business policy and strategic management

457 Pages·2017·6.61 MB·English

by  Francis Cherunilam

Business Policy and
Strategic Management
Francis Cherunilam
M.A.,M.B.A.,D.D.P.,Ph.D.
Director
MangalamManagementStudies,
MangalamCampus,
Ettumanoor–686631.
(FormerlyProfessorandChairman,MarketingArea,IIMK;
Director,SchoolofManagementStudies,
CochinUniversityofScience&Technology;
Director,AlbertianInstituteofManagement,Cochin;
Director,KochiBusinessSchool,Cochin)
E-mail:[email protected]
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Preface To The Fourth Edition
This is a thoroughly revised, significantly modified and enlarged edition. Every chapter has
undergone some or other modification – revision, restructuring, elaboration etc. A number of new
diagrams, boxes and examples have been added with a view to making the book more insightful and
interesting.
Thecurrenteditionhas20chapters,comparedto17ofthepreviousedition.Thenewchaptersare:
Social, Environmental and Economic Responsibilities of Business; Environmental Forecasting and
AnalysisandKnowledgeManagement.
Chapters 1 and 2 have been modified with addition of new diagrams, boxes and explanations.
Chapters 3 and 4 have been substantially restructured and enlarged, making them very contemporary.
The chapter on Business Environment is characterised by substantial modification of the content and
remodelingofthepresentationandtreatmentofthesubjectmatter.ThechapteronSWOTAnalysisand
StrategyFormulationhasbeenmodifiedandenlarged.
The addition of the topic ‘role of leadership in strategic management’ is the salient modification
tothechapteron‘StrategyImplementation.’
Chapters which have been subjected to very substantial restructuring, revision and elaboration
include Mergers and Acquisitions, Turnaround Management and Corporate Restructuring and
Globalisation.
A lotofthinkinghas gone intodecidingaboutthe casesto beincludedin this book. Threeofthe
5casesarenew.
I profusely thank the academic community for the useful feedbacks and the unstinted
encouragement. Words fail in thanking the Himalaya Publishing House Pvt. Ltd. for the constant
encouragement.
Cochin,
18thOctober2014
Dr. Francis Cherunilam
Contents
1. StrategicManagement:AnIntroduction 1–37
Prelude; strategic management: meaning and scope; core competence;
classes of decisions; levels of strategy; roles of different strategists;
approaches to strategy making; strategic management process; principles of
good strategy; TQM and strategic management; international strategic
management; benefits and relevance of strategic management; limitations
and misgivings; growing relevance of strategic management in India;
references.
2. Vision,MissionandObjectives 38–61
Inter-relationship;vision; mission; objectives, goals and targets; importance
of objectives; guidelines for ideal objectives; factors affecting objectives;
hierarchy of objectives; classification of objectives; top-down and bottom-up
approaches;references.
3. Social,EnvironmentalandEconomicResponsibilitiesofBusiness 62–82
CSR and TBL; government guidelines; Companies Act 2013 and CSR;
social audit; World Business Council For Sustainable Development;
references.
4. CorporateGovernance 83–110
What is corporate governance?; importance of corporate governance;
corporate governance determinants; benefits of good corporate governance;
principles of corporate governance; the Indian scenario; references;
appendix4.1:SEBI
5. BusinessEnvironment 111–159
Firm-environment fit; economic transformation of India; social
transformationof India;India’s demographic dynamics;globaldemographic
trends; changes in global political environment and their economic/business
impacts; technological revolution; global economic power shift; conclusion;
references.
6. EnvironmentalForecastingandAnalysis 160–172
Relevance; techniques for environmental analysis; steps in/approaches to
environmentalforecasting;typesofforecasting;techniquesofenvironmental
forecasting; benefits/importance of environmental analysis; limitations of
environmentalforecasting;references.
7. SWOTAnalysisandStrategyFormulation 173–182
SWOT analysis, relating SW and SOT, Tows matrix, process of SWOT
analysis,benefitsandpitfallsofSWOTanalysis.
8. StrategyImplementation 183–197
Differences between strategy formulation and strategy implementation;
components of strategy implementation; steps in strategy implementation;
approaches to strategy implementation; role of leadership in strategic
management;references.
9. StrategyandStructure 198–211
Strategy-structure relationship; criteria for success (7S framework);
organisational restructuring and transformation; organisation: principles and
types; principlesof organisation;types of departmentalisation/organisational
structure;references.
10. StrategyEvaluationandControl 212–224
Why control?; strategic control; operational control; types of operational
control; PERT/CPM; preventive control; essential features of an effective
evaluationandcontrolsystem;contingencyplanning;references.
11. PortfolioStrategy 225–240
Business portfolio analysis; BCG matrix; GE multifactor portfolio matrix;
an evaluation of portfolio models; portfolio restructuring; trends in portfolio
strategy; factors influencing portfolio strategy; the Indian scenario;
references.
12. CompetitiveAnalysisandStrategies 241–263
Structuralanalysisofindustries;structuralanalysisandcompetitivestrategy;
structural analysis and competitive strategy; strategic groups; value chain;
strategic positioning; business level generic competitive strategies; four
routestostrategicadvantage;references.
13. CorporateLevelGenericStrategies 264–267
Stability strategy; growth strategy; retrenchment strategies; defensive
strategies;combinationstrategy;references.
14. BusinessGrowth 268–281
How and why of businesses grow?; reasons for growth; indicators of
growth; risks of growth; growth strategies; integrative growth strategies;
diversification;externalgrowthstrategies;references
15. MergersandAcquisitions 282–320
Mergers and acquisitions – meaning and types; M&A waves; reasons for
M&A; disadvantages of/pitfalls in M&A; theories of mergers; management
of M&A; acquisition strategy; procedural formalities; post-merger
integration; defence strategies; cross-border acquisitions and FDI; M&As in
India;regulationoftakeovers;references.
16. TurnaroundManagementandCorporateRestructuring 321–338
Danger signals; turnaround management; corporate restructuring; forms of
corporate restructuring; corporate restructuring in India; business process
reengineering;references.
17. Globalisation 339–361
Meaning and dimensions; stages of globalisation; globalisation of supply
chain; standardisation versus glocalisation; essential conditions for
globalisation; competitive advantage of nations; globalisation of Indian
business;globalisationstrategies;references
18. FunctionalStrategies 362–373
Operations management strategies; marketing management strategies; HRM
strategies;financialmanagementstrategies;references.
19. KnowledgeManagement 374–402
Meaning, nature and characteristics of knowledge; knowledge management;
knowledgemanagementframework;importanceofknowledgemanagement;
knowledge generation;steps in knowledge management process; knowledge
generation; role of R&D/innovation and technology in strategic
management;importanceofinnovation/technologyto firms;IT andstrategic
management;innovation;sourcesoftechnologicaldynamics;references.
20. ManagementofChange 403–411
Types of change; barriers to change; change requirements; implementation
ofstrategicchange;conclusion;references.
Cases 412–450
1. StrategicBreakthroughatHLLLifecare
2. CorporateRejuvenation
3. KSRTCandKSRTC
4. CoreHealthcareLtd.
5. Marketing Warfare and Evolution of Corporate Strategies vis-à-vis
IndianDetergentIndustry
CHAPTER
Strategic Management:
1
An Introduction
PRELUDE
The Setting
AsrenownedManagementGuruPeterDruckerhasbeautifullyputit,managementhas“nochoice
buttoanticipatethefuture,toattempttomoldit,andtobalanceshort-rangeandlong-rangegoals.The
future will not just happen if one wishes hard enough. It requires decision – now. It imposes risk –
now.Itrequiresaction–now. Itdemandsallocationofresources–now.It requireswork–now”.1All
thesearerolledintowhatisknownasBusinessPolicy/StrategicManagement/CorporateStrategy.
The profound importance of Strategic Management is highlighted by Drucker in his observation
that the ultimate objective of strategic planning “is to identify the new and different businesses,
technologies,andmarketswhichthecompanyshouldtrytocreatelongrange.Buttheworkstartswith
the question what is our present business? Indeed, it starts with the questions which of our present
businessesshouldwe abandon?Which shouldwe play down? Which shouldwe push and supplynew
resourcesto?”2
The sweeping changes in the business environment, driven mostly by the mutually reinforcing
triple forces – liberalisation, privatisation and globalisation – have made the above questions
immensely relevant, making strategic management all the more important. The above-mentioned
forcescombined with the technological and managerial revolutions, rising customer expectations, and
the competitive race have made the business horizon a fast changing and, in many cases, a very
discontinuousone.
In many industries across the world, the business environment is characterised by turbulent
changes. The causes and consequences: ground rules of competition change, industry boundaries are
redrawn, new industries and products are created and established industries are reinvented. Managing
forthefuturehasbecomecompetingforthefuture.
The enormous changes in the business opportunities and threats as a result of the economic
liberalisation in India, ushered in 1991, and the consequential dramatic changes in the business
environmenthavedrasticallyalteredthefortunesofcompanies.
As the environment changes, companies may change their vision and objectives, structure,
portfolio of business, markets and competitive strategies. In the liberalised business environment,
2 BusinessPolicyandStrategicManagement
many companies have exited some of their businesses, a number of companies have entered new
businesses while many have both dropped some businesses and added new ones. The number of
companies which have restructured their business, organisation and functional strategies is on the
increase. The economic liberalisation and the concomitant wide opening up of business opportunities
and increase in competition have, in fact, made strategic management a buzz-word among the Indian
corporates. Prior to 1991, the scope of or need for strategic management in India was limited due to
the controlled regime and absence of limited competition. The liberalisation has, however, vastly
changedthescenario.
Gary Hamel andC.K. Prahalad,the renownedpropoundersofcorecompetence, intheprefaceto
theirbestsellerCompetingfortheFutureobserve:“Substantialchallengesfaceanyorganisationintent
on getting to the future first. The first challenge, how to navigate from here to there, arrives as both
publicandprivateinstitutionsstruggletoplotacoursethroughanincreasinglyinconstantenvironment,
where experience is rapidly devalued and familiar landmarks no longer serve as guideposts. Never
before has the institutional terrain been changing so quickly or have industry boundaries been so
malleable. Never before have competitors, partners, suppliers, and buyers been so indistinguishable.
How,then,doesonegettothefuturefirstevenwhenthere’snomap?”3
Indeed,thestruggleforexistenceandgrowthisveryhardforfirmsinacompetitiveenvironment.
Fortunes of companies change – some times very fast and drastically. The positions of companies in
the rank list of dominance flip and slip, some disappearing from the list while new ones enter. Many
multinationals,with annual turnoverslarger thanthose of GDPs ofmost nations, pass throughperiods
of huge losses. Even mighty MNCs who are industry leaders are humbled by young firms. Size and
resources alone do not ensure success. There are many examples of less resourceful companies with
strategicintentandstretchhavingbecomemagnificentsuccess.
Conceptual Issues
The terms Business Policy, Strategic Management and Corporate Strategy/Planning are often
usedinterchangeably.Theircombineduse,however,causesconfusion.WilliamGlueck,awell-known
author on this subject, in his book Business Policy and Strategic Management points out that
“business policy is a term traditionally associated with the course in business schools devoted to
integrating the educational program of these schools and understanding what today is called strategic
management.”4 This connotes that strategic management is the modern term for what was earlier
calledbusinesspolicy.
BusinessPolicyasacoursebegantobeincludedinthecurriculumoftheBusinessSchoolsinthe
US in the 1950s following the Gordon-Howell research sponsored by the Ford Foundation and
Carnegie Corporation. The objective of this course was to provide an integrated approach by binding
together appropriately the various courses like Marketing, Finance, Organisational Behaviour, and
Operations Management which the students learn in the earlier semesters. Business Policy, thus,
soughttoapplyaholisticapproachtobusinessproblemanalysisanddecisionmaking.
The Gordon-Howell Report gained widespread acceptance that by early 1970s, most Business
Schools in the US included Business Policy courses within their curriculum requirements. “As time
passed, however, the focus of the course became wider and it began to consider the total organisation
anditsenvironment.Forexample,itaddressedissuessuchassocialresponsibilitiesandethics,aswell
asthepotentialimpactsofpolitical,legislative,andeconomiceventsonthesuccessfuloperationofan
organisation.”5
StrategicManagement:AnIntroduction 3
Since 1980s, researchers and perspective thinking of a number of scholars like Michael Porter,
C.K. Prahalad and Gary Hamel, contributed substantially to the development of this subject, by
enlarging the analytical kit and shaking the mind-set for strategic thinking. This newer, broader
emphasis prompted leaders in the field to change the name of the course from business policy to
strategicmanagement.Thus,strategicmanagementisabroadertermthanbusinesspolicy.
However, as mentioned earlier, the terms business policy and strategic management are often
used as synonymous; but some people give different interpretations to these terms. By the term
business policy, some refer to the strategy; strategic management encompasses both strategy
formulationandimplementation.
However, even most authors who have titled their books on this subject as Business Policy
define it as strategic management and in the text they more often use the term strategic management
and the use of the term business policy is rare. In his book Business Policy, which has been subtitled
Strategy Formation and Management Action, Glueck describes “Business Policy as the strategic
planning process in business and other institutions in a developed society.”6 William Boulton in his
book Business Policy, sub-titled The Art of Strategic Management, states that “business policy is the
study of how organisations determine and achieve their purposes. The study is concerned with the
ability of organisations to achieve their objectives in a specific environment and with the top level
managers of organisations who must both lead and motivate people to achieve those objectives. It is
theactionsofsettingorganisationalpoliciesthatwerefertoasstrategicmanagement.”7
In the Harvard Business School, where business policy is a required course, the first half of the
courseconsiderstheformulationofeffectivestrategies.Thisinvolvestheidentificationandanalysisof
problem situations. Problems are approached from the point of view of the chief executive or general
manager,who isresponsibleforthe enterpriseasa whole.The secondhalfofthecourse considersthe
implementation of the selected strategy. It examines two major processes for which the general
manager must take principal responsibility: achieving stated objective and assuring that the
organisationisabletorenewitselfbyestablishingnewobjectives.
Although terms such as Strategic Management, Corporate Strategy and Corporate Planning are
often used interchangeably, a distinction may be drawn between some of them. For instance, a
differentiation may be made between corporate planning and corporate strategy. Even in the absence
of competition, a company may have a corporate plan – a long-term development plan. For example,
even monopoly environment companies like the Indian Telephone Industries and Cochin Refineries
(CRL) had corporate plans but they were not corporate strategy or strategic management. However,
when the corporate plan is formulated in a competitive environment, it would amount to corporate
strategy/strategic management. The planning premise and the nature of the plan would, obviously, be
different in such an environment. It may be noted that after the liberalisation the CRL modified its
mission, incorporating marketing of petroleum products in the scope its business, and formulated
strategiestocopeupwiththeemergingcompetitiveenvironment.WhenHMThadanearmonopolyin
the domestic watch industry, its main task, particularly in the context of short supply, was supply
management.But, in a competitiveenvironment, the major challenge is demand management – it is a
marketsharegame.
It is interesting to note that the first thrust area outlined by the second Corporate Plan (1990-95)
of the CRL was “to strengthen business development effortsand to maintain constant liaison with the
Governmentso as to play animportant role in the policy formulations.” Rapport with the government