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Strategy is the unified, comprehensive and integrated plan that relates the strategic advantage of the firm to the challenges of the environment and is designed to ensure that basic objectives of the enterprise are achieved through proper implementation process This definition of strategy lays stress on the following a) Unified comprehensive and integrated plan b) Strategic advantage related to challenges of environment c) Proper implementation ensuring achievement of basic objectives Strategy is organizations pattern of response to its environment over a period of time to achieve its goals and mission Nature of Strategy Based on the above definations, we can understand the nature of strategy. A few aspects regarding nature of strategy are as follows Strategy is a major course of action through which an organization relates itself to its environment particularly the external factors to facilitate all actions involved in meeting the objectives of the organization Strategy is the blend of internal and external factors. To meet the opportunities and threats provided by the external factors, internal factors are matched with them Strategy is the combination of actions aimed to meet a particular condition, to solve certain problems or to achieve a desirable end. The actions are different for different situations Due to its dependence on environmental variables, strategy may involve a contradictory action. An organization may take contradictory actions either simultaneously or with a gap of time. For example, a firm is engaged in closing down of some of its business and at the same time expanding some Strategy is future oriented. Strategic actions are required for new situations which have not arisen before in the past Strategy requires some systems and norms for its efficient adoption in any organization Strategy provides overall framework for guiding enterprise thinking and action

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Strategy provides various benefits to its users: Strategy helps an organization to take decisions on long range forecasts It allows the firm to deal with a new trend and meet competition in an effective manner With the help of strategy, the management becomes flexible to meet unanticipated changes Efficient strategy formulation and implementation result into financial benefits to the organization in the form of increased profits Strategy provides focus in terms of organizational objectives and thus provides clarity of direction for achieving the objectives Organizational effectiveness is ensured with effective implementation of the strategy Strategy contributes towards organizational effectiveness by providing satisfaction to the personnel It gets managers into the habit of thinking and thus makes them, proactive and more conscious of their environment It provides motivation to employees as it paves the way for them to shape their work in the context of shared corporate goals and ultimately they work for the achievement of these goals Strategy formulation and implementation gives an opportunity to the management to involve different levels of management in the process It improves corporate communication, coordination and allocation of resources With all the benefits listed above, it is quite clear that strategy forms an integral part of an organization and is the means to achieve the end in an efficient and effective manner What is strategic management? Strategic Management can be defined as the art and science of formulating, implementing and evaluating cross-functional decisions that enable an organization to achieve its objective. Definition: The on-going process of formulating, implementing and controlling broad plans guide the Organizational in achieving the strategic goods given its internal and external environment. 2. Characteristics of Strategic Management 1. Formulation of the organizations vision, mission, goals, objectives, and targets. 2. Analysis of its internal conditions and capabilities (strengths and weaknesses). 3. Assessment of its external environment, including competitive and general contextual factors (opportunities and threats). 4. Analysis of its options by matching its goals and resources with the external environment. 5. Determination of its LT objectives and grand strategies. 6. Identification of the most desirable/alternative strategies and their evaluation in the light of the LT objectives and grand strategy. 7. Choice of the strategy.

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8. Development of annual objectives and ST strategies that are compatible with the selected strategy. 9. Implementation of the strategic choices by means of budgeted resource allocation. 10. Evaluation of the success of the strategic process as an input for further decision making. Benefits of Strategic management Following are the major benefits of Strategic management: Proactive in shaping firms future Initiate and influence actions Formulate better strategies (Systematic, logical, rational approach) Financial benefits: Improved productivity Improved sales Improved profitability Non-Financial benefits: Increased employee productivity Improved understanding of competitors strategies Greater awareness of external threats Understanding of performance reward relationships Better problem-avoidance Lesser resistance to change

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1. Poor Reward Structureswhen an organization assumes success, it often fails to reward success. Where failure occurs, then the firm may punish. In this situation, it is better for an individual to do nothing (and not draw attention) than risk trying to achieve something, fail, and be punished 2. Fire-fightingan organization can be so deeply embroiled in crisis management and firefighting that it does not have time to plan. 3. Waste of Timesome firms see planning as a waste of time since no marketable product is produced. Time spent on planning is an investment. 4. Too expensivesome organizations are culturally opposed to spending resources. 5. LazinessPeople may not want to put forth the effort needed to formulate a plan. 6. Content with Successparticularly if a firm is successful, individuals may feel there is no need to plan because things are fine as they stand. But success today does not guarantee success tomorrow. 7. Fear of Failureby not taking action, there is little risk of failure unless a problem is urgent and pressing. Whenever something worthwhile is attempted, there is some risk of failure. 8. Overconfidenceas individuals amass experience, they may rely less on formalized planning. Rarely, however, is this appropriate. Being overconfident or overestimating experience can bring demise. Forethought is rarely wasted and is often the mark of professionalism.

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9. Prior Bad ExperiencePeople may have had a previous bad experience with planning, where plans have been long, cumbersome, impractical, or inflexible. Planning, like anything, can be done badly. 10. Self-Interestwhen someone has achieved status, privilege, or self-esteem through effectively using an old system, they often see a new plan as a threat. 11. Fear of the UnknownPeople may be uncertain of their abilities to learn new skills, their aptitude with new systems, or their ability to take on new roles. 12. Honest Difference of OpinionPeople may sincerely believe the plan is wrong. They may view the situation from a different viewpoint, or may have aspirations for themselves or the organization that are different from the plan. Different people in different jobs have different perceptions of a situation. 13. SuspicionEmployees may not trust management.
Strategy can be formulated on three different levels: Corporate level Business unit level Functional or departmental level. Corporate Level Strategy Corporate level strategy fundamentally is concerned with the selection of businesses in which the company should compete and with the development and coordination of that portfolio of businesses. Corporate level strategy is concerned with: Reach - defining the issues that are corporate responsibilities; these might include identifying the overall goals of the corporation, the types of businesses in which the corporation should be involved, and the way in which businesses will be integrated and managed. Competitive Contact - defining where in the corporation competition is to be localized. Managing Activities and Business Interrelationships - Corporate strategy seeks to develop synergies by sharing and coordinating staff and other resources across business units, investing financial resources across business units, and using business units to complement other corporate business activities. Igor Ansoff introduced the concept of synergy to corporate strategy. Management Practices - Corporations decide how business units are to be governed: through direct corporate intervention (centralization) or through more or less autonomous government (decentralization) that relies on persuasion and rewards. Corporations are responsible for creating value through their businesses. They do so by managing their portfolio of businesses, ensuring that the businesses are successful over the long-term, developing business units, and sometimes ensuring that each business is compatible with others in the portfolio. Business Unit Level Strategy A strategic business unit may be a division, product line, or other profit center that can be planned independently from the other business units of the firm. University Business School, PURC, Ludhiana Compiled
by- Ashish Saihjpal E mail: aksaihjpal@ubsludhiana.com 7

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At the business unit level, the strategic issues are less about the coordination of operating units and more about developing and sustaining a competitive advantage for the goods and services that are produced. At the business level, the strategy formulation phase deals with: Positioning the business against rivals Anticipating changes in demand and technologies and adjusting the strategy to accommodate them Influencing the nature of competition through strategic actions such as vertical integration and through political actions such as lobbying. Michael Porter identified three generic strategies (cost leadership, differentiation, and focus) that can be implemented at the business unit level to create a competitive advantage and defend against the adverse effects of the five forces. Functional Level Strategy The functional level of the organization is the level of the operating divisions and departments. The strategic issues at the functional level are related to business processes and the value chain. Functional level strategies in marketing, finance, operations, human resources, and R&D involve the development and coordination of resources through which business unit level strategies can be executed efficiently and effectively. Functional units of an organization are involved in higher-level strategies by providing input into the business unit level and corporate level strategy, such as providing information on resources and capabilities on which the higher-level strategies can be based. Once the higher-level strategy is developed, the functional units translate it into discrete action-plans that each department or division must accomplish for the strategy to succeed.

strategic thinking:
the six characteristics of strategic thinking: 1. Intent - focused 2. Comprehensive 3. Opportunistic 4. Long - term oriented 5. Built on the past and the present 6. Hypothesis - driven

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THE TASK OF STRATEGIC MANAGEMENT The strategy-making/strategy-implementing process consists of five interrelated managerial tasks. These are . Setting vision and mission: Forming a strategic vision of where the organization is headed, so as to provide long-term direction, delineate what kind of enterprise the company is trying to become and infuse the organization with a sense of purposeful action. . Setting objectives: Converting the strategic vision into specific performance outcomes for the company to achieve. . Crafting a strategy to achieve the desired outcomes. . Implementing and executing the chosen strategy efficiently and effectively. . Evaluating performance and initiating corrective adjustments in vision, long-term direction, objectives, strategy, or execution in light of actual experience, changing conditions, new ideas, and new opportunities.

The mission of the business is its most obvious purpose -- which may be, for example, to make soap. The vision of the business reflects its aspirations and specifies its intended direction or future destination. The objectives of the business refers to the ends or activity at which a certain task is aimed. The business's policy is a guide that stipulates rules, regulations and objectives, and may be used in the managers' decision-making. It must be flexible and easily interpreted and understood by all employees.

Boston consulting group (BCG) growth-share matrix

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The BCG growth-share matrix is the simplest way to portray a corporations portfolio of investments. Growth share matrix also known for its cow and dog metaphors is popularly used for resource allocation in a diversified company. Using the BCG approach, a company classifies its different businesses on a two-dimensional growth-share matrix. In the matrix: The vertical axis represents market growth rate and provides a measure of market attractiveness. The horizontal axis represents relative market share and serves as a measure of company strength in the market. Using the matrix, organisations can identify four different types of products or SBU as follows: Stars are products or SBUs that are growing rapidly. They also need heavy investment to maintain their position and finance their rapid growth potential. They represent best opportunities for expansion. Cash Cows are low-growth, high market share businesses or products. They generate cash and have low costs. They are established, successful, and need less investment to maintain their market share. In long run when the growth rate slows down, stars become cash cows.

Question Marks, sometimes called problem children or wildcats, are low market share business in high-growth markets. They require a lot of cash to hold their share. They need heavy investments with low potential to generate cash. Question marks if left unattended are easier. It is for business organisations to turn them stars and then to cash cows when the growth rate reduces. Dogs are low-growth, low-share businesses and products. They may generate enough cash to maintain themselves, but do not have much future. Sometimes they may need cash to survive. Dogs should be minimised by means of divestment or liquidation. Once the organisations have classified its products or SBUs, it must determine what role each will play in the future. The four strategies that can be pursued are:

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1. Build: Here the objective is to increase market share, even by forgoing short-term earnings in favour of building a strong future with large market share.Hold: Here the objective is to preserve market share. 3. Harvest: Here the objective is to increase short-term cash flow regardless of long-term effect.Divest: Here the objective is to sell or liquidate the business because resources can be better used elsewhere.The growth-share matrix has done much to help strategic planning study; however, there are problems and limitations with the method. BCG matrix can be difficult, time-consuming, and costly to implement. Management may find it difficult to define SBUs and measure market share and growth. It also focuses on classifying current businesses but provide little advice for future planning. They can lead the company to placing too much emphasis on market-share growth or growth through entry into attractive new markets. This can cause unwise expansion into hot, new, risky ventures or giving up on established units too quickly. GE Nine-cell matrix

This matrix was developed in 1970s by the General Electric Company with the assistance of the consulting firm, McKinsey & Co, USA. This is also called GE multifactor portfolio matrix. The GE matrix has been developed to overcome the obvious limitations of BCG matrix. This matrix consists of nine cells (3X3) based on two key variables: i) ii) business strength industry attractiveness

The horizontal axis represents business strength and the vertical axis represent industry attractiveness

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The business strength is measured by considering such factors as: relative market share profit margins ability to compete on price and quality knowledge of customer and market competitive strengths and weaknesses technological capacity caliber of management Industry attractiveness is measured considering such factors as : market size and growth rate industry profit margin competitive intensity economies of scale technology social, environmental, legal and human aspects

The industry product-lines or business units are plotted as circles. The area of each circle is proportionate to industry sales. The pie within the circles represents the market share of the product line or business unit. The nine cells of the GE matrix represent various degrees of industry attractiveness (high, medium or low) and business strength (strong, average and weak). After plotting each product line or business unit on the nine cell matrix, strategic choices are made depending on their position in the matrix. Spotlight Strategy GE matrix is also called Stoplight strategy matrix because the three zones are like green, yellow and red of traffic lights. 1) Green indicates invest/expand if the product falls in green zone, the business strength is strong and industry is at least medium in attractiveness, the strategic decision should be to expand, to invest and to grow. 2) Yellow indicates select/earn if the product falls in yellow zone, the
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business strength is low but industry attractiveness is high, it needs caution and managerial discretion for making the strategic choice 3) Red indicates harvest/divest if the product falls in the red zone, the business strength is average or weak and attractiveness is also low or medium, the appropriate strategy should be divestment.

Mckinseys 7S Framework The framework suggests that there is a multiplicity of factors that influence an organizations ability to change and its proper mode of change. Because of the interconnectedness of the variables, it would be difficult to make significant progress in one area without making progress in the others as well. There is no starting point or implied hierarchy in the shape of the diagram, and it is not obvious which of the seven factors would be the driving force in changing a particular organization at a certain point of time. The critical variables would be different across organizations and in the same organizations at different points of time.

The 7 S Superordinate goals are the fundamental ideas around which a business is built Structure salient features of the unitss organizational chart and inter connections within the office Systems procedures and routine processes, including how information moves around the unit Staff personnel categories within the unit and the use to which staff are put, skill base, etc Style characterization of how key managers behave in order to achieve the units goals Shared values strategy the significant meanings or guiding concepts that the unit imbues on its members Skills distinctive capabilities of key personnel and the unit as a whole The 7 S model can be used in two ways 1. Considering the links between each of the Ss one can identify strengths and weaknesses of an organization. No S is strength or a weakness in its own right, it is only its degree of support, or otherwise, for the other Ss which is relevant. Any Ss that harmonises with all the other Ss can be thought of as strength and weaknesses

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2. The model highlights how a change made in any one of the Ss will have an impact on all the others. Thus if a planned change is to be effective, then changes in one S must be accompanied by complementary changes in the others

Structure

Strateg y Super ordinate goals Skills

System s

Style

Staff

The Mckinsey 7-S Framework

The competitive forces The competitive environment refers to the situation which organisations face within its specific area of operation, and this is understood at an industry level or with respect to smaller groups called strategic groups. Generally understood, the industry in the economy is recognized as a group of firms producing the same principal product or more broadly the group of firms producing products that are close substitutes for each other and in a given industry different organizations have different intermediate basis of understanding its relative position with respect to other organizations in the industry. Porters Five Forces Framework The five forces framework developed by Michael Porter is the most widely known tool for analyzing the competitive environment which helps in explaining how forces in the competitive environment shape strategies and affect performance. The competitive forces are as follows 1. The rivalry among competitors in the industry 2. The potential entrants 3. The substitute products 4. The bargaining power of suppliers
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5. The bargaining power of buyers However, these five forces are not independent of each other. Pressures from one direction can trigger off changes in another which is capable of shifting sources of competition. 1) Threat of New Entrants Entry of a firm in and operating in a market is seen as a threat to the established firms in that market. The competitive position of the established firms is affected because the entrants may add new production capacity or it may affect their market shares. They may also bring additional resources with them which may force the existing firms to invest more than what was not required before. Altogether the situation becomes difficult for the existing firms if not threatening always and therefore they resort to raising barriers to entry. These barriers are intended to discourage new entrants and this may be done by organizations, be in any one or more ways as follows Economies of scale Learning or experience effect Cost disadvantage independent of scale Brand benefits Capital requirements Switching costs Access to distribution channels Anticipated growth

2) Bargaining power of suppliers Business organizations have a large dependency on suppliers and the latter influence their profit potential significantly. Suppliers decisions on prices, quality of goods and services and other terms and conditions of delivery and payments have significant impact on the profit trends of an industry. However, suppliers ability to do all these depends on the bargaining power over buyers. Supplier bargaining power would normally depend on Importance of the buyer to the supplier group Importance of the suppliers product to the buyers Greater concentration among suppliers than buyers High switching costs for buyers Credible threat of forward integration by suppliers

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3) Bargaining power of customers Customers with stronger bargaining power relative to their suppliers may force supply prices down or demand better quality for the same price and may demand more favourable terms of business. Eg.there will always be a difference in the bargaining power between an individual buying different construction material like cement, steel, bricks, etc and a real estate builder buying them for the number of properties he may have been building over so many years. Following factors attach greater power to buyers Undifferentiated or standard suppliers Customers price sensitivity Accurate information about the cost structure of suppliers Greater concentration in buyers industry than in suppliers industry and relatively large volume purchase Credible threat of backward integration by buyers

4) Threat of substitutes Often firms in an industry face competition from outside industry products, which may be close substitutes of each other. For example, with the new technologies in place now the electronic publishings are the direct substitutes of the texts published in print. Similarly, newspaper find their closest substitutes in their online versions, though it may be a smart strategic move to position them as complementary products. However, the competitive pressure, which any industry may face, depends primarily on three factors Whether the substitutes available are attractively priced Whether buyers view substitutes available as satisfactory in terms of their quality and performance How easily buyers can switch to substitutes

5) Competitive rivalry The level of rivalry is minimum in a perfectly competitive market where there are large number of buyers and sellers and the product is uniform with everyone. Same is true for

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monopoly market where there is only one player and the type of product is also one. The following factors determine the level of rivalry The stability of environment The life expectancy of competitive advantage Characteristics of the strategies pursued by competitors

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