Page 68 - DCOM102_DMGT101_PRINCIPLES_AND_PRACTICES_OF_MANAGEMENT

Principles and Practices of Management

Notes
Example: Google Inc. is the company that operates this way.
2. Industrial Organisational Approach: The Industrial Organisational Approach is based
on the economic theory. It deals with issues like competitive rivalry, resource allocation,
economies of scale, etc.
Assumptions:
(a) Rationality,

(b) Self-discipline behaviour,
(c) Profit maximization

Notes Strategic management techniques can be viewed as bottom-up, top-down, or
collaborative processes. In the bottom-up approach, employees submit proposals to their
managers who, in turn, funnel the best ideas further up the organisation. This is often
accomplished by a capital budgeting process. Proposals are assessed using financial criteria
such as return on investment or cost-benefit analysis. Cost underestimation and benefit
overestimation are major sources of error. The proposals that are approved form the
substance of a new strategy, all of which is done without a grand strategic design or a
strategic architect. The top-down approach is the most common by far. In it, the CEO,
possibly with the assistance of a strategic planning team, decides on the overall direction
the company should take. Some organisations are starting to experiment with collaborative
strategic planning techniques that recognize the emergent nature of strategic decisions.

3.6.1 Types of Strategies

In most (large) corporations there are several strategies that are formulated and implemented in
various departments due to varied objectives.
1. Corporate strategy: Corporate strategy refers to the overarching str ategy of the diversified
firm. Such a corporate strategy answers the questions of “in which businesses should we
be in?” and “how does being in these business create synergy and/or add to the competitive
advantage of the corporation as a whole?”
2. Business strategy: Business strategy refers to the aggregated strategies of single business
firm or a Strategic Business Unit (SBU) in a diversified corporation. According to Michael
Porter, a firm must formulate a business strategy that incorporates either cost leadership,
differentiation or focus in order to achieve a sustainable competitive advantage and long-
term success in its chosen arenas or industries.
3. Functional strategies: Functional strategies include marketing strategies, new product
development strategies, human resource strategies, financial strategies, legal strategies,
supply-chain strategies, and information technology management strategies. The emphasis
is on short and medium term plans and is limited to the domain of each department’s
functional responsibility. Each functional department attempts to do its part in meeting
overall corporate objectives, and hence to some extent their strategies are derived from
broader corporate strategies.
Many companies feel that a functional organisational structure is not an efficient way to
organise activities so they have reengineered according to processes or SBUs. A strategic
business unit is a semi-autonomous unit that is usually responsible for its own budgeting,
new product decisions, hiring decisions, and price setting. An SBU is treated as an internal
profit centre by corporate headquarters.

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