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Subject COMMERCE

Paper No and PAPER NO. 12: STRATEGIC MANAGEMENT

Title
Module No and MODULE NO. 1: CONCEPT OF STRATEGY-
Title DEFINING
Module Tag COM_P12_M1

COMMERCE PAPER NO.12: STRATEGIC MANAGEMENT

MODULE No.1: CONCEPT OF STRATEGY
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TABLE OF CONTENTS

1. Learning Outcomes
2. Introduction
3. Strategy
4. Different School of thoughts on Strategy
5. Strategy, Policy and tactics
6. Mintzberg and Walters Model: Emergent and Realized Strategies
7. Summary

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1. Learning Outcomes

After Studying this module, we shall be able to:

 Know about the meaning and key elements of a strategy.
 Explain different schools of thought on strategy.
 Understand the difference between Policy, Strategy, and Tactics
 Differentiate between intended and realized strategies.

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2. Introduction
In an ever evolving and dynamic business environment, an organizations needs to manage
an array of objectives. Every step of management must be in tandem with the overall
directives of the organization. As business becomes more complex with each day passing
by, new perspectives of management are growing every day. Along with the generic
activities of management, new functional aspects viz. marketing, finance, production, etc.
also needs to be taken care of by the management. Management needs to contemplate on not
only every move that it takes but also the possible response that is expected from the
competitors. Strategy is commonly used to communicate a plan, a policy or a tactics
considering the long term horizon. It provides the organization with the direction, in which
its every step should be directed at in the process of accomplishment of organizational goals.

This module would discuss the meaning of strategy and its key elements and other related
concepts of strategy which are necessary for understanding the basic tenets of strategy and
strategic management.

3. Strategy
In ancient Greek, the word ‘stratos’ was used for the army and the word Strategy,
originated from the Greek word stratēgia, referred to the ‘act of the general’. In the sense of
the "art of the general", which included several subsets of skills included "tactics", siegecraft,
logistics etc. A strategy is a high level future plan of action, undertaken by senior
management at a high level of abstraction, to achieve one or more goals under conditions of
uncertainty. Till the 20th century, the word "strategy" came to denote a comprehensive way
to pursue political ends, including the threat or actual use of force, in a military conflict.
Henry Mintzberg from McGill University defined strategy as "a pattern in a stream of
decisions" to contrast with a view of strategy as planning.
Max McKeown (2011) argues that "strategy is about shaping the future" and is the human
attempt to get to "desirable ends with available means".
Dr. Vladimir Kvint defines strategy as "a system of finding, formulating, and developing a
doctrine that will ensure long-term success if followed faithfully."
According to Hofer and Schendel (1979), “a strategy is the mediating force or “match”
between the organization and the environment.”
Owing to the recent technological and social changes and the ever rising competition from
the rivals, there is a dire need in modern times for strategies to accomplish the desired
objectives and goals, giving a sense of purpose and direction to the organization. Strategy
generally involves setting goals, deciding the direction of the actions to achieve the goals,
and deploying resources to execute the actions. A strategy describes how the ends (i.e. the
goals) will be achieved by the means (i.e. by deploying the resources). This is generally
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tasked with determining strategy. It involves activities such as strategic

planning and strategic thinking.
Professor Richard P. Rumelt described strategy as a type of problem solving in 2011. He
wrote that good strategy has an underlying structure he called a kernel.
The kernel has three parts:
1) A diagnosis that defines or explains the nature of the challenge;
2) A guiding policy for dealing with the challenge; and
3) Coherent actions designed to carry out the guiding policy.
Rumelt wrote in 2011 that three important aspects of strategy include "premeditation, the
anticipation of others' behavior, and the purposeful design of coordinated actions." He
described strategy as solving a design problem, with trade-offs among various elements that
must be arranged, adjusted and coordinated, rather than a plan or choice.

4. Different schools of thoughts on Strategy

The formulation of strategy has been one of the most talked about topic amongst various
authors such as Richard Whittington and Henry Mintzberg.

I. Mintzberg suggests that there are ten schools of thought about strategy formulation. The ten
schools consist of three prescriptive and seven descriptive schools. These are:

1. The Design School: This school views strategy formulation as a process of conception.
According to Mintzberg, Lampel and Ahlstrand, the design school is a concept, where
strategy should be formulated using tools and techniques such as SWOT analysis and
Ashridge Mission model. On the basis of such techniques, the companies would discover
their strengths, weaknesses, opportunities and threats and then formulate a strategy. This
strategy is influenced by architecture, in the sense that it lays importance on the foundation
through which strategy should be formulated. This is useful in situations where the
environment is quite stable but has drawbacks as well. This concept does not consider the
ever changing external environment and avoids external changes and as we all know, that, if
there is anything constant, it is change. This concept also gives more importance to the
organization than to its employees. The major contributors to the design school are Selznick
(1957) and Andrews (1965).
2. The Planning School: According to Mintzberg, Lampel and Ahlstrand, the planning school
of thought recommends analysis of the current business situation and focuses more
on implementation of the strategies. In other words, this concept suggests that an
organization should analyze the current business situation such as the external factors, the
position of the business, contemporary issues, etc. and then draft a strategy and focus more
on implementation. This concept encourages brainstorming, innovation, establishment of
goals and objectives and helps the organization in the resource allocation according to its
needs. This concept has its roots influenced from the concept of Urban Planning and has the

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vast room for innovation. This concept has an edge over the design school in the sense that it
gives importance to the external factors of the organization and the implementation and
provides room for the innovation for innovation but this concept also suffers from
drawbacks. While providing room for innovation and group think, this concept carries a
tendency to create conflict between managers and the execution of the strategy is the hardest
part because the managers have to monitor each and every action that is carried out while
implementing the strategy. The major contributor to the planning school is Ansoff (1965).
3. The Positioning School: According to Mintzberg, Lampel and Ahlstrand, this concept
recommends that the organization should focus on its current position in the industry and
development of strategies that would upgrade its position. This concept perceives the
process of strategy formulation as an analytical process based on the analysis of the
competition and the industry in which it operates. This concept is influenced by military
strategy. Owing to the large investments required, this concept is useful for large firms but
not useful for small firms and hence it is not a universally acceptable strategy formulation
process. This concept also avoids external factors such as political, cultural, technological
and social factors and concentrates more on profit. The major contributors to the positioning
school are Schendel and Hatten (1970s) and Porter (1980s).
4. The Entrepreneurial School: This concept entails that the organizations follow the strategy
formulated by the visionary leader and implement the strategy throughout the existence of
the organization incorporating changes according to the contemporary environment. The
lead role in the strategy formulation is centralized and played by the leader. This concept
does not take into consideration the concept of employees’ involvement in the process of
strategy formulation. The employees might not respond to the strategy favorably due to
negligence during the strategy formulation process. The major contributors to this school of
thought are Schumpeter (1950s), Cole (1959) and several other economists.
5. The Cognitive School: This concept perceives the process of strategy formulation in
revolves around psychological aspect of the strategists i.e. hoe the strategists study and
analyze the behavior and the past patterns. Such organizations focus on the needs and wants
of the customers; analyze the behavioral patterns of individuals and their response to
specific situations. The organizations use these factors to design a strategy after conducting
a vast customer-centric research. It may be very time consuming and expensive to carry out
a research about the psychology of the customers. Also, the assumptions which this concept
makes may be wrong and biased as the strategy formulation might be done on the basis of
the psychology of the strategists rather than the customer base and hence there are chances
that the strategy may fail and decisions made may turn out to be not so rational. The major
contributors to this school are Simon (1947 and 1957) and March and Simon (1958).
6. The Learning School: The concept school implies that organizational environment is
evolving and the organization formulates strategies by learning process that is emergent and
evolving. The strategy formulation in this particular concept is very slow as managers learn
and slowly formulate a strategy. This concept is influenced by Education. This concept
sounds very useful and the process of strategy formulation is like the cognitive school, but
has the same problem as being time consuming and it might happen that organizations are
left with formulating no strategy at all. The major contributors to this school are Lindblom
(1959, 1960), Cyert and March (1963), Senge (1990) and Prahlad and Hamel (1990s).

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7. The Power School: This school suggests that organizations formulate their strategies based
on their power, which may be a competitive advantage. This school perceives the process of
strategy formulation as a negotiation process, where the lead role in strategy is played by the
person in power and the whole organization and the process of negotiation brings in the
element of conflict, aggression and cooperation as well. This concept is influenced be
political science. Like the entrepreneurial school, there are some visionary leaders who have
the vision of exerting power. This is usually done by organizations that have the ability to
monopolize. The major contributors to this school are Allison (1971), Pfeffer and Salancik
(1978) and Astley (1984).
8. The Cultural School: This concept suggests that organizations following this concept let the
corporate culture formulate their strategy. It perceives the process strategy formulation as a
collective process. The lead role is played by the collectivism that the organization displays.
This concept encourages employee involvement and hence the formulation of the strategy
demands cooperation from the employees. This concept is influenced by anthropology. This
helps in guiding organizations on how to deal with mergers and acquisitions, but ignores the
external environment and might cause conflicts amongst the employees of the organization.
The major contributors to this school are Rhenman and Normann (1960s).
9. The Environmental School: According to Mintzberg, Lampel and Ahlstrand, this concept
suggests that organizations following this concept focus on the external environmental
factors and formulate a strategy based on those factors. This is a reactive process and is
influenced by biology. The lead role in the strategy formulation is played by the
environment. This resembles the design school as this school also entails the use of external
factors while formulating the strategy. This concept ignores the internal environment which
may create problem in formulating strategy. The major contributors to this school are
Hunnan and Freeman (1977).
10. The Configuration School: This concept suggests that organizations that pursue this
concept focus on change and keep on changing their decision making patterns in order to
formulate a strategy. It is influenced by context. This concept is theoretically very
innovative as the organization keeps up with change and hence the strategy thus, formulated
is supposed to incorporate the compounding effect. The strategy formulation process could
incorporate any of the elements discussed in the other nine schools of thought. However it is
not practical as establishing this kind of strategic formulation process would require a very
flexible and dynamic organizational structure and flexible employees who will be able to
adjust with change very rapidly. The major contributors to this school are Chandler (1962),
Mintzberg and Miller (1970s) and Miles and Snow (1978).

II. Whittington’s Four School of Strategy:

There is yet another classification of schools of strategy given by Richard Whittington.

Whittington classifies the strategy into four different perspectives. These are:

1. Classical:
According to Whittington (2001) these strategies are formulated customarily with the
objective of profit-maximization. The process of strategy formulation incorporates the
internal factors of an organization. The main strategy is to follow cost leadership and i.e. to

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produce goods at the lowest possible cost. The design, the entrepreneurial school and the
positioning school of strategic formulation suggested by Mintzberg can fall under
the classical perspective towards strategy.

2. Processual:
These strategies are formulated with ambiguous objectives. This classification is influenced
by psychology and strategic formulation in done on the basis of the internal factors, mainly
politics and perception. The strategies formulated in this category are risky and the
organizations pursuing these strategies are highly risk-oriented. These organizations
establish a strategy to check whether it is right or not and thereafter contrive or improvise on
it, if it unsuccessful. The cognitive school and the learning school of strategy formulation
suggested by Mintzberg fall under the processual perspective towards strategy.

3. Evolutionary:
According to Whittington, these strategies are formulated with survival as their objectives.
This classification is influenced by economics and biology and strategic formulation is done
on the basis of the external factors, mainly the market. Such strategies are short-term
strategies which are formulated not to sustain in the long run but to survive in the market.
The organizations that pursue these strategies are very short sighted and only look at the
present and not the future. The environmental school of strategy formulation suggested by
Mintzberg falls under this perspective.

4. Systemic:
According to Whittington (2001) these strategies are formulated with local adoption as
their objective. This classification is influenced by sociology and strategy is formulated on
the basis of the external factors, mainly culture and attitudes of the local environment
setting. Local environment is at the core of strategy formulation so as to make products and
services blend with the local environment and local needs. The cognitive and the
environmental school of strategic formulation fall under the systemic perspective towards
strategy.

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5. Strategy, Policy and Tactics

The success of the business is strongly dependent on how the goals to be attained by an
organization are perceived by its management and what are the ways that are devised to
accomplish such goals. There are three different but interrelated concepts of strategy, policy
and tactics that are very confusing for outsiders to a business. There are many who feel that
there are enough similarities and overlap to use these words interchangeably. However,
these are three different concepts.
Strategy of a business organization is reflective of the thinking of those at the top of its
management and the action that the management plans to take. It is the management that
sets the goals that are sought to be achieved and the strategy is supposedly a statement that
lets the stakeholders know as to how the management plans to accomplish these goals. A
strategy is concerned with the planned actions and the resources required to accomplish
specific long term organizational objectives.
A policy lies at the core of all decisions made by the management of a company. A policy is
meant to serve as a guideline in the process of decision making and is applicable in day to
day operations and provides clarity regarding the direction a company should take.
Tactics relate to decision making for short- to mid-term time frame, and coordinates the
activities by deploying the resources needed to reach a particular strategic goal. It's resource
management, or middle-management.
Strategy and tactics relate to means and ends: they link the vision of the future and day to
day decisions and policy is a broad framework that gives shape to thinking and guides long
term decision making.

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Basis Strategy Tactics Policy

Purpose To identify clear broader To utilize specific To act as a guiding
goals to advance the overall resources to principle that helps
organization and achieve sub-goals organization to take
organizational resources that the support the rational and logical
accordingly. defined or specific decisions.
mission.
Formulation Individuals who influence Specific domain Individuals at the top
resources in the organization experts that level of the hierarchy
i.e. the Top level maneuver limited who considers all the
management and Middle resources into factors of an
level management actions to achieve a organization to provide
set of goals i.e. the a uniform direction to
Middle level the organization i.e. the
management Top level management

Accountability Accountable for the overall Accountable for the Accountable for
health of the organization and specific resources providing direction to
all the organizational assigned for the the organization
resources including the purpose
broader market conditions
Flexibility Long term, changes Short term, flexible Fixed, changes in
infrequently to immediate exceptional situations
specific market
conditions
Orientation Action Decision Direction
Factors Deals with external Deals with specific Deals with internal
environment internal and environment
external factors

Table 1: Difference between Strategy, Tactics and Policy

These three should work in tandem; without the coordination amongst these three the
organization cannot efficiently achieve goals. If there’s strategy without tactics there would
be big thinkers and no action. If there’s tactics without strategy, there would be chaos and
disorder. If there’s no policy, there would be directionless and unguided efforts.

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6. Mintzberg & Waters Model - Intended and emergent strategies

In 1985, Henry Mintzberg and James Waters developed a model to demonstrate how the
strategy that is ultimately delivered is made of two parts; deliberate strategy (what the
organization set out to do) and emergent strategy (what happened on the way).

Figure 1: Deliberate and Emergent Strategies Source: Mintzberg & Waters (1985)

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According to Mintzberg and Waters Model (1985), there are five kinds of strategies. These
are:

Intended Strategy

Deliberate Strategy

Emergent Strategy

Realized Strategy

Unrealized Strategy

Figure 2: Types of Strategies as per Mintzberg & Waters Model (1985)

Mintzberg suggested that the traditional way of strategy implementation focused only on
planned or deliberate strategies wherein strategy formulation is a planned formal process.
Mintzberg, however, claimed that some organizations begin implementing strategies even
before the strategy formulations i.e. strategy implementation precedes strategy formulation.
Such strategies are emergent strategies. An emergent strategy is an unplanned strategy that
arises in response to unanticipated challenges and constraints. Emergent strategies can be
both disastrous as well tremendous success. These are the actions that the firm undertakes in
reaction to unexpected opportunities and challenges. Intended strategy is strategy as
conceived of by the top management team. An intended strategy is the strategy that an
organization hopes to execute. Intended strategies are usually described in detail within an
organization’s strategic plan. Rationality is limited and the intended strategy is the result of a
process of negotiation, bargaining, and compromise, involving many individuals and groups
within the organization. Realized strategy is a combination of deliberate and emergent
strategies. It is the strategy that an organization actually follows. The intended strategy rarely
survives in its original form. Unforeseen environmental changes, unanticipated resource
constraints and /or changes in managerial preferences may result in a situation wherein only a
part of the intended strategy may be actually realized. Such unanticipated events may result
in at least some parts of the intended strategy eroding away and remaining unrealized. This
part of the intended strategy that is left unrealized is known as unrealized strategy.

This model should also been seen as a process the variable of time must be treated as an
important element of the process. The realized strategies definitely have an impact on the
future intended strategies. Thus current strategies will affect future strategies.

A recent research study (Rose, & Cray, 2013) highlighted that for managers engaged in
developing and executing strategies, strategy should be thought of as a verb rather than
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a noun. Since strategy is a living, ever evolving conceptual entity, strategic plans should be
dynamic documents that allow for considerable flexibility. The same approach should be
followed while developing structures for monitoring and modifying strategic plans.
The authors also argued that the most important thing is to realize that the distinction
between intended and realized strategy as two static states is essentially false. The initial and
final states are linked by processes that can be well identified and managed. In cases where
the realized strategy is same as that was planned years earlier, although a rare occasion, it is
because the original strategy anticipated and included the required flexibility.

7. Summary

 A strategy is a high level future plan of action, undertaken by senior management at a

high level of abstraction, to achieve one or more goals under conditions of uncertainty.
 A strategy describes how the ends (i.e. the goals) will be achieved by the means (i.e. by
deploying the resources). This is generally tasked with determining strategy. It involves
activities such as strategic planning and strategic thinking.
 There are three different but interrelated concepts of strategy, policy and tactics that are
very confusing for outsiders to a business.
 Strategy of a business organization is reflective of the thinking of those at the top of its
management and the action that the management plans to take.
 A policy lies at the core of all decisions made by the management of a company. A policy
is meant to serve as a guideline in the process of decision making and is applicable in day
to day operations
 Tactics relate to decision making for short- to mid-term time frame, and coordinates the
activities by deploying the resources needed to reach a particular strategic goal.
 In 1985, Henry Mintzberg and James Waters developed a model to demonstrate how the
strategy that is ultimately delivered is made of two parts; deliberate strategy (what the
organization set out to do) and emergent strategy (what happened on the way).

COMMERCE PAPER NO.12: STRATEGIC MANAGEMENT

MODULE No.1: CONCEPT OF STRATEGY