What is Strategic Management?

Strategic management is the process of setting goals, objectives and developing plans, policies in order to achieve those objectives, and then allocating the requisite resources to implement those plans. This is done in order to make the firm more competitive.

Strategic Management

What is Strategic Management?

Strategic Management is concerned with establishing the proper “organization – environment fit” or matching the organizational factors with the environmental factors. It involves an analysis of organizational factors (strengths and weaknesses of the organization) and the environmental factors (threats and opportunities in the business environment).

Related: What is a Strategy?

It is the art and science of formulating, implementing, and evaluating cross-functional decisions and strategies that enable an organization to achieve its objectives.

Strategic-Management is about answering the following questions:

• Where are we now?
• Where do we want to go?
• How are we going to get there?

Strategic management is a costly activity that takes up a lot of management time. It is therefore important to stop & consider why it is important:

• Issues, decisions and actions affecting the firm as a whole
• Issues, decisions and actions that deal with the direction and scope of the firm
• Issues, etc. with a time horizon; long term but with intermediary goals
• Issues etc. with resource implications; financial, physical, human and ‘knowledge’ resources.

‘Competitive strategy is about being different. It means deliberately choosing a different set of activities to deliver a unique mix of value.’ (Porter , 1996).

Achieving sustainable competitive advantage is the central issue of strategic management

• Exists in all walks of life
• The ability of the firm to outperform other firms in the market (customers and profit)
• Need not be destructive

Importance and Benefits of Strategic Management

In today’s age, strategic management is more important than ever for organisations!

It allows an organisation to become more proactive rather than reactive. It has helped organisations formulate sound strategies. These strategies are based on a more systematic, logical and rational approach to strategic choice.

• Even if you’re on the right track, you’ll get run over if you just sit there (Will Rogers)
• Strategy without tactics is the slowest route to victory. Tactics without strategy is the noise before defeat (Sun Tzu)
• The best way to predict the future is to create it (Peter Drucker)
• The essence of strategy is choosing what not to do (Michael Porter)

Benefits of Strategic Management

Benefits of Strategic Management includes Enhanced Communication, Greater Commitment, Deeper/Improved Understanding, Positive Results.

Financial Benefits:

• Improvement in sales, profitability and productivity.
• Profits will come naturally.

Non-Financial Benefits:

• Improved understanding of competitors strategies.
• Reduction in resistance to change. More and more opportunities can be exploited in the process.
• Helps define the management problems objectively.
• Provides a framework for a company to coordinate and control activities.
• Encourages strategic thinking!

The Strategic-Management Model

Stages of Strategic Management:

Strategy analysis (Internal and External Environment Analysis), Strategy formulation and Strategy Implementation are the three Stages of Strategic Management.

Strategic Analysis

Strategic analysis (or Situation Analysis) is the process of analyzing a company and its operating environment in order to come up with a suitable strategy.

Strategic Analysis is the objective study of the environmental factors, both internal and external, which are considered in the process of strategic choice. It is the process of conducting research on the business environment within which an organization operates and on the organization itself, in order to formulate strategy.

Environment Analysis and Scanning

The forces, conditions, situations, events etc. that impact the organization is referred to collectively as the organization’s environment.

The ever-changing internal (controllable) as well as external (uncontrollable) forces of environment pose numerous challenges to the business firms to adjust and adapt itself to the realities of such environment.

To address these challenges, business leaders conduct an environmental analysis and develop policies and processes that adapt the firms operations and products to this environment.

Advantages of Environment Analysis and Scanning:

• Identification of Strengths, Weaknesses, Opportunities and Threats
• Allows a company to optimize use of its resources, allows flexibility in Operations
• Long Term Planning of Business Strategy
• Aids in Decision Making related to Expansion and Diversification, and helps in Survival and Growth
• It also improves Corporate Image

Two types of Strategic Analysis can be done by different organizations for future planning. They are:

1. Internal Environment Analysis (using tools such as SWOT)

   This involves looking within the organization and examining a company’s own capabilities, strengths, weaknesses, and internal processes.

2. External Environment Analysis (using tools such as PESTLE)

   This involves looking at factors outside the organization and examining the broader market environment.

Generally, detailed analysis of a company should include eight areas:

• The history, development, and growth of the company over time
• The identification of the company’s internal strengths and weaknesses
• The nature of the external environment surrounding the company
• A SWOT analysis
• The kind of corporate-level strategy that the company is pursuing
• The nature of the company’s business-level strategy
• The company’s structure and control systems and how they match its strategy
• Recommendation

After conducting a detailed strategic analysis, a firm can proceed with Strategy Formulation.

Strategy Formulation

Strategy formulation is the process of offering proper direction to a firm. It seeks to set the long-term goals that help a firm exploit its strengths fully and encash the opportunities that are present in the environment.

The information from various strategic decision making models such as PESTEL and SWOT analysis is used to set clear and realistic goals and objectives. The firm should be able to identify if it needs additional resources and sources to procure them. The firm should formulate targeted plans and prioritize activities to achieve the goals.

Strategy formulation is the process by which an organization chooses the most appropriate course of action in order to achieve its pre determined goals.

It helps an organization to consider the changing environment and be prepared for the possible changes that may occur. It further enables to evaluate the resources, allocate budgets, and determine the most effective plan for maximizing the return on investment.

Strategy formulation decisions involve taking decisions about: What new businesses to enter, What businesses to abandon, Whether to expand operations or diversify, Whether to enter international markets, Whether to merge or form a joint venture, How to avoid a hostile takeover.

Developing Strategies is based on:

• Basis of Choice: Corporate purpose and aspirations, SBU (Strategic Business Units) generic competitive strategies
• Alternative Directions: Protect and build, Market penetration, Product development, Market development, Diversification (related, unrelated)
• Alternative methods: Internal development, Acquisition, Joint development alliances

Strategy Formulation involves:

• developing a vision and mission
• identifying an organization’s external opportunities and threats
• determining internal strengths and weaknesses
• establishing long-term objectives
• generating alternative strategies
• choosing particular strategies to pursue

A strategic plan is a company’s game plan. It results from tough managerial choices among numerous good alternatives, and it signals commitment to specific markets, policies, procedures, and operations.

Strategic plans should be communicated to everyone in the organization so that they are aware of the objectives, mission, and purpose.

Strategic Evaluation

Here’s how Strategy Evaluation is typically carried out in big organizations, and the criteria they use to evaluate potential strategic options.

• First, the firm assesses the performance outcomes of the various strategies in terms of direct economic outcomes & overall organisational effectiveness.
• Then Gap Analysis is carried out to assesses performance & the need for new strategies.
• Three success criteria are considered for evaluating new Strategic Options; these need to follow the SAFe criteria which stands for Suitability, Acceptability & Feasibility. The firm applies a range of different techniques for evaluating strategic options, both financial & non-financial.

Evaluating Strategies

Here are the criteria to evaluate potential strategic options developed within an organisation; these can be consolidated into three broad categories:

• Suitability – an assessment of the underlying rationale or logic of the potential strategy.
• Acceptability – an assessment of risks and returns of a potential strategy relative to the goals of the organisation.
• Feasibility – an assessment of the resources and capabilities needed to achieve the potential strategy.

You need to provide a rational, concise and coherent explanation of what your company’s proposed strategic direction means for your organisation in your assignment, supported by appendices which utilise these tools!

Read: Johnson & Scholes framework for evaluation and selection of strategies.

Strategy Implementation

Strategy Implementation is the execution of the various plans and strategies to meet the desired outcomes, including meeting the long-term goals of the organization.

It is the process by which strategies and policies are put into action through the development of programs, budgets and procedures.

It is the sum total of all the activities and choices required for the execution of a strategic plan.

It involves allocating resources to support the chosen strategies.

Strategy Implementation:

• requires a firm to establish annual objectives, devise policies, motivate employees, and allocate resources so that formulated strategies can be executed
• often called the action stage

This process includes the various management activities that are necessary to put strategy in motion, institute strategic controls that monitor progress, and ultimately achieve organizational goals.

Various Strategic Decision Making Models / Tools

Here’s are the various models, frameworks and strategic decision making tools that help to analyse the internal environment, external environment, and to understand the positioning of a business.

Strategic Decision Making

Ansoff matrix: Tool to plan growth strategies based on Product/Market Expansion.

Bowman’s strategic clock: Model to understand competitive position of a business in the market.

Porter’s generic strategies: Different approaches that companies can adopt to compete.

External Analysis Tools

PESTLE Analysis: Model to analyze the external business environment.

Porter’s Five Forces: Framework to analyse competitive environment (Micro Environment) within the industry in which a firm operates.

SWOT Analysis: Identify strengths and weaknesses (internal analysis) and opportunities and threats (external analysis).

Internal Analysis Tools

VRIO Analysis: Tool to assess internal resources and capabilities of an organisation.

Value Chain Analysis: Tool to understand how value (to a customer) is created in a firm.

McKinsey 7S Framework: Framework to assess effectiveness of a firm based on key internal elements within a firm.

Benchmarking: Means to understand relative performance of organisations.

Mintzberg Five Ps For Strategy

Strategy as a Plan – consciously intended course of action, a guideline (or set of guidelines) to deal with a situation.

Strategy as a Ploy – specific maneuver intended to outcompete the competitor.

Strategy as a Pattern- defining strategy as a plan is not sufficient; we also need a definition that encompasses the resulting behaviour; strategy is a pattern, a pattern in a stream of actions

Strategy as a Position – a means of locating an organization in its environment, a “match” between the internal and the external context, a product-market domain..

Strategy as a Perspective – the organization’s personality, how it sees the world; some organizations create new technologies and exploit new markets; others perceive the world as set and stable, and so sit back in established markets and build protective shells around themselves; organizations that favour sheer productive efficiency (McDonald’s) build a whole ideology around that.

References

Strategic Management – Fred R. David, Published by Prentice Hall International.

Business Policy and Strategic Management – Dr. Azhar Kazmi, published by Tata McGraw Hill Publications

Nagpal, Sharma: Strategic Management, SYBMS (Sem. 3), Sheth Publishers

Nagpal, Shelankar, Sharma: Strategic Management, M.Com (Sem. 3), Sheth Publishers