DCOM506 & DMGT502 Strategic Management PDF

/DCOM506 Edited by: Dr. Anand Thakur STRATEGIC MANAGEMENT Edited By Dr. Anand Thakur  Printed by EXCEL BOOKS PRIVATE LIMITED A-45, Naraina, Phase-I, New Delhi-110028 for Lovely Professional University Phagwara...

/DCOM506 Edited by: Dr. Anand Thakur STRATEGIC MANAGEMENT Edited By Dr. Anand Thakur  Printed by EXCEL BOOKS PRIVATE LIMITED A-45, Naraina, Phase-I, New Delhi-110028 for Lovely Professional University Phagwara  SYLLABUS Objectives: Development and reinforcement of a general management point of view-the capacity to view the firm from an overall perspective, in the context of its environment. Development of an understanding of fundamental concepts in strategic management: the role of the general manager, the levels and components of strategy, competitive analysis, and organizational evolution. Development of those skills and knowledge peculiar to general management and the general manager's job that have not been covered in previous functional courses. Synthesis of the knowledge gained in previous courses and understand- ing what part of that knowledge is useful to general managers. DCOM506 Strategic Management Sr. No. Description 1. Nature of Strategic Management, Dimensions, benefits and risks. The strategic management process. 2. Strategy formulation. Business vision and mission, Importance, Characteristics and components. Evaluating mission statements. 3. The External Assessment, Porters five force analysis. Industry and competitive analysis. The Global Environment, competitive strategies for firms in global markets. 4. The Internal Assessment: SWOT Analysis, strategy and culture. Value Chain Analysis. Resource based view of the firm. Benchmarking. 5. Strategies in Action: The balanced scorecard, types of strategies, Integrative, Intensive, Diversification strategies, defensive strategies, Porters Generic Strategies. 6. Strategy analysis and choice: Business level strategies. Cost leadership, Differentiation, Speed and market focus. Multi business strategy: BCG matrix, GE Nine Cell matrix. Limitations of portfolio approaches. The Parenting framework. 7. Strategy Implementation: Short term objectives, functional tactics. Empowering Operating personnel, Allocation of recourses, managing resource conflict. 8. Structure and strategy: Improving effectiveness of traditional organisational structures. Creating Agile Virtual Organisations, Modular organisation. Towards boundary less structures. 9. Leadership and culture: Strategic intent, Shaping organisational culture. Role of leader in organisational culture. 10. Strategy evaluation: Strategy evaluation process.  DMGT502 Strategic Management Sr. No. Description 1 Nature of Strategic Management: Dimensions, benefits and risks, the strategic management process. Establishment of Strategic Intent: Business vision and mission, importance, characteristics and Components, evaluating mission statement, concept of goals and objectives. 2 The Environment Appraisal: External assessment, concept of environment, porters five force analysis, industry and competitive analysis, environmental scanning. 3 Organizational Appraisal: the Internal Assessment: SWOT analysis, strategy and culture, value chain analysis, organizational capability factors, Benchmarking. 4 Corporate Level Strategies: Concentration, integration, diversification, expansion strategies, retrenchment and combination strategies, internationalization, cooperation and restructuring. 5 Business Level Strategies: Industry structure, positioning of firm, generic strategies, business tactics, Internationalization. 6 Strategy Analysis and Choice: Process for strategic choice, strategic analysis, SWOT, industry analysis, corporate portfolio analysis, contingency strategies. 7 Strategic Implementation: Activating strategies, nature, barrier and model for strategy implementation, resource allocation. 8 Structural Implementation: Types of organizational structures, organizational design and change, structures for strategies. Behavioural Implementation: stakeholders and strategy, stakeholder’s management, strategic leadership, corporate culture and strategic management, personal values and ethics, social responsibility and strategic management. 9 Functional and Operational Implementation: Functional strategies, functional plans and policies, operational plans and policies, personnel plans and strategies. 10 Strategic Evaluation and Control: Nature of strategic evaluation and control, strategic control, operational control, techniques for strategic control, role of organizational systems in evaluation.  CONTENT Unit 1: Introduction to Strategic Management 1 Ginni Nijhawan, Lovely Professional University Unit 2: Strategy Formulation and Defining Vision 16 Hitesh Jhanji, Lovely Professional University Unit 3: Defining Mission, Goals and Objectives 32 Ginni Nijhawan, Lovely Professional University Unit 4: External Assessment 48 Hitesh Jhanji, Lovely Professional University Unit 5: Organisational Appraisal: The Internal Assessment 76 Hitesh Jhanji, Lovely Professional University Unit 6: Organisational Appraisal: Internal Assessment 91 Hitesh Jhanji, Lovely Professional University Unit 7: Corporate Level Strategies 111 Hitesh Jhanji, Lovely Professional University Unit 8; Business Level Strategies 139 Pavitar Parkash Singh, Lovely Professional University Unit 9: Strategic Analysis and Choice 157 Pavitar Parkash Singh, Lovely Professional University Unit 10: Strategy Implementation 182 Pavitar Parkash Singh, Lovely Professional Universityy Unit 11: Structural Implementation 199 Pavitar Parkash Singh, Lovely Professional University Unit 12: Behavioural Implementation 217 Anand Thakur, Lovely Professional University Unit 13: Functional and Operational Implementation 236 Anand Thakur, Lovely Professional University Unit 14: Strategic Evaluation and Control 251 Anand Thakur, Lovely Professional University Ginni Nijhawan, Lovely Professional University Unit 1: Introduction to Strategic Management Unit 1: Introduction to Strategic Management Notes CONTENTS Objectives Introduction 1.1 Definition of Strategic Management 1.2 Nature of Strategic Management 1.3 Dimensions of Strategic Management 1.4 Need for Strategic Management 1.5 Benefits of Strategic Management 1.6 Risks involved in Strategic Management 1.7 Strategic Management Process 1.8 Summary 1.9 Keywords 1.10 Self Assessment 1.11 Review Questions 1.12 Further Readings Objectives After studying this unit, you will be able to: State the meaning, nature and importance of strategic management Explain the dimensions and benefits of strategic management Identify the risks involved in strategic management Discuss the strategic management process Introduction Strategic Management is exciting and challenging. It makes fundamental decisions about the future direction of a firm – its purpose, its resources and how it interacts with the environment in which it operates. Every aspect of the organisation plays a role in strategy – its people, its finances, its production methods, its customers and so on. Strategic Management can be described as the identification of the purpose of the organisation and the plans and actions to achieve that purpose. It is that set of managerial decisions and actions that determine the long-term performance of a business enterprise. It involves formulating and implementing strategies that will help in aligning the organisation and its environment to achieve organisational goals. Strategic management does not replace the traditional management LOVELY PROFESSIONAL UNIVERSITY 1 Strategic Management Notes activities such as planning, organising, leading or controlling. Rather, it integrates them into a broader context taking into account the external environment and internal capabilities and the organisation’s overall purpose and direction. Thus, strategic management involves those management processes in organisations through which future impact of change is determined and current decisions are taken to reach a desired future. In short, strategic management is about envisioning the future and realizing it. 1.1 Definition of Strategic Management We have so far discussed the concepts of strategic thinking, strategic decision-making and strategic approach which, it is hoped, will serve as an a background understand the nature of strategic management. However, to get an understanding of what goes on in strategic management, it is useful to begin with definitions of strategic management. Later in the unit, we introduce the elements and the process of strategic management and the importance, benefits and limitations of strategic management. As already mentioned, the concepts in strategic management have been developed by a number of authors like Alfred Chandler, Kenneth Andrews, Igor Ansoff, William Glueck, Henry Mintzberg, Michael E. Porter, Peter Drucker and a host of others. There are therefore several definitions of strategic management. Some of the important definitions are: 1. “Strategic management is concerned with the determination of the basic long-term goals and the objectives of an enterprise, and the adoption of courses of action and allocation of resources necessary for carrying out these goals”. – Alfred Chandler, 1962 2. “Strategic management is a stream of decisions and actions which lead to the development of an effective strategy or strategies to help achieve corporate objectives”. – Glueck and Jauch, 1984 3. “Strategic management is a process of formulating, implementing and evaluating cross-functional decisions that enable an organisation to achieve its objective”. – Fed R David, 1997 4. “Strategic management is the set of decisions and actions resulting in the formulation and implementation of plans designed to achieve a company’s objectives.” – Pearce and Robinson, 1988 5. “Strategic management includes understanding the strategic position of an organisation, making strategic choices for the future and turning strategy into action.” – Johnson and Sholes, 2002 6. “Strategic management consists of the analysis, decisions, and actions an organisation undertakes in order to create and sustain competitive advantages.” – Dess, Lumpkin & Taylor, 2005 We observe from the above definitions that different authors have defined strategic management in different ways. Note that the definition of Chandler that we have quoted above is from the early 1960s, the period when strategic management was being recognized as a separate discipline. This definition consists of three basic elements: l. Determination of long-term goals 2. Adoption of courses of action 3. Allocation of resources to achieve those goals 2 LOVELY PROFESSIONAL UNIVERSITY  Unit 1: Introduction to Strategic Management Though this definition is simple, it does not consist of all the elements and does not capture the Notes essence of strategic management. The definitions of Fred R. David, Pearce and Robinson, Johnson and Sholes and Dell, Lumpkin and Taylor are some of the definitions of recent origin. Taken together, these definitions capture three main elements that go to the heart of strategic management. The three on-going processes are strategic analysis, strategic formulation and strategic implementation. These three components parallel the processes of analysis, decisions and actions. That is, strategic management is basically concerned with: l. Analysis of strategic goals (vision, mission and objectives) along with the analysis of the external and internal environment of the organisation. 2. Decisions about two basic questions: (a) What businesses should we compete in? (b) How should we compete in those businesses to implement strategies? 3. Actions to implement strategies. This requires leaders to allocate the necessary resources and to design the organisation to bring the intended strategies to reality. This also involves evaluation and control to ensure that the strategies are effectively implemented. The real strategic challenge to managers is to decide on strategies that provide competitive advantage which can be sustained over time. This is the essence of strategic management, and Dess, Lumpkin and Taylor have rightly captured this element in their definition. 1.2 Nature of Strategic Management Strategic Management can be defined as the art & science of formulating, implementing, and evaluating, cross-functional decisions that enable an organisation to achieve its objectives. Strategic management is different in nature from other aspects of management. An individual manager is most often required to deal with problems of operational nature. He generally focuses on day-to-day problems such as the efficient production of goods, the management of a sales force, the monitoring of financial performance or the design of some new system that will improve the level of customer service. ! Caution These are all very important tasks. But they are essentially concerned with effectively managing resources already deployed, within the context of an existing strategy. In other words, operational control is what managers are involved in most of their time. It is vital to the effective implementation of strategy, but it is not the same as strategic management. Strategic management involves elements geared toward a firm's long term survival and achievement of management goals. The components of the content of a strategy making process include a desirable future, resource allocation, management of the firm-environment and a competitive business ethics. However, some conflicts may result in defining the content of strategy such as differences in interaction patterns among associates, inadequacy of available resources and conflicts between the firm's objectives and its environment. LOVELY PROFESSIONAL UNIVERSITY 3 Strategic Management Notes 1.3 Dimensions of Strategic Management The characteristics of strategic management are as follows: 1. Top management involvement: Strategic management relates to several areas of a firm’s operations. So, it requires top management’s involvement. Generally, only the top management has the perspective needed to understand the broad implications of its decisions and the power to authorize the necessary resource allocations. 2. Requirement of large amounts of resources: Strategic management requires commitment of the firm to actions over an extended period of time. So they require substantial resources, such as, physical assets, money, manpower etc. Example: Decisions to expand geographically would have significant financial implications in terms of the need to build and support a new customer base. 3. Affect the firm’s long-term prosperity: Once a firm has committed itself to a particular strategy, its image and competitive advantage are tied to that strategy; its prosperity is dependent upon such a strategy for a long time. 4. Future-oriented: Strategic management encompasses forecasts, what is anticipated by the managers. In such decisions, emphasis is placed on the development of projections that will enable the firm to select the most promising strategic options. In the turbulent environment, a firm will succeed only if it takes a proactive stance towards change. 5. Multi-functional or multi-business consequences: Strategic management has complex implications for most areas of the firm. They impact various strategic business units especially in areas relating to customer-mix, competitive focus, organisational structure etc. All these areas will be affected by allocations or reallocations of responsibilities and resources that result from these decisions. 6. Non-self-generative decisions: While strategic management may involve making decisions relatively infrequently, the organisation must have the preparedness to make strategic decisions at any point of time. That is why Ansoff calls them “non-self-generative decisions.” 1.4 Need for Strategic Management No business firm can afford to travel in a haphazard manner. It has to travel with the support of some route map. Strategic management provides the route map for the firm. It makes it possible for the firm to take decisions concerning the future with a greater awareness of their implications. It provides direction to the company; it indicates how growth could be achieved. The external environment influences the management practices within any organisation. Strategy links the organisation to this external world. Changes in these external forces create both opportunities and threats to an organisation’s position – but above all, they create uncertainty. Strategic planning offers a systematic means of coping with uncertainty and adapting to change. It enables managers to consider how to grasp opportunities and avoid problems, to establish and coordinate appropriate courses of action and to set targets for achievement. Thirdly, strategic management helps to formulate better strategies through the use of a more systematic, logical and rational approach. Through involvement in the process, managers and employees become committed to supporting the organisation. The process is a learning, helping, 4 LOVELY PROFESSIONAL UNIVERSITY  Unit 1: Introduction to Strategic Management educating and supporting activity. An increasing number of firms are using strategic management Notes for the following reasons: 1. It helps the firm to be more proactive than reactive in shaping its own future. 2. It provides the roadmap for the firm. It helps the firm utilize its resources in the best possible manner. 3. It allows the firm to anticipate change and be prepared to manage it. 4. It helps the firm to respond to environmental changes in a better way. 5. It minimizes the chances of mistakes and unpleasant surprises. 6. It provides clear objectives and direction for employees. Case Study Star Struck I ridium is named after the 77th element to signify the 77 satellites that were supposed to beam signals around the world, creating a worldwide mobile satellite telephone service (MSS). However, things did not work out as planned. Motorola, Iridium's chief sponsor, has vowed not to invest any more than the $1.6 billions it has already invested in the venture, unless other investors do so too. Iridium was chasing a very modest goal in terms of number of subscribers - 27,000 by end of July, from 10,000 at the end of March. These two events are symptoms of deeper problems within the Iridium network, as people try to work out what went wrong. Were its estimates of MSS market (between 32 millions and 45 millions subscribers within ten years) unrealistic? Or, are Iridium's problems due to poor vision and poor planning? Mobile telephony, in general, has been a growth market, with subscribers expected to reach 600 millions within the next two years. MSS providers plan to capture 2.5% of the market by offering handsets that operate as a land-based cellular phone and a satellite telephone when cellular service is unavailable. Apart from business executives, other specialized users include truckers, civil engineers, field scientists, disaster-relief agencies, news organisations, extractive industries, and geologists. Shipping and aviation, as well as operations in less developed countries, which lack traditional telephone infrastructure, are also potential markets. Yet Iridium has not been able to sign up many subscribers. The technology is quite sound - the problem has been poor forecasting, marketing, production glitches, and some unexpected competitive moves. Iridium's market size forecast and value did not materialize. This may be due to several marketing problems. Iridium's handsets cost more than $3,000, and call charges range from $2 to $7 a minute. Iridium's handset is large (7 inches), and weighs 1 pound, limiting its portability. Manufacturing delays at Motorala and Kyocera left customers waiting to get their telephones. In any case, its marketing partners, Sprint, and Telecom Italia were not prepared to sell the telephones. Its generic. "schmoozy" and "generic life-style marketing" (according to John Richardson, Iridium's new CEO) was not suitable for its specialized target market. Competitive entry also hurt Iridium's already weak network. Two new entrants to the MSS market, Global star and ICO have been able to promise the same service at a lower cost. At a volume of 1 billion minutes per year, for instance, the cost of a minute using Iridium's system is $1.28, compared to 51 cents a minute for Global star, and 35 cents for Contd... LOVELY PROFESSIONAL UNIVERSITY 5 Strategic Management Notes ICO. The difference arises mainly because of Iridium's numerous satellites and their use of more power to maintain their low earth orbit. This also shortens their life span to 5 - 7 years. ICO's satellites, on the other hand, fly about 6000 miles higher in medium-earth orbit and have a life span of 12 years. With Iridium being forced to charge prices far lower than it had planned, and two low cost operators about to enter the market, Iridium's future is uncertain. Questions 1. Analyze the role of poor strategic management at Motorola in Iridium's failure. 2. What steps do you think should have been collectively taken by Motorola, Kyocera, Sprint and Telecom Italia to save Iridium? Source: Adapted from The Economist, July 17, 1999. 1.5 Benefits of Strategic Management “We are tackling 20-year problems with five-year plans staffed with two-year personnel funded by one–year appropriations”. – Harlan Cleveland The above quotation sums up why today’s decision-makers must plan and manage strategically. In developing as well as in industrialized countries, the increasingly rapid nature of change as well as a greater openness in the political and economic environments, requires a different set of perspective from that needed during more stable times. When a certain degree of equilibrium existed in the environment, as during the 1950s, with constant positive economic growth, low debt, manageable budgets and relative environmental stability, managers could concentrate almost exclusively on the internal dimensions of their organisations and assume constancy in the external environment. Forward calculations were simple, inputs were predictable, and planning was mostly an arithmetic exercise. Now, systems are much more open, environment is characterized by increasingly unstable economic growth, budgets are constantly revised, inputs are thoroughly unpredictable, and planning in the traditional sense is no longer tenable. Therefore, today’s enterprises need strategic management to reap the benefits of business opportunities, overcome the threats and stay ahead in the race. The purpose of strategic management is to exploit and create new and different opportunities for tomorrow; while long- term planning, in contrast, tries to optimize for tomorrow the trends of today. Today, all top companies are involved in strategic management. They are finding ways to respond to competitors, cope with difficult environmental changes, meet changing customer needs and effectively use available resources. At a time when the business environment is changing rapidly, even established firms are paying more attention to strategy because they may face new competitors who threaten their core business. Should a firm compete in all areas or concentrate on one area? Should a company try to extend the brand to even more diverse areas of activity, or would it gain more by building profits in the existing areas, and achieving more synergies across the group? Should the company continue the current strategy as it is now, or would it initiate a radical review of its strategy? These are just a few examples of the strategic part of the management tasks. 6 LOVELY PROFESSIONAL UNIVERSITY  Unit 1: Introduction to Strategic Management Notes Notes It is important to note that strategic planning goes far beyond the planning process. Unlike traditional planning, strategic planning involves a long-range planning under conditions of uncertainty and complexity Such a planning involves: l. Strategic thinking 2. Strategic decision-making 3. Strategic approach A structured approach to strategy planning brings several benefits (Smith, 1995; Robbins, 2000) 1. It reduces uncertainty: Planning forces managers to look ahead, anticipate change and develop appropriate responses. It also encourages managers to consider the risks associated with alternative responses or options. 2. It provides a link between long and short terms: Planning establishes a means of coordination between strategic objectives and the operational activities that support the objectives. 3. It facilitates control: By setting out the organisation’s overall strategic objectives and ensuring that these are replicated at operational level, planning helps departments to move in the same direction towards the same set of goals. 4. It facilitates measurement: By setting out objectives and standards, planning provides a basis for measuring actual performance. Strategic management has thus both financial and non-financial benefits: 1. Financial Benefits: Research indicates that organisations that engage in strategic management are more profitable and successful than those that do not. Businesses that followed strategic management concepts have shown significant improvements in sales, profitability and productivity compared to firms without systematic planning activities. 2. Non-financial benefits: Besides financial benefits, strategic management offers other intangible benefits to a firm. They are; (a) Enhanced awareness of external threats (b) Improved understanding of competitors’ strategies (c) Reduced resistance to change (d) Clearer understanding of performance-reward relationship (e) Enhanced problem-prevention capabilities of organisation (f) Increased interaction among managers at all divisional and functional levels (g) Increased order and discipline. According to Gordon Greenley, strategic management offers the following benefits: 1. It allows for identification, prioritization and exploitation of opportunities. 2. It provides objective view of management problems. LOVELY PROFESSIONAL UNIVERSITY 7 Strategic Management Notes 3. It provides a framework for improved coordination and control of activities. 4. It minimizes the effects of adverse conditions and changes. 5. It allows decision-making to support established objectives. 6. It allows more effective allocation of time and resources to identified opportunities. 7. It allows fewer resources and less time to be devoted to correcting erroneous and ad hoc decisions. 8. It creates a framework for internal communication among personnel. 9. It helps integrate the behaviour of individuals into a total effort. 10. It provides a basis for clarifying individual responsibilities. 11. It encourages forward thinking. 12. It provides a cooperative, integrated enthusiastic approach to tackling problems and opportunities. 13. It encourages a favourable attitude towards change. 14. It gives a degree of discipline and formality to the management of a business. 1.6 Risks involved in Strategic Management Strategic management is an intricate and complex process that takes an organisation into unchartered territory. It does not provide a ready-to-use prescription for success. Instead, it takes the organisation through a journey and offers a framework for addressing questions and solving problems. Strategic management is not, therefore, a guarantee for success; it can be dysfunctional if conducted haphazardly. The following are its limitations: 1. It is a costly exercise in terms of the time that needs to be devoted to it by managers. The negative effect of managers spending time away from their normal tasks may be quite serious. 2. A negative effect may arise due to the non-fulfillment of the expectations of the participating managers, leading to frustration and disappointment. 3. Another negative effect of strategic management may arise if those associated with the formulation of strategy are not intimately involved in the implementation of strategies. The participants in formulation of the policy may shirk their responsibility for the decisions taken. As quoted by Fred R. David, some pitfalls to watch for and avoid in strategic planning are: 1. Using strategic planning to control over decisions and resources 2. Doing strategic planning only to satisfy accreditation or regulatory requirements 3. Moving too hastily from mission development to strategy formulation 4. Failing to communicate the strategic plan to the employees, who continue working in the dark 5. Top managers making many intuitive decisions that conflict with the formal plan 6. Top managers not actively supporting the strategic planning process 7. Failing to use plans as a standard for measuring performance 8 LOVELY PROFESSIONAL UNIVERSITY  Unit 1: Introduction to Strategic Management 8. Delegating strategic planning to a consultant rather than involving all managers Notes 9. Failing to involve key employees in all phases of planning 10. Failing to create a collaborative climate supportive of change 11. Viewing planning to be unnecessary or unimportant 12. Becoming so engrossed in current problems that insufficient or no planning is done 13. Being so formal in planning that flexibility and creativity are stifled. Task Name a few companies that went down due to poor strategic management. What went wrong with them? 1.7 Strategic Management Process Developing an organisational strategy involves four main elements – strategic analysis, strategic choice, strategy implementation and strategy evaluation and control. Each of these contains further steps, corresponding to a series of decisions and actions, that form the basis of strategic management process. 1. Strategic Analysis: The foundation of strategy is a definition of organisational purpose. This defines the business of an organisation and what type of organisation it wants to be. Many organisations develop broad statements of purpose, in the form of vision and mission statements. These form the spring – boards for the development of more specific objectives and the choice of strategies to achieve them. Environmental analysis – assessing both the external and internal environments is the next step in the strategy process. Managers need to assess the opportunities and threats of the external environment in the light of the organisation’s strengths and weaknesses keeping in view the expectations of the stakeholders. This analysis allows the organisation to set more specific goals or objectives which might specify where people are expected to focus their efforts. With a more specific set of objectives in hand, managers can then plan how to achieve them. 2. Strategic Choice: The analysis stage provides the basis for strategic choice. It allows managers to consider what the organisation could do given the mission, environment and capabilities – a choice which also reflects the values of managers and other stakeholders. (Dobson et al. 2004). These choices are about the overall scope and direction of the business. Since managers usually face several strategic options, they often need to analyze these in terms of their feasibility, suitability and acceptability before finally deciding on their direction. 3. Strategy Implementation: Implementation depends on ensuring that the organisation has a suitable structure, the right resources and competencies (skills, finance, technology etc.), right leadership and culture. Strategy implementation depends on operational factors being put into place. 4. Strategy Evaluation and Control: Organisations set up appropriate monitoring and control systems, develop standards and targets to judge performance. LOVELY PROFESSIONAL UNIVERSITY 9 Strategic Management Notes Table 1.1 summarizes the steps involved in each of the above elements of strategic management. Table 1.1: Steps in Strategic Management Process Elements in strategy Questions Description process STRATEGY FORMULATION Strategic analysis Defining What is our purpose? Organizational purpose is generally articulated organizational What kind of in vision and mission statements. The first task purpose organization do we is, therefore, to identify vision and mission of want to be? the organization. Environmental analysis involves the gathering and analysis of intelligence on the business environment. This encompasses the external environment (general and competitive forces), the internal environment (resources, competences, performance relative to competitors), and stakeholder expectations. Strategic choice Objectives Where do we want to Objectives provide a more detailed articulation be? of purpose and a basis for monitoring performance. Options analysis Are there alternative Alternative strategic options may be identified; routes? options require to be appraised in order that the best can be selected. Strategies How are we going to Strategies are the means or courses of action to get there? achieve the purpose of the organization. STRATEGY IMPLEMENTATION Actions How do we turn A specification of the operational activities and plans into reality? tasks required to enable strategies to be implemented. STRATEGY EVALUATION AND CONTROL Monitoring and How will we know if Monitoring performance and progress in control we are getting there? meeting objectives, taking corrective action as necessary and reviewing strategy. 10 LOVELY PROFESSIONAL UNIVERSITY  Unit 1: Introduction to Strategic Management The above steps can also be depicted as a series of processes involved in strategic management. Notes Figure 1.1: A General Framework of Strategic Management Process Agreement on and initiation of the strategic management process. The organization determines vision, mission, goals and objectives. F e The organization analyzes both external and internal environment. e d The organization establishes long-term b goals and objectives. a The organization chooses from alternative c courses of action. k The organization implements the choices to achieve strategic fit. The organization monitors the implementation activity. The seven steps in the above model of strategy process fall into three broad phases – formulation, implementation and evaluation – though in practice the three phases interact closely. Good strategists know that formulation and implementation of strategy rarely proceed according to plan, partly because the constantly changing external environment brings new opportunities or threats, and partly because there may also be inadequate internal competence. Since these may lead the management to change the plan, there will be frequent interaction between the activities of formulating and implementing strategy, and management may need to return and reformulate the plan. Caselet Telecom Growth and Tata Strategic T ata Strategic assessed the telecom environment with respect to customers, regulation, technology and competition, and estimated the market potential for different segments in the Indian telecom market. The group's vision and long-term strategic intent in telecom was formulated, growth options and attractive investment opportunities were recommended to achieve this vision, and an optimum organisation structure covering the various telecom entities in the group was evolved. The group was able to take critical investment decisions based on Tata Strategic's recommendations and is now one of India's leading integrated telecom operators. Source: tsmg.com LOVELY PROFESSIONAL UNIVERSITY 11 Strategic Management Notes 1.8 Summary Strategic or institutional management is the conduct of drafting, implementing and evaluating cross-functional decisions that will enable an organisation to achieve its long- term objectives. It is a level of managerial activity under setting goals and over tactics. It is the process of specifying the organisation's mission, vision and objectives, developing policies and plans, often in terms of projects and programs, which are designed to achieve these objectives, and then allocating resources to implement the policies and plans, projects and programs. Strategic management provides overall direction to the enterprise and is closely related to the field of Organisation Studies. Although a sense of direction is important, it can also stifle creativity, especially if it is rigidly enforced. In an uncertain and ambiguous world, fluidity can be more important than a finely tuned strategic compass. When a strategy becomes internalized into a corporate culture, it can lead to group think. It can also cause an organisation to define itself too narrowly. Even the most talented manager would no doubt agree that "comprehensive analysis is impossible" for complex problems. Formulation and implementation of strategy must thus occur side-by-side rather than sequentially, because strategies are built on assumptions which, in the absence of perfect knowledge, will never be perfectly correct. The essence of being "strategic" thus lies in a capacity for "intelligent trial-and error" rather than linear adherence to finally honed and detailed strategic plans. Strategic management is a question of interpreting, and continuously reinterpreting, the possibilities presented by shifting circumstances for advancing an organisation's objectives. 1.9 Keywords Environmental Analysis: Evaluation of the possible or probable effects of external as well as internal forces and conditions on an organisation's survival and growth strategies. Financial Benefits: profits associated with strategic management Multifunctional Consequences: having complex implications on most of the functions of the organisation Non-financial Benefits: intangible benefits associated with strategic management Non-Self Generative Decisions: decisions that are taken infrequently but promptly when needed at any point of time Plan: A set of intended actions, through which one expects to achieve a goal. Strategic Choice: choice of course of action given the environment, mission and capabilities Strategic Management: stream of decisions and actions that lead to development of effective strategy Strategy: A plan of action designed to achieve a particular goal. Tactic: A conceptual action taken under a well defined strategy to achieve a specific objective. 12 LOVELY PROFESSIONAL UNIVERSITY  Unit 1: Introduction to Strategic Management 1.10 Self Assessment Notes Fill in the blanks: 1. Strategic management provides overall......................... to the enterprise. 2. Strategic management is a question of interpreting, and continuously........................., the possibilities presented by......................... circumstances for advancing an organisation's objectives. 3. The foundation of strategy is a definition of organisational.......................... 4. Organisations set up appropriate monitoring and control systems, develop standards and targets to judge..................... 5.......................... and......................... of strategy rarely proceed according to plan. 6. The first step in the strategic management process is to develop the corporate......................... and......................... 7. Once a firm has committed itself to a particular strategy, its......................... and......................... are tied to it. 8. A......................... can be defined as the overall goal of an organisation that all business activities and processes should contribute toward achieving. 9. Formulation and implementation of strategy must occur side-by-side rather than......................... 10. When a strategy becomes internalized into a corporate culture, it can lead to......................... 11. Strategic planning goes far beyond the......................... process. 12. Generally, only the......................... has the perspective needed to understand the broad implications behind the strategic plans. 13. The real strategic goals are realized only along with the analysis of the......................... and......................... environment of the organisation. 14. Developing an organisational strategy involves......................... main elements. 15. Strategic planning is a......................... exercise in terms of the time that needs to be devoted to it by managers. 1.11 Review Questions 1. Discuss the various elements of strategic management. 2. Examine the significance of strategic management. 3. "Strategic management process is the way in which strategists determine objectives and strategic decisions". Discuss. 4. Bring out the distinguishing features of strategic management. 5. Can the process of strategic management really be depicted in a given model or it is a prompt and dynamic process? Give reasons. 6. Depict the model of strategic management and explain its components. LOVELY PROFESSIONAL UNIVERSITY 13 Strategic Management Notes 7. Suppose you are the Managing Director of an organisation. Your organisation is running into losses due to poor management and decision making. How will you analyse the situation and move your organisation out of the situation? 8. Have you ever challenged, shaken old work methods? What problems did you encounter? Did you overcome them? How? If no, what were the reasons for their being insurmountable? 9. With reference to a day's work, what steps do you take to organise and prioritize your tasks? 10. Describe a specific instance, in a group situation, where you made your views known about an issue important to yourself. What was the issue, and why was it crucial? 11. Outline in very broad terms how you would create a strategy for say, a public interest campaign. Answers: Self Assessment 1. direction 2. reinterpreting, shifting 3. purpose 4. performance 5. Formulation, implementation 6. vision, mission 7. image, competitive advantage 8. vision 9. sequentially 10. group think 11. planning 12. top management 13. external, internal 14. four 15. costly 1.12 Further Readings Books Adapted from Pearce JA and Robinson RB, Strategic Management, McGraw Hill, NY, 2000. Fed R David, Strategic Management, New Jersey, Prentice Hall, 1997. Hugh MacMillan and Mahen Tampoe, Strategic Management, Oxford University Press, 2000. Johnson Gerry and Sholes Kevan, Exploring Corporate Strategy, 6th Edition, Pearson Education Ltd., 2002. Rao VSP and Hari Krishna V, Strategic Management–Text and Cases, New Delhi, Excel Books, 2003. Richard Lynch, Corporate Strategy, Essex, Pearson Education Ltd., 2006. Wheelen Thomas L, David Hunger J, Krish Rangarajan, Concepts in Strategic Management and Business Policy, New Delhi, Pearson Education, 2006. 14 LOVELY PROFESSIONAL UNIVERSITY  Unit 1: Introduction to Strategic Management Notes Online links www.csuchico.edu/mgmt/strategy www.netmba.com/strategy www.quickmba.com/strategy www.wisegeek.com/what-is-the-strategic-management LOVELY PROFESSIONAL UNIVERSITY 15 Strategic Management Hitesh Jhanji, Lovely Professional University Notes Unit 2: Strategy Formulation and Defining Vision CONTENTS Objectives Introduction 2.1 Aspects of Strategy Formulation 2.2 Business Vision 2.2.1 Defining Vision 2.2.2 Nature of Vision 2.2.3 Characteristics of Vision Statements 2.2.4 Importance of Vision 2.2.5 Advantages of Vision 2.2.6 Formulating a Vision Statement 2.3 Summary 2.4 Keywords 2.5 Self Assessment 2.6 Review Questions 2.7 Further Readings Objectives After studying this unit, you will be able to: Discuss various aspects of strategy formulation Explain the relevance business vision Introduction Strategy formulation is the process of determining appropriate courses of action for achieving organisational objectives and thereby accomplishing organisational purpose. Strategy formulation is vital to the well-being of a company or organisation. It produces a clear set of recommendations, with supporting justification, that revise as necessary the mission and objectives of the organisation, and supply the strategies for accomplishing them. In formulation, we are trying to modify the current objectives and strategies in ways to make the organisation more successful. This includes trying to create "sustainable" competitive advantages – although most competitive advantages are eroded steadily by the efforts of competitors. 16 LOVELY PROFESSIONAL UNIVERSITY  Unit 2: Strategy Formulation and Defining Vision A good recommendation should be: effective in solving the stated problem(s), practical (can be Notes implemented in this situation, with the resources available), feasible within a reasonable time frame, cost-effective, not overly disruptive, and acceptable to key "stakeholders" in the organisation. It is important to consider "fits" between resources plus competencies with opportunities, and also fits between risks and expectations. There are four primary steps in this phase: 1. Reviewing the current key objectives and strategies of the organisation, which usually would have been identified and evaluated as part of the diagnosis 2. Identifying a rich range of strategic alternatives to address the three levels of strategy formulation outlined below, including but not limited to dealing with the critical issues 3. Doing a balanced evaluation of advantages and disadvantages of the alternatives relative to their feasibility plus expected effects on the issues and contributions to the success of the organisation 4. Deciding on the alternatives that should be implemented or recommended. In organisations, and in the practice of strategic management, strategies must be implemented to achieve the intended results. Here it has to be remembered that the most wonderful strategy in the history of the world is useless if not implemented successfully. 2.1 Aspects of Strategy Formulation The following three aspects or levels of strategy formulation, each with a different focus, need to be dealt with in the formulation phase of strategic management. The three sets of recommendations must be internally consistent and fit together in a mutually supportive manner that forms an integrated hierarchy of strategy, in the order given. 1. Corporate Level Strategy 2. Competitive Strategy 3. Functional Strategy Let us understand each of them one by one. 1. Corporate Level Strategy: In this aspect of strategy, we are concerned with broad decisions about total organisation's scope and direction. Basically, we consider what changes should be made in our growth objective and strategy for achieving it, the lines of business we are in, and how these lines of business fit together. It is useful to think of three components of corporate level strategy: (a) Growth or directional strategy (what should be our growth objective, ranging from retrenchment through stability to varying degrees of growth - and how do we accomplish this) (b) Portfolio strategy (what should be our portfolio of lines of business, which implicitly requires reconsidering how much concentration or diversification we should have), and (c) Parenting strategy (how we allocate resources and manage capabilities and activities across the portfolio – where do we put special emphasis, and how much do we integrate our various lines of business). LOVELY PROFESSIONAL UNIVERSITY 17 Strategic Management Notes This comprises the overall strategy elements for the corporation as a whole, the grand strategy, if you please. Corporate strategy involves four kinds of initiatives: (a) Making the necessary moves to establish positions in different businesses and achieve an appropriate amount and kind of diversification. A key part of corporate strategy is making decisions on how many, what types, and which specific lines of business the company should be in. This may involve deciding to increase or decrease the amount and breadth of diversification. It may involve closing out some LOB's (lines of business), adding others, and/or changing emphasis among LOB's. (b) Initiating actions to boost the combined performance of the businesses the company has diversified into: This may involve vigorously pursuing rapid-growth strategies in the most promising LOB's, keeping the other core businesses healthy, initiating turnaround efforts in weak-performing LOB's with promise, and dropping LOB's that are no longer attractive or don't fit into the corporation's overall plans. It also may involve supplying financial, managerial, and other resources, or acquiring and/or merging other companies with an existing LOB. (c) Pursuing ways to capture valuable cross-business strategic fits and turn them into competitive advantages – especially transferring and sharing related technology, procurement leverage, operating facilities, distribution channels, and/or customers. (d) Establishing investment priorities and moving more corporate resources into the most attractive LOBs. 2. Competitive Strategy: It is quite often called as Business Level Strategy. This involves deciding how the company will compete within each Line of Business (LOB) or Strategic Business Unit (SBU). In this second aspect of a company's strategy, the focus is on how to compete successfully in each of the lines of business the company has chosen to engage in. The central thrust is how to build and improve the company's competitive position for each of its lines of business. A company has competitive advantage whenever it can attract customers and defend against competitive forces better than its rivals. Companies want to develop competitive advantages that have some sustainability (although the typical term "sustainable competitive advantage" is usually only true dynamically, as a firm works to continue it). Successful competitive strategies usually involve building uniquely strong or distinctive competencies in one or several areas crucial to success and using them to maintain a competitive edge over rivals. Some examples of distinctive competencies are superior technology and/or product features, better manufacturing technology and skills, superior sales and distribution capabilities, and better customer service and convenience. 3. Functional Strategy: These more localized and shorter-horizon strategies deal with how each functional area and unit will carry out its functional activities to be effective and maximize resource productivity. Functional strategies are relatively short-term activities that each functional area within a company will carry out to implement the broader, longer-term corporate level and business level strategies. Each functional area has a number of strategy choices, that interact with and must be consistent with the overall company strategies. Three basic characteristics distinguish functional strategies from corporate level and business level strategies: shorter time horizon, greater specificity, and primary involvement of operating managers. A few examples follow of functional strategy topics for the major functional areas of marketing, finance, production/operations, research and development, and human resources management. Each area needs to deal with sourcing strategy, i.e., what should be done in-house and what should be outsourced? 18 LOVELY PROFESSIONAL UNIVERSITY  Unit 2: Strategy Formulation and Defining Vision Marketing strategy deals with product/service choices and features, pricing strategy, Notes markets to be targeted, distribution, and promotion considerations. Financial strategies include decisions about capital acquisition, capital allocation, dividend policy, and investment and working capital management. The production or operations functional strategies address choices about how and where the products or services will be manufactured or delivered, technology to be used, management of resources, plus purchasing and relationships with suppliers. For firms in high-tech industries, R&D strategy may be so central that many of the decisions will be made at the business or even corporate level, for example the role of technology in the company's competitive strategy, including choices between being a technology leader or follower. However, there will remain more specific decisions that are part of R&D functional strategy, such as the relative emphasis between product and process R&D, how new technology will be obtained (internal development vs. external through purchasing, acquisition, licensing, alliances, etc.), and degree of centralization for R&D activities. Human resources functional strategy includes many topics, typically recommended by the human resources department, but many requiring top management approval. Example: Job categories and descriptions Pay and benefits Recruiting Selection and orientation Career development and training Evaluation and incentive systems Policies and discipline Management/executive selection processes Task Find out the competitive strategies followed by Pizza Hut. Case Study Formulating a Strategy: Following Apple Turnaround T he firm's most important resources and capabilities are those which are durable, difficult to identify and understand, imperfect transferable, not easily replicated, and in which the firm possesses clear ownership. These are the company's 'most important assets' and need to be protected; and they play a pivotal role in the competitive strategy which the company pursues. The essence of strategy formulation, then, is to design a strategy that makes the most effective use of these core resources and capabilities. Consider, for example, the remarkable turnaround of Apple, the computer company behind the Macintosh computers, between 2000 to date. Fundamental was Steve Job's recognition that the company's sole durable, non-transferable, irreplicable asset was Apple image and the loyalty that accompanied that image. In virtually every other area of competitive Contd... LOVELY PROFESSIONAL UNIVERSITY 19 Strategic Management Notes performance-production cost, quality, product and process technology, and global market scope-Apple was greatly inferior to its other rivals, such as IBM. Apple's only opportunity for survival was to pursue a strategy founded upon Apple's image advantage, while simultaneously minimising Apple' disadvantages in other capabilities. Apple' new marketing strategy involved extending the appeal of the Apple image of individuality from its traditional customer group (tech savvy, graphic designers) to more a general, young professional types. Protection of the Apple name by means of tougher controls over dealers was matched by wider exploitation of the Apple name through entry in other industries such as the portable music business. Apple's share of the computer market went from 15% in 1985 to 4% in 2005 and lost around $700 million in only three months in 1997. However, thanks to the iPod and to the Apple's iTunes music stores, its shares grew 90% between 2001 up until today, i.e. from a mere $7/share. Apple is today the premier provider of MP3 players. Designing strategy around the most critically important resources and capabilities may imply that the firm limits its strategic scope to those activities where it possesses a clear competitive advantage. The principal capabilities of Apple, are in design and new products development; it lacked both the manufacturing capabilities to compete effectively in the world's computer market. Apple's turnaround from year 2000 followed it decision to specialise upon design and new product development. The ability of a firm's resources and capabilities to support a sustainable competitive advantage is essential to the time frame of a firm's strategic planning process. If a company's resources and capabilities lack durability or are easily transferred or replicated, then the company must either adopt a strategy of short-term harvesting or it must invest in developing new sources of competitive advantage. These considerations are critical for small technological start-ups where the speed of technological change may mean that innovations offer only temporary competitive advantage. The company must seek either to exploit its initial innovation before it is challenged by stronger, established rivals or other start-ups, or it must establish the technological capability for a continuing stream of innovations. The main issue for Apple is to make sure that it takes advantage of this window of opportunity. Because there are tougher competitors down the road and the more money it makes, the more companies will enter the market making harder for Apple to sustain this new found competitive advantage. In industries where competitive advantages based upon differentiation and innovation can be imitated (such as financial services, retailing, fashion clothing, toys), firms have a brief window of opportunity during which to exploit their advantage before imitators erode it away. Under such circumstances firms must be concerned not with sustaining the existing advantages, but with creating the flexibility and responsiveness that permits them to create new advantages at a faster rate than the old advantages are being eroded by competition. Question What lessons can be learnt from Apple's Turnaround? Source: http://www.bestcxo.com/strategic-management/formulating-a-strategy-following-apple-turnaround/ 20 LOVELY PROFESSIONAL UNIVERSITY  Unit 2: Strategy Formulation and Defining Vision 2.2 Business Vision Notes The first task in the process of strategic management is to formulate the organisation’s vision and mission statements. These statements define the organisational purpose of a firm. Together with objectives, they form a “hierarchy of goals.” Figure 2.1: Hierarchy of Goals Vision Mission Goals Objectives Plans A clear vision helps in developing a mission statement, which in turn facilitates setting of objectives of the firm after analyzing external and internal environment. Though vision, mission and objectives together reflect the “strategic intent” of the firm, they have their distinctive characteristics and play important roles in strategic management. Vision can be defined as “a mental image of a possible and desirable future state of the organisation” (Bennis and Nanus). It is “a vividly descriptive image of what a company wants to become in future”. Vision represents top management’s aspirations about the company’s direction and focus. Every organisation needs to develop a vision of the future. A clearly articulated vision moulds organisational identity, stimulates managers in a positive way and prepares the company for the future. “The critical point is that a vision articulates a view of a realistic, credible, attractive future for the organisation, a condition that is better in some important ways than what now exists.” Vision, therefore, not only serves as a backdrop for the development of the purpose and strategy of a firm, but also motivates the firm’s employees to achieve it. According to Collins and Porras, a well-conceived vision consists of two major components: 1. Core ideology 2. Envisioned future Core ideology is based on the enduring values of the organisation (“what we stand for and why we exists”), which remain unaffected by environmental changes. Envisioned future consists of a long-term goal (what we aspire to become, to achieve, to create”) which demands significant change and progress. 2.2.1 Defining Vision Vision has been defined in several different ways. Richard Lynch defines vision as “ a challenging and imaginative picture of the future role and objectives of an organisation, significantly going beyond its current environment and competitive position.” E1-Namaki defines it as “a mental perception of the kind of environment that an organisation aspires to create within a broad time horizon and the underlying conditions for the actualization of this perception”. Kotter defines it as “a description of something (an organisation, corporate culture, a business , a technology, an activity) in the future.” LOVELY PROFESSIONAL UNIVERSITY 21 Strategic Management Notes Box 2.1 sets out a range of definitions of organisational vision. Most refer to a future or ideal to which organisational efforts should be directed. The vision itself is presented as a picture or image that serves as a guide or goal. Depending on the definition, it is referred to as inspiring, motivating, emotional and analytical. For Boal and Hooijberg, effective visions have two components: 1. A cognitive component (which focuses on outcomes and how to achieve them) 2. An affective component (which helps to motivate people and gain their commitment to it) Box 2.1: Definitions of Vision 1. Johnson: Vision is "clear mental picture of a future goal created jointly by a group for the benefit of other people, which is capable of inspiring and motivating those whose support is necessary for its achievement". 2. Kirkpatrick et al: Vision is "an ideal that represents or reflects the shared values to which the organisation should aspire". 3. Thornberry: Vision is "a picture or view of the future. Something not yet real, but imagined. What the organisation could and should look like. Part analytical and part emotional". 4. Shoemaker: Vision is "the shared understanding of what the firm should be and how it must change". 5. Kanter et al: Vision is "a picture of a destination aspired to, an end state to be achieved via the change. It reflects the larger goal needed to keep in mind while concentrating on concrete daily activities". 6. Stace and Dunphy: Vision is "an ambition about the future, articulated today, it is a process of managing the present from a stretching view of the future". 2.2.2 Nature of Vision A vision represents an animating dream about the future of the firm. By its nature, it is hazy and vague. That is why Collins describes it as a “Big hairy audacious goal” (BHAG). Yet it is a powerful motivator to action. It captures both the minds and hearts of people. It articulates a view of a realistic, credible, attractive future for the organisation, which is better than what now exists. Developing and implementing a vision is one of the leader’s central roles. He should not only have a “strong sense of vision”, but also a “plan” to implement it. Example: 1. Henry Ford’s vision of a “car in every garage” had power. It captured the imagination of others and aided internal efforts to mobilize resources and make it a reality. A good vision always needs to be a bit beyond a company’s reach, but progress towards the vision is what unifies the efforts of company personnel. 2. One of the most famous examples of a vision is that of Disneyland “To be the happiest place on earth”. Other examples are: (a) Hindustan Lever: Our vision is to meet the everyday needs of people everywhere. (b) Microsoft: Empower people through great software any time, any place and on any device. (c) Britannia Industries: Every third Indian must be a Britannia consumer. 22 LOVELY PROFESSIONAL UNIVERSITY  Unit 2: Strategy Formulation and Defining Vision Although such vision statements cannot be accurately measured, they do provide a fundamental Notes statement of an organisation’s values, aspirations and goals. Some more examples of vision statements are given in Box 2.2 Box 2.2: Examples of Vision Statements 1. A Coke within arm's reach of everyone on the planet (Coca Cola) 2. Encircle Caterpillar (Komatsu) 3. Become the Premier Company in the World (Motorola) 4. Put a man on the moon by the end of the decade (John F. Kennedy, April 1961) 5. Eliminate what annoys our bankers and customers (Texas Commerce Bank) 6. The one others copy (Mobil) 2.2.3 Characteristics of Vision Statements As may be seen from the above definitions, many of the characteristics of vision given by these authors are common such as being clear, desirable, challenging, feasible and easy to communicate. Nutt and Backoff have identified four generic features of visions that are likely to enhance organisational performance: 1. Possibility means the vision should entail innovative possibilities for dramatic organisational improvements. 2. Desirability means the extent to which it draws upon shared organisational norms and values about the way things should be done. 3. Actionability means the ability of people to see in the vision, actions that they can take that are relevant to them. 4. Articulation means that the vision has imagery that is powerful enough to communicate clearly a picture of where the organisation is headed. According to Thompson and Strickland, some important characteristics of an effective vision statement are: 1. It must be easily communicable: Everybody should be able to understand it clearly. 2. It must be graphic: It must paint a picture of the kind of company the management is trying to create. 3. It must be directional: It must say something about the company’s journey or destination. 4. It must be feasible: It must be something which the company can reasonably expect to achieve in due course of time. 5. It must be focused: It must be specific enough to provide managers with guidance in making decisions. 6. It must be appealing to the long term interests of the stakeholders. 7. It must be flexible: It must allow company’s future path to change as events unfold and circumstances change. LOVELY PROFESSIONAL UNIVERSITY 23 Strategic Management Notes In Table 2.1, many writers have presented their views on the key elements that constitute a good vision. Table 2.1: Characteristics of a Good Vision Jock Kotter Metais Johnson El-Namaki Clear and Imaginable— it It is a It visualizes Coherence—It concise conveys picture of dream—it a future aim integrates the Memorable what future will provides It is company look like emotional contributed strategy and Exciting and Desirable—It involvement from a the future inspiring appeals to long- It is variety of image of the Challenging company term interests of excessive— sources Centered on stakeholders, for and not Translatable— It implicates excellence example, attainable It is the need for Both stable employees, within people with translatable and flexible customers, current specialist into Achievable stockholders actions or skills meaningful and tangible Feasible—It resources company goals It can be embodies realistic, It is and strategies communicat attainable goals deviant—it -ed easily Powerful—It Focused—It breaks generates It has a provides guidance conventiona enthusiasm powerful in decision l thinking Challenging— motivational making and frames It is challenging effect of reference for all Flexible—It is It serves an general enough to organizational important enable individual participants need initiative and Unique—It It is aligned alternative distinguishes with the responses to the company values of changing from others prospective environments Feasible—It is supporters Communicable—It realistic and can be explained achievable in five minutes Idealistic—It communicates desired outcome 2.2.4 Importance of Vision Having a strategic vision is linked to competitive advantage, enhancing organisational performance, and achieving sustained organisational growth. Clear vision enable firms to determine how well organisational leaders are performing and to identify gaps between the vision and current practices. Organisations preparing for transformational change regularly undertake “envisioning” exercises to help guide them into the future. The visioning process itself can enhance the self-esteem of the people who participate in it because they can see the potential fruits of their labours. Conversely, a “lack of vision” is associated with organisational decline and failure. As Beaver argues “Unless companies have clear vision about how they are going to be distinctly different and unique in adding and satisfying their customers, they are likely to be the corporate failure statistics of tomorrow”. Lacking vision is used to explain why companies fail to build their core competencies despite having access to adequate resources to do so. Business strategies that lack visionary content may fail to identify when change is needed. Lack of an adequate process for translating shared vision into collective action is associated with the failure to produce transformational organisational change. 24 LOVELY PROFESSIONAL UNIVERSITY  Unit 2: Strategy Formulation and Defining Vision Thus vision statements serve as: Notes 1. A basis for performance: A vision creates a mental picture of an organisation’s path and direction in the minds of people in the organisation and motivates them for high performance. 2. Reflects core values: A vision is generally built around core values of an organisation, and channelises the group’s energies towards such values and serves as a guide to action. 3. Way to communicate: A vision statement is an exercise in communication. A well- communicated vision statement will bring the employees together and galvanize them into action. 4. A desirable challenge: A vision provides a desirable challenge for both senior and junior managers. While providing a sense of direction, strategic vision also serves as a kind of “emotional commitment”. Thompson and Strickland point out the significance of “vision” which is broadly as follows: 1. It crystallizes top management’s own view about firm’s long-term direction. 2. It reduces the risk of rudderless decision-making. 3. It serves as a tool for maximizing the support of organisation members for internal changes. 4. It serves as a “beacon” to guide managers in decision-making. 5. It helps the organisation to prepare for the future. Vision poses a challenge and addresses the human need for something to strive for. It can depict an image of the future that is both attractive and worthwhile. Indeed, developing a strategic vision may be regarded as a managerial imperative in the strategic management process. This is because strategic management presupposes the necessity to look beyond today, to anticipate the impact of new technology, changes in customer needs and market opportunities. Creating a well-conceived vision illuminates an organisation’s direction and purpose, and then using it repeatedly as a reminder of “where we are headed and why” helps keep organisation members on the chosen path. ! Caution Although the idea of vision is widely accepted as a useful backdrop for the development of purpose and strategy, there is a problem. Vision has little meaning unless it can be successfully communicated to those working in the organisation, since these are the people who will have to realize it. 2.2.5 Advantages of Vision Several advantages accrue to an organisation having a vision. Parikh and Neubauer point out the following advantages: 1. Good vision fosters long-term thinking. 2. It creates a common identity and a shared sense of purpose. 3. It is inspiring and exhilarating. 4. It represents a discontinuity, a step function and a jump ahead so that the company knows what it is to be. LOVELY PROFESSIONAL UNIVERSITY 25 Strategic Management Notes 5. It fosters risk-taking and experimentation. 6. A good vision is competitive, original and unique. It makes sense in the market place. 7. A good vision represents integrity. It is truly genuine and can be used for the benefit of people. Did u know? When does a vision fail? A vision may fail when it is: 1. Too specific (fails to contain a degree of uncertainty) 2. Too vague (fails to act as a landmark) 3. Too inadequate (only partially addresses the problem) 4. Too unrealistic (perceived as unachievable) A.D. Jick observes that a vision is also likely to fail when leaders spend 90 percent of their time articulating it to their staff and only 10 percent of their time in implementing it. There are two other reasons for vision failure: 1. Adaptability of vision over time 2. Presence of competing visions 2.2.6 Formulating a Vision Statement Generally, in most cases, vision is inherited from the founder of the organisation who creates a vision. Otherwise, some of the senior strategists in the organisation formulate the vision statement as a part of strategic planning exercise. Nutt and Backoff identify three different processes for crafting a vision: 1. Leader-dominated Approach: The CEO provides the strategic vision for the organisation. This approach is criticized because it is against the philosophy of empowerment, which maintains that people across the organisation should be involved in processes and decisions that affect them. 2. Pump-priming Approach: The CEO provides visionary ideas and selects people and groups within the organisation to further develop those ideas within the broad parameters set out by the CEO.