Chapter-4

STRATEGIC MANAGEMENT OF BUSINESS

The concept of corporate planning:

A plan is a predetermined course of action to be taken in future. It is a document containing the details of how the action will be executed, and it is made against a time scale. The goals and the objectives that a plan is suppose to achieve, are the pre-requisites of plan.
Planning involves a chain of decisions, one dependent on the other, since it deals with a long term period. A successful implementation of a plan means the execution of these decisions in a right manner one after another. Planning, in terms of future, can be long-range and short-range. Long-range planning can be for a period of five years or more, while short-range planning is one year at most.

Dimensions Of Planning:
The corporate business plan has five dimensions: Time: The plan may be either long-range or short-range, but the execution of plan is , year after year. The plan is made on a rolling basis where every year it is extended by one year, keeping plan period as next five years. Entity: The plan entity is the thing on which the plan is focused. The entity could be the production in terms of quantity or it could be a new product. It could be about the finance, the marketing, the capacity, the manpower or the research and development. Organization: The corporate plan would deal with the company as a whole, but it has to be taken down for its subsidiaries, if any, such as functional groups, the divisions, the product groups and the projects.

Elements: The plan is made up several elements. It may provide a vision statement for all to understand as also the purpose, focus and the direction the organization would like to move towards. Characteristics: There are no definite characteristics of a corporate plan. The choice of characteristics is a matter of convenience helping to communicate to everybody concerned in the organization and for an easy understanding in execution.

Essentiality Of strategic Planning:

1. 2. 3. 4. 5.

Market forces Technological change Complex diversity of business Competition Environment(Threats, challenges and opportunities)

1. Market forces: It is very difficult to predict the market forces such as the demand and supply, the trend of the market growth, the consumer behavior and the choices, the emergence of new products and the new product concepts. 2. Technological change: The emergence of the microchip, plastic, laser technology, fibre optics technology, audio-visual transmission, and many more are the examples which have made some products obsolete, threatening the current business, but at the same time have created new business oppertunities.

3. Complex diversity of business: The scope of business is wide, touching many fronts. The variety of products, the different market segments, the various methods of manufacturing, the dependence on the external factors, such as transport, the communications and the manufacturing resources brings complexity in the management of business 4. Competition: Facing competition in the business means fighting on a number of fronts. Competition could be direct or indirect. It may share the market or create a new product which will shift the market affecting your business. 5. Environment: It can be one of the social, business, economic, industrial, technological environments affecting the business. The environment changes are difficult to predict and are generally slow. Therefore, many times the management , are caught unaware by the environmental changes. Eg: Widespread education programs have created new opportunities for knowledge processing and communication.

Development Of Business Strategies:

Long-range strategic planning: The mission or the aim of an organization is a broad statement of the organizations existence which sets the direction of the organization and decides the scope and the boundaries of the business.
The task after deciding the mission or the aim is to set the goal(s) for the organization. After determining the mission and the goals, the next task is to set various objectives for the organization.

The next step is the planning process is to set targets for more detailed working and reference.
The success in achieving the goals and objectives is directly dependent on the managements business strategies.

ENVIRONMENT

SOCIO-ECONOMIC PURPOSE

MISSION, GOALS

FACTORS FOR ATRATEGY FORMULATION

STRENGTH AND WEAKNESS OF THE ORGANIZATION

BUSINESS STRATEGY

COMPETITION

fig: Strategy Formulation Model

Types Of Strategies:

1. 2. 3. 4.

Overall Company Strategy. Growth Strategy. Product Strategy. Marketing Strategy.

1. Overall Company Strategy: A two wheeler manufacturing company will have a strategy of mass production and an aggressive marketing.

A company manufacturer will have a strategy of adding new products every two or three years.
A consumer goods manufacturer will have a strategy of maximum reach to the consumer and exposure by way of a wide distribution network. A company can have a strategy of remaining I the low price range and catering to the masses.

2. Growth Strategy: An organization may grow in two different ways. Growth may either mean the growth of the existing business turn over, year after year, or it may mean the expansion and diversification of the business. Eg: A two wheeler manufacturing companys growth was very rapid on a single product for more than two decades; then it brought out new models, then came the range of products, finally the company had manufacturing units at multiple locations.

3.

Product Strategy:

The product strategy can be innovated continuously for new markets. Some examples are

A company producing pressure cookers enters the business of making ovens, boilers, washing machines and mixers-the products for home market. A company producing a low prices detergent powder enters the business of washing soap and bath soap.

4.

Marketing Strategy:

A few examples of Marketing Strategies are: Many companies adopt the strategy of providing after sales service of the highest order. They may offer a free after sales service or establish service organizations to solve customer complaints and problems. A company can arrange for loan facilities to buy its products and keeps the prices low.

Short-Range Planning:
Short-range planning deals with the targets and the objectives of the organization.

Based on the goals and the objectives, a short-range plan provides the scheme for implementation of the long-range plan.
Short-range plans are made for one year I terms of the targets which are to be achieved within the given budgets. The organization translates long-range plans into the target covering all the critical areas of business, to be achieved by the organization on a time scale.

GOALS AND OBJECTIVE

SHORT RANGE BUSINESS FORECAST PREPARATION OF OPERATION BUDGETS

SALES

PRODUCTION

MATERIALS

SERVICES

CAPITAL GOODS

INDIRECT EXPENSES

CAPITAL EXPENDITURE

CORPORATE OVERHEAD

DIRECT MATERIAL

DIRECT LABOUR

MANUFACTURING OVERHEADS

FINANCIAL BUDGETS Relationships of Budgets to Financial Budgets

The advantage of short-range planning with the help of budgets: 1. It gives the manager a clear target of achievement. 2. It specifies to the manager the resource allocation for a given task and the freedom to use it. 3. It provides the manager with information o the performance; whether it is under or over the budget. 4. It helps the management assess the overall performance of the business in the light of short-term targets and long-term goals. 5. It provides an efficient tool to coordinate all the efforts within the organization.

Tools Of Planning:
Creativity System Approach Sensitivity Analysis Modeling

1. Creativity: the ability to generate a number of ideas rapidly. The ability to change quickly from one frame of reference to another. Originality in interpreting an event and generating different views on the situation. The ability to handle with clarity and ease a complex relationship of various factors in a given situation.

System Approach:
System approach has following characteristics:
It uses all the areas and the branches of knowledge.

It follows a scientific analysis to identify the problem.

It uses a model of a complex situation to handle the problem.

It weighs code against benefit for assessment of the alternatives.

It deals with the problems where time context is futuristic. It considers the environment and its impact on the problem situation.

Every solution is tested on the grounds of rationality and feasibility. It uses operation research models if the problem is well defined.

Sensitivity Approach:
The sensitivity approach helps to test the validity of the solution in variable conditions.
The problem situation is handled with certain assumptions and conditions. Based on these considerations rational solution is found.

Modeling:
A model is a meaningful representation of a real situation on a mini scale, where only the significant factors of the situation are highlighted. There are several types of models. The model could be a physical model, like a model of a house, a park, a sports complex etc.

A model can be scale model reducing a large body to small one.

A model can be mathematical model like a break even analysis model, linear programming model, etc. A complex situation is represented using variables, constants and parameters which play significant role in that situation.

Balance Score Card:

A new approach to strategic management was developed in nineties by Dr. Robert Kaplan and Dr.Davie Norton.

They recognized some weaknesses and ambiguity in then prevailing traditional approach to strategic management and thought of new approach termed as Balance Score Card(BSC). Unlike the traditional approach which rely on accounting data. BSC takes a comprehensive balance view of four business aspects; Finance, Process, People and Customer. Hence, the new approach is termed as Balance Score Card.
The advantage of BSC is that it clarifies the organisations vision and enables to think in terms of more clear strategy for action.

BSC deals with internal business processes and their outcomes, and impact of outcomes on business performance. The perspectives are The learning and growth perspective The business process perspective The customer perspective The financial perspective

MIS: Strategic Business Planning

Business environment is prone to changes and this factor makes business planning very complex.

Some factors such as the market forces, technological changes, complex diversity of business and competition have a significant impact on any business prospects. MIS is designed to assess and monitor these factors.
The MIS design is supposed to provide some insight into these factors enabling the management to evolve some strategy to deal with them. Since these factors are a part of the environment, MIS design is required to keep a watch on environment factors and provide information to the management for a strategy formulation.

Strategy formulation is a complex task based on the strength and the weakness of the organisation and the mission and goals it wishes to achieve. Strategy formulation is the responsibility of the top management and the top management relies of the MIS for information.

STRATEGIC PLANNING

MANAGEMENT CONTROL OPERATIONS CONTROL

TACTICAL PLANNING

Helps to MANAGEMENT INFORMANTION SYSTEM

Helps to IMPLEMENT PURE AND MIXED STRATEGIES

Through
Strategy

SURVIVAL BREAKTHROUGH OVERALL COMPANY GROWTH PRODUCT MARKETING STRATEGIES

Revise Strategy

EVALUATES THE RESULTS AND EXERCISES CONTROL

ACHIEVES GOALS AND OBJECTIVES

Fig: MIS and Strategic Management Process