ICAI Notes: Introduction to Strategic Management | Financial Management & Strategic Management for CA Intermediate PDF Download

 Page 1


 
LEARNING OUTCOMES 
a    
 
CHAPTER 
1 
 
INTRODUCTION TO 
STRATEGIC 
MANAGEMENT 
 
 
 
 
After studying this chapter, you will be able to  
? Identify strategic decisions and behaviours within a firm.  And discuss the 
relevance thereof in the modern business world.  
? Acknowledge and appreciate the limitations of strategic management. And 
accept that all decisions need not be strategic.     
? Formulate Strategic Intent - Vision, Mission, Goals and Values.  Analyse how each 
of these plays an important role in the development of an overall business 
strategy. 
? Describe strategic levels in organizations (Corporate, Business, Functional and 
Network of relation between three levels); and discuss the role each plays in final 
decision making and real execution of plans. 
“The company without a strategy is willing to try anything.” 
Michael Porter 
“Strategy is not the consequence of planning, but the opposite: it’s the 
starting point.”                 Henry Mintzberg 
 
© The Institute of Chartered Accountants of India
Page 2


 
LEARNING OUTCOMES 
a    
 
CHAPTER 
1 
 
INTRODUCTION TO 
STRATEGIC 
MANAGEMENT 
 
 
 
 
After studying this chapter, you will be able to  
? Identify strategic decisions and behaviours within a firm.  And discuss the 
relevance thereof in the modern business world.  
? Acknowledge and appreciate the limitations of strategic management. And 
accept that all decisions need not be strategic.     
? Formulate Strategic Intent - Vision, Mission, Goals and Values.  Analyse how each 
of these plays an important role in the development of an overall business 
strategy. 
? Describe strategic levels in organizations (Corporate, Business, Functional and 
Network of relation between three levels); and discuss the role each plays in final 
decision making and real execution of plans. 
“The company without a strategy is willing to try anything.” 
Michael Porter 
“Strategy is not the consequence of planning, but the opposite: it’s the 
starting point.”                 Henry Mintzberg 
 
© The Institute of Chartered Accountants of India
a
 
 
STRATEGIC MANAGEMENT  
1.2 
 
 
 
1.1 INTRODUCTION 
This chapter is an attempt to highlight the concepts and significance of ‘strategic 
management’. With increased competition, business management has acquired a 
strategic dimension. All executives and professionals, including Chartered 
Accountants, working towards growth of businesses, must possess sound 
knowledge of concepts of strategic management. 
Introduction to Strategic Management
Meaning and nature of 
Strategic Management
Concept of Strategy
Strategic Management
Importance of Strategic 
Management
Limitations of Strategic 
Management
Strategic Intent
Strategic Levels in 
Organisations
Corporate Level
Business Level
Functional Level
CHAPTER OVERVIEW 
 
© The Institute of Chartered Accountants of India
Page 3


 
LEARNING OUTCOMES 
a    
 
CHAPTER 
1 
 
INTRODUCTION TO 
STRATEGIC 
MANAGEMENT 
 
 
 
 
After studying this chapter, you will be able to  
? Identify strategic decisions and behaviours within a firm.  And discuss the 
relevance thereof in the modern business world.  
? Acknowledge and appreciate the limitations of strategic management. And 
accept that all decisions need not be strategic.     
? Formulate Strategic Intent - Vision, Mission, Goals and Values.  Analyse how each 
of these plays an important role in the development of an overall business 
strategy. 
? Describe strategic levels in organizations (Corporate, Business, Functional and 
Network of relation between three levels); and discuss the role each plays in final 
decision making and real execution of plans. 
“The company without a strategy is willing to try anything.” 
Michael Porter 
“Strategy is not the consequence of planning, but the opposite: it’s the 
starting point.”                 Henry Mintzberg 
 
© The Institute of Chartered Accountants of India
a
 
 
STRATEGIC MANAGEMENT  
1.2 
 
 
 
1.1 INTRODUCTION 
This chapter is an attempt to highlight the concepts and significance of ‘strategic 
management’. With increased competition, business management has acquired a 
strategic dimension. All executives and professionals, including Chartered 
Accountants, working towards growth of businesses, must possess sound 
knowledge of concepts of strategic management. 
Introduction to Strategic Management
Meaning and nature of 
Strategic Management
Concept of Strategy
Strategic Management
Importance of Strategic 
Management
Limitations of Strategic 
Management
Strategic Intent
Strategic Levels in 
Organisations
Corporate Level
Business Level
Functional Level
CHAPTER OVERVIEW 
 
© The Institute of Chartered Accountants of India
 
 
INTRODUCTION TO STRATEGIC MANAGEMENT  
a
 
 
1.3 
1.2 MEANING AND NATURE OF STRATEGIC 
 MANAGEMENT 
To understand the concept of strategic management, we need to have a basic 
understanding of the term management. The term ‘management’ is used in two 
senses, such as: 
(a) It is used with reference to a key group in an organisation in-charge of its 
affairs. In relation to an organisation, management is the chief organ 
entrusted with the task of making it a purposeful and productive entity, by 
undertaking the task of bringing together and integrating the disorganised 
resources of manpower, money, material, and technology, which are then 
combined into a functioning whole.  
 An organisation becomes a unified functioning system when management 
systematically mobilises and utilises the diverse resources efficiently and 
effectively. The survival and success of an organisation depends to a large 
extent on the competence and character of its management. Management has 
to also facilitate organisational change and adaptation for effective interaction 
with the environment. 
(b) The term ‘Management’ is also used with reference to a set of interrelated 
functions and processes carried out by the management of an organisation 
(the key group of individuals mentioned in point (a) to attain its objectives). 
These functions include Planning, Organising, Directing, Staffing and Control. 
The functions or sub-processes of management are wide-ranging but closely 
interrelated. They range all the way from determination of the goals, design 
of the organisation, mobilisation and acquisition of resources, allocation of 
tasks and resources among the personnel and activity units and installation of 
control system to ensure that what is planned is achieved.  
 Management is an influence process to make things happen, to gain 
command over phenomena, to induce and direct events and people in a 
particular manner. Influence is backed by power, competence, knowledge and 
resources. Managers formulate organisational goals, values and strategies, to 
cope with, to adapt and to adjust themselves with the behaviour and changes 
in the environment. 
© The Institute of Chartered Accountants of India
Page 4


 
LEARNING OUTCOMES 
a    
 
CHAPTER 
1 
 
INTRODUCTION TO 
STRATEGIC 
MANAGEMENT 
 
 
 
 
After studying this chapter, you will be able to  
? Identify strategic decisions and behaviours within a firm.  And discuss the 
relevance thereof in the modern business world.  
? Acknowledge and appreciate the limitations of strategic management. And 
accept that all decisions need not be strategic.     
? Formulate Strategic Intent - Vision, Mission, Goals and Values.  Analyse how each 
of these plays an important role in the development of an overall business 
strategy. 
? Describe strategic levels in organizations (Corporate, Business, Functional and 
Network of relation between three levels); and discuss the role each plays in final 
decision making and real execution of plans. 
“The company without a strategy is willing to try anything.” 
Michael Porter 
“Strategy is not the consequence of planning, but the opposite: it’s the 
starting point.”                 Henry Mintzberg 
 
© The Institute of Chartered Accountants of India
a
 
 
STRATEGIC MANAGEMENT  
1.2 
 
 
 
1.1 INTRODUCTION 
This chapter is an attempt to highlight the concepts and significance of ‘strategic 
management’. With increased competition, business management has acquired a 
strategic dimension. All executives and professionals, including Chartered 
Accountants, working towards growth of businesses, must possess sound 
knowledge of concepts of strategic management. 
Introduction to Strategic Management
Meaning and nature of 
Strategic Management
Concept of Strategy
Strategic Management
Importance of Strategic 
Management
Limitations of Strategic 
Management
Strategic Intent
Strategic Levels in 
Organisations
Corporate Level
Business Level
Functional Level
CHAPTER OVERVIEW 
 
© The Institute of Chartered Accountants of India
 
 
INTRODUCTION TO STRATEGIC MANAGEMENT  
a
 
 
1.3 
1.2 MEANING AND NATURE OF STRATEGIC 
 MANAGEMENT 
To understand the concept of strategic management, we need to have a basic 
understanding of the term management. The term ‘management’ is used in two 
senses, such as: 
(a) It is used with reference to a key group in an organisation in-charge of its 
affairs. In relation to an organisation, management is the chief organ 
entrusted with the task of making it a purposeful and productive entity, by 
undertaking the task of bringing together and integrating the disorganised 
resources of manpower, money, material, and technology, which are then 
combined into a functioning whole.  
 An organisation becomes a unified functioning system when management 
systematically mobilises and utilises the diverse resources efficiently and 
effectively. The survival and success of an organisation depends to a large 
extent on the competence and character of its management. Management has 
to also facilitate organisational change and adaptation for effective interaction 
with the environment. 
(b) The term ‘Management’ is also used with reference to a set of interrelated 
functions and processes carried out by the management of an organisation 
(the key group of individuals mentioned in point (a) to attain its objectives). 
These functions include Planning, Organising, Directing, Staffing and Control. 
The functions or sub-processes of management are wide-ranging but closely 
interrelated. They range all the way from determination of the goals, design 
of the organisation, mobilisation and acquisition of resources, allocation of 
tasks and resources among the personnel and activity units and installation of 
control system to ensure that what is planned is achieved.  
 Management is an influence process to make things happen, to gain 
command over phenomena, to induce and direct events and people in a 
particular manner. Influence is backed by power, competence, knowledge and 
resources. Managers formulate organisational goals, values and strategies, to 
cope with, to adapt and to adjust themselves with the behaviour and changes 
in the environment. 
© The Institute of Chartered Accountants of India
a
 
 
STRATEGIC MANAGEMENT  
1.4 
The strategic management process is the set of activities that firm managers 
undertake to put their firms in the best possible position to compete successfully 
in the marketplace. Strategic management is made up of several distinct activities: 
developing the firm’s vision and mission; strategic analysis; developing objectives; 
creating, choosing, and implementing strategies; and measuring and evaluating 
performance. 
1.3 CONCEPT OF STRATEGY 
In the context of business, the application of the term ‘Strategy’  relates to the ways, 
the business decides to respond to dynamic and often hostile external forces while 
pursuing their vision, mission and ultimate objectives. 
The very incorporation of the idea of strategy into business organizations is 
intended to unravel complexity and to reduce uncertainty caused by changes in the 
environment. Strategy seeks to relate the goals of the organization to the means 
of achieving them. Strategy is the game plan that the management of a business 
uses to take market position, conduct its operations, attract and satisfy customers, 
compete successfully, and achieve organizational objectives.  
To the extent, the term strategy is associated with unified design and action for 
achieving major goals, gaining command over the situation with a long-range 
perspective and securing a critically advantageous position, its implications for 
corporate functioning are obvious.  
We may define the term ‘strategy’ as a long -range blueprint of an organization’s 
desired image, direction and destination, i.e., what it wants to be, what it wants to 
do, how it wants to do things, and where it wants to go. Following are also 
important other definitions are to understand the term: 
Igor H. Ansoff : The common thread among the organization’s 
activities and product-markets that defines the 
essential nature of business that the organization 
has or planned to be in future. 
William F. Glueck : A unified, comprehensive and integrated plan 
designed to assure that the basic objectives of the 
enterprise are achieved. 
© The Institute of Chartered Accountants of India
Page 5


 
LEARNING OUTCOMES 
a    
 
CHAPTER 
1 
 
INTRODUCTION TO 
STRATEGIC 
MANAGEMENT 
 
 
 
 
After studying this chapter, you will be able to  
? Identify strategic decisions and behaviours within a firm.  And discuss the 
relevance thereof in the modern business world.  
? Acknowledge and appreciate the limitations of strategic management. And 
accept that all decisions need not be strategic.     
? Formulate Strategic Intent - Vision, Mission, Goals and Values.  Analyse how each 
of these plays an important role in the development of an overall business 
strategy. 
? Describe strategic levels in organizations (Corporate, Business, Functional and 
Network of relation between three levels); and discuss the role each plays in final 
decision making and real execution of plans. 
“The company without a strategy is willing to try anything.” 
Michael Porter 
“Strategy is not the consequence of planning, but the opposite: it’s the 
starting point.”                 Henry Mintzberg 
 
© The Institute of Chartered Accountants of India
a
 
 
STRATEGIC MANAGEMENT  
1.2 
 
 
 
1.1 INTRODUCTION 
This chapter is an attempt to highlight the concepts and significance of ‘strategic 
management’. With increased competition, business management has acquired a 
strategic dimension. All executives and professionals, including Chartered 
Accountants, working towards growth of businesses, must possess sound 
knowledge of concepts of strategic management. 
Introduction to Strategic Management
Meaning and nature of 
Strategic Management
Concept of Strategy
Strategic Management
Importance of Strategic 
Management
Limitations of Strategic 
Management
Strategic Intent
Strategic Levels in 
Organisations
Corporate Level
Business Level
Functional Level
CHAPTER OVERVIEW 
 
© The Institute of Chartered Accountants of India
 
 
INTRODUCTION TO STRATEGIC MANAGEMENT  
a
 
 
1.3 
1.2 MEANING AND NATURE OF STRATEGIC 
 MANAGEMENT 
To understand the concept of strategic management, we need to have a basic 
understanding of the term management. The term ‘management’ is used in two 
senses, such as: 
(a) It is used with reference to a key group in an organisation in-charge of its 
affairs. In relation to an organisation, management is the chief organ 
entrusted with the task of making it a purposeful and productive entity, by 
undertaking the task of bringing together and integrating the disorganised 
resources of manpower, money, material, and technology, which are then 
combined into a functioning whole.  
 An organisation becomes a unified functioning system when management 
systematically mobilises and utilises the diverse resources efficiently and 
effectively. The survival and success of an organisation depends to a large 
extent on the competence and character of its management. Management has 
to also facilitate organisational change and adaptation for effective interaction 
with the environment. 
(b) The term ‘Management’ is also used with reference to a set of interrelated 
functions and processes carried out by the management of an organisation 
(the key group of individuals mentioned in point (a) to attain its objectives). 
These functions include Planning, Organising, Directing, Staffing and Control. 
The functions or sub-processes of management are wide-ranging but closely 
interrelated. They range all the way from determination of the goals, design 
of the organisation, mobilisation and acquisition of resources, allocation of 
tasks and resources among the personnel and activity units and installation of 
control system to ensure that what is planned is achieved.  
 Management is an influence process to make things happen, to gain 
command over phenomena, to induce and direct events and people in a 
particular manner. Influence is backed by power, competence, knowledge and 
resources. Managers formulate organisational goals, values and strategies, to 
cope with, to adapt and to adjust themselves with the behaviour and changes 
in the environment. 
© The Institute of Chartered Accountants of India
a
 
 
STRATEGIC MANAGEMENT  
1.4 
The strategic management process is the set of activities that firm managers 
undertake to put their firms in the best possible position to compete successfully 
in the marketplace. Strategic management is made up of several distinct activities: 
developing the firm’s vision and mission; strategic analysis; developing objectives; 
creating, choosing, and implementing strategies; and measuring and evaluating 
performance. 
1.3 CONCEPT OF STRATEGY 
In the context of business, the application of the term ‘Strategy’  relates to the ways, 
the business decides to respond to dynamic and often hostile external forces while 
pursuing their vision, mission and ultimate objectives. 
The very incorporation of the idea of strategy into business organizations is 
intended to unravel complexity and to reduce uncertainty caused by changes in the 
environment. Strategy seeks to relate the goals of the organization to the means 
of achieving them. Strategy is the game plan that the management of a business 
uses to take market position, conduct its operations, attract and satisfy customers, 
compete successfully, and achieve organizational objectives.  
To the extent, the term strategy is associated with unified design and action for 
achieving major goals, gaining command over the situation with a long-range 
perspective and securing a critically advantageous position, its implications for 
corporate functioning are obvious.  
We may define the term ‘strategy’ as a long -range blueprint of an organization’s 
desired image, direction and destination, i.e., what it wants to be, what it wants to 
do, how it wants to do things, and where it wants to go. Following are also 
important other definitions are to understand the term: 
Igor H. Ansoff : The common thread among the organization’s 
activities and product-markets that defines the 
essential nature of business that the organization 
has or planned to be in future. 
William F. Glueck : A unified, comprehensive and integrated plan 
designed to assure that the basic objectives of the 
enterprise are achieved. 
© The Institute of Chartered Accountants of India
 
 
INTRODUCTION TO STRATEGIC MANAGEMENT  
a
 
 
1.5 
Strategy is consciously considered and flexibly designed scheme of corporate 
intent and action to mobilise resources, to direct human effort and behaviour, to 
handle events and problems, to perceive and utilise opportunities, and to meet 
challenges and threats for corporate survival and success.  
Strategy is meant to fill in the need of organizations for a sense of dynamic 
direction, focus and cohesiveness. Objectives and goals are essential to give a 
direction to business, but they do not fill in the need alone. Strategy provides an 
integrated framework for the top management to search for, evaluate and exploit 
beneficial opportunities, to perceive and meet potential threats and crisis, to make 
full use of resources and strengths, and to offset corporate weaknesses.  
Important to note that strategy is no substitute for sound, alert and responsible 
management. It must be recognised that strategy can never be perfect, flawless 
and optimal. It is in the very nature of strategy that it is flexible and pragmatic to 
take care of sudden emergencies, pressures, and avoid failures and frustrations. In 
a sound strategy, allowances are made for possible miscalculations and 
unanticipated events. 
In large organisations, strategies are formulated at:  
? the corporate,  
? divisional, and  
? functional levels  
Corporate strategies are formulated by the top managers. Such strategies include 
the determination of the plans for expansion and growth, vertical and horizontal 
integration, diversification, takeovers and mergers, new investment and divestment 
areas, R & D projects, and so on. These corporate wide strategies need to be 
operationalized by divisional and functional strategies regarding product lines, 
production volumes, quality ranges, prices, product promotion, market penetration, 
purchasing sources, personnel development and like. This is discussed in detail in 
further separate topics. 
Strategy is partly proactive and partly reactive: A company’s strategy is typically a 
blend of: 
? Proactive actions on the part of managers to improve the company’s market 
position and financial performance.  
© The Institute of Chartered Accountants of India