STRATEGIC MANAGEMENT
BY
SMART LEARNING WAY
Strategy - Definition and Features
The word “strategy” is derived from the Greek
word “stratçgos”; stratus (meaning army) and “ago” (meaning leading/moving).
Strategy is an action that managers take to
attain one or more of the organization’s goals. Strategy can also be defined as
“A general direction set for the company and its various components to achieve
a desired state in the future. Strategy results from the detailed strategic
planning process”.
A strategy is all about integrating
organizational activities and utilizing and allocating the scarce resources
within the organizational environment so as to meet the present objectives.
While planning a strategy it is essential to consider that decisions are not
taken in a vacuum and that any act taken by a firm is likely to be met by a
reaction from those affected, competitors, customers, employees or suppliers.
Strategy can also be defined as knowledge of
the goals, the uncertainty of events and the need to take into consideration
the likely or actual behavior of others. Strategy is the blueprint of decisions
in an organization that shows its objectives and goals, reduces the key
policies, and plans for achieving these goals, and defines the business the
company is to carry on, the type of economic and human organization it wants to
be, and the contribution it plans to make to its shareholders, customers and
society at large.
Features of Strategy
Strategy
is Significant because it is not possible to foresee the future. Without a perfect
foresight, the firms must be ready to deal with the uncertain events which
constitute the business environment.
Strategy deals with long term developments
rather than routine operations, i.e. it deals with probability of innovations
or new products, new methods of productions, or new markets to be developed in
future.
Strategy is created to take into account the
probable behavior of customers and competitors. Strategies dealing with
employees will predict the employee behavior.
Strategy is a well defined road map of an
organization. It defines the overall mission, vision and direction of an
organization. The objective of a strategy is to maximize an organization’s
strengths and to minimize the strengths of the competitors.
Strategy, in short, bridges the gap between
“where we are” and “where we want to be”.
Strategic Management - Meaning and
Important Concepts
Strategic Management - An Introduction
Strategic Management is all about
identification and description of the strategies that managers can carry so as
to achieve better performance and a competitive advantage for their
organization. An organization is said to have competitive advantage if its
profitability is higher than the average profitability for all companies in its
industry.
Strategic management can also be defined as a
bundle of decisions and acts which a manager undertakes and which decides the
result of the firm’s performance. The manager must have a thorough knowledge
and analysis of the general and competitive organizational environment so as to
take right decisions. They should conduct a SWOT Analysis (Strengths,
Weaknesses, Opportunities, and Threats), i.e., they should make best possible
utilization of strengths, minimize the organizational weaknesses, make use of
arising opportunities from the business environment and shouldn’t ignore the
threats. Strategic management is nothing but planning for both predictable as
well as unfeasible contingencies. It is applicable to both small as well as
large organizations as even the smallest organization face competition and, by
formulating and implementing appropriate strategies, they can attain
sustainable competitive advantage.
It is a way in which strategists set the
objectives and proceed about attaining them. It deals with making and implementing
decisions about future direction of an organization. It helps us to identify
the direction in which an organization is moving.
Strategic management is a continuous process
that evaluates and controls the business and the industries in which an organization
is involved; evaluates its competitors and sets goals and strategies to meet
all existing and potential competitors; and then reevaluates strategies on a
regular basis to determine how it has been implemented and whether it was
successful or does it needs replacement.
Strategic Management gives a broader
perspective to the employees of an organization and they can better understand
how their job fits into the entire organizational plan and how it is co-related
to other organizational members. It is nothing but the art of managing
employees in a manner which maximizes the ability of achieving business
objectives. The employees become more trustworthy, more committed and more
satisfied as they can co-relate themselves very well with each organizational task.
They can understand the reaction of environmental changes on the organization
and the probable response of the organization with the help of strategic
management.
Thus the employees can judge the impact of such changes on their
own job and can effectively face the changes. The managers and employees must
do appropriate things in appropriate manner. They need to be both effective as
well as efficient.
One of the major role of strategic management
is to incorporate various functional areas of the organization completely, as
well as, to ensure these functional areas harmonize and get together well.
Another role of strategic management is to keep a continuous eye on the goals
and objectives of the organization.
Following are the important concepts
of Strategic Management:
1.)Strategy - Definition and Features
2.) Components of a Strategy Statement
3.)Strategic
Management Process
4.)Environmental Scanning
5.)Strategy Formulation
6.) Strategy
Implementation
7.)Strategy Formulation vs Implementation
8.)Strategy Evaluation
9.)Strategic
Decisions
10.)Business Policy
11.)BCG Matrix
12.)SWOT Analysis
13.)Competitor
Analysis
14.)Porter’s Five Forces Model
15.)Strategic Leadership
16.)Corporate
Governance
17.)Business Ethic
18.)Core Competencies
DEFINITION OF STRATEGIC MANAGEMENT
Strategic management is the continuous
planning, monitoring, analysis and assessment of all that is necessary for an
organization to meet its goals and objectives.
The strategic management process involves
analyzing cross-functional business decisions prior to implementing them.
Strategic management typically involves:
- Analyzing internal and external strengths and weaknesses.
- Formulating action plans.
- Executing action plans.
- Evaluating to what degree action plans have been successful and making changes when desired results are not being produced.
Strategic management necessitates a commitment
to strategic planning which represents an organization's ability to set goals to determine the
decisions and actions that need to be taken to produce those results.
Strategy Evaluation Process and its Significance
Strategy Evaluation is as significant as strategy formulation because
it throws light on the efficiency and effectiveness of the comprehensive plans
in achieving the desired results. The managers can also assess the
appropriateness of the current strategy in todays dynamic world with
socio-economic, political and technological innovations. Strategic Evaluation
is the final phase of strategic management.
The significance of strategy evaluation lies in its capacity to
co-ordinate the task performed by managers, groups, departments etc, through
control of performance. Strategic Evaluation is significant because of various
factors such as - developing inputs for new strategic planning, the urge for
feedback, appraisal and reward, development of the strategic management
process, judging the validity of strategic choice etc.
The process of Strategy Evaluation consists of following steps-
Fixing benchmark of
performance -
While fixing the benchmark, strategists encounter questions
such as - what benchmarks to set, how to set them and how to express them. In
order to determine the benchmark performance to be set, it is essential to
discover the special requirements for performing the main task.
The performance
indicator that best identify and express the special requirements might then be
determined to be used for evaluation. The organization can use both
quantitative and qualitative criteria for comprehensive assessment of
performance.
Quantitative criteria includes determination of net profit, ROI,
earning per share, cost of production, rate of employee turnover etc. Among the
Qualitative factors are subjective evaluation of factors such as - skills and
competencies, risk taking potential, flexibility etc.
Measurement of performance -
The
standard performance is a bench mark with which the actual performance is to be
compared. The reporting and communication system help in measuring the
performance.
If appropriate means are available for measuring the performance
and if the standards are set in the right manner, strategy evaluation becomes
easier. But various factors such as managers contribution are difficult to
measure.
Similarly divisional performance is sometimes difficult to measure as
compared to individual performance. Thus, variable objectives must be created
against which measurement of performance can be done. The measurement must be
done at right time else evaluation will not meet its purpose.
For measuring the
performance, financial statements like - balance sheet, profit and loss account
must be prepared on an annual basis.
Analyzing Variance -
While
measuring the actual performance and comparing it with standard performance
there may be variances which must be analyzed. The strategists must mention the
degree of tolerance limits between which the variance between actual and
standard performance may be accepted.
The positive deviation indicates a better
performance but it is quite unusual exceeding the target always. The negative
deviation is an issue of concern because it indicates a shortfall in performance.
Thus in this case the strategists must discover the causes of deviation and
must take corrective action to overcome it.
Taking Corrective Action -
Once the
deviation in performance is identified, it is essential to plan for a
corrective action. If the performance is consistently less than the desired
performance, the strategists must carry a detailed analysis of the factors
responsible for such performance.
If the strategists discover that the
organizational potential does not match with the performance requirements, then
the standards must be lowered. Another rare and drastic corrective action is
reformulating the strategy which requires going back to the process of
strategic management, re-framing of plans according to new resource allocation
trend and consequent means going to the beginning point of strategic management
process.
Strategic Decisions - Definition and Characteristics
Strategic decisions are the decisions that are concerned with whole
environment in which the firm operates, the entire resources and the people who
form the company and the interface between the two.
Characteristics/Features of Strategic Decisions
Strategic decisions have major
resource propositions for an organization. These decisions may be concerned
with possessing new resources, organizing others or reallocating others.
Strategic decisions deal with harmonizing organizational resource
capabilities with the threats and opportunities.
Strategic decisions deal with the range of organizational activities.
It is all about what they want the organization to be like and to be about.
Strategic decisions involve a change of major kind since an
organization operates in ever-changing environment.
Strategic decisions are complex
in nature.
Strategic decisions are at the top most level, are uncertain as they
deal with the future, and involve a lot of risk.
Strategic decisions are different from administrative and operational
decisions. Administrative decisions are routine decisions which help or rather
facilitate strategic decisions or operational decisions.
Operational decisions
are technical decisions which help execution of strategic decisions. To reduce
cost is a strategic decision which is achieved through operational decision of
reducing the number of employees and how we carry out these reductions will be
administrative decision.
The differences between Strategic, Administrative and Operational
decisions can be summarized as follows-
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The Scope Of Strategic Management
J. Constable has defined the
area addressed by strategic management as "the management processes and
decisions which determine the long-term structure and activities of the
organization". This definition incorporates five key themes:
* Management process. Management process as relate to how
strategies are created and changed.
* Management decisions. The decisions
must relate clearly to a solution of perceived problems (how to avoid a threat;
how to capitalize on an opportunity).
* Time scales. The strategic time horizon is long.
However, it for company in real trouble can be very short.
* Structure of the organization. An
organization is managed by people within a structure. The decisions which
result from the way that managers work together within the structure can result
in strategic change.
* Activities of the organization. This is a potentially
limitless area of study and we normally shall center upon all activities which
affect the organization.
These all five themes are fundamental to a study of the strategic
management field .
Dimensions Of Strategic Management
Strategic management process involves the entire range of decisions.
Typically, strategic issues have six identifiable dimensions:
* Strategic issues require top-management decisions
* Strategic issues involve the allocation of large amounts of company
resources
* Strategic issues are likely to have significant impact on the
long-term prosperity of the firm
* Strategic issues are future oriented
* Strategic issues usually have major multifunctional or multibusiness
consequences
* Strategic issues necessitate considering factors in the firm's
external environment.
Benefits of Strategic Management
There are many benefits of strategic management and they include
identification, prioritization, and exploration of opportunities. For instance,
newer products, newer markets, and newer forays into business lines are only
possible if firms indulge in strategic planning. Next, strategic management
allows firms to take an objective view of the activities being done by it and
do a cost benefit analysis as to whether the firm is profitable.
Just to differentiate, by this, we do not mean the financial benefits
alone (which would be discussed below) but also the assessment of profitability
that has to do with evaluating whether the business is strategically aligned to
its goals and priorities.
The key point to be noted here is that strategic management allows a
firm to orient itself to its market and consumers and ensure that it is
actualizing the right strategy.
Financial Benefits
It has been shown in many studies that firms that engage in strategic
management are more profitable and successful than those that do not have the
benefit of strategic planning and strategic management. When firms engage in
forward looking planning and careful evaluation of their priorities, they have
control over the future, which is necessary in the fast changing business
landscape of the 21st century.
It has been estimated that more than 100,000
businesses fail in the US every year and most of these failures are to do with
a lack of strategic focus and strategic direction. Further, high performing
firms tend to make more informed decisions because they have considered both
the short term and long-term consequences and hence, have oriented their
strategies accordingly. In contrast, firms that do not engage themselves in
meaningful strategic planning are often bogged down by internal problems and
lack of focus that leads to failure.
Non-Financial Benefits
The section above discussed some of the tangible benefits of strategic
management. Apart from these benefits, firms that engage in strategic
management are more aware of the external threats, an improved understanding of
competitor strengths and weaknesses and increased employee productivity.
They
also have lesser resistance to change and a clear understanding of the link
between performance and rewards. The key aspect of strategic management is that
the problem solving and problem preventing capabilities of the firms are
enhanced through strategic management.
Strategic management is essential as it
helps firms to rationalize change and actualize change and communicate the need
to change better to its employees. Finally, strategic management helps in
bringing order and discipline to the activities of the firm in its both
internal processes and external activities.
Closing Thoughts
In recent years, virtually all firms have realized the importance of
strategic management. However, the key difference between those who succeed and
those who fail is that the way in which strategic management is done and
strategic planning is carried out makes the difference between success and
failure. Of course, there are still firms that do not engage in strategic
planning or where the planners do not receive the support from management.
These firms ought to realize the benefits of strategic management and ensure
their longer-term viability and success in the marketplace.
Strategic Management Process - Meaning, Steps and Components
The strategic management process means
defining the organization’s strategy. It is also defined as the process by
which managers make a choice of a set of strategies for the organization that
will enable it to achieve better performance. Strategic management is a
continuous process that appraises the business and industries in which the
organization is involved; appraises it’s competitors; and fixes goals to meet
all the present and future competitor’s and then reassesses each strategy.
Strategic management process has following
four steps:
1. Environmental Scanning-
Environmental scanning refers to a process of
collecting, scrutinizing and providing information for strategic purposes. It
helps in analyzing the internal and external factors influencing an organization.
After executing the environmental analysis process, management should evaluate
it on a continuous basis and strive to improve it.
2. Strategy Formulation-
Strategy formulation is the process of
deciding best course of action for accomplishing organizational objectives and
hence achieving organizational purpose. After conducting environment scanning,
managers formulate corporate, business and functional strategies.
3. Strategy Implementation-
Strategy implementation implies making the
strategy work as intended or putting the organization’s chosen strategy into
action. Strategy implementation includes designing the organization’s
structure, distributing resources, developing decision making process, and
managing human resources.
4. Strategy Evaluation-
Strategy evaluation is the final step of
strategy management process. The key strategy evaluation activities are:
appraising internal and external factors that are the root of present
strategies, measuring performance, and taking remedial / corrective actions.
Evaluation makes sure that the organizational strategy as well as it’s
implementation meets the organizational objectives.
These components are steps that are carried,
in chronological order, when creating a new strategic management plan. Present
businesses that have already created a strategic management plan will revert to
these steps as per the situation’s requirement, so as to make essential
changes.
Components of Strategic Management Process
Strategic management is an ongoing process.
Therefore, it must be realized that each component interacts with the other
components and that this interaction often happens in chorus.
Steps in Strategy Formulation Process
Strategy formulation refers to the process of choosing the most appropriate course of action for the realization of organizational goals and objectives and thereby achieving the organizational vision. The process of strategy formulation basically involves six main steps. Though these steps do not follow a rigid chronological order, however they are very rational and can be easily followed in this order.
Setting Organizations’ objectives - The key component of any strategy statement
is to set the long-term objectives of the organization. It is known that
strategy is generally a medium for realization of organizational objectives.
Objectives stress the state of being there whereas Strategy stresses upon the
process of reaching there. Strategy includes both the fixation of objectives as
well the medium to be used to realize those objectives. Thus, strategy is a
wider term which believes in the manner of deployment of resources so as to
achieve the objectives.
While fixing the organizational objectives, it
is essential that the factors which influence the selection of objectives must
be analyzed before the selection of objectives. Once the objectives and the
factors influencing strategic decisions have been determined, it is easy to
take strategic decisions.
Evaluating the Organizational Environment - The next step is to evaluate the general economic
and industrial environment in which the organization operates.
This includes a
review of the organizations competitive position. It is essential to conduct a
qualitative and quantitative review of an organizations existing product line.
The purpose of such a review is to make sure that the factors important for
competitive success in the market can be discovered so that the management can
identify their own strengths and weaknesses as well as their competitors’
strengths and weaknesses.
After identifying its strengths and
weaknesses, an organization must keep a track of competitors’ moves and actions
so as to discover probable opportunities of threats to its market or supply
sources.
Setting
Quantitative Targets -
In this step, an organization must practically fix
the quantitative target values for some of the organizational objectives. The
idea behind this is to compare with long term customers, so as to evaluate the
contribution that might be made by various product zones or operating departments.
Aiming in context with the divisional plans -
In this step, the contributions made by
each department or division or product category within the organization is
identified and accordingly strategic planning is done for each sub-unit. This
requires a careful analysis of macroeconomic trends.
Performance Analysis -
Performance analysis includes discovering
and analyzing the gap between the planned or desired performance. A critical
evaluation of the organizations past performance, present condition and the
desired future conditions must be done by the organization. This critical
evaluation identifies the degree of gap that persists between the actual
reality and the long-term aspirations of the organization. An attempt is made
by the organization to estimate its probable future condition if the current
trends persist.
Choice
of Strategy -
This is the
ultimate step in Strategy Formulation. The best course of action is actually
chosen after considering organizational goals, organizational strengths, potential
and limitations as well as the external opportunities.
Bibliography
Strategies Helps Managers to plan properly by guiding them to make operational decisions.
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