Unit 1

MBA 3rd Strategic Management

Strategy
Strategy is a comprehensive plan of action formulated to achieve specific long-
term goals. It involves setting goals, determining actions to achieve these goals,
and mobilizing resources to execute the actions. In a business context, strategy
provides a direction for the organization, helping it navigate the complexities of
the competitive environment.
Meaning of Strategy: Strategy refers to a long-term plan devised to achieve
organizational objectives, gain competitive advantage, and ensure sustainability
in a changing environment.
Nature of Strategy
The nature of strategy reflects its dynamic, complex, and multi-dimensional
character.
a) Long-term Orientation: Strategy is concerned with long-term goals,
typically beyond a year, and involves future planning.
b) Dynamic Process: Strategy must be adaptable to changing external
and internal environments. It evolves based on market trends,
competition, and organizational capabilities.
c) Focus on Competitive Advantage: The core of strategy is to create
and sustain a competitive edge over rivals.
d) Integration of Functional Areas: Strategy involves coordination
across all functional areas (marketing, finance, HR, operations) to achieve
corporate goals.
e) Decision-Oriented: Strategy focuses on making key decisions about
the organization's direction, resources, and operations.
Sope of Strategy
The scope of strategy defines the boundaries within which an organization
operates and implements its strategic plans. It can be categorized into different
levels:
• a) Corporate-Level Strategy:
o Involves decisions about the overall direction of the organization.

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 o Addresses questions like: What business should we be in? How do
we manage business portfolios?
o Examples: Mergers, acquisitions, diversification, and expansion.
• b) Business-Level Strategy:
o Focuses on how a specific business competes within an industry or
market.
o Deals with competitive positioning, such as cost leadership,
differentiation, or focus strategies.
• c) Functional-Level Strategy:
o Involves decisions related to specific departments or functions
(e.g., marketing, finance, HR).
o Ensures that functional areas align with the overall corporate
strategy.
Importance of Strategy

a) Provides Direction and Purpose: Strategy gives organizations a sense of

direction by clearly defining objectives, helping leaders and employees
understand where the organization is heading.

b) Enables Proactive Decision-Making: A well-defined strategy helps

organizations anticipate future challenges and take proactive actions rather than
reactive responses.

c) Facilitates Optimal Resource Allocation: By providing a roadmap, strategy

ensures that an organization allocates its limited resources (capital, labour, time)
efficiently towards achieving strategic goals.

d) Achieves Competitive Advantage: Strategy helps organizations identify

their strengths and leverage them to outperform competitors, securing a
sustainable advantage.

e) Improves Coordination and Integration: Strategy aligns various

departments and functions within the organization, ensuring that everyone
works towards the same goals. It fosters better communication and
coordination.

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f) Enhances Decision-Making Quality: Strategic thinking encourages
comprehensive analysis of options and alternatives, leading to well-informed
decisions that are aligned with long-term goals.

g) Aids in Risk Management: By analysing external factors (like market

trends, economic conditions) and internal capabilities, a strategy helps in
identifying potential risks and devising mitigation plans.

h) Supports Organizational Growth: Strategy is vital for expanding business

operations, entering new markets, or developing new products, driving growth
and sustainability.

Meaning of Strategic Management (SM)

Strategic Management (SM) refers to the systematic process of planning,
monitoring, analysing, and assessing all necessary actions for an organization to
meet its goals and objectives. It involves formulating strategies, implementing
them, and continuously evaluating their effectiveness to ensure the organization
remains competitive and achieves long-term success.

Components of Strategic Management:

1. Strategy Formulation:
o This involves analysing the internal and external environment,
setting goals, and developing strategies to achieve these goals.
o Tools such as SWOT Analysis, PESTEL Analysis, and Porter’s
Five Forces are often used.
2. Strategy Implementation:
o Once strategies are formulated, they need to be put into action
through resource allocation, organizational structure adjustments,
and setting up processes.
3. Strategy Evaluation:
o The final step involves monitoring the performance of strategies,
comparing actual results with desired outcomes, and making
necessary adjustments.

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 Major Models of Strategic Management
1. The Strategic Management Process Model

This model outlines the sequential steps organizations follow to develop and
implement strategies. The key stages include:

1. Environmental Scanning: Assessing internal and external factors (using

tools like SWOT analysis) to identify opportunities and threats.
2. Strategy Formulation: Crafting strategies based on the analysis. These
strategies may focus on growth, stability, or retrenchment.
3. Strategy Implementation: Putting strategies into action by aligning
resources, organizational structure, and culture.
4. Evaluation and Control: Monitoring performance and making necessary
adjustments to strategies or their execution.

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 The Boston Consulting Group (BCG) Matrix

The BCG Matrix is a tool used for portfolio management to help

companies analyze the performance of their product lines or business
units based on two dimensions: market growth and market share.

It categorizes business units into four groups:

• Stars: High market share in a high-growth market (invest for growth).

• Cash Cows: High market share in a low-growth market (generate
revenue with minimal investment).
• Question Marks: Low market share in a high-growth market (potential
for growth but requires investment).
• Dogs: Low market share in a low-growth market (consider divesting).

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 Porter’s Five Forces Model
Developed by Michael Porter, this model helps companies understand the
competitive forces in their industry and their potential impact on profitability.
The five forces are:

1. Threat of New Entrants: How easy or difficult it is for new competitors

to enter the market.
2. Bargaining Power of Suppliers: The influence suppliers have on the
cost and availability of inputs.
3. Bargaining Power of Buyers: The power customers have to demand
lower prices or better quality.
4. Threat of Substitutes: The availability of alternative products or services
that can replace the existing ones.
5. Industry Rivalry: The intensity of competition among existing players in
the industry.

By analysing these forces, businesses can develop strategies to mitigate threats

and enhance their competitive advantage.

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 SWOT Analysis
SWOT stands for Strengths, Weaknesses, Opportunities, and Threats. This
model is a simple yet powerful tool to evaluate the internal and external factors
affecting an organization.

• Strengths: Internal capabilities that give a competitive advantage (e.g.,

brand reputation, financial resources).
• Weaknesses: Internal limitations that hinder performance (e.g., outdated
technology, skill gaps).
• Opportunities: External factors that can be leveraged for growth (e.g.,
emerging markets, new technologies).
• Threats: External challenges that may impact the business (e.g.,
competition, changing regulations).

SWOT helps in aligning organizational resources with external opportunities

while addressing weaknesses and mitigating threats.

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 Strategic Decision-Making Process
The Strategic Decision-Making Process is a systematic approach to making decisions that
guide an organization toward its long-term goals. It involves choosing the best strategy or
course of action from various alternatives to achieve business objectives. The process ensures
that decisions are aligned with the company’s vision, mission, and strategic goals.

Defining the
Problem/Goal Steps in Strategic Decision-Making
1. Defining the Problem/Goal: This is the first
step where the organization identifies the specific
Gathering challenge or opportunity. Clear definition of the problem
Information helps in narrowing down solutions.
2. Gathering Information: Once the problem is
Generating identified, collecting relevant data and information is
Alternative crucial. This involves internal and external data, trends,
forecasts, and stakeholder insights.
3. Generating Alternatives: Organizations
Evaluating
brainstorm possible strategies or solutions to the
Alternatives
problem. It’s essential to create a variety of options to
avoid limiting the decision-making process.
Choosing the 4. Evaluating Alternatives: Each alternative is
Best Alternative analysed in terms of potential outcomes, risks, and
alignment with the organization’s goals. Tools like
SWOT analysis, cost-benefit analysis, and scenario
Implementing planning are often used.
the Decision
5. Choosing the Best Alternative: After
evaluating all options, the decision-makers select the most viable alternative that
maximizes benefits and minimizes risks.

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 6. Implementing the Decision: The chosen strategy is put into action. This involves
resource allocation, planning, and assigning responsibilities to teams.
7. Monitoring and Reviewing: After implementation, the decision’s outcomes are
monitored to ensure the objectives are being met. This phase allows for adjustments if
the strategy isn’t performing as expected.

Rational and Intuitive Decision-Making

There are two main approaches to decision-making Rational Decision-Making and Intuitive
Decision-Making. Both approaches have their strengths and weaknesses, and the choice of
method often depends on the situation.
Rational Decision-Making: Rational decision-making is a logical, step-by-step process that
emphasizes careful analysis and structured methods. It follows a well-defined sequence,
where decisions are based on facts, data, and logical reasoning.
Characteristics:
• Systematic and Structured: Each step of the process is clearly defined and followed
in a logical order.
• Data-Driven: Relies heavily on data, facts, and quantitative analysis to guide
decisions.
• Objective: Focuses on the best possible outcome based on evidence rather than
personal feelings or intuition.
• Time-Consuming: Requires significant time for data collection, analysis, and
evaluation of alternatives.
Advantages:
• Reduces bias and emotional influence.
• Ensures transparency in decision-making.
• Results in more consistent and reliable decisions.
Disadvantages:
• May take too long, especially in dynamic environments.
• Can overlook creative solutions due to its reliance on logic and data.
• Limited by the availability of complete and accurate information.

Intuitive decision-making relies on instincts, gut feelings, and experience rather than
structured analysis. It is often used in situations where data is limited, or time constraints
demand quick decisions.

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Characteristics:
• Experience-Based: Relies on past experiences and instincts to make decisions.
• Fast and Flexible: Suitable for situations requiring quick decisions, especially in
uncertain or rapidly changing environments.
• Subjective: Decisions are influenced by personal judgment, emotions, and
perceptions.
• Holistic: Considers the big picture rather than analysing each detail separately.
Advantages:
• Quick and efficient in situations with time constraints.
• Allows for creative and innovative solutions.
• Particularly useful in complex, uncertain environments where data may be
incomplete.
Disadvantages:
• Prone to biases and emotional influence.
• Can be inconsistent and less transparent.
• Difficult to justify or explain the reasoning behind the decision.

Comparison of Rational vs. Intuitive Decision-Making

Aspect Rational Decision-Making Intuitive Decision-Making

Approach Logical, data-driven, systematic Experience-based, instinctive

Fast, suitable for time-sensitive

Speed Time-consuming
decisions

Extensive data collection and

Use of Data Limited data, relies on judgment
analysis

Creativity Less focus on creativity Encourages creative solutions

Bias Minimizes bias through objectivity Prone to personal biases

Ideal for stable, predictable Ideal for uncertain, dynamic

Suitability
environments environments

Transparency Highly transparent, easy to justify Difficult to justify

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 Strategic Decision-Making Process
The Strategic Decision-Making Process involves making choices that help guide an
organization toward its long-term goals. These decisions are crucial for determining the
future direction of a company and involve a series of steps to ensure they are well-informed
and aligned with the organization’s mission and objectives.
Steps in Strategic Decision-Making
1. Identifying the Problem or Opportunity: Clearly define the issue or opportunity
that requires a strategic decision. Without a clear understanding of what needs to be
addressed, the decision-making process can lack focus.
2. Gathering Information: Collect all relevant data, both internal (company
performance, resources) and external (market trends, competition). This helps in
forming a solid foundation for decision-making.
3. Developing Alternatives: Generate multiple strategic options or solutions.
Brainstorming various approaches is key to considering all potential strategies before
choosing one.
4. Evaluating Alternatives: Analyse each option in terms of feasibility, risk, and
alignment with organizational goals. Tools such as SWOT (Strengths, Weaknesses,
Opportunities, Threats) analysis, cost-benefit analysis, and scenario planning are often
used in this step.
5. Making the Decision: After evaluating the options, choose the alternative that best
fits the organization’s goals and is most likely to succeed.
6. Implementing the Decision: Once the decision is made, it’s important to execute it
properly. This involves developing an action plan, allocating resources, and assigning
responsibilities.
7. Monitoring and Reviewing: After the decision is implemented, monitor its outcomes
to ensure it’s meeting the objectives. Adjustments may be needed if the results are not
as expected.

Composition of the Board of Directors

1. Board Size: The size of a board typically varies depending on the company size,
regulatory requirements, and its industry. It usually consists of executive directors,
non-executive directors, and independent directors.
2. Executive Directors: These directors are usually members of the company’s senior
management team, such as the CEO or CFO. They have hands-on involvement in the
daily operations of the company.

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3. Non-Executive Directors (NEDs): NEDs are not part of the company's daily
management but provide independent oversight and governance. They often bring
experience from outside industries to the board.
4. Independent Directors: These directors do not have any material relationship with
the company, which ensures unbiased governance. The Companies Act and SEBI
(India) mandate a specific percentage of independent directors for public companies.
5. Chairperson of the Board: The chairperson is typically a non-executive or
independent director. Their role is to ensure the board's effectiveness in fulfilling its
responsibilities.
6. Committees: Boards are divided into specialized committees like the Audit
Committee, Nomination and Remuneration Committee, and Corporate Social
Responsibility (CSR) Committee. These committees handle specific functions and
provide detailed scrutiny of those areas.

Role and Responsibilities of the Board of Directors

1. Strategic Oversight: The board ensures that the company has a clear, sustainable
strategy. Directors review the strategic direction, set objectives, and monitor
performance to ensure that company goals align with shareholders' expectations.
2. Governance: The board must ensure compliance with laws, regulations, and ethical
standards. This includes ensuring that the company follows corporate governance
norms, especially those required by regulatory bodies like SEBI in India.
3. Risk Management: One of the core responsibilities is identifying and mitigating
risks. The board reviews the company’s risk management framework, ensuring that it
remains robust and effective in the face of industry challenges.
4. Appointment and Evaluation of Senior Management: The board is responsible for
hiring, monitoring, and evaluating the CEO and other top executives. Succession
planning and executive compensation also fall under their purview.
5. Ensuring Accountability: The board is accountable to shareholders and other
stakeholders, including employees and customers. It ensures that there is transparency
in the company’s operations, financial reporting, and decision-making processes.
6. Approval of Major Decisions: The board approves significant actions like mergers
and acquisitions, capital investments, divestitures, and other key corporate
transactions.

Trends in Corporate Governance

1. Increased Focus on Sustainability and ESG (Environmental, Social,
Governance): Corporate governance is now moving beyond traditional financial
performance to include sustainability and ESG issues. Companies are required to

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 report on their environmental and social impact, and boards are expected to address
long-term value creation.
2. Board Diversity: Companies are increasingly focusing on diversity in their boards.
This includes diversity in gender, experience, and expertise. Many regulations require
a minimum number of women directors on boards to promote gender diversity.
3. Digital Transformation: As businesses increasingly adopt digital technologies,
boards are expected to provide oversight of data privacy, cybersecurity risks, and
digital transformation strategies. They are also required to understand the impact of
technology on business models.
4. Stakeholder-Centric Governance: Corporate governance has moved from being
primarily shareholder-focused to a more stakeholder-centric approach. Directors now
consider the interests of a broader range of stakeholders, including employees,
customers, and communities.
5. Increased Regulatory Oversight: Regulatory frameworks related to corporate
governance have become stricter, especially after financial scandals and failures.
Directors are required to ensure that companies comply with all financial,
environmental, and social regulations, especially in jurisdictions like India with
SEBI's tightening rules.
6. Independent Oversight and Board Independence: There is growing emphasis on
the independence of directors. Independent directors are expected to provide unbiased
oversight, free from conflicts of interest, which strengthens corporate governance
practices.
7. Enhanced Shareholder Activism: Shareholders are more vocal and involved in
corporate governance issues. They demand greater accountability and transparency
from boards and have the power to influence decisions, especially through voting
rights and proxy battles.

Corporate Social Responsibility (CSR)

Corporate Social Responsibility (CSR) refers to a company's commitment to operate in an
ethical and sustainable manner, addressing social, environmental, and economic issues. It
goes beyond profit maximization and focuses on creating positive impacts on society while
considering the interests of stakeholders such as employees, customers, suppliers,
communities, and the environment.
CSR include:
1. Social Responsibility: Supporting initiatives that improve the quality of life for
employees, communities, and society at large.
2. Environmental Responsibility: Minimizing the environmental footprint of business
operations, promoting sustainability, and reducing waste and pollution.

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 3. Economic Responsibility: Operating efficiently and ethically to create value for
shareholders, employees, and other stakeholders.
Benefits of CSR:
• Enhanced brand reputation and consumer trust.
• Improved employee morale and retention.
• Attraction of socially conscious investors.
• Reduced regulatory scrutiny by adhering to legal and ethical standards.

Alignment of CSR with Corporate Strategy

Aligning CSR with corporate strategy is essential for ensuring that CSR initiatives contribute
to long-term business objectives and societal benefits. This alignment integrates CSR into the
company’s core activities, enhancing both business performance and social impact.
1. Strategic Fit: CSR initiatives should align with the company's mission, vision, and
values. Companies that choose CSR activities relevant to their industry (e.g., a food
company supporting hunger relief) can achieve greater impact and brand synergy.
2. CSR as a Competitive Advantage: Companies can use CSR as a tool to differentiate
themselves from competitors. For example, companies that invest in green
technologies or fair-trade practices appeal to environmentally and socially conscious
customers, enhancing customer loyalty.
3. Shared Value Creation: This approach, popularized by Michael Porter, suggests that
businesses can create economic value by addressing social issues. For instance, a
company might invest in local education, which enhances community well-being
while developing a future workforce for the company.
4. Stakeholder Engagement: Effective CSR strategies involve active engagement with
key stakeholders. Understanding the expectations of employees, customers, investors,
and communities helps companies develop CSR initiatives that resonate with
stakeholders and enhance the company's reputation.
5. CSR Metrics and Reporting: CSR should be integrated into the company’s
performance metrics, with clear goals and regular reporting. This transparency not
only improves accountability but also allows companies to showcase their efforts to
investors and the public.
6. Long-term Impact: Companies aligning CSR with strategy focus on long-term goals
rather than short-term gains. For instance, investments in clean energy or sustainable
sourcing may involve higher upfront costs but generate long-term benefits through
energy savings or supply chain stability.

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Current Trends in CSR
1. Environmental, Social, and Governance (ESG) Integration: ESG has gained
prominence, and companies are now embedding these principles into their CSR
frameworks. Investors are increasingly using ESG criteria to make investment
decisions. Companies that excel in ESG are likely to attract long-term investments
and build sustainable brands.
2. Climate Action and Sustainability: Companies are focusing on reducing their
carbon footprint and adopting sustainable practices. Efforts include reducing
emissions, adopting renewable energy, promoting recycling, and implementing
sustainable sourcing policies. Companies are also setting net-zero emission goals in
line with global environmental commitments like the Paris Agreement.
3. Diversity, Equity, and Inclusion (DEI): DEI has become a key focus in CSR.
Companies are promoting gender, ethnic, and cultural diversity within their
workforce. Initiatives include creating more inclusive workplaces, addressing the
gender pay gap, and supporting underrepresented groups in leadership roles.
4. CSR and Digital Transformation: With the rise of digital technologies, companies
are using data and technology to improve their CSR activities. For example,
blockchain technology is being used to ensure transparency in supply chains, ensuring
that products are sourced ethically. Digital platforms also help in tracking CSR goals
and reporting them efficiently.
5. Employee Engagement in CSR: Companies are increasingly involving employees in
CSR initiatives, recognizing that employees want to work for organizations that care
about societal issues. Programs such as volunteerism, matching gift schemes, and
employee-driven CSR projects foster engagement and loyalty.
6. Corporate Philanthropy: While traditional philanthropy (such as donations and
community investments) remains important, many companies are shifting towards
strategic philanthropy where the causes they support align with business goals and
expertise. For instance, tech companies may focus on STEM education, aligning with
their operational focus.
7. CSR in Supply Chains: Many companies are extending their CSR efforts to their
supply chains. This includes ensuring fair labor practices, humane working
conditions, and sustainable sourcing throughout their supplier networks.
8. Transparency and Accountability: Stakeholders are demanding greater transparency
in how companies implement and measure their CSR initiatives. This has led to the
rise of third-party audits, independent CSR reports, and certifications like B Corp,
which provide legitimacy to corporate efforts.
9. CSR in Emerging Economies: Many multinational companies are expanding their
CSR efforts to developing markets, focusing on issues such as poverty reduction,
education, and healthcare in regions where they operate. This not only helps
communities but also strengthens the company’s presence in those markets.

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