Evolution of Strategic Management

A strategy is a route to a destination; an objective is the destination. Picking a destination is the choice of an objective. Selecting a route represents a decision. Driving along it is the implementation of the decision.

Of course, both decision and implementation are necessary if you are to reach your strategic objective. Strategic management is an artful blending of insightful analysis and learning used by managers to create value from the skills and resources which they control.

According to Kenneth Hatten, strategic management is the process by which an organisation formulates objectives and manages to achieve them. Strategy is the means to an organisational end; it is the way to achieve organisational objectives.

The evolution of strategic management can be traced in two contexts—management practices adopted over the period of time by different organizations and strategic management education. It may be mentioned here that practice and theory in management go in the same direction though there may be a time gap between the two. Therefore, it is beneficial to trace evolution and development in both these contexts.

Hofer and others have viewed the evolution of strategic management in terms of four paradigms shifts, which can also be considered the four overlapping phases in the evolution/development of strategic management. The four important phases are:- 1. First Phase Till Mid-1930s (Paradigm of Ad Hoc Policy) 2. Second Phase 1930-1940s (Paradigm of Planned Policy) 3. Third Phase 1960s (Strategy Paradigm) 4. Fourth Phase 1980s (Paradigm of Strategic Management).

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Evolution of Strategic Management: 4 Major Phases of Evolution, Historical Evolution, Strategic Management Evolution in India

Strategic Management Evolution – Based on Practices and Education

According to Kenneth Hatten, strategic management is the process by which an organisation formulates objectives and manages to achieve them. Strategy is the means to an organisational end; it is the way to achieve organisational objectives.

A strategy is a route to a destination; an objective is the destination. Picking a destination is the choice of an objective. Selecting a route represents a decision. Driving along it is the implementation of the decision. Of course, both decision and implementation are necessary if you are to reach your strategic objective. Strategic management is an artful blending of insightful analysis and learning used by managers to create value from the skills and resources which they control.

In the management literature, techniques for making decisions in various functional areas have been evolved considerably over the period of time beginning with development of management thought. However, development of techniques for making integrative decisions could not follow this pattern. Much later, the emphasis on making these decisions in a scientific way has led to the development of a new field of study- business policy or similar other nomenclatures like corporate planning, corporate strategy, and strategic planning.

Out of these, the term business policy became more common. However, the current trend shows that the term strategic management has replaced the term business policy and wherever business policy nomenclature is followed; its emphasis is on strategic management. This is due to the fact that business policy prescribes guidelines for making decisions and taking actions and, therefore, lacks the dynamism which is required to manage businesses in the present globalized economy which is characterized by intense competition.

It may be mentioned that this kind of change has taken place in functional areas too, for example, personnel management has become human resource management and production management has become production/operations management. Here, it is just sufficient to say that strategic management is the process of relating an organization with its environment by suitable courses of action involving strategy formulation and its implementation.

The evolution of strategic management can be traced in two contexts—management practices adopted over the period of time by different organizations and strategic management education. It may be mentioned here that practice and theory in management go in the same direction though there may be a time gap between the two. Therefore, it is beneficial to trace evolution and development in both these contexts.

1. Based on Practices:

Essentially, the evolution and development of strategic management in practice have followed the pattern of development of management in general. Hofer et al have identified four phases through which strategic management practices have developed over the period of time.

These are as follows:

i. First phase till mid-1930s (paradigm of ad hoc policy).

ii. Second phase 1930-1940s (paradigm of planned policy).

iii. Third phase 1960s (strategy paradigm).

iv. Fourth phase 1980s (paradigm of strategic management).

In each of these phases, nature of environment was different and, therefore, managerial actions required to face environmental challenges were different. Let us have a brief look at these phases.

i. Paradigm of Ad Hoc Policy:

At the initial stage of management development, planning function was undertaken; however, it was basically confined to short-term and day-to-day operations. Around 1930s, attempts were made to forecast comparatively longer future period and to prepare the organizations for that. However, the emphasis was put on ad hoc policy making necessitated by the expansion of US business firms, both product-wise as well as market-wise.

This system replaced informal control and coordination by introducing the concept of budgeting and control systems. Policy formulation was limited to functional areas wherever need was felt. However, the system of policy formulation was not integrated and ad hoc approach persisted.

ii. Paradigm of Planned Policy:

Between 1930s and 1940s, because of increasing environmental complexity in the form of increased technological innovation and competitive pressure, the need was felt to have integrated policies replacing the adhocism in policy formulation. The emphasis was put on integration of policies in different functional areas in the context of environmental needs.

More emphasis was put on long-term aspect of the business; long-range, though in today’s context medium-term, planning was adopted which was based on forecasting the future by using economic and technical tools. At the initial stage, plans used to be prepared by corporate planning staff independently and forwarded to top management for appropriate actions.

Many times, top management heeded to the advice and other times, advice used to be rejected. Thus, there was no direct participation of top management in policy and plan formulation. This phase has been called as first-generation planning by Roney, which was essentially in the form of single plan for the most likely future.

iii. Strategy Paradigm:

With the development of systems and contingency approach in management and game theory for decision making, game theorists introduced the concept of strategy in management, the term till then were confined to Military Science. With increasing competition, organizations were forced to adopt competitive strategies, that is, actions adopted in the light of competitors’ actions.

The focus was more on strategic decisions based on environmental variables particularly competitive variables. The environmental analysis focused more on competitive environment and other variables played only secondary role.

iv. Paradigm of Strategic Management:

From 1980s onward, the business scenario started changing with globalization of economy which changed the complexion of competition. The competition which was limited among the players of a country, suddenly internationalized because of increasing openness of world economy as a result of General Agreement on Tariffs and Trade (GATT) and its successor World Trade Organization (WTO).

In the changed scenario, strategy paradigm which focused on competitive environment was not helpful and its place was taken by strategic management. Strategic management emphasized two aspects – direct involvement of top management in strategy formulation and resolving strategic issues and comprehensive environmental analysis to develop likely future business scenarios. Emphasis was put on developing contingency strategies to be implemented in relevant scenarios.

However, one cannot be sure that strategic management is the last phase because of its evolutionary nature. With ever-changing environment, perhaps, more refined strategic management would be needed in future than what it presently offers.

2. Based On Education:

In order to meet the growing needs of managers with general management skills, courses in strategic management were introduced in business management curriculum. Like other fields of management study, strategic management courses evolved in the United States of America.

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Evolution of Strategic Management and Business Policy

The evolution of strategic management as a subject started as early as 1911, when ‘Business Policy’ as a capstone course for the business administration programme was introduced in Harvard Business School. In fact the course focused on integrating the functional areas of business administration like accounting, management, marketing, human resource, finance and production.

Originally, this course aimed to provide practitioners and learners the ability to apply the knowledge learned in previous courses to solve problems in business organisations. As such the business policy course provided formal training and experience in handling issues affecting the business environment and systematic and analytical thinking in resolving problems affecting the performance of organisations.

The real stride in the growth of strategic management in the United States came after the publication of two reports in 1959, the Gordon and Howell Report sponsored by the Ford Foundation.

Based on their research and the advantages and benefits derived from the business policy course, the Gordon and Howell Report recommended that the business policy course be made a core course in the business administration curricula to all the universities in the American Association of Colleges of School of Business Administration (AACSB). Since then, the business policy course has been the major thrust of the business administration programmes at the undergraduate and postgraduate levels.

Development from Business Policy to Strategic Management:

There are two perspectives in the development of the business policy course. First, from the perspective of the changing emphasis in the contents of the course, and the second one is from the management planning perspective.

I. Changing Emphasis in Business Policy Contents:

The business policy course underwent different changes since its introduction as a core subject. The contents of the course had changed to cope with the changes in the dynamics of the business environment. The emphasis in the course is attributed to the varying needs of the business and non-business organisations in coping with the changing environmental concerns.

There are four major factors contributing to the changing emphasis in the business policy course:

(i) Changing managerial roles in the organisation;

(ii) Rapid changes in business and non-business environment;

(iii) Emphasis on the case study method in learning; and

(iv) Other concerns affecting organisational performance.

When the business policy course was introduced at Harvard University, the perspective adopted was that of the top management view of the organisation. In other words, in trying to understand various issues in the organisation, participants in the course were asked to take the role of the Chief Executive Officer/General Manager of an organisation, and see how they would react to the varying issues affecting the organisation.

While this perspective was required to have an overall view of things in an organisation, the perspective would also provide learners to relate various functional areas in an organisation and how it could affect the overall organisation. Further, this perspective would provide learners the interrelationship of external factors and their effects and impact on the management and performance of the organisation.

Getting the top management perspective of an organisation was found to be necessary but not sufficient towards better performance in an organisation. The participative management concepts and empowerment in management was found to be also important in ensuring organisational success and performance.

Subsequently, the roles of middle management and first level management (that is, top down and bottoms-up) in handling various managerial issues was more important. Thus, vertical and lateral managerial perspective became important in trying to resolve managerial concerns in an organisation. Thus, the managerial roles and expectations were changing to cope with the impending needs of the environment.

The rapid changes in the business and non-business environments resulted in the change in emphases and contents of the business policy course. External factors, such as economic, social, political and technological, seemed to have evolved much in the last two decades.

The industrial renaissance of the 1980s affected the management of business and non-business organisations in several ways. One major change was the information technology revolution which promoted the development of new ways of doing business.

The increasing concerns for social responsibility, ethics, and the environment, for example, concerns over pollution, poorly managed health system and social discrimination, also contributed to the changing expectations of society towards organisational performance.

Finally, the changing micro-management expectations of the stakeholders like corporate governance, transparency and social equity in organisational management also contributed to the change in business and non-business environments. In recent years, learning about organisations had changed much with the new developments in pedagogy and the interrelated tools.

Case studies of organisations had been found to be effective in learning better about organisations and it was the major approach used in Harvard University, INSEAD and leading business schools throughout the world. The case study approach was found to be most effective in trying to reach the learners understanding of real business world problems and provide practical solutions. Consequently, this approach had been widely used in business policy courses worldwide.

The impending globalisation trends and liberalisation of trade barriers also had an effect on the curriculum of strategic management that is from an inward looking of one country to that of an international and global perspective.

This had led to the concern for a more proactive or ‘strategic’ approach in handling complex business and non-business issues affecting organisations. Consequently, the name of the course had to be changed to ‘strategic management’ to reflect these changes in the environment.

II. Changing Management Planning Perspective:

In the field of organisational management, one of the major functions of management process is planning. The management literature has often focused on the importance of planning in managing organisations more effectively and efficiently. Traditional management planning emphasises on the need to have a clear goal and objectives and preparing the necessary budgets for resource allocation.

The rapid changes in the business environment has forced managers to make the necessary adjustments in management planning and thus raised the development of a ‘strategic’ approach in management planning. In other words, the changing managerial planning perspective has also contributed to the development in the field of business policy to ‘strategic management’.

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4 Major Phases of Strategic Management Evolution – According to Gluck et al. in 1982

As per the views of Gluck, the development of strategic management began when the managers started using planning techniques. Initially, managers started day-to-day planning, then moved to anticipate the future though preparations of budgets and using control techniques such as capital budgeting and management by objectives.

However, these techniques could not adequately address the role for the future, long range planning came to the centre stage. The long range planning was replaced by strategic planning and in the present scenario we saw the emergence of strategic management — a term that is currently used to describe the process of strategic decision making.

Strategic management is the theoretical framework of business policy courses today.

According to Gluck et al. (1982), strategic management evolved through four phases of development as shown below:

Phase 1:

In phase 1, the evolution of strategic management refers to the traditional formal business planning mode which focused on functional areas. Organisations were more concerned about annual budgets and seek operational control through meeting the annual budgets. The business environment during this phase was stable and there were not many changes occurred in this phase.

Phase 2:

In phase 2, as the business environment began to make some changes due to increasing demand for goods and services, there was a concern for organisations to do a forecast to plan. Growth was the major concern in this phase and more effective planning was required to ensure that organisations take the opportunities in the environment.

Annual forecast was not sufficient, and multiyear forecasts became necessary. In this phase too, environmental analysis became more evident and important to organisations.

Phase 3:

As the business dynamics grew faster, managers realised that it was not adequate to do planning by making business forecasts. Changes in the business environment became more rapid and the level of turbulence became more intense relative to the earlier periods (phase 1 and 2).

Thus, in phase 3, businesses had to make immediate response to market changes and competition. This period became intense as business performance showed impressive results (profits) and many players (investors) became more interested to reap part of the potential profits.

In this phase, organisations had to make thorough analysis of the environment and competition. The resource allocation process required managers to be more dynamic as they had to make quick decisions to avail the opportunities available at that time. In other words, managers had to make fast changes in financial, human and other resources of the organisation to cope with the changing needs of the business organisation.

Phase 3 also showed the emphasis for managerial planning with concerns for the external environment, and the need to react in anticipation of the impending changes in the business environment.

Phase 4:

Managers also had to behave or think more ‘strategically’ at this phase in order to remain competitive. This phase is also known as the ‘strategic planning era’ in the early 1970’s in the USA and Europe. In Malaysia, it became an important phenomenon in the late 1980s and early 1990s.

Many public listed organisations and state-owned corporations in Malaysia became interested in this concept in the mid-1990s. Phase 4 is known as the ‘strategic management’ era. In USA and Europe, this phase gained prominence in the late 1980’s. In this phase, the environmental changes were more rapid and the level of turbulence was greater with more uncertainties of the future.

Organisations realised that in order to remain competitive and sustain their competitive edge, there was a need to develop specialised strategic plans relevant for the particular organisation. There was also the need to use the best of all the available resources the organisations had to have a competitive advantage over others in the industry.

Consequently, organisations needed to develop flexible organisational processes and systems that could cope with the uncertain business environment. Organisations also had to be more creative and develop supportive cultures and values that can ensure organisational success and superior performance.

As such, the focus in management planning had changed from the ‘strategic’ perspective to that of ‘creating the future’. This is the major challenge for managers today as the mode of achieving better organisational performance becomes more demanding and complex. As such, the role of creativity, innovation, research and development (R&D) is more important in today’s business environment.

The changes in strategic management has prompted the business policy course to evolve from phase 1 to phase 4 which is more complex and dynamic. The business policy course was concerned with integrating all the functional areas of business and provide experience in solving real-life problems which have multifunctional impact on the organisation.

Further, the strategic management area is also concerned about strategic issues, which have long-term impact on the organisation.

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Evolution of Strategic Management from the 1950’s to the Modern Day

Broadly it can be divided into three phases. The first phase is known as general management era which comprised the 1950s and 1960s. The second phase is the golden age of strategic planning and comprised the period 1960s-1980s. The third phase is post-modern strategic management era which stared in 1980s and still continuing.

The first phase was called the general management era of strategic management. This phase dealt with the “implicit” side of strategy, which is informal and instinctual. The general management era focused on leadership qualities, the general role of the CEO and other top managers, interpersonal relationships, the importance of values, and the capacity of informal and formal internal processes, systems, and structure to support strategy.

Based on the works of Chester Barnard, Philip Selznick, Kenneth Andrews, and others, a key assumption underlying the general management era in the early post-war period was that successful top executives are really effective general managers in the broadest sense.

They are multifaceted leaders with responsibilities to the shareholders, employees, customers, and members of the larger community. According to the general management heritage, the criteria used for assessing the performance of a CEO and strategy generally are usually broad-based and long term in nature.

For example, Barnard emphasised cooperation as a critical function of the executive and he also believed that strategy — the long-term direction of an enterprise — is only possible with an emotional, as well as rational, commitment and with sound and “moral” leadership.

Selznick focused on the process of “institutionalization” — which is to “infuse an organisation with value” beyond the technical requirements for the immediate task at hand. This action can be effectively accomplished only with appropriate strategic leadership.

Selznick argued that key tasks for an institutional leader are defining the institutional mission and role, embodying the institution’s purpose, defending the institution’s integrity, moderating internal conflict, and setting priorities. Kenneth Andrews, a professor at the Harvard Business School, the centre of general management, also presents a broad and complex view of the top manager’s job.

According to Andrews, the CEO has several simultaneous roles at the personal, administrative, strategic, and even ethical levels. Andrews usefully distinguishes three important kinds of top-level leadership- personal, organisational, and “architect of organisational purpose,” with this last category of leadership representing the truly strategic dimension of top management decision making. Going beyond routine and personal attributes, he calls the CEO the “custodian of corporate objectives.

The heritage of the general management tradition has its enduring significance for the corporate strategy field. Strategic decision making cannot be sanitized. The starting point for strategy is a long-term and multifaceted view of corporate objectives. There is also a bias in favour of action, for dealing with the challenges of strategic opportunities and threats.

For example, Andrews writes, “Generalizing about how to make an effective strategic match is less rewarding than working at it.” These themes — a broad view of the firm, the importance of leadership, and the need for effective implementation — are constantly being rediscovered and are as relevant in the 1980s as they were in the 1960s.

This first attribute of strategy, the necessity of broad and committed leadership, provides a permanent link between the earlier general management era of the 1950s and 1960s and the post-modern phase that began in the 1980s.

The second phase, known as the golden age of strategic planning, started in the late 1960s. A new school of strategic management of conceptualization and practice began to surface. It became a strong rival to the general management tradition, and in the 1970s this new stream emerged as the dominant mode of strategic thinking and decision making.

This second phase in strategic management, “the golden age of strategic planning”, lasted from the late 1960s to about 1980. During this period, strategic planning flowered and gained enormous status. By the 1970s, the formal, systematic, and analytical side of strategy, dominated the entire field.

Strategic planning developed into a profession and a management function. A large and influential support and service sector, made up of strategic consulting firms, business information data sources, an increasingly infatuated business press, and business schools, had grown to support and develop strategic planning. Various techniques and approaches also rapidly spread overseas.

Alfred D. Chandler, in his book “Strategy and Structure” exemplified this transition to a focus on professional strategic management. This work dealt with the rise of diversification strategy and the emergence of the multidivisional structure to support this strategy in the post-World War II period in the United States. But, like much historical writing, Chandler also reflected and anticipated the concerns and ideas of his own time, the 1960s.

Chandler triggered major conceptualization in strategic management in four critical ways:

(i) Refinement and modification of the general management notions of leadership;

(ii) The identification of a major issue that acted as a stimulus for strategic decision making- diversification;

(iii) Recognition that the various internal support systems — including structure — need to be appropriately designed and in place for effective strategy; and

(iv) The identification of strategic management as something distinct from operational business concerns.

Chandler’s insights and uncovering of professional management and systematic managerial techniques and methods matched well with some of the key trends that were occurring in the corporate world in the late 1960s and the 1970s. Corporations continued to grow in size, expanded geographically, and increasingly entered multiple lines of business.

The terms “diversification” and “multidivisional structure” were becoming less helpful in accurately describing and assessing the evolution and actions of giant business enterprises. New concepts, techniques, and managerial roles began to emerge to deal with this new complexity and growth of the late 1960s and the 1970s.

Most of this new development can be grouped under the category of strategic planning, and this activity experienced a kind of “golden age” during the late 1960s-1980 period. The development of a rich array of strategic planning methods and viewpoints and structural innovations during the 1970s profoundly influenced strategy making and the practice of management.

The new techniques included the statistical analysis of strategic-level databases, such as the PIMS [Profit Impact on Market Strategies] model, the increasing application of strategic portfolios developed by the Boston Consulting Group, Arthur D. Little, McKinsey, and other consulting firms and strategic planning units, and by the end of the 1970s, the incorporation into strategic planning of industrial organisation theory from economics.

In addition, new structural innovations were developed, including, first, the SBU [Strategic Business Unit] within the firm and, later, strategic groups within an industry. These achievements enhanced management’s capability to run large enterprises while also creating their own set of difficulties.

The third phase, “post-modern strategic management”, started in the beginning of the 1980s. The strategic planning in actual practice was undergoing continuous change as it adapted to changing conditions. Strategic planning’s golden age was ending by the early 1980s as strategy generally was becoming less monolithic, more pragmatic, more eclectic, and more grounded in specific business operations or industries.

The approaches developed during the golden age of the late 1960s and 1970s were not rejected, instead, they were modified and adapted to specific contexts. This new humility and awareness of limits actually improved the usefulness of strategic management process.

The growing reassessment in the 1980s of strategic planning and its trappings was actually well grounded in significant strands of strategy thinking from the previous general management era. In addition, some strategy scholars attempted to broaden and deepen the strategy field and to reconcile and integrate findings from a variety of disciplines.

Even more damaging pressures on strategic planning emanated from outside the strategic management field altogether and involved a direct assault on the view that strategy should be developed separately from operations.

This critique of strategic planning was best articulated by those who believed that manufacturing and, later, technology had for too long been disregarded as strategic variables and that this neglect was a key factor in the U.S. decline in global competition. According to this line of thinking, manufacturing in the post-war period had become increasingly routine, narrow, and subordinate.

Top executives in U.S. firms had become technology averse in making strategic decisions. Instead, there was at the highest level of the firm an infatuation with non-productive concerns, such as strategic planning, finance, and legal issues. In effect, CEOs had lost touch with the true lifeblood of business- technology and operations.

It was time to reconnect the fundamentals of business with top management and strategic decision making.

By the beginning of the 1980s, strategic planning came to be known as competitive strategy. Michael Porter in his book “Competitive Strategy”, published in 1980, highlights three aspects of competitive strategy- structural analysis of industries, generic strategies, and strategic groups.

Clearly, one of the greatest benefits of structural analysis — which included delineating the actions of competitors, buyers, sellers, the threat of substitutes, and new entrants — was that it forced the strategist to view the industry broadly, not just in terms of current competitors.

In identifying three generic strategies for possible use (low-cost leadership, differentiation, and focus) Porter offered alternative avenues to strategic success. He and his colleagues enlarged the discussion of strategic choices and provided strategists with new conceptual degrees of freedom.

Similarly, by employing the idea of strategic groups (essentially a cluster of competitors in an industry that are following the same or similar strategies as defined by a designated set of dimensions), diverse generic strategies of firms in an entire industry can be viewed and mapped.

The industry can then be usefully reconfigured for strategic planning purposes. Technology and novel structures to promote innovation emerged in the 1980s as important elements of the strategic management.

Post-modern strategy increasingly characterizes the cutting edge of strategic practice today. It blends certain features of general management and strategic planning thinking while also exhibiting new concepts of its own. Moreover, it is both less universal and less elegant than its predecessors.

It is more varied, contingent, and complicated in the way its diverse parts have been both disaggregated and reintegrated. It stresses such strategic matters as implementation, the creation of multiple organisational strategic support systems, processes, and pressures, the role of a firm’s unique culture and history.

In setting and influencing strategy, internal entrepreneurial units, the increasing use of inter-organisation networks and linkages, the growing importance of what is now termed global strategy, advanced and targeted analytical strategic approaches, the relationship between corporate strategy and various functional strategies, and the strategic role of technology.

By the mid-1980s, strategic management’s historical evolution, strategy’s more complex set of key current dimensions, and the growing concern in strategy, over value-intensive objectives in a changing competitive environment all culminated in a new set of dominant strategic actions that tended to characterize much of post-modern strategic behaviour.

The first such action is disaggregation the purposeful fragmentation, decentralization, and flattening of an enterprise in order to promote risk taking and innovation. In part, the new emphasis on disaggregation was a somewhat delayed reaction by large corporations to the dramatic and successful experience in the U.S. of small-firm high-technology entrepreneurialism and the continuing vigour of medium size companies, which tended to highlight the benefits of decentralized, small, and flat organisational structures.

The traditional advantages of market power as mass production, mass marketing, and large industrial R&D facilities can lead to significant strategic achievement. Moreover, within post-modern strategy a process of complex reintegration is also occurring, and this new method of assembling a high value critical mass is particularly effective in the current competitive environment.

This type of action essentially permits not only the effective mobilization of internal resources but also the selection of external sources for achieving strategic advantage. Complex reintegration allows make-versus-buy of high value resources.

An important distinguishing feature of post-modern strategy is a growing use of fluid and network-like inter-organisation structures such as strategic alliances — as well as better and varied use of the traditional hierarchical corporate form. Consequently, post-modern strategy is further modifying the shape of the U.S. Corporation by actually promoting the externalization of transactions where appropriate.

The implementation of post-modern strategy often requires the kind of action that permits the continuous blending and coexistence of seemingly opposite kinds of behaviour and strategies. This crucial action in post-modern strategy is termed simultaneity, the simultaneous incorporation of diverse and often seemingly contradictory elements in order to achieve a larger set of strategic objectives. The ability to demonstrate simultaneity on an on-going basis is critical for strategic success today.

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Evolution of Strategic Management in India

Formal management education in India started in the late fifties and gained impetus with the setting up of the Indian Institute of Management (IIMs) and Administrative Staff College of India in early sixties. In the earlier years of the IIMs, the curriculum and philosophy of management education were based on American Model.

IIM-Ahmedabad based its teaching methodology on Harvard model of developing and using case studies as the major pedagogical tool. With the spread of IIMs, creation of several university management departments and private management institute, the management education has experienced unparalleled growth. Almost all management education institutes offer the strategic management and business policy course usually in the later part of the degree or diploma programme.

After the opening up of the Indian economy in early 1990s, the All India Council for Technical Education (AICTE), the regulatory body of management education in India, provided proper direction to the growth of management education.

The AICTE prescribed business policy, first in 1990 and again in 1995, as an integrative component in management education curriculum, in the form of a course in corporate policy and strategic policy.

The Business Policy and Strategic Management course has gained wider acceptance as an integrative discipline in over 1500 management institutes that have come up in the recent past (1990-2003). A number of doctoral and post-doctoral studies have also been undertaken with a view to enrich the knowledge in the area, especially with a clear focus on Indian companies.

Strategic Management Forum of India was formed in 1996 and is exclusively devoted to the development of issues relating to strategic management. A number of publications covering the concepts, techniques and case studies relating to business policy and strategic management have also gone up impressively, especially after 1990s, such as Strategic Marketing, Business Standards strategist, etc.

The Association of Indian Management Schools (AIMS), a representative body of management education and university management departments, has recommended a standard curriculum including “Business Policy and Strategic Management” as a compulsory course.

Business Policy is the preferred nomenclature but Strategic Management is being progressively adapted. The All India Management Association (AIMA), a national body for the promotion of the scientific management in India, offers a popular distance education programme in management including a course on strategic management in its curriculum.

Strategic planning or corporate planning had its genesis in India sometimes in the sixties when a number of subsidiaries of multinational companies introduced the process in compliance with their parent companies’ directives. Since then quite a few companies have introduced formal planning for a variety of reasons.

Some introduced it because their top managements felt that it would help them long-term objectives; some introduced it because of a fad, not wanting to be behind by others, and some others because were directed to do so.

Many public sector enterprises adopted corporate planning because they were asked to do so by the Bureau of Public Enterprises, the governmental body that regulates all public enterprises. Despite the facts such firms still constitute a small minority.

On the academic side, research in India on strategic planning has not taken off. There are very few studies on corporate planning practices in India. Of late, some leading Indian management education institutions have begun to offer short duration executives development programmes on corporate planning.

A quick examination of the teaching materials used in these programmes clearly shows a predominance of materials originally developed in the United States. This is not surprising because strategic planning at the enterprise level had its genesis there.

Strategic planning or corporate planning is a management process which enables a firm’s management to explore the future impact of change and make current decisions to move towards the envisioned future. The Western economies, characterized by a rapid rate of change and fierce competition became an ideal home for the development of the concept of corporate planning.

The Indian economy till recently provided protection to firms from change through a plethora of regulations which did not provide an impetus for the development of planning orientation. However, this scenario is changing rapidly as a result of increasing liberalization effected by the government in its policies towards industry.

A number of industries are now characterized by a high degree of competition, e.g., textile, television, passenger car, two- wheeler, commercial vehicles, cable, paint, etc. It is therefore very likely that strategic planning will be adopted by many firms in the near future.

Corporate planning systems vary from organisation to organisation depending on a variety of factors- environmental conditions, organisational size and complexity, age, top management values and styles, initial trigger for the commencement of planning, etc.

Variations in the corporate planning systems across organisations may vary depending upon the size of the organisation. These approaches may be any of the four types- top-down approach, bottom-up approach, hybrid between top-down and bottom-up approaches, team approach.

In firms adopting top-down approach, the planning takes place at the top and the various departments are supposed to do what they are told to do by the top management. In the bottom-up approach, the top management asks the departments or divisions to submit their plains, reviewed by the top management and accepted or sent back to the organizing departments or divisions for modification.

The consolidated divisional plans in the case of a decentralized company may not add up to the management’s targets. Additional plans are then required to be prepared which might necessitate planning for acquisitions or diversification into highly unrelated business areas.

A combination of top-down and bottom-up approaches is the approach which is generally used in decentralized companies. In firms using this approach the top management provides certain guidelines to the divisions or strategic business units (SBUs).

The SBUs are distinct businesses with their own set of resources that can be managed in a manner reasonably independently of other businesses within a firm. The top management guidelines are sufficiently broad to permit flexibility to the SBUs in developing their plans.

There is a vertical communication between the top management and the divisions or SBUs at different phases of the planning process. Broad objectives, policies and strategies may be arrived at through a dialogue and negotiation between the top management and the divisional or SBUs managers.

In small centralized firms where lateral communication between the top managers is easier than in large decentralized firms, the chief executive may himself, in collaboration with the senior managers, prepare corporate plans. In some very large firms also this practice has been found to exist.

Differences, in the planning systems in organisations may be in terms of the approaches adopted and also the dimensions given below:

i. Completeness of planning cycle

ii. Depth of analysis

iii. Degree of formality

iv. Use of staff and corporate planning specialists

v. Linkage among plans

vi. Methods of introducing planning

vii. Degree of documentation

viii. Participation of people

ix. Role of the CEO

Strategic planning involves an extended time-frame, the development of a large percentage of the resources of an organisation, a wide spectrum of activities and a major eventual impact. By merging the two models of planning, long-range planning and environmental scanning to form an interrelated model — the Strategic Planning Model — was formed.

The Strategic Planning Model is a tool that helps an organisation in setting up goals or objectives; the analysis of the environment and the resources of the organisation; generation of strategic options and their evaluation; and planning, design and implementation of control systems or monitoring mechanisms.

Three- dimensional structure of organisation requires strategic planning, operational planning and tactical planning at respective levels. Many organisations develop strategies at three different levels; corporate-level strategic planning, business-level strategic planning and functional-level strategic planning.

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Evolution of Strategic Management – Since 1950s

The terms Business Policy, Strategic Management and Corporate Strategy / Planning are often used interchangeably. Their combined use, however, causes confusion. William Glueck, a well- 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.” This connotes that strategic management is the modern term for what was earlier called business policy.

Business Policy as a course began to be included in the curriculum of the Business Schools in the 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, sought to apply a holistic approach to business problem analysis and decision making.

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 and its environment. For example – it addressed issues such as social responsibilities and ethics, as well as the potential impacts of political, legislative, and economic events on the successful operation of an organisation.”

Since 1980s, researchers and perspective thinking of a number of scholars like Michael Porter, C. K. Prahalad and Gaiy 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 strategic management. Thus, strategic management is a broader term than business policy.

However, 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 formulation and implementation.

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.”

William Boulton in his book Business Policy, subtitled 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 the actions of setting organisational policies that we refer to as strategic management.”

In the Harvard Business School, where business policy is a required course, the first half of the course considers the formulation of effective strategies. This involves the identification and analysis of problem situations. Problems are approached from the point of view of the chief executive or general manager, who is responsible for the enterprise as a whole.

The second half of the course considers the 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 organisation is able to renew itself by establishing new objectives.

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Strategic Management Evolution in terms of 4 Paradigm Shifts – Ad Hoc Policy, Integrated Policy Formulation, Strategy and Strategic Management Paradigm

Hofer and others have viewed the evolution of strategic management in terms of four paradigms shifts, which can also be considered the four overlapping phases in the evolution/development of strategic management. These developments have closely followed the demand of real-life business.

These paradigm are discussed below:

1. Ad Hoc Policy Paradigm:

The first paradigm was the era of ad hoc policy making. This phase can be traced back to 1900-1930. This was also the era of mass production and maximising output. Normally, the firms commenced operations in a single product line, standardised the product and lowered the cost of production, catering to unique set of customers in a limited geographical area expanded in one or all of the three dimensions of business.

Informal control and co-ordination became partially irrelevant as expansion took place and the need to integrate functional areas arose. This integration was brought about by framing policies to guide managerial actions. Coordination was the main concern of the management and there was hardly any element of the strategic management although the strategic planning focused on maximising output.

2. Integrated Policy Formulation Paradigm:

The second paradigm was the era of integrated policy formulation. In the 1930-1940 there were many environmental changes that took place in the US. These changes were in technology, turbulence in political environment, emergence of new industries, demand for novelty products even at higher costs, product differentiation, market segmentation in increasingly competitive and changing markets.

All these made investment decisions increasingly difficult. The planned policy formulation replaced the ad hock policy making. This was the era of integrating all functional areas and framing integrated policies to guide managerial actions. That is why it is called integrated policy formulation era.

3. Strategy Paradigm:

The third paradigm was the era of strategy. In the period of 1940-1960, planned policy became irrelevant due to increasingly complex and accelerating changes taking place in the environment and the needs of the business could no longer be served by policy making and functional area integration only.

Firms had to anticipate environmental changes. By the 1960s, there was a demand for a critical look at the basic concepts of business and its relationship to the environment. The concept satisfied this requirement and the third paradigm based on strategy emerged in the early sixties.

4. Strategic Management Paradigm:

The fourth paradigm was the strategic management which emerged in 1980 and onwards. The initial focus of strategic management was on the interactions of two broad fields of enquiry- the strategic process of business firm and the responsibility of general management.

What to produce, where to market, which new business to enter, which one to quit and how to get internally stronger and resourceful are the new stakes. Strategic planning is required to be done to endow the enterprise with certain fundamental competence/distinctive strengths which could take care of eventualities resulting from unexpected environmental changes.

However, the evolution of this fourth phase is still continuing and is yet not formed into a theory of how to manage an enterprise. But strategic management is a very important tool for and way of thinking to resolve strategic issues. The world is substantially compressed and managing the external and internal environment becomes a crucial function.

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