Description
SYBMS STM NOTES - Meaning of strategy, Flow Chart, Concept of Strategic Management, SBU and Levels of Strateg
PART – 1 – INTRODUCTION ? Meaning of strategy ? Flow Chart ? Concept of Strategic Management ? SBU ? Levels of Strategy
CHAPTER – 1 – INTRODUCTION TO STRATEGIC MANAGEMENT The concept of strategy is central to understanding the process of strategic management. The term ‘strategy’ is derived from a Greek word strategos, which means generalship – the actual direction of military force, as distinct from the policy governing its deployment. Literally, therefore, the word ‘strategy’ means the art of the general. In business parlance, there is no definite meaning assigned to strategy. It is often used loosely to mean a number of things. In the preceding section, we referred to its connection with policy and tactics. Strategy, as a concept, has been defined by many experts. Before we take up a few definitions for discussion, consider the following examples: A leading brand name in the pain balm market is that of Amrutanjan manufactured by Amrutanjan Ltd. With a 60 per cent market share, the company is well-entrenched in the market but increasing competition from companies like Zandu balm and Eskayef have forced Amrutanjan Ltd to consider taking certain steps. These include market expansion, introduction of new products and taking up the distribution of other consumer products. Set up in 1972, Apollo Tyres has been facing various problems during the last 20 years. After many remedial measures, taken during the last six years, the company is gradually trying o gain stability and become profitable. One of the measures taken relates to the product mix. The company has stopped the manufacturing of two- and three-wheeler tyres and is now concentrating only on truck and tractor tyres. Camlin Ltd, a company known for its camel brand stationary materials, visualizes future opportunities in the pharmaceuticals industry. It plans to expand the company operations through its pharmaceuticals divisions, which is the fastest growing division within the company. Escorts Ltd, a reputed engineering firm, planned to invest Rs 179 crore between 1986 and 1990 and take up the manufacture of petrochemicals, electro-medical equipment and food packaging machinery. It has already started making electronic telephone exchange systems. The above illustration show how different companies react to their environment. In doing so, they adopt a course of action
which to them seems to be appropriate. Such a course of action may involve actions like diversification, expansion, aiming for stability or divesting a part of operations. When an old established company which has been profitable in the past, starts facing new threats in the environment, like the emergence of competitors, it has to rethink the course of action it had been adopting with such a rethinking, new ways are devised to counter the threats. Alternatively, some new opportunities may emerge in the environment, which were not there in the past. In order to take advantage of these opportunities, a company reassesses the approaches it had been following and changes its course of action. These courses of action are what we may call strategies. Defining Strategy Alfred D. Chandler (1962) “The determination of the basic long-term goals and objectives of an enterprise and the adopting of the courses of action and allocation of resources necessary for carrying out these goals.” Note that Chandler refers to three aspects: • Determination of basic long-term goals and objectives; • Adopting of courses of action to achieve these objectives; and • Allocation of resources necessary for adopting the courses of action. William F. Glueck (1972) “A unified, comprehensive and integrated plan designed to assure that the basic objectives of the enterprise are achieved,” The three adjectives, which Glueck uses to define a plan, make the definition quite adequate. Unified means that the plan joins all the parts of an enterprise together, comprehensive means it covers all the major aspects of the enterprise, and integrated means that the parts of the plan are compatible with each other. “Basically, a strategy is a set of decision-making rules for guidance of organizational behaviour.”
FLOW CHART
VISION
Dream /Imagination
Corporate
Strategy LEVEL
MISSIO N
SOCIETAL
C.S. Serves purpose
PURPOSE (Strategic Strategic Intent)
( GOALS
Closed Ended
OBJECTIVE S
Open Ended
Concept of strategic Management: The term strategic management refers to the process of forming a strategic vision, setting objectives, crafting a strategy, implementing and executing the strategy, and then over time initiating whatever corrective adjustments in the vision, objectives strategy and execution are deemed appropriate.
Strategic Business Unit: Strategic Business Unit or SBU is understood as a business unit within the overall corporate identity which is distinguishable from other business because it serves a defined external market where management can conduct strategic planning in relation to products and markets. When companies become really large, they are best thought of as being composed of a number of businesses (or SBUs). These organizational entities are large enough and homogeneous enough to exercise control over most strategic factors affecting their performance. They are managed as self contained planning units for which discrete business strategies can be developed. A Strategic Business Unit can encompass an entire company, or can simply be a smaller part of a company set up to perform a specific task. The SBU has its own business strategy, objectives and competitors and these will often be different from those of the parent company. An SBU, as defined by Sharplin, is “ any part of business organization which is treated separately for strategic management purposes.” Generally, SBUs are involved in a single line of business. A complementary concept to SBU, valid for external environment of a company is strategic business area (SBA). It is defined as “ a distinctive segment of the environment in which the firm does (or may want to do) business.” A number of SBUs, relevant for different SBAs, form a cluster of units under a corporate umbrella. Each of the SBU has its own functional departments or a few major functional departments while common functions are grouped under the corporate level.
Levels of Strategies: Corporate level strategy is an overarching plan of action covering the various functions performed by different SBUs. The plan deals with the objectives of the company, allocation of resources and coordination of the SBUs for optimal performance. SBU-level (or business) strategy is a comprehensive plan providing objectives for SBUs, allocation of resources among functional areas and coordination between them for making optimal contribution to the achievement of the corporate-level objectives. Functional strategy deals with a relatively restricted plan providing objectives for a specific function, allocation of resources among different operations within that functional area and coordination between them for optimal contribution to the achievement of the SBU and corporate-level objectives.
Policies, Procedures, Rules
The pyramid of strategic implementation The administrative mechanism of policies, procedures & rules support the working of organization, while it implements the projects, programs, plans & strategies. Policies, procedures, and rules A policy is considered to be guideline for action. It channelizes organizational efforts in a predetermined direction and leads to the achievement of goals, objectives, purpose and mission of the company. Policies are subdivided and stated in terms, of procedures (a series of related steps or tasks expressed in a chronological order) and rules (prescribed courses of action that explicitly state what is to be done
under a given set of circumstance). A company may state one of its many policies as: products, which are going to become obsolete, will be offered for sale with a certain percentage of discounts. The procedure may explain how to decide which product is obsolete and what percentage of discount is to be offered. A rule may specify the way in which a discount plan is going to operate. Explanation of above pyramid: The activation of strategy is depicted in the above diagram in the form of pyramid with strategy at the top. Strategies lead to several plans. Each plan leads to several programmes. Each program results in numerous projects. Projects are supported by budjets prepared through the resource allocation process. The administrative mechanism of policies, procedures, rules and regulations support the working of the organization while it implements the projects, programmes, plans and strategies. Strategies should lead to plan. For e.g. if stability strategies have been formulated, they may lead to the formulation of various plans. One such plan could be technology modernization plan. If expansion strategies have been adopted, various types of expansion plans will have to be formulated. Similarly, diversification could lead to new product development plan. Plans result in various kinds of programmes. A program is a broad term which includes goals, policies, procedures, rules and regulations that need to be taken for putting a plan into action. Programmes are usually supported by funds committed for plan implementation. For e.g. R & D program for development of a new product. Programmes lead to formulation of projects. A project is a highly specific program for which the time schedule and costs are predetermined. It requires allocation of funds based on capital budgeting by organizations. Thus R&D programmes may consists of several projects each of which is intended to achieve specific and limited objectives, requires separate allocation of funds and is to be completed within a set time schedule. Projects create the needed infrastructure for the day-to-day operations in
an organization. They may be used for setting up new or additional plants, modernizing the existing facilities, installation of newer systems and for several other activities that are needed for the implementation strategies.
doc_548808258.doc
SYBMS STM NOTES - Meaning of strategy, Flow Chart, Concept of Strategic Management, SBU and Levels of Strateg
PART – 1 – INTRODUCTION ? Meaning of strategy ? Flow Chart ? Concept of Strategic Management ? SBU ? Levels of Strategy
CHAPTER – 1 – INTRODUCTION TO STRATEGIC MANAGEMENT The concept of strategy is central to understanding the process of strategic management. The term ‘strategy’ is derived from a Greek word strategos, which means generalship – the actual direction of military force, as distinct from the policy governing its deployment. Literally, therefore, the word ‘strategy’ means the art of the general. In business parlance, there is no definite meaning assigned to strategy. It is often used loosely to mean a number of things. In the preceding section, we referred to its connection with policy and tactics. Strategy, as a concept, has been defined by many experts. Before we take up a few definitions for discussion, consider the following examples: A leading brand name in the pain balm market is that of Amrutanjan manufactured by Amrutanjan Ltd. With a 60 per cent market share, the company is well-entrenched in the market but increasing competition from companies like Zandu balm and Eskayef have forced Amrutanjan Ltd to consider taking certain steps. These include market expansion, introduction of new products and taking up the distribution of other consumer products. Set up in 1972, Apollo Tyres has been facing various problems during the last 20 years. After many remedial measures, taken during the last six years, the company is gradually trying o gain stability and become profitable. One of the measures taken relates to the product mix. The company has stopped the manufacturing of two- and three-wheeler tyres and is now concentrating only on truck and tractor tyres. Camlin Ltd, a company known for its camel brand stationary materials, visualizes future opportunities in the pharmaceuticals industry. It plans to expand the company operations through its pharmaceuticals divisions, which is the fastest growing division within the company. Escorts Ltd, a reputed engineering firm, planned to invest Rs 179 crore between 1986 and 1990 and take up the manufacture of petrochemicals, electro-medical equipment and food packaging machinery. It has already started making electronic telephone exchange systems. The above illustration show how different companies react to their environment. In doing so, they adopt a course of action
which to them seems to be appropriate. Such a course of action may involve actions like diversification, expansion, aiming for stability or divesting a part of operations. When an old established company which has been profitable in the past, starts facing new threats in the environment, like the emergence of competitors, it has to rethink the course of action it had been adopting with such a rethinking, new ways are devised to counter the threats. Alternatively, some new opportunities may emerge in the environment, which were not there in the past. In order to take advantage of these opportunities, a company reassesses the approaches it had been following and changes its course of action. These courses of action are what we may call strategies. Defining Strategy Alfred D. Chandler (1962) “The determination of the basic long-term goals and objectives of an enterprise and the adopting of the courses of action and allocation of resources necessary for carrying out these goals.” Note that Chandler refers to three aspects: • Determination of basic long-term goals and objectives; • Adopting of courses of action to achieve these objectives; and • Allocation of resources necessary for adopting the courses of action. William F. Glueck (1972) “A unified, comprehensive and integrated plan designed to assure that the basic objectives of the enterprise are achieved,” The three adjectives, which Glueck uses to define a plan, make the definition quite adequate. Unified means that the plan joins all the parts of an enterprise together, comprehensive means it covers all the major aspects of the enterprise, and integrated means that the parts of the plan are compatible with each other. “Basically, a strategy is a set of decision-making rules for guidance of organizational behaviour.”
FLOW CHART
VISION
Dream /Imagination
Corporate
Strategy LEVEL
MISSIO N
SOCIETAL
C.S. Serves purpose
PURPOSE (Strategic Strategic Intent)
( GOALS
Closed Ended
OBJECTIVE S
Open Ended
Concept of strategic Management: The term strategic management refers to the process of forming a strategic vision, setting objectives, crafting a strategy, implementing and executing the strategy, and then over time initiating whatever corrective adjustments in the vision, objectives strategy and execution are deemed appropriate.
Strategic Business Unit: Strategic Business Unit or SBU is understood as a business unit within the overall corporate identity which is distinguishable from other business because it serves a defined external market where management can conduct strategic planning in relation to products and markets. When companies become really large, they are best thought of as being composed of a number of businesses (or SBUs). These organizational entities are large enough and homogeneous enough to exercise control over most strategic factors affecting their performance. They are managed as self contained planning units for which discrete business strategies can be developed. A Strategic Business Unit can encompass an entire company, or can simply be a smaller part of a company set up to perform a specific task. The SBU has its own business strategy, objectives and competitors and these will often be different from those of the parent company. An SBU, as defined by Sharplin, is “ any part of business organization which is treated separately for strategic management purposes.” Generally, SBUs are involved in a single line of business. A complementary concept to SBU, valid for external environment of a company is strategic business area (SBA). It is defined as “ a distinctive segment of the environment in which the firm does (or may want to do) business.” A number of SBUs, relevant for different SBAs, form a cluster of units under a corporate umbrella. Each of the SBU has its own functional departments or a few major functional departments while common functions are grouped under the corporate level.
Levels of Strategies: Corporate level strategy is an overarching plan of action covering the various functions performed by different SBUs. The plan deals with the objectives of the company, allocation of resources and coordination of the SBUs for optimal performance. SBU-level (or business) strategy is a comprehensive plan providing objectives for SBUs, allocation of resources among functional areas and coordination between them for making optimal contribution to the achievement of the corporate-level objectives. Functional strategy deals with a relatively restricted plan providing objectives for a specific function, allocation of resources among different operations within that functional area and coordination between them for optimal contribution to the achievement of the SBU and corporate-level objectives.
Policies, Procedures, Rules
The pyramid of strategic implementation The administrative mechanism of policies, procedures & rules support the working of organization, while it implements the projects, programs, plans & strategies. Policies, procedures, and rules A policy is considered to be guideline for action. It channelizes organizational efforts in a predetermined direction and leads to the achievement of goals, objectives, purpose and mission of the company. Policies are subdivided and stated in terms, of procedures (a series of related steps or tasks expressed in a chronological order) and rules (prescribed courses of action that explicitly state what is to be done
under a given set of circumstance). A company may state one of its many policies as: products, which are going to become obsolete, will be offered for sale with a certain percentage of discounts. The procedure may explain how to decide which product is obsolete and what percentage of discount is to be offered. A rule may specify the way in which a discount plan is going to operate. Explanation of above pyramid: The activation of strategy is depicted in the above diagram in the form of pyramid with strategy at the top. Strategies lead to several plans. Each plan leads to several programmes. Each program results in numerous projects. Projects are supported by budjets prepared through the resource allocation process. The administrative mechanism of policies, procedures, rules and regulations support the working of the organization while it implements the projects, programmes, plans and strategies. Strategies should lead to plan. For e.g. if stability strategies have been formulated, they may lead to the formulation of various plans. One such plan could be technology modernization plan. If expansion strategies have been adopted, various types of expansion plans will have to be formulated. Similarly, diversification could lead to new product development plan. Plans result in various kinds of programmes. A program is a broad term which includes goals, policies, procedures, rules and regulations that need to be taken for putting a plan into action. Programmes are usually supported by funds committed for plan implementation. For e.g. R & D program for development of a new product. Programmes lead to formulation of projects. A project is a highly specific program for which the time schedule and costs are predetermined. It requires allocation of funds based on capital budgeting by organizations. Thus R&D programmes may consists of several projects each of which is intended to achieve specific and limited objectives, requires separate allocation of funds and is to be completed within a set time schedule. Projects create the needed infrastructure for the day-to-day operations in
an organization. They may be used for setting up new or additional plants, modernizing the existing facilities, installation of newer systems and for several other activities that are needed for the implementation strategies.
doc_548808258.doc