STRATEGY, ETHICS & SOCIAL RESPONSIBILITY
*Shanmukha Rao. Padala **Dr. N. V.S. Suryanarayana
The earlier days’ concept is, the managers focused on ‘today’s decisions for today’s business’. However, the rapid change experienced by companies has made the managers to anticipate the future and prepare for it. They have prepared systems, procedures and manuals and evolved budgets and planning 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 in turn gives rise to strategic planning and subsequently to strategic management.
Strategic management deals with decision making and actions which determine an enterprise’s ability to excel survive or die by making the best use of firms’ resources in a dynamic environment. The main purpose of study of strategic management is to examine why some organizations succeed while others fail and yet others completely change. Before going to discussing about strategic management, it is necessary to point out on ‘Strategy’ in this chapter.
Strategy is the overall plan of a firm deploying its resources to establish a favourable position and compete successfully against its rivals. Strategy describes a framework for charting a course of action. It explicates an approach for the company that build on its strengths and is a good fit with the firm’s external environment. It is basically intended to help firms achieve competitive advantage. Competitive advantage allows a firm to gain an edge over rivals when competing. Competitive advantage comes from a firm’s unique ability to perform activities more distinctively and more effectively than rivals. A firm’s distinctive competence or unique ability here implies, those special capabilities, skills, technologies or resources that enable a firm to distinguish itself from its rivals and create competitive advantage (such as superior quality, design skills, low-cost manufacturing, superior distribution etc.).
The term ‘terrain’ is highly relevant in explaining the concept of strategy more clearly. From a business sense, terrain refers to markets, segments and products used to win over customers. The essence of strategy is to match strengths and distinctive competence with terrain in such a way that one’s own business enjoys a competitive advantage over rivals competing in the same terrain. The basic premise of strategiy, as things stand now, is that an adversary can defeat a rival- even a large, more powerful one- if it can manoeuvre a battle or engagement on to a terrain favourable to its own capabilities. The term ‘Capability’ refers to the ability or capacity of a bundle of resources deployed by a firm to perform an activity.
The word strategy came from the Greek word ‘strategy’, which means a ‘general’. At that time, strategy literally meant the art and science of directing military forces. Today strategy is used in business to describe how an organization is going to achieve its objectives. Strategic management may be defined as a systematic approach to positioning the business in relation to its environment to ensure continued success and offer security from surprises. While no approach can guarantee continuous success and total security, an integrated approach to strategy formulation, involving all levels of management, can go some way in this direction. In simple words strategy can be defined as ‘Strategy is ideas and actions to conceive secure the ‘Future’.
DEFINING AND EXPLAINING STRATEGY:
Management is an art as well as science. Many of the concepts used in building management theory have been derived from practice. Unlike the pure sciences which have their foundation in experimental research, management studies draw upon the practical experiences of managers in defining concepts. Business policy is rooted in the practice of management and has passed through different phases before taking its shape in the from strategic management. One of the earliest contributors to this yoiung subject was Alfred D Chandler.
Alfred D Chandler (1962)
Chandler made a comprehensive analysis of interrelationships among environment, strategy, and organizational structure. He analysed the history of organizational change in 70 manufacturing firms in the US. While doing so, Chandler defined strategy as: “The determination of the basic long-term goals and objectives of an enterprise and the adoption of the course of action and the allocation of resources necessary for carrying out these goals”. Note that Chandler refers to three aspects:
- Determination of basic long-term goals and objectives,
- Adoption of courses of action to achieve these objectives, and
- Allocation of resources necessary for adopting the courses of action.
Kenneth Andrews (1965)
Andrews belongs to the group of professors at Harvard Business School who were responsible for developing the subject of business policy and its dissemination through the case study method. Andrew defines strategy as: “The pattern of objectives, purpose, goals and the policies and plans for achieving these goals stated in such a way so as to define what business the company is in or is to be and the kind of company it is or to be”. This definition refers to the ‘business definition’, which is a way of stating the current and desired future position of company, and the objectives, purposes, goals, major policies and plans required to take the company from where it is to where it wants to be.
Igor Ansoff (1965)
Professor Ansoff is a well-known authority in the field of strategic management and has been a prolific writer for the last three decades. In one of his earlier books, Corporate Strategy (1965), he explained the concept of strategy as: “The common thread among the organisation’s activities and product-markets….. that defines the essential nature of business that the organization was or planned to be in future”.
Ansoff has stress on the commonality of approach that exists in diverse organizational activities including the products and markets that define the current and planned nature of business.
William F Glueck (1972)
Another well-known author in the area of strategic management was Glueck, who was a Distinguished Professor of Management at the University of Georgia till his death in 1980. He defined stragety precisely as: “A unified, comprehensive and integrated plan designed to assure that the basic objectives of the enterprise are achieved”. The three adjectives which Glueck has used to defined a plan make the definition quite adequate. ‘Unified’ means that the plan joins all the parts of an enterprise together, ‘comprehensive’ means it covers all the major aspects of the enterprise, and ‘integrated’ means that all parts of the plan arte compatible with each other.
Henry Mintzberg (1987)
Mintzberg of McGill University is a noted management thinker and profile writer on strategy. He advocates the idea that strategies are not always the outcome of rational planning. They can emerge from what an organization does without any formal plan. He defines strategy as: “a pattern in a stream of decisions and actions”. Mintzberg distinguishes between intended strategies and emergent strategies. Intended strategies refer to the plans that managers develop, while emergent strategies are the actions that actually take place over a period of time. In this manner, an organization may start with a deliberate design of strategy and end up with another form of strategy that is actually realized.
Michael E Porter (1996)
Michael Porter of the Harvard Business School has made invaluable contributions to the development of the concept of strategy. His ideas on competitive advantage, the five-forces model,k generic strategies, and value chain are quite popular. He opines that the core of general management is strategy, which he elaborates as: “….. developing and communicating the company’s unique position, making trade-offs, and forging fit among activities”.
Strategic position is based on customers’ needs, customers’ accessibility, or the variety of a company’s products and services. A company’s unique position relates to choosing activities that are different from those of the rivals, or to performing similar activities in different ways. However, a sustainable strategic position requires a trade-off when the activities that a firm performs are incompatible. Creation of fit among the different activities is done to ensure that they relate to each other.
It must be noted that the different approaches referred to above to define strategy cover nearly a quarter of a century. This is an indication of what a complex concept strategy is and how various authors have attempted to define it. To put it in another way, there are as many definitions as there are experts. The same authors may change the approach they had earlier adopted. Witness what Ansoff said 19 years later in 1984 (his earlier definition is of 1965): “Basically, a strategy is a set of decision-making rules for the guidance of organizational behaviour”.
ANALYSIS OF DEFINITIONS OF STRATEGY:
The analysis of various definitions of strategy presents the following points:
- Strategy is a central understanding of the strategic management process.
- Strategy is the determination of basic long-term goals and objectives of an organization.
- Determining the course of action to attain the predetermined goals and objectives.
- Allocating the necessary resources for implementing the course of action.
- Developing the company from its present position to the desired future position.
- Set of decision-making rules making a common thread.
- The common thread pulls the policies, plans, goals, objectives of the different functional areas of business such as finance, marketing, production/operatins and human resource together and interweaves them as a unified comprehensive and integrated plan, action and evaluation.
- Set a clear direction.
- Enterprise knows it strengths and weakness compared with those of its competitors.
- Enterprise devotes its hard-won resources to projects that employ its set of core competencies, the primary skills within the organization.
- Identify factors in the political and social environment that requires careful monitoring.
- Recognize which competitor’s actions need critical attention.
- The competitive firm should have a rational, clear-headed notion, purged of wishful thinking of (i) its mission, (ii) its external competitive environment (for analyzing opportunities and threats) and (iii) its internal capabilities (including strength and weaknesses).
ELEMENTS OF A STRATEGY:
Any coherent strategy should have four important elements:
- Goals: A strategy invariably indicates the long-term goals toward which all efforts are directed. For example long-term goals might to be ‘dominate the market, to be the technology leader or to be the premium quality firm’. Such enduring goals help employees give their best in a unified manner and enable the firm to specify its competitive position very clearly to its rivals. An advertisement from Maruti Suzuki for example, claims: “we don’t just sell more cars than No.2. We sell more cars than the entire competition put together”. Maruti’s commitment to being number one (sales, distribution network, lower cost producer, highest resale value, one stop solution provider etc) or two in the markets it serves sends clear signals to its rivals in more than one way. But at present, the entire automobile world is shaking due to introduce the ‘NANO’ car by the TATA Group of Industries at least cost throughout the world.
- Scope: A strategy defines the scope of the firm that is, the kind of products the firm will offer, the markets (geographies, technologies, processes) it will pursue and the broad areas of activity it will undertakes. It will, at the same time, throw light on the activities the firm will not undertake.
- Competitive Advantage: A strategy also contains a clear statement of what competitive advantages the firm will pursue and sustain. Competitive advantage arises when a firm is able to perform an activity that is distinct or different from that of its rivals. Firms build competitive advantage when they take steps that help them gain an edge over their rivals in attracting buyers. These steps vary, for example, making the highest quality product, offering the best customer service, producing at the lowest cost or focusing resources on a specific segment or niche of the industry.
- Logic: This is the most important element of strategy. For, a firm’s strategy is to dominate the market for inexpensive detergents by being the low-cost, mass-market producer. Here the goal is to dominate the detergent market. The scope is to produce low-cost detergent power for the Indian mass market. The competitive advantage is the firm’s low cost. Yet this example does not explain