Successfully reported this slideshow.
We use your LinkedIn profile and activity data to personalize ads and to show you more relevant ads. You can change your ad preferences anytime.

Notes for mba (strategic management) unit i


Published on

Notes for MBA

Published in: Education, Business
  • Sex in your area is here: ❶❶❶ ❶❶❶
    Are you sure you want to  Yes  No
    Your message goes here
  • Dating direct: ❶❶❶ ❶❶❶
    Are you sure you want to  Yes  No
    Your message goes here
    Are you sure you want to  Yes  No
    Your message goes here

Notes for mba (strategic management) unit i

  1. 1. STRATEGIC MANAGEMENT ___ Semester III UNIT – I STRATEGY AND PROCESSConceptual Framework for Strategic Management, The Concept of Strategy and the Strategy FormationProcess – Stakeholders in Business – Vision, Mission and Purpose – Business Definition, Objectives andGoals – Corporate Governance and Social Responsibility – Case Study CONCEPTUAL FRAMEWORK FOR STRATEGIC MANAGEMENTIn earlier times, the managers focused on “today‟s decisions for today‟s business”. However therapid changes experienced by companies have made the managers to anticipate the future andprepare for it. They have prepared systems, procedures and manuals and evolved budgets andplanning and control systems, which included capital budgeting and management by objectives.The inadequacy of these techniques has led to the emergence of long range planning which inturn gives rise to strategic planning subsequently to strategic management.Strategic management deals with decision making and actions which determine an enterprise‟sability to excel survive or die by making the best use of a firm‟s resources in a dynamicenvironment. The main purpose of study of strategic management is to examine why someorganization succeed while others fail and yet others completely change.Consider the following examples:  Bharat Heavy Electricals Ltd. (BHEL) is now planning to expand its range to 800 MW supercritical power projects.  LG Electronics India Ltd. (LGEIL) signed a MOU with Maharashtra government to expand manufacturing facility at Pune for Rs.900 crores.  GAIL India has received an offer from China Gas Holdings for participation in a gas based petrochemical project to be set at Humor in Mangolia.  The world‟s largest steel conglomerate Mittal Steel Company is to become the second largest stakeholder in a Chinese Steel firm in Hunan Province.  Mittal singed three MOUs with Jharkhand Government for setting up 12 million tonne Greenfield project in two phases.  Maruthi Udyog slashed the price of Maruti-800 by Rs.16000 in small car segment drastically.  Lenova, the Chinese computer giant acquired IBM in China.  Tata Steel entered a joint venture agreement with Iranian Mines and Mining Industries Development and Renovation Organization.These examples illustrate how organizations react to environment and adopt suitable course ofaction such as divestment, expansion and stability as part of their operations. The decisionsregarding up-gradation of product mix, joint ventures and expansion have a long term impact onthe activities and such crucial decisions are taken by senior management. The top management ismainly responsible for providing a sense of direction and guiding future course of action for anyfirm. Strategic management deals with long-term decisions taken up by top management whichgives overall direction to the organization. Strategic Management provides a cooperative,integrated and enthusiastic approach for tackling problems and realizing opportunities.S.N.Selvaraj, M.B.A., M.Phil., (Ph.D)., Assistant Professor ( Page 1
  2. 2. An enterprise‟s success mainly depends on three board factors: (1) The Industry, it belongs to (2) The Nation, it is located and (3) Its own resources, capabilities and strategies. Fig: Determinants of Company Performance Company Resources, Industry Context National Context Capabilities and Strategies Company PerformanceIndustry: Some industries are profitable than others due to industry attractiveness. A company inattractive industry will achieve success compared to a firm in a less attractive industry. Duringthe last decade software industry is more profitable than pharmaceutical industry.Nation: The country also influences the competitiveness of company based within the nation.Some countries enjoy competitive advantage with regard to certain industries. For example, theworld‟s most successful automobile and consumer electronics companies are located in Japan.The most successful pharmaceutical companies are located in U.S. and Switzerland. Many of thesuccessful financial services companies are located in the United States and Great Britain. Thesuccess or failure of individual firms depends on national competitive advantage.Company: Firm‟s resources, capabilities and strategies are the strongest reasons for the success orfailure of the firm. Some firms thrive even in less attractive industry whereas some firmsperform poorly in spite of being in profitable industry. Often one comes across wide variation inthe performance of companies within the same industry and enjoying same national competitiveadvantage. There is a grave need to understand the causes of success and failure in order todevelop strategies, which will increase the probability of success and reduce the probability offailure. THE CONCEPT OF STRATEGY AND THE STRATEGY FORMATION PROCESSStrategy is a framework through which an organisation can assert its vital continuity whilstmanaging to adapt to the changing environment to gain competitive advantage.According to Igor Ansoff (1984), Strategic Management is a systematic approach to the major and increasingly important responsibility of general management to position and relate the firm to its environment in a way which will assure its continued success and make it secure from surprises.S.N.Selvaraj, M.B.A., M.Phil., (Ph.D)., Assistant Professor ( Page 2
  3. 3. Top executives, who formulate strategy, draw information from several publications in order tokeep abreast of current developments in their industry and business. Some of the online sourcesof business strategy news are as follows: 1. Business line – 2. Financial Express – 3. The Economic Times – 4. Times Syndication – 5. Fortune – 6. Forbes – 7. Wallstreet – www.wsj.comStrategic management tends to develop a generalist approach to managerial problems and itenables one to view organizational issues in its totality. Hence business is viewed as a systemconsisting of number of subsystems and the narrow outlook of a specialist is not recommendedfor solving business problems. For instance, employee turnover apparently looks like a personnelproblem. If one probes deeply into the problem, it genesis may be deeper.Employee turnover may be attributable to unsuitable recruitment policy, poor training, MNC‟sattractive package, declining demand for the products of the company, poor morale, lack of jobsatisfaction, uncertainty of the tenure, underutilization of capability and so on. Apparently itlooks like a personnel problem but truly speaking, it is due to various factors beyond the purviewof the Personnel Department. Hence a generalists‟ outlook, rather than that of specialists, isdesirable to deal with organizational problems in its totality.Analytical techniques and skills are needed for developing and exploiting strategies successfully.Understanding strategy is the first step in strategic management process.Definitions  Strategy is “a unified comprehensive and integrated plan designed to ensure that the basic objectives of the enterprise are achieved” – Glueck  Strategy is “a determination of the basic long term goals and objectives of an enterprise and the adoption of courses of action and the allocation of resources necessary for carrying out these goals” – Alfred Chandler  Strategic management is “a stream of decisions and actions, which leads to the development of an effective strategy to help achieve corporate objectives” – GlueckAlternative Types of Strategy  Planned Strategy: Leaders formulate and strive for implementation with the minimum of distortion (Budgets, schedules etc). Formulated in the environment that is fairly predictable or controllable.  Entrepreneurial: More influenced by the individual, not as precise or articulate as planned strategy, requires an ability to impose one‟s vision on the organisation. Entrepreneurial strategy provides flexibility at the expense of specificity and articulation of intentions.  Ideological Strategy: Shared vision collectively pursued is an ideology. Intentions can usually be identified (Indoctrination, credo etc). Positively embraced by members of the organisation, not passive acceptance.S.N.Selvaraj, M.B.A., M.Phil., (Ph.D)., Assistant Professor ( Page 3
  4. 4.  Umbrella Strategy: Relax control, leaders set guidelines for behaviour, define boundaries and let actors man oeuvre within. All organizations actions fall under the umbrella (Pricing strategies for example). Umbrella strategy can be both deliberate and emergent. De Wit and Meyer (ibid) argue that all „real‟ world strategies tend to be umbrella claiming that you cannot pre-empt the discretion of others.Strategy Formation ProcessHenry Mintzberg holds a different view about strategic management process. According to him,strategies can emerge from within an organization without any formal plan. Strategies mayemerge from the grassroots of the organization in response to unforeseen circumstances. Strategyis more than what a company plans to do; it is what the company does actually.Mintzberg has defined strategy as “a pattern in a stream of decisions or actions” the pattern beinga product of whatever intended strategies (planned) are actually realized and of any emergent(unplanned) strategies. Hence strategies may be intended (planned) as well as emergent(unplanned). In Mintzberg‟s opinion emergent strategies are more successful than other types. Inpractice, the strategies of several organizations are probably a combination of the „intended‟ andthe „emergent‟ types. Intended Strategy Mission and Goals External Environment Strategic Choice Internal Environment Analysis Analysis INTENDED STRATEGY Organizing for Implementation Emergent Strategy External Environment Mission and Goals External Environment Analysis Analysis Strategic Choice Does it fit? EMERGENT STRATEGY Organizational Grassroots Fig: Strategic Management process for Intended Strategy and Emergent StrategyS.N.Selvaraj, M.B.A., M.Phil., (Ph.D)., Assistant Professor ( Page 4
  5. 5. A Model of Strategy Management ProcessStrategic management process involves strategic planning, strategy implementation and strategiccontrol. Strategic planning involves thorough study of internal and external environment factorsrelevant for the organization. It results in mission, purpose, objectives, policies and programmes.Hence the five steps in strategic management process are as follows:  The choice of corporate mission and corporate goals  Analysis of external competitive environment to understand the firms‟ strength and weakness  Selection of strategy to build on the organizations‟ strengths and correct weakness so as to take advantage of external opportunities and counter external threats  Strategy implementation and controlThe steps involved in strategic management process are almost similar for intended strategies andemergent strategies but the formulation of intended strategies is basically a top-down process andthat of the emergent strategies is a bottom-up process. Mission and Goals Internal Analysis Strategic Choice External Analysis Strengths, Weaknesses SWOT Opportunities, Threats Functional Level Strategy Business Level Strategy Corporate Level Strategy Global Level Strategy Strategy Implementation Designing Organizational Conflict, Politics Designing Control Structure & Change Systems Matching Strategy, Structure and Control Feed back Fig: Strategic Management processS.N.Selvaraj, M.B.A., M.Phil., (Ph.D)., Assistant Professor ( Page 5
  6. 6. Mission and GoalsDefining the mission and main goals of the organization is the first step in strategic managementprocess. The mission tells clearly why the organization exists and what it would be doing.Organizations set goals, which they hope to achieve in the medium to long-term basis. Normallyorganizations work with a hierarchy of goals such as sizeable market share, maximizingshareholders‟ wealth and profit and so on.Policies: Policies act as guide in decision-making. Policies define an area within which a decisionis to be made and ensure that the decision will be consistent with and contribute to objectives.Managers who are responsible for implementation of policy use discretion while deciding variouscourses of action. Policies exist at all levels of the organization and range from major companypolicies to department policies. Fig: Pyramid of Business Policy Major Policy Line of Business (code of ethics) Secondary Policy Selection of geographical area Major customers, major products Functional Polices Marketing, Production, Research, Finance, Procurement, etc. Procedure and Standard Operating Plan Handling incoming orders, servicing customers complaints, shipping to foreign countries Rules Delivery of pay cheques, Loitering around the plant, Security guard duty, Use of company car, Smoking etc.ProcedureInfosys has 36,000 employees on its pay roll. Infosys managers the challenges of inducting andorienting a large number of employees through an online resource called PRIDE (ProcessRepository at Infosys for Driving Excellence). After induction and orientation all the employeeswork in the same way.External AnalysisThe next step in strategic management process is external environmental analysis, which aims tounderstand the opportunities and threats in the environment. In this stage, examination of threeenvironments normally takes place, the industry environment in which organization operates, thenational environment and the macro environmental forces such as social, economic, governmentand legal, international and technological factors, which affect the organization. The competitivestructure of the industry, competing firms and the competitive positions are analyzed during thisphase.S.N.Selvaraj, M.B.A., M.Phil., (Ph.D)., Assistant Professor ( Page 6
  7. 7. Internal AnalysisIdentifying strengths and weakness of the organization involves identification of quantity andquality of resources and distinctive competencies that help in building competitive advantage toachieve superior efficiency, quality, innovation and customer loyalty.Strategic ChoiceStrategic choice involves generating a series of alternatives in the light of internal strengths andweakness and external opportunities and threats, which knows as SWOT analysis. The purpose ofstrategic choice is to build organizations‟ strengths to exploit opportunities and set rightweakness and to minimize threat. Finally, strategies are evolved at functional level, businesslevel, corporate level and global level.Functional strategies are directed to improve the effectiveness of functional operations of thefirm such as manufacturing, finance, R&D, marketing and human resources.Business level strategies lay emphasis on the way the firm positions itself in the market place togain competitive advantage. The three generic business level strategies are 1) Cost leadership,2) Differentiation and 3) Focus strategy.Corporate level strategies enable organizations to maximize the long run profitability of theorganization. Vertical integration (backward and forward integration), diversification, strategicalliance, acquisitions and joint ventures are examples of corporate level strategies.Global level strategies are pursued by organizations while they expand their operations ininternational business so as to increase their profitability. International strategy, multi-domesticstrategy, global strategies and transitional strategy are some of the choices before strategies.Strategy ImplementationStrategy implementation consists of four steps namely:  Designing appropriate organizational structure  Designing control systems  Matching strategy, structure and controls and  Managing conflicts, politics and changeStructureStructure involves allocation of duties, responsibilities and decision-making authority andintegration among the ranks and files of organization. It is widely believed that structure followsstrategy. Some of the options available in this regard are tall structure, flat structure, centralizeddecision making authority, decentralized decision making authority, autonomous units andsemi-autonomous units and different mechanisms for integration of subunits.ControlThe purpose of strategic control is to determine whether the given strategy is effective inachieving organizational objective and moving on the right tract. The organizational control maybe classified as market control, output control and bureaucratic control. Control system requiresS.N.Selvaraj, M.B.A., M.Phil., (Ph.D)., Assistant Professor ( Page 7
  8. 8. development of perceptible organizational culture. Besides, the type of reward and incentivesystems also needs to be decided and established towards this end.Matching Strategy, Structure and ControlIn successful organizations a fit among strategy, structure and control is observed. Differentstrategies and environments call for different structures and control systems. Cost leadershipstrategy warrants a simple organization, which lays emphasis on efficiency whereasdifferentiation strategy revolves around R&D and technical creativity. A fit among strategy,structure and control is essential to ensure success of organizations.Matching Conflicts, Politics and ChangeConflict is common in organizations. The reasons for conflicts are resource sharing and differentagendas of different subgroups within organizations. Power struggles and coalition building areconsequences of such conflicts. The organizational politics plays a key role in strategyimplementation. The power and conflict will cause organizational inertia and preventorganizational change. Power, politics, conflict and inertia should be analyzed and managedeffectively so that mission could be fulfilled and change could be introduced smoothly.FeedbackStrategic management is an ongoing process. Periodic feedback reveals whether objectives areattainable or implementation is poor or not. The feedback is fed into next round of strategicformulation and implementation. It may reaffirm objectives or suggest changes in goals andobjectives. STAKEHOLDERS IN BUSINESSA stakeholder is any individual or organisation that is affected by the activities of a business.They may have a direct or indirect interest in the business, and may be in contact with thebusiness on a daily basis, or may just occasionally.The main stakeholders in business are:  Shareholders (not for a sole trader or partnership though) – they will be interested in their dividends and capital growth of their shares.  Management and employees – they may also be shareholders – they will be interested in their job security, prospects and pay.  Customers and suppliers  Banks and other financial organizations lending money to the business  Government – especially the Inland Revenue and the Customs and Excise who will be collecting tax from them.  Trade Unions – who will represent the interests of the workers?  Pressure Groups – who are interested in whether the business is acting appropriately towards their area of interest.Stakeholders versus ShareholdersIt is important to distinguish between a STAKEHOLDER and a SHAREHOLDER. They sound thesame – but the difference is crucial!  Shareholders hold shares in the company – that is they own part of it.S.N.Selvaraj, M.B.A., M.Phil., (Ph.D)., Assistant Professor ( Page 8
  9. 9.  Stakeholders have an interest in the company but do not own it (unless they are shareholders).  Often the aims and objectives of the stakeholders are not the same as shareholders and they come into conflict.  The conflict often arises because while shareholders want short-term profits, the other stakeholders‟ desires tend to cost money and reduce profits. The owners often have to balance their own wishes against those of the other stakeholders or risk losing their ability to generate future profits (e.g. the workers may go on strike or the customers refuse to buy the company‟s products).Social Responsibility of a Business to StakeholdersSocial responsibility is the duty and obligation of a business to other stakeholders.  Shareholder – Good return on investment  Employee – Fair pay and working conditions  Supplier – Regular business and prompt payment  Customer – Fair price and safe product  Local community – Jobs and minimum disruption  Government – Employment for local community  Environment – Less pollutionSocial responsibility for one group can conflict with other groups, especially betweenshareholders and stakeholders.Ethics in BusinessEthics refers to the moral rights and wrongs of any decision a business makes. It is a valuejudgement that may differ in importance and meaning between different individuals. Businessesmay adopt ethical policies because they believe in them or they believe that by showing they areethical, they improve their sales. Two good examples of businesses that have strong ethicalpolicies are The Body Shop and Co-op.Some examples of ethical policies are:  Reduce pollution by using non-fossil fuels.  Disposal of waste safely and in an environmentally friendly manner  Sponsoring local charity events  Trading fairly with developing countriesApproaches to Strategic Decision Making ProcessThere are three approaches to strategic decision-making process. They are as follows:  Rational – analytical  Intuitive – emotional  Behavioral – politicalRational – Analytical Model assumes that decision maker is always intelligent and rational. He isfully aware of all the alternatives and their consequences upon implementation to maximizeadvantages.S.N.Selvaraj, M.B.A., M.Phil., (Ph.D)., Assistant Professor ( Page 9
  10. 10. Intuitive – Emotional Model assumes that decision maker prefers „gut feeling‟, reflective thinkingand instinct using unconscious mental processes. Managers who endorse this approach, point outthat intuitive judgment may lead to better decisions than optimizing techniques.Political – Behavioral decision making Model assumes that real decision makers consider avariety of pressure from people who are affected by their decisions. Even organization interactswith a variety of stakeholders. For instance trade unions demand job security and decent wagesfor workmen.Strategists adopt a synthesis of all three approaches. So strategic decisions are made in a typicallyhuman way using the rational conscious analysis, intuitive and „unconscious gut feeling‟ in thelight of varied political realitiesPitfalls: Strategic decision-making process is not without pitfalls and it suffers from certainlimitations. The reasons for poor decision-making are cognitive bias and groupthink. Moststrategic decision-making is done by groups. Groupthink occurs when a group of decision makersdecide on a course of action, which is purely based on emotional rather than objective criteria andthe group is pressurized for uniformity and consensus. Consequently, controversial issues andweak arguments are never touched upon.Techniques for improving strategic decision-makingTo enhance the effectiveness of strategic decision-making, techniques like devils‟ advocacy anddialectic inquiry are recommended.In Devils’ Advocacy, a plan is evolved and is critically analyzed. One member highlights thereason why the plan is unacceptable and acts like the devil‟s advocate. The main advantage ofthis method is to highlight all possible dangers involved in the course of action.In Dialectic Inquiry, a plan and a counter plan are evolved in order to reflect plausible andconflicting courses of action. The debate between advocates of plan and counter plan revealsproblem areas with definitions, suggested courses of actions and assumptions. Based on theidentification of problem areas, final plan is evolved which is comprehensive.Impact of e-commerceA survey undertaken by Booz-Allen & Hamilton and Economist intelligence unit of 525 topexecutives revealed that Internet is reshaping the global market place. According to 90% ofexecutives, internet would transform and would have major impact on their corporate strategywithin two years.Learning OrganizationIn the wake of liberalization, organizations are forced to cope up with intense competitive forcesarising from dynamic and complex environment and hyper competition. So competitiveadvantage could not be built on permanent basis but short-term strategic thrusts are aimed at.Hence strategic management process requires a learning organization in order to adopt to changequickly. An important characteristic of learning organization is its strategic flexibility. Alearning organization is skilled in creating, acquiring and transferring knowledge and modifyingits behavior to reflect new knowledge and insights. According to Senge, the main activitiesundertaken by a learning organization are:  Systematic problem solvingS.N.Selvaraj, M.B.A., M.Phil., (Ph.D)., Assistant Professor ( Page 10
  11. 11.  Experimentation with new approaches  Learning from new experiences and from others and  Transferring knowledge quickly and efficiently throughout the organizationEmployees at all levels are involved in strategic management process in a learning organization.They do environment scanning for vital information; understand shifts in environment in order toimprove work methods, procedures and evaluation techniques. For example at Xerox, allemployees are trained in small group activities and problem solving skills, which enabled thecompany to come out with improved products. VISION, MISSION AND PURPOSEMission statement embodies an organization‟s purpose of existence. When strategists raisecertain fundamental questions related to business such as:  What is our business?  Why are we in the business?  What will it be after 5 years?the need for mission statement arises. The survival of an organization mainly depends on itsability to satisfy specific needs of the society. Mission statement defines the role that anorganization plays in a society. For example, BSNL satisfies the communication needs of thesociety. Mission statement describes what the company stands for, its purpose, image andcharacter to different stake holders. A survey by Bain and Company indicates that planning anddeveloping mission and vision statements are the popular management tools of strategicmanagement.Thompson defines mission as “the essential purpose of the organization, concerning particularlywhy it is in existence, the nature of the business it is in, and the customers it seeks to serve andsatisfy”.Wheelan and Hunger view that “mission is the purpose or reason for the organization‟sexistence”.According to John Pearce “mission is an enduring statement of purpose that distinguishes onefirm from other similar firms”.In Drucker’s opinion “mission focuses the organization on action. It defines the specificstrategies needed to attain goal. It creates a disciplined organization… The business purpose andbusiness mission are so rarely given adequate thought, is perhaps the most important single causeof business failure and business frustration”.In order to survive for a long period, organizations perform various functions, which are valuedby the society. Mission statements usually give internal direction for the future of theorganization.Ambition and visionary zeal are the main constituents of mission. Organizational values hold themission intact. The mission specifies what qualities the organization will uphold and impart tothe society and community. The organization‟s beliefs are embedded in the mission. ThomasS.N.Selvaraj, M.B.A., M.Phil., (Ph.D)., Assistant Professor ( Page 11
  12. 12. Watson Jr. of IBM holds the view “I firmly believe that any organization, in order to survive andachieve success, must have a sound set of beliefs on which it premises al its policies and actions”.  A mission statement is full of enthusiasm.  A mission statement is marked by grandeur.  It is unique and personal.  It is not time bound because the future envisioned in a mission statement cannot be achieved in a day.How Mission is formulated?Strategists, consultants and chief executives are involved in formulated mission statements.Contrary to the popular practice, State Bank of India solicits the cooperation of employees unionfor formulation of mission statement. In Hyderabad Bakelite Hylam, discussions are held at alllevels and all employees are involved in the exercise of framing a mission statement. SathyamComputers conducts extensive discussions with clients and overseas joint venture partners forframing mission statements. In HCL, a core management team has analyzed the strengths andweaknesses and designed a customer-centric mission statement for team building, mutual trust,internal customer service and empowerment.After independence, public sector organizations derived their mission from national priority ofbuilding a strong and self-reliant India. So they focused on developing infrastructure industries.The mission statements of some Indian companies are given below:Infosys: “The primary purpose of corporate leadership is to create wealth legally and ethically.This translates to bringing a high level of satisfaction to five constituencies – customers,employees, investors, vendors and the society at large. The reason de „e‟tre of every corporatebody is to ensure predictability, sustainability and profitability of revenues year after year”.The Gindal Group: “To become a globally competitive player with a burning desire to becomenumber one in the steel industry”.Unit Trust of India: “To keep the common man in sharper focus; to encourage saving andinvestment habits among them”.Ranbaxy: “To become a $1 billion research based global pharmaceutical company”.Merck: “To preserve and improve human life”.McKinsey: “To help business corporations and governments to be more successful”.Unilever: “To make cleanliness common place, to lessen work for women, to foster health and tocontribute to personal attractiveness that life may be more enjoyable for the people who use ourproducts”.ONGC: “To be a world class oil and gas company integrated in energy business with dominantIndian leadership and global business”.Nirma: “Nirma is a customer focused company committed to consistently offer better qualityproducts and services that maximize value to the customer”.S.N.Selvaraj, M.B.A., M.Phil., (Ph.D)., Assistant Professor ( Page 12
  13. 13. SBI: “With you, all the way”.Asian Paints: “Leadership through excellence”.Bajaj Auto: “Value for Money, for years”.It is observed from these mission statements that mission provides direction to internalorganization and it embodies the values and philosophy of the founders of the organization.Characteristics of a Mission StatementA mission statement incorporates the basic business purpose and the reason for its existence byrendering some valuable functions for the society. An effective mission statement should possessthe following characteristics. 1) Feasible: The mission should be realistic and achievable. For instance, UTI declared its mission as “to encourage saving and investment habits among common man”. By providing tax relief under Sec 88c, the investment upto 1 lakh in UTI is exempted from income tax. Hereby common man‟s savings habit is encouraged by UTI. 2) Precise: A mission statement should not be narrow or too broad. 3) Clear: A mission statement should lead to action. BSNL‟s mission of „connecting India‟ leads it to a variety of service with varied tariff structure so as to cater to the preferences of mobile phone users. 4) Motivating: The mission should be motivating for the employees to be inspired for action. For example, India Post‟s mission is to „exceed the expectations of the customer‟ with dedication, devotion and enthusiasm. 5) Distinctive: A mission statement will indicate the major components of the strategy to be adopted. The mission should be unique. 6) Indicates Major Components of Strategy: The mission statement of IOC emphasizes petroleum refining, marketing and transportation with international standards and modern technology. It indicates that IOC is going to adopt diversification strategy in future.The mission provides direction to insiders and outsiders on what the firm stands for. It is theguiding star for any firm.How Mission Contributes to Strategic Management?Mission contributes to strategic management in many ways: 1. It provides direction to corporate planning. 2. It clarifies the firm‟s aspirations. 3. It communicates to employees at various levels the direction in which they should move. 4. It focuses on business purpose and long-term objective of the firm. BUSINESS DEFINITION, OBJECTIVES AND GOALSDefinition of Business1. An organization or enterprising entity engaged in commercial, industrial or professionalactivities. A business can be a for-profit entity, such as a publicly-traded corporation, or a non-profit organization engaged in business activities, such as an agricultural cooperative.S.N.Selvaraj, M.B.A., M.Phil., (Ph.D)., Assistant Professor ( Page 13
  14. 14. 2. Any commercial, industrial or professional activity undertaken by an individual or a group.3. A reference to a specific area or type of economic activity.Business can be defined as:1. Businesses include everything from a small owner-operated company such as a familyrestaurant, to a multinational conglomerate such as General Electric.2. To "do business" with another company, a business must engage in some kind of transaction orexchange of value with that company.3. In this sense, the word "business" can be used to refer to a specific industry or activity, such asthe "real estate business" or the "advertising business".A business (also known as enterprise or firm) is an organization engaged in the trade of goods,services, or both to consumers. Businesses are predominant in capitalist economies, where mostof them are privately owned and administered to earn profit to increase the wealth of theirowners. Businesses may also be not-for-profit or state-owned. A business owned by multipleindividuals may be referred to as a company, although that term also has a more precise meaning.Basic forms of ownershipAlthough forms of business ownership vary by jurisdiction, there are several common formswhich are as follows:  Sole proprietorship: A sole proprietorship is a business owned by one person for-profit. The owner may operate the business alone or may employ others. The owner of the business has unlimited liability for the debts incurred by the business.  Partnership: A partnership is a business owned by two or more people. In most forms of partnerships, each partner has unlimited liability for the debts incurred by the business. The three typical classifications of for-profit partnerships are general partnerships, limited partnerships, and limited liability partnerships.  Corporation: A corporation is a limited liability business that has a separate legal personality from its members. Corporations can be either government-owned or privately owned, and corporations can organize either for-profit or not-for-profit. A privately owned, for-profit corporation is owned by shareholders who elect a board of directors to direct the corporation and hire its managerial staff. A privately owned, for-profit corporation can be either privately held or publicly held.  Cooperative: Often referred to as a "co-op", a cooperative is a limited liability business that can organize for-profit or not-for-profit. A cooperative differs from a for-profit corporation in that it has members, as opposed to shareholders, who share decision- making authority. Cooperatives are typically classified as either consumer cooperatives or worker cooperatives. Cooperatives are fundamental to the ideology of economic democracy.Classification of BusinessThere are many other divisions and subdivisions of businesses.  Agriculture and mining businesses are concerned with the production of raw material, such as plants or minerals.S.N.Selvaraj, M.B.A., M.Phil., (Ph.D)., Assistant Professor ( Page 14
  15. 15.  Financial businesses include banks and other companies that generate profit through investment and management of capital.  Information businesses generate profits primarily from the resale of intellectual property and include movie studios, publishers and packaged software companies.  Manufacturers produce products, from raw materials or component parts, which they then sell at a profit. Companies that make physical goods, such as cars or pipes, are considered manufacturers.  Real estate businesses generate profit from the selling, renting, and development of properties comprising land, residential homes, and other kinds of buildings.  Retailers and distributors act as middle-men in getting goods produced by manufacturers to the intended consumer, generating a profit as a result of providing sales or distribution services. Most consumer-oriented stores and catalog companies are distributors or retailers.  Service businesses offer intangible goods or services and typically generate a profit by charging for labor or other services provided to government, other businesses, or consumers. Organizations ranging from house decorators to consulting firms, restaurants, and even entertainers are types of service businesses.  Transportation businesses deliver goods and individuals from location to location, generating a profit on the transportation costs.  Utilities produce public services such as electricity or sewage treatment, usually under a government charter.Objectives and GoalsObjectives and goals are used interchangeably in management literature but the recent strategicmanagement literature shows a subtle distinction between these two terms. Objective is the end,which the organization tries to achieve through its operations. „Goal‟ is an open-ended statement,which does not quantify what needs to be achieved, and time frame for completion. So „growth‟is a goal whereas an objective is to „increase growth by 10% in terms of market share and salesover last year‟. Usually the long-term goals and short-term objectives are derived from mission.Significance of ObjectivesObjectives are formulated from mission statements. Objectives form the basis for all otherfunctional decisions such as finance, manufacturing, marketing and human resource. Objectivesare split into business wise objectives and functional targets and performance targets. Whilesetting objectives, the organization encounters the environment and determines the locus it willdevise to attain in the environment such as a dominant player, a meek player or one among theherd. Objectives and strategy put together, explain the firm‟s concept of business. Objectivesindicate the organizational performance to be realized and expected over a period of time.Consider the objectives of some organizations:Canara Bank: “The bank‟s stated objectives are growth, innovativeness, and high profits as abarometer of efficiency, highly involved employees distinctively charged with pride”.Maruti: “We don‟t just sell more car than No.2. We sell more cars than the entire competition puttogether”.Areas Where Objectives Are Set?Organizations follow multiple objectives such as:  GrowthS.N.Selvaraj, M.B.A., M.Phil., (Ph.D)., Assistant Professor ( Page 15
  16. 16.  Profitability  Market share  Productivity  Technology  R&D and Innovation  Corporate Social Responsibility  Image  Employee SatisfactionGrowth: Growth in sales, in profits and assets are indicators of a firm‟s financial soundness andlong-term welfare. Reliance Industries is a typical example, for growth objectives. Growth of afirm is ensured if growth in sales, profits and assets are ensured.Profitability: Profitability has several dimensions and it is measured in terms of return oninvestment, net worth, assets, revenue and earning per share. With profitability objective, the firmexamines the profit potential of present portfolio and reallocates accordingly. Some of thespecific issues are: (a) How are the present investments of the firm behaving? (b) What is the rate of return? (c) How is the spread of the investment?The example of ITC is worth studying. ITC has made investments in five main businessesnamely tobacco, agro products, financial services, paper and packaging, hotel and tourism.Market Share: Market share is a crucial indicator of the firm‟s growth and around market shareobjective, business level strategies are formulated. For many Japanese firms, building marketshare is synonymous with long run profits and brand building. Tata, Colgate BPL and P&G arecompanies that focus on market share as the key corporate objective. Colgate firmly believes thatit should have always 50% market share. The policy of P&G is „Profit via market share‟ and it isprepared to accept short-term loss to win over the established leader HLL and be a market leaderultimately.Technology: Corporate objectives are set in technology for companies like Du Pont and Intel. ForDu Pont, leadership in chemical technology and continuous new product development are theirmajor objectives. Product innovation is the key objective of Intel. Ranbaxy and 3M maintain thatR&D and new product development constitute a major objective for them.Human Resource: The software giant Infosys, set objective in human resource. Development of acadre of software professional is set as a major corporate objective. „Human Capital‟ is shown inthe balance sheet of Infosys as additional information.Corporate Image: Tata Group has set the objective of being viewed as a respectable businessgroup. They maintain transparency with regard to donations to political parties for their electioncampaigns and created an electoral fund. They project as a role model in the matter of corporategovernance.Social Responsibility: Social responsibility includes setting objectives in community welfare,public welfare and environmental protection. Tata Group has objectives relating to society. Theyare involved in rehabilitation of handicapped children.S.N.Selvaraj, M.B.A., M.Phil., (Ph.D)., Assistant Professor ( Page 16
  17. 17. Peter Drucker has recommended that companies should set goals and objectives in the followingareas: 1) Return on Investment 2) Market Share 3) Innovation 4) Productivity 5) Physical and Financial Resource 6) Manager Performance and Development 7) Worker Performance and Attitude 8) Social ResponsibilityIn recent times, Management By Objectives (MBO) receives much attention from the strategists.Characteristics of ObjectivesObjective setting is complex process. Well-formulated objectives possess certain characteristics. a) Specific b) Time bound c) Measurable d) Challenging e) Objectives form a hierarchy f) Constraints g) Verifiable h) TimeframeFormulation of ObjectivesFormulation of objectives and goals is a complex process. The strategists should consider thefour factors while evolving objectives. 1) The forces in the environment: The government regulations, powerful consumer groups, trade unions and influential suppliers exert enormous pressure on organization. The stakeholders, their priorities and views influence objective setting. 2) Realities of firm‟s resources and power relationship: Material and human resource are always scarce and powerful dominant groups try to take upper hand and exercise power over other group in framing objectives of their choice and allocate scarce resources in their favour. Internal power relationship influences objective setting. 3) The values of top management: Values of enduring beliefs, about what is good or bad, desirable or undesirable. The top management may have entrepreneurial value and a philanthropic value or social responsibility value which in turn will influence their goal setting. 4) Past Strategies: Strategies and objectives followed in the recent past are likely to have deep impact and radical deviation from them will not be possible. The changes from current objectives will be marginal and incremental in nature.Objectives and Strategic ManagementObjectives are important for strategic management for the following reasons: 1. Objectives help to relate the organization in the environmental context. It helps to attract people with identical frame of mind. 2. Objectives help to coordinate decisions. All employees are aware of the objectives and stated objectives proved to be a means of coordination.S.N.Selvaraj, M.B.A., M.Phil., (Ph.D)., Assistant Professor ( Page 17
  18. 18. 3. Objectives serve as standards of appraising organizational performance. They serve as a basis for evaluating success or failure of organization. CORPORATE GOVERNANCE AND SOCIAL RESPONSIBILITYA corporation is a business entity in which different stakeholders contribute capital, labour andknow-how for their mutual benefit. Management runs the business without being personallyresponsible for providing fund. The stakeholders share the profit without being responsible forthe operations and they have limited liability. They elect the directors who have the authority andresponsibility to establish basic corporate policies. The Board of Directors normally approves alldecisions that affect long-term performance of the Corporation.Board of Directors, who supervises top management with the concurrence of the shareholders,governs the corporation. The term „corporate governance‟ means the relationship among the threegroups i.e. Board of Directors, Shareholders and Top management, in determining the directionand performance of the organization. Corporate governance also enables the Board of Directors,institutional investors and large shareholders to monitor the firm‟s strategies to ensure effectivemanagerial response.Board of DirectorsThe Board has collective responsibility for the functioning of the enterprise. The Board exercisesits authority in accordance with the Memorandum of Association and Articles of Association ofthe company. The Income Companies Act defines „Director‟ as any person occupying theposition of the Director. The Board of Directors is a group of persons wherein each one is aDirector.In Section 252 of the Indian Companies Act, a public limited company should have threedirectors at least and the maximum may be twenty. The Board of Directors in public sector banksappoints Works Director. The Government appoints Directors on the board of public sectorenterprises and they are drawn from the concerned Administrative Ministry and FinanceMinistry. The Board is involved in selection of Chief Executive Officer and in the selection ofmission and goals for the organization.The collective body of Board of Directors has total power over the Chief Executive Officer. Inprivate sector company like Hindustan Unilever Limited, Larsen and Toubro (L&T) and in publicsector company like BHEL, The Board shows and active involvement in the strategic affairs ofthe company. Enterprises such as Hindustan Unilever Limited, Indian Tobacco Company (ITC)and Indian Explosives Ltd have a larger proportion of Whole Time Directors. Firms such asLarsen and Toubro and TISCO go for Whole Time Directors and Part Time Directors in equalnumber. The Part Time Director is usually an outstanding technologist, an economist, a legalexpert, a renowned banker, a consultant or a leading businessman.Role of Board of DirectorsThe Board carries out three basic tasks for strategic management. 1) Monitor: The Board should be aware of the developments within and outside the organizations and bring it to the notice of the management. 2) Evaluate: A Board should analyze the plans, decisions and actions of management and highlight the positive and negative side of the issues and suggest alternate proposal.S.N.Selvaraj, M.B.A., M.Phil., (Ph.D)., Assistant Professor ( Page 18
  19. 19. 3) Initiative and Determine: In evolving the mission and finalizing the strategic choice, the Board can exhibit its aggressive nature.Kenneth Andrews observes “A responsible and effective Board should require of the managementa unique and durable corporate strategy, review it periodically for its validity, use it as a referencepoint of all other Board decisions and share with management the risks associated with itsadoption”.Though one could notice a vast difference between the functioning of Boards in private, public,family owned and multinational corporations, the Board is expected to provide direction inmatters of vital significance such as technology collaborations, new products development andsenior management appointments. Boards are usually active in evaluating corporate strategy andperformance and they evaluate corporate performance on both financial and nonfinancialgrounds. Strategists discuss their strategies with the Board to find out the Board‟s feedback abouttheir stewardship and strategy.Responsibilities of BoardIn India, Section 291 of the Indian Companies Act 1956 enlists the general powers of the Boardas follows: 1. Subject to the provisions of the Act, the Board of Directors of a company shall be entitled to exercise all such powers and to do all such acts and things, as the company is authorized to exercise and do. 2. No regulation made by the company is general meeting shall invalidated any prior act of the Board which would have been valid if the regulation had not been made.Chief Executives Officers (CEO)The CEO of a firm performs different roles such as strategist, organization builder and a leaderbut in India CEOs gets involved in day-to-day operations and they get less time for strategicissues. Peter Waterman has concluded in “In Search of Excellence” that “associated with almostevery company was a strong leader who seemed to have had a lot to do with making the companyexcellent in the first place”.The CEO is responsible for defining what business the firm is in and aligns the best product ormarket opportunities with the best use of enterprises‟ resources. The CEO has to conceptualizethe strategy and continue with the strategic management process.According to Mintzberg, the CEO alone is making major key decisions about programmes inorder to exploit particular opportunities and he serves as a pivotal figure in strategy formulation.George Steiner rightly points out that “there can and will be no effective strategic planning in anorganization in which chief executive does not give firm support and make sure that others in theorganization understand his depth of commitment.Mintzberg has conducted in his research study that CEO does as many as ten roles such as: 1. Figure head role 2. The leader role 3. The leader role 4. The liaison role 5. The recipient role 6. The disseminator role 7. The disseminator role 8. The spokesperson roleS.N.Selvaraj, M.B.A., M.Phil., (Ph.D)., Assistant Professor ( Page 19
  20. 20. 9. The entrepreneur role 10. The disturbance handler role 11. The negotiator role 12. The resource allocator roleCEOs responsibilities include executive leadership and strategic vision. In the words of JohnJack Welch Jr., CEO of GE “Good business leaders create a vision, articulate the vision,passionately own the vision and relentlessly drive it to completion.Bill Gates of Microsoft, Anita Roddick of the Body Shop, Ted Turner at CNN, Steve Jobs atApple Computer, Herb Kellher of Southwest Airlines, Narayanamurthy of Infosys, Asim Premjiat Wipro, Bai Parvindar Singh at Ranbaxy and Andy Grove at Intel are charismatic leaders withpositive attitude.According to the survey among 1500 senior executives drawn from 20 countries, 98% ofrespondents consider that “a strong sense of vision” must be conveyed by a CEO, which is aninevitable trait a CEO should have.Corporate Planning StaffThese planners are found in large organizations and they are staff specialists and provide staffsupport services. They identify business opportunities, scan environmental factors, analyzestrategic choice and review strategic performance. Firms such as Gujarat Steel Tubes, SundaramClayton Ltd, Max India and Essar Steel have separate planning departments.ConsultantsThe public sector enterprises and family owned enterpr4ises make use of consultant‟s servicesextensively. Tata Consultancy Services, Price Waterhouse, ABC Consultants and A.F.Fergusonare some notable consultants. Many consultants offer service in the area of strategic management.They serve as advisors to the chief executives and help in designing and implementing a formalstrategic management system. Outside consultants are hired where the corporate planningdepartment does not exist. Sometimes consultants are employed to get unbiased and objectiveview about the situation and the firm.Board CommitteesThe Board of Directors can appoint committees according to the proviso to Section 292 of theIndian Companies Act for the following purposes. a) Borrowing money for the company other than by debentures b) Investing the funds of the company and c) Making loansThey are called Standing Committees of the Board and members of these committees are outsideDirectors. The Board of Directors appoints these committees for specific issues for a specificperiod and they will submit the report after analyzing the issues.In public sector banks they are called Audit Committee, Credit Committee, Risk ManagementCommittee, Investors‟ Grievance Committee and Management Committee. These committeesmeet during the interval between Board meetings.Corporate Social ResponsibilityCorporate social responsibility has become an integral part of corporate strategy. It means openand transparent business practices that are based on ethical values and respect for employees,S.N.Selvaraj, M.B.A., M.Phil., (Ph.D)., Assistant Professor ( Page 20
  21. 21. community and the natural environment. It is designed to deliver sustainable value to society atlarge as well as to shareholders. Some of the benefits of being socially responsible is that theycan attract good employees who prefer working for a responsible firm (P&G).TheoryThe corporate social responsibility theories and related approaches are classified into four groups: 1. The instrumentation theories, in which the corporation is seen as only an instrument for wealth creation and its social activities are only a means to achieve economic results. 2. Political theories, which concern themselves with the power of corporations in society and a responsible use of this power in the political arena. 3. Integrative theories, in which the corporation is focused on the satisfaction of social demands. 4. Ethical theories, based on ethical responsibilities of corporations to society.A number of studies have conducted to determine the correlation between corporate socialresponsibility and corporate financial performance. Research studies show a positive correlationbetween them.Wealth CreationFriedman views that any business exists for wealth creation and he accepts free market, laws andethical customs. Friedman argues against the concept of social responsibility. According to him,if the firm acts responsibly by cutting the price of company products, spending on pollutionprevention, it is spending the stakeholders‟ money for general social interest.In his opinion “there is one and only one social responsibility of business – to use resources andengage in activities designed to increase in profits so long it engages in open and freecompetition. A firm is basically an economic institution.According to Archie Carroll business organizations have four responsibilities: economic, legal,ethical and discretionary. Carrol’s three dimensional conceptual model of corporate performanceEconomics Legal Ethical DiscretionaryMust do Have to do Should do Might do Social responsibilities  The firms are expected to produce goods and services of value to society.  The firms should obey laws which are in force  Ethical behavior includes the firms‟ responsibility to follow generally held beliefs about behavior in a society.  Discretionary responsibilities are purely voluntary obligations, which a corporation undertakes such as training to agriculturist, rural development schemes etc.Friedman believes that socially responsible actions hurt a firms‟ efficiency whereas Carrollpoints out that absence of social responsibility results in government regulation and resentment inthe minds of various stakeholders.S.N.Selvaraj, M.B.A., M.Phil., (Ph.D)., Assistant Professor ( Page 21
  22. 22. Keith Davis’s point of view provides another perspective to social responsibility. According toDavis, organizations draw resources from society as members of society. They have aresponsibility to return to society the value of those resources as desired by the society. In hisopinion 1. Social responsibility arises from social power enjoyed by the firm. 2. The firm should disclose its activities to the public through social audit. 3. The social costs and benefits of social responsibility activities and services should be calculated for decision making. 4. The social cost should be included in the price. 5. The firm should solve societal problems by improving education.Areas of social responsibility (a) Pollution control (b) Health and Hygiene (c) Training self-help (d) Philanthropic activitiesIndian organizations like ICICI and Canara Bank have provided that socially responsiblebehavior and world-class performance can go together.A few case studies of Indian IT companies are worth mentioning.  Tata Consultancy Services has developed computerized programmes to address the adult literacy program in India. TCS has undertaken special adult literacy projects in Andhra Pradesh and Tamilnadu.  V.Moksha is educating young girls with necessary hardware training programme.  Dr.Reddy‟s Laboratories started LABS (Livelihood Advancement Business School) in 1999. Under LABS Dr.Reddy‟s Labs trains underprivileged youngsters, street children, for livelihood earnings and for entry level positions.  Sundrop is popular edible oil company which contributes to Rs.1 to Narayana Hrudayala Heart Hospital for every one litre of sundrop sold in order to treat children with cardiac disorders.  India Today set up Care Today Foundation during the Kargil conflict in 1999. The foundation works for rehabilitation of Kargil soldiers, cyclone victims, drought victims and earth quake victims with medical care.Many Indian companies such as Asian Paints, TISCO, ITC, Colgate, BHEL, Brooke Bond carryout social responsibility activities. However it falls short of a vast nation‟s requirement.Business EthicsEthics is defined as the discipline dealing with good and bad and with moral duty andobligations. Business ethics is concerned with truth, justice and a variety of aspects such as theexpectations of society, fair competition, advertising, public relations, social responsibilities,consumer autonomy and corporate behaviour at home country and abroad. Managers and topmanagement have a responsibility to institutionalize ethics by framing a code of ethics for theorganization.Values are those which are considered to be desirable by individuals. A value is a view of life anda judgment of what is desirable that is part of a person‟s personality and group morale. Sobenign attitude to labour, service mindedness are values. While J.R.D. Tata describing TataS.N.Selvaraj, M.B.A., M.Phil., (Ph.D)., Assistant Professor ( Page 22
  23. 23. Group of Concerns point out “I would call it a group of individually managed companies unitedby two factors. o First, a feeling that they are part of a larger group which carries the name and prestige of Tatas and public recognition of honesty, reliability and trust worthiness. o The other reason is more metaphysical. There is an innate loyalty, a sharing of certain beliefs; we all feel a certain pride that we are somewhat different from others”.The KPMG India survey points out that the major unethical concerns among Indian companiesare misuse of confidential information, poor quality of goods and services, insider trading,receiving gifts or favours from suppliers and corruption.Some of the areas where ethical practices needed are:  Recruitment and selection to ensure compatibility of the character traits of potential employes with the system  Incorporating values, ethics in employee training  Top management and superiors‟ compliance with ethical standard  Monitoring areas where unethical activities could happen such as purchase, supplier, government, external agencies etc.TheoriesIn the filed of ethics three types of ethics have been developed. 1) The Utilitarian Theory 2) The Theory based on Rights 3) The Theory of JusticeThe Utilitarian Theory suggests that plans and actions should be evaluated by their consequences.It means that plans and actions should produce the greatest goods for greatest number of people.When the Utilitarian Theory is extended to an enterprise, it should optimize satisfaction to allstakeholders.The Theory based on Rights holds that all people have basic rights and it should be respected inall decisions. Rights of al individuals should be respected and those decisions, which interferewith other individuals‟ freedom, should be avoided.However, business managers are aware that ethical standards differ from nation to nation. Forexample, business houses in India make contributions to political parties. In some countriesgovernment officials are influenced with money to handle business transactions favourably.Corruption in many countries is rampant and is looked upon as normal. Managers have to makecrucial choices when ethical standards differ from one country to another.References 1. Azhar Kazmi, Strategic Management & Business Policy, Tata McGraw Hill, New Delhi, 3rd Edition, 2008. 2. Dr.M.Jeyarathnam, Strategic Management, Himalaya Publishing House, 5th Edition, 2011. 3. Charles W.L. Hill & Gareth R.Jones, Strategic Management Theory, An Integration Approach, Biztantra, Wiley India, 2007.S.N.Selvaraj, M.B.A., M.Phil., (Ph.D)., Assistant Professor ( Page 23