventures.

Following are the advantages of joint venture:

a) Huge capital
b) Better use of resources
c) Goodwill and reputation.
d) Risk sharing.
e) Economies of scale
f) Expansion and diversification.

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 g) Helps to face competitions
h) Customer satisfaction.
i) Motivate employees

1.6 BUSINESS LEVELS STRATEGIES / STRATEGIC

BUSINESS UNIT (SBU) STRATEGY

1.6.1 MEANING
Corporate level strategies lay down the frame work in which business
strategies operate. For example, corporate level decides to stabilize, expand or
retrench whereas an individual business needs their own strategies in order to
contribute to the achievements.

Business strategies are the course of action adopted by an organization for

each of its businesses separately and aim at developing competitive
advantages in the individual businesses that the company has in its portfolio
and are also aimed to use the resources, skills, and synergies to enhance its
competitive advantages. The multi-products and multi-geographic area
company creates strategic business divisions to manage effectively each of the
products. For example, a multi-product firm likes Hindustan Unilever Ltd. have
adopted the concept of strategic business unit. Each strategy is focusing on
particular products like toiletries, beverages, laundry products, cosmetics and
so on.

It is also known as Strategic Business Unit (SBU) strategy. This is developed

by General Electric Company of USA, to manage its multi-product business. It
is used by multi-product or multi geographic area companies to manage
effectively each of the product or a group of products for example a multi-
product firm like Hindustan Unilever Ltd. May adopt the concept of SBU.
Separate SBUs may be created, each focusing on specific product like
toiletries, beverages, ice-creams, laundry product, cosmetics, and so on.

Every SBU has four major important aspects to manage its activities efficiently
that are –
a) Each unit has a separate management.
b) Every SBU formulates its own strategy with the line of
organizational strategy.
c) The SBU has its own resources and manage in tune of
organizational object.
d) The SBU should have inter competition between the other SBUs
of the same Organization.

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 1.6.2 Advantages of SBU:

The company which adopts the business level strategy has certain advantages
which are as under-

1. Effective Management: -the SBU being managed by an

independent management it can concentrate on its own product. It
looks into its planning, organization, proper direction and effective
execution of its own resources. It also sees its own marketing mixes
for good profitability.

2. Intra competition: - as every activity being managed

independently, every manager will try to prove his efficiency and
from that point of view he will compete with the other SBU’s of the
same organization.

3. Higher efficiency: - efficiency is measured in terms of ratio

between input and output. Under this, every SUB will try to
minimize its cost of production by reducing wastages, optimum
utilization of resources and coordinating all resources.

4. Better customer service: -each SBU tries to provide effective

customer service. The SBU tries to identify customer’s needs and
problems, and accordingly undertake products design and
development so that the customer gets maximum satisfaction. With
this it develops customer relationship and offer good services to
customer.

5. Motivation to employees: - every SBU’s manager creates team

spirit among employees. They being aware that their performances
are recognized they put themselves in full capacity and give
maximum output to organization.

6. Corporate image: -it is a way of creating goodwill and reputation of

the organization among the people. This will be complete with the
help of-

a) Better customer services

b) New and innovative products
c) Market development through promotion, advertising etc.

1.6.3 Disadvantages of SBUs :

The business level strategy has certain disadvantages which are as follows.

1. Higher overheads: - as every SBU recruits its own staff there

will be excess nos. of employees in organization which will lead
to increase salary.

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 2. Internal rivalry: - in this system every SBU tries to prove that
they are more efficient. They try to pull more resources towards
each other and accordingly there is creation of disputes.
3. Bias based support from top management: - it is possible
that there could be favoritism in terms of supply of material,
recognition, rewards or allocation of resources.
4. Problem of inter unit comparison: - it is quite possible to do
comparison between two or more units of the organization. This
will lead to create diluted atmosphere in the organization.

1.7 FUNCTIONAL (OPERATIONAL) LEVEL

STRATEGIES

Functional strategies are derived from business and corporate strategies and
are implemented through functional implementations. Functional strategy deals
with relatively restricted plan designed to achieves objectives in a specific
functional area, allocation of resources among different operations within that
functional area and coordination among different functional areas for optimal
contribution to achievement of business or corporate level objectives.

The key task of strategy implementation is to align activities or capabilities of

the organization with its strategies. For this, there is a need to have
coordination among the strategies at different level.

The operational strategy mainly includes production strategies, marketing

strategies, financial strategy and human resources strategy.

A. PRODUCTION STRATEGIES.

Production strategies are mainly aimed at improving quality, increasing quantity

and reducing cost of production. For this purpose, there is need to consider
following activities.

1) Production capacity: an organization must decide its production

capacity. This is subjective and depends on demand of the product
in market and fluctuations in the market due to competition,
recession, boom in market etc. however some organization decides
it on the basis of its sales forecast. Now a day some firms are
producing some part of production and partially they purchasing
from others. So, with the consideration of all these aspects the
business should fix its production capacity.

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 2) Location and size of plants: While taking decision on location the
business considers certain points from the view of place safety and
security, local conditions availability of raw materials nearness to
market law and order situation at the place, availability of
infrastructure facilities as well as competent work force.

Size of the plant will be decided on the basis of projected demand for product
and dependency of the firm on other firms which are supplying partially
manufactured goods.

1. Technology: - it refers to the know-how and equipment,

machinery, tools etc. while deciding on production these things
are to be consider as its effects is there on capital manpower,
and cost of production.
2. Research and development: - R&D helps to improve the quality
reduces the cost of production etc. so it should be considered
from the investment point of view, its processes and centralized
or decentralized nature.
3. Quality of product: - production strategies are concerned with
the quality of the product. Quality means fitness of the product.
And this differs from customer to customer. Here the firm needs
to know its customer first and then decide the quality of the
product that a customer may find it suitable or not. They may
like its quality; price etc. and then go for production.

B. MARKETING STRATEGIES.
Marketing refers to thorough understanding of customer that how he desires
the product (from the view point of his perceptions to the products.) It is
important aspects of any organization as its success is mostly attributed to the
performance of the marketing. Therefore, every business needs to frame
suitable marketing strategies in respects of the following.

1. Product strategy: -product means anything available for

consumption purpose of the people. And generally, they desire
quality products. Therefore, under this strategy the business unit
takes decision in regards of product line/mix. If it found that
there is no need to think of about diversified product then it
continues stressing on core products. Then business unit may
consider the development of new products. Here the business
unit decides about the development of new products or
modification of the product to face the competition in the market
and to meet the needs of the customer. And under same
strategy business may think of other product policies like
product’s packaging, branding, or its positioning.

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2. Pricing strategy: -price is very sensitive part of marketing. With
a minor change in price there would be greater set back to
sales. Therefore, the business unit considers various sub
variables of the price element such as credit period, discount,
competitor’s price list etc. and fix price to the product. After that
business unit should consider the different methods of charging
price to product and as per customer’s convenience and market
situation the price should be charged to the product. Besides
this, there will be other strategies, consider by business units
are as under:

a) Skimming pricing strategy: - In this case at the initial stage of

product the prices of products are very high and as the sales
volume increases in that proportion the price of the product will
be reduced. This type of pricing is adopted for recovering heavy
expenditure incurred on the part of research and development
by earning huge profit.

b) Penetration pricing strategy: -in this case low prices are

charged at initial period of launch of the product and as there is
good response to the product and its sales increases in that
proportion the price of the product will be reduced. This is done
to capture the market.

c) Other pricing strategies: - in this case the business use to

adopt other methods of charging price to the products like-

i) Leader pricing method

ii) Cost plus method.
iii) Psychological pricing method.

3. Distribution strategy: - distribution means supple of goods

from manufacturer to customer. If the supply of product good,
regular, on time then only here will be smooth and efficient
functioning of marketing. From this point, marketer takes
decision on channels of distribution, area of distribution, dealer’s
network, and policies regarding dealer’s efficiency like
incentives, commission rates etc.

4. Promotion strategy: - promotion means communication or

supply of information to the customer about products and
services. For this firm uses various means o tools of promotion
like advertising, sales promotion, publicity, personal selling and
so on. Here marketer’s responsibility is to see every mean
keenly and then design strategies in regards of each respective
means. For example, in case of advertising he should have
think from the point of its budget, media selection strategies,
media scheduling strategies etc. in the same way with other
strategies.

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 C. FINANCIAL STRATEGY.

Finance is the back bone of each and every business unit. Therefore, the
financial management of the business units deals with planning, raising,
utilizing and controlling functions of the organization’s financial resources to
attain its goal. Generally financial policies are design from the view point of

a. Mobilization of funds: - the funds are required to undertake various

business activities. There a decision has to be taken in regards of purchase of
fixed assets as well as current assets requirement and any other long them
investment. While taking decision on fixed assets it is mostly taken on the basis
of

a. Nature of business: - it means that whether it is manufacturing

unit or trading unit. If it is manufacturing it requires more amount
and vice versa.

b. Size of business unit: - that is large size or small size. If it is

large then more capital and if it is small then it requires less
amount.

c. Technology used: -if lets developed technology is used the more

amount and labor-intensive firms requires fewer amounts.

d. Scope of business activities: - that is more goods are produced

then more amount is required and only one or two products are
produced the low amount is required.

In case of current assets or working capital, the decision is to be taken on the

ground of-

i. Nature of business: -here the firms are using expensive raw

material may require more funds and vice-versa.

ii. Operating cycle: -the firms having long operating cycle and
selling goods on credit basis requires more capital and vice-
versa

iii. Growth and expansion of business: -if the firms are growing
rapidly then require more funds.

iv. Seasonality of operations: - the products of the firm are

seasonal then during the period only the fund requirement will
be more and in slack season there is no more fund requirement.

e. Capital structure: -Capital structure refers to the composition

of firm’s long-term funds comprising of equity, preference and
long-term loans. There should be proper ratio between
owned and

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borrowed funds. It is to be noted that one should not place too much emphasis
on borrowed fund because it puts burden on company’s financial aspects as
there should be regular payment of interest and repayment of loan. Also, too
much emphasis on equity capital is not good as it dilutes the equity capital. In
shot there should be balance between borrowed and owned capital.

f.
Depreciation policies: - Depreciation is a activities which
provides compensation to the risk of wear and tear. There are
two methods of depreciation known as i) fixed line method and
ii) reducing balance method.

Under the company law both methods are accepted but for income tax
purpose, in certain cases written down method is accepted and, in some cases,
straight line method is accepted.

g. Dividend strategy: - dividend is a return on investment given

to the investors. No doubt every investor wants to have a good
rate of return on their investment and most of the companies are
willing to do so. Here as per financial strategy company should
think of its effects on financial aspects and then go for either
liberal dividend policy or conservative dividend policy.

h. Retained earnings strategy: - it means keeps earned income

with company itself. Generally whatever amount of profit is
earned is to be spent (used/utilized) for different purposes by
company. Here the company should have to think of that what
portion of profit is to be kept for future activities like:

i. Future needs of funds for development.

ii. To provide stable dividend to the shareholders or
iii. To meet the restrictions of financial institutions etc.

D. HUMAN RESOURCE STRATEGY:

Human resource is the most important resource among all resources required
by an organization. This is the only alive and sensational resource. So, every
organization those who want to develop and grow rapidly should be very
cautious about these resources and should plan for their best uses and
performances. If business is able to do so then it will attain its apex level of
success without any hurdles. For this the organization has to take decisions in
regards of

i. Recruitment and selection strategy.

ii. To make employees more competent, the training strategy.
iii. Their performance appraisal strategy.

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 iv. Promotion strategy.
v. Employee’s motivation strategy.
vi. Transfer strategy.

1.8 BENEFITS OF STRATEGIC MANAGEMENT

The strategic management has certain benefits or

importance are briefly explained as follows

1. Choice of Strategy: - strategic management helps to

management to select the best possible strategy option. Then it
may be internal or external growth of the organization. For
example, in case of internal growth it may adopt intensification
or diversification strategy
2. Improves Employee’s Efficiency: - strategic management
clarifies about what to do, how to do, when to do a particular
task to the employees. This helps to employee to perform a job
accurately and expertise which leads to increase in efficiency.
3. SWOT Analysis: - A thorough analysis of internal and external
environment of a business enables to identify the strength and
weakness as well as threats and opportunities of the business.
This helps the business to keep pace with the changing nature
of the environment affecting to the firm. And this is possible only
with the help of strategic management.

4. Aids in planning: - strategic management helps to frame

realistic plans.

5. Organizing Resources: - business objectives can be

accomplished with the help of proper allocation and utilization of
resources. This is possible only with the systematic plan, which
is the result of strategic management.

6. Helps in Evaluation: - the important aspect of strategic

management is evaluation of plans or strategy. Here the actual
performance will be compared with standards set and if any
variation is found then the corrective measures are taken.

7. Facilitates Communication and Coordination: - as the

strategies are well planned. For its proper execution there is
need to have proper communication and coordination at all
levels of operations.
8. Helps to face Competition: - strategic management enables a
firm to meet competition more effectively. This is because
strategic management enables to develop effective strategies to
face the competition.

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Types of strategic management strategies

The types of strategic management strategies have changed over time. The modern
discipline of strategic management traces its roots to the 1950s and 1960s. Prominent
thinkers in the field include Peter Drucker, sometimes referred to as the founding father of
management studies. Among his contributions was the seminal idea that the purpose of a
business is to create a customer, and what the customer wants determines what a business
is. Management's main job is marshalling the resources and enabling employees to
efficiently address customers' evolving needs and preferences.

In the 1980s, a Harvard Business School professor called Theodore Levitt, developed a
different strategy with a focus on the customer. This strategy was different from the previous
emphasis on production -- i.e., creating a product of high quality ensured success.

Distinctive competence, a term introduced in 1957 by sociology and law scholar Philip
Selznick, focused on the idea of core competencies and competitive advantage in strategic
management theory. This enabled the creation of frameworks for assessing the strengths
and weaknesses of an organization in relation to the threats and opportunities in its external
environment. (See SWOT analysis).

Canadian management scientist Henry Mintzberg concluded that the strategic management
process could be more dynamic and less predictable than management theorists had
thought. In his 1987 paper, "The Strategy Concept I: Five Ps for Strategy," he argued "the
field of strategic management cannot afford to rely on a single definition of strategy."
Instead, he outlined five definitions of strategy and their interrelationships:

 Plan: Strategy as a consciously intended course of action to deal with a situation.

 Ploy: Strategy as a maneuver to outwit a competitor, which can also be part of a

plan.

 Pattern: Strategy stemming from consistency in behavior, whether or not intended

and which can be independent of a plan.

 Position: Strategy as a mediating force or match between the organization and

environment, which can be compatible with any or all of the Ps.

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 Perspective: Strategy as a concept or ingrained way of perceiving the world --
e.g., aggressive pacesetter vs. late mover -- which can be compatible with any or
all of the Ps.

1.9 RISKS / LIMITATIONS OF STRATEGIC

MANAGEMENT:

1. Limitation of Assumption: - Strategic management is based

on certain assumptions, if that assumptions remains good then
the plans will be implemented otherwise there be no use of
strategic management.

2. Problem in Analyzing Environment: - the success of strategic

management depends on the correct analysis of internal as well
as external environment. Here especially the external
environment scanning is important to grab opportunities which
many times does not proved.

3. Unrealistic Mission and Objectives: - if the mission and

objectives are not realistic then the strategic management can’t
be successful.

4. Problem of Setting Target: - sometimes it happens that the

strategists may be very enthusiastic so they may set unrealistic
goal which will be difficult to accomplish.

5. Problem in Implementation: - implementation of strategy is

important if it is not implemented well then there may be
problem, the strategy may not give the desired result.

6. Lack of Commitment of Lower Level: - generally the

strategies are framed by top level management and at the time
of framing if top level management has not consulted with lower
then lower-level management may not be that much committed.
In other word they being unaware of the plans may not give
desired performance. Their dedication may not be there up to
expected level.

7. Problem of Resistance: - there may be resistance on the part

of employees to accept the set target of the top management.

8. More theoretical in Nature: -as per experts’ opinion strategic

management is more theoretical. In practice there are different
so it remains unsuccessful.

9. Problem of Internal Politics: -in organizations, there are

differences among or between departments. So as there is no
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 good relation, proper coordination, strategies became
unsuccessful.

10. Problem of Traditional Management: - the traditional

management has narrow approach towards development. Its

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philosophy is not progressive; they want to run their business with the same
fashion. So, the strategies are not fruitful in this case.

1.10 SUMMARY

Strategic management provides the framework for all the major business
decisions of an enterprise such as decisions on businesses, products and
markets, manufacturing facilities, investments and organizational structure.

In a successful corporation, strategic planning works as the pathfinder to

various business opportunities; simultaneously, it also serves as a corporate
defense mechanism, helping the firm avoid costly mistakes in product market
choices or investments. Strategic management has the ultimate burden of
providing a business organization with certain core competencies and
competitive advantages in its fight for survival and growth.

An SBU has three characteristics:

 It is a single business or collection of related business that
can be planned separately from the rest of the company.
 It has its own set of competition.
 It has a manager who is responsible for strategic planning
and profit performance and who controls most of the factors
affecting profit.

1.11 QUESTIONS:

1. “In anticipation of opponents move, designing one’s own way of

action”. Discuss.
2. Define Strategic Management. What are the Characteristics of
Strategic Management?
3. “Strategic Management cannot be a rigid, step-wise collection of
few activities arranged in a sequential order”. Discuss.
4. Elaborate the basic elements of strategic management process.
5. “Production strategies are mainly aimed at improving quality,
increasing quantity and reducing cost of production”. Explain.
6. Explain in detail Corporate Strategy.

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7. What are the benefits of Strategic Management?
8. Discuss the Limitations of Strategic Management.
9. Elaborate the Functional Strategies.
10. Write Short Notes:
a. Diversion Strategy
b. Growth Strategy
c. Disinvestment Strategy
d. Liquidation Strategy
e. Merger Strategy
f. SUBs Strategy
g. Financial Strategy

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