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The primary purpose of the strategic management process is to enable companies to achieve strategic competitiveness and earn above-average returns. Research indicates that companies that engage in strategic management generally outperform those that do not.  The attainment of an appropriate match or fit between a company's environment and its strategy, structure, and processes has positive effects on the company's performance.  Bruce Henderson, founder of the Boston Consulting Group, pointed out that a company cannot afford to follow intuitive strategies once it becomes large, has layers of management, or its environment changes substantially.  As the world's environment becomes increasingly complex and changing, today's companies as one way to make the environment more manageable use strategic management.

 

Strategic competitiveness is achieved when a company successfully formulates and implements a value-creating strategy.  By implementing a value-creating strategy that current and potential competitors are not simultaneously implementing and that competitors are unable to duplicate, a company achieves a sustained or sustainable competitive advantage.

 

So long as a company can sustain (or maintain) a competitive advantage, investors will earn above-average returns.  Above-average returns represent returns that exceed returns that investors expect to earn from other investments with similar levels of risk (investor uncertainty about the economic gains or losses that will result from a particular investment).  In other words, above average-returns exceed investors' expected levels of return for given levels of risk.

 

In the long run, companies must earn at least average returns and provide investors with average returns if they are to survive.  If a company earns below-average returns and provides investors with below-average returns, investors will withdraw their funds and place them in investments that earn at least average returns. Internationally these types of companies are prime take-over targets, a concept that is picking up in India.

 

Colours of Change

 

At one extreme you had the internet start-ups with almost-teenagers strategising for the company. At the other, you have companies like the Godrej group - over a hundred years old, with legacy systems of managing and strategising. Now the group's infusing a little colour into those processes. Godrej's new colour-coded approach to rejuvenating the group is a careful balance between both - involve youngsters in decision-making, access all those bright young ideas, and also bring a touch of sobriety (plum, a mix of red and blue) to weigh the final approach.

 

A young executives board, comprising a group of youngsters with functions similar to that of the company's board of directors, gives its recommendations to the board.

 

Meet Adi Godrej, the new Chief Personnel Officer of Group Godrej, and the man behind the red and blue teams. “Post the dissolution of our JV with P&G in 1996, we did a lot of introspection, which led us to the realisation that we needed to change dramatically if we wanted to progress,” he explains. Godrej isn't preaching what he doesn't practice. When you're a managing director trying to ensure people-focus and youthfulness in your group, you set an example. When he decided that all managers have to go through extensive feedback sessions - not just from peers and subordinates, but also from vendors and suppliers - he underwent one himself. Says a deadpan Godrej: “My evaluation said that I'm too autocratic and not a good listener. People also felt that I do not encourage teamwork.”

 

Adi Godrej was inspired to start the red and blue teams after a CEO's forum held by US-based management guru CK Prahalad. Godrej modified the plan, and got the guru himself to speak to his teams about the concept's methodology and relevance to the group's needs. Now red and blue are the colours of change at the lush green premises of the Godrej group in suburban Mumbai. In an interesting experiment to evolve out-of-the-box thinking, various group businesses have formed two eight-member teams called the red team and the blue team, made up of young employees whose mandate is to come up with recommendations on future growth prospects for their divisions, strategies and business directions.

 

Working independently of each other, the red and blue teams meet with opinion makers from all walks of life for a period of 3-4 months in order to chalk out a strategic plan for the next three years. These teams then present their plan to the ‘plum team', a team of senior managers from the respective businesses, sometimes including chairman Adi Godrej. The senior team's job is to review the two plans, distil the best suggestions, and come up with a final plan to be implemented. It was tried at Godrej Agrovet last year, and has been rolled out to the rest of the group now.

 

So far, the teams have come up with suggestions on a variety of growth strategies - potential acquisition candidates, new categories of consumer goods to be explored, ways to improve rural thrust and how to go about globalising their businesses. “We've found a wider variety of thought processes and ideas than ever in the past,” adds an enthusiastic Godrej.

 

Another fairly uncommon, and bold, initiative is the young executive's board (YEB), which was formed in October 2001. It has eleven 20-somethings on board (the oldest is 32). For all strategic purposes, they are supposed to behave like any senior board, and give their suggestions on strategy, human resource policies, corporate governance and ways and means to make the future brighter for the group. They have been provided access to all information, documented and otherwise, that the directors of the group's management committee have access to.

 

Again, the idea is to get strong young perspective on board issues. Also, the group wants to strengthen communications and transparency within. “The idea is to have a bottoms-up approach in strategic planning, as opposed to the traditional top-down one in which plans are formed by the senior management and left to the managers below to implement, who grumble about not having their say in planning. It also benefits the youngsters because it is a tremendous learning opportunity for them, and it is they who will rise to be the future managers,” explains Godrej.

 

Meanwhile a team of five business heads has been instituted, which has to come up with a group-wide strategic plan this year. It is this team's recommendations on various business strategies - which businesses to exit, which new ones to enter, and deliberations on new growth horizons - that will decide what the Godrej group will be five years from now.

 

Why this sudden need for action on the HR front? Godrej learnt its lessons from the break-ups with its various joint ventures. Not only did a lot of managers walk out along with JV partners, the group did not attract as many talented people with the advent of MNCs in India.

 

Their internal surveys on HRD climate and employee satisfaction reflected that young people in the organization felt underutilised, and uninvolved in strategic decision-making.

 

A think-tank of eight people from different functions and group companies has been formed to evaluate trends in science, engineering, infotech, marketing and management developments, that are likely to affect them in future. In the last four months, 38 top managers, including Godrej himself, have had to undergo an assessment centre evaluation where they were tested for their ability to think, relate, learn and act.

 

Moreover, the company's existing 360-degree evaluation programme - that so far included only peers, subordinates and superiors - has been widened to include feedback from vendors and suppliers on employees who interact with them. To ensure that all these initiatives evolve into more than just colourful exercises, Godrej has rehauled compensation too. The group has linked its variable remuneration to economic value added (EVA).

 

Come April, Godrej's managers and officers, including the chairman, will receive a performance remuneration that's linked to their contribution to the business' EVA in the last year. What would make the employees even happier is that there's no limit to how much they can make as variable remuneration - their imagination will be limited only by their efforts, if at all.

 

Godrej credits the changed focus of the group for the turnaround of his Oleo chemical business, which has gone from making losses of more than Rs 75 crore and no exports four years ago, to making a profit of Rs 40 crore and exports worth Rs 120 crore this year. Another business to have benefited is the consumer products one, which went through very bad years after its fallout with P&G. According to Godrej, the changed fortune of GPCL has more to do with the initiatives than with any fundamental changes in the product portfolio.

 

Clearly, the reds, the blues and the plums are ensuring that Group Godrej continues to be in the black.

 

Adapted from The Economic Times, January 7, 2002

 

A framework that can assist companies in their quest for strategic competitiveness is the strategic management process, the full set of commitments, decisions and actions required for a company to systematically achieve strategic competitiveness and earn above-average returns.  This process is illustrated in Figure 1.2.

 

 

FIGURE: Strategic Management Process

 

Figure above illustrates the dynamic, interrelated nature of the elements of the strategic management process and provides an outline of where the different elements of the process are covered in this text.

 

Feedback linkages among the three primary elements indicate the dynamic nature of the strategic management process: Situation Analysis, Strategy Formulation and Strategy Implementation.

 

Situation Analysis, in the form of information gained by scrutinising the internal environment and scanning the external environment, is used to develop the company's strategic intent and strategic mission.

 

Strategy Formulation is guided by the company's strategic intent and strategic mission, and is represented by strategies that are formulated or developed and subsequently implemented or put into action.

 

Strategy Implementation strategic competitiveness and above-average returns result when a company is able to successfully formulate and implement value-creating strategies that others are unable to duplicate.

 

Strategy Evaluation & Control links the elements of the strategic management process together and helps companies continuously adjust or revise strategic inputs and strategic actions in order to achieve desired strategic outcomes.