Strategic management is the art and science of formulating, implementing and evaluating
cross-functional decisions that will enable an organization to achieve its objectives[1]. It is
the process of specifying the organizations objectives, developing policies and plans to
achieve these objectives, and allocating resources to implement the policies and plans to
achieve the organizations objectives. Strategic management, therefore, combines the
activities of the various functional areas of a business to achieve organizational objectives.
It is the highest level of managerial activity, usually formulated by the Board of directors
and performed by the organizations Chief Executive Officer (CEO) and executive team.
Strategic management provides overall direction to the enterprise and is closely related to
the field of Organization Studies. In the field of business administration it is possible
mention to the “strategic consistency.” According to Arieu (2007), “there is strategic
consistency when the actions of an organization are consistent with the expectations of
management, and these in turn are with the market and the context.”
“Strategic management is an ongoing process that assesses the business and the industries
in which the company is involved; assesses its competitors and sets goals and strategies to
meet all existing and potential competitors; and then reassesses each strategy annually or
quarterly [i.e. regularly] to determine how it has been implemented and whether it has
succeeded or needs replacement by a new strategy to meet changed circumstances, new
technology, new competitors, a new economic environment., or a new social, financial, or
political environment.”“ (Lamb, 1984:ix)[2]
Processes
Strategic management is a combination of three main processes which are as follows:
[edit] Strategy formulation
* Performing a situation analysis, self-evaluation and competitor analysis: both internal
and external; both micro-environmental and macro-environmental.
* Concurrent with this assessment, objectives are set. These objectives should be parallel
to a timeline; some are in the short-term and others on the long-term. This involves
crafting vision statements (long term view of a possible future), mission statements (the
role that the organization gives itself in society), overall corporate objectives (both
financial and strategic), strategic business unit objectives (both financial and strategic), and
tactical objectives.
* These objectives should, in the light of the situation analysis, suggest a strategic plan.
The plan provides the details of how to achieve these objectives.
This three-step strategy formulation process is sometimes referred to as determining where
you are now, determining where you want to go, and then determining how to get there.
These three questions are the essence of strategic planning. SWOT Analysis: I/O
Economics for the external factors and RBV for the internal factors.
[edit] Strategy implementation
* Allocation and management of sufficient resources (financial, personnel, time,
technology support)
* Establishing a chain of command or some alternative structure (such as cross functional
teams)
* Assigning responsibility of specific tasks or processes to specific individuals or groups
* It also involves managing the process. This includes monitoring results, comparing to
benchmarks and best practices, evaluating the efficacy and efficiency of the process,
controlling for variances, and making adjustments to the process as necessary.
* When implementing specific programs, this involves acquiring the requisite resources,
developing the process, training, process testing, documentation, and integration with
(and/or conversion from) legacy processes.
[edit] Strategy evaluation
* Measuring the effectiveness of the organizational strategy. Its extremely important to
conduct a SWOT analysis to figure out the strengths, weaknesses, opportunities and threats
(both internal and external) of the entity in question. This may require to take certain
precautionary measures or even to change the entire strategy.
In corporate strategy, Jonhson and Scholes present a model in which strategic options are
evaluated against three key success criteria:
* Suitability (would it work?)
* Feasibility (can it be made to work?
* Acceptability (will they work it?)
[edit] Suitability
Suitability deals with the overall rationale of the strategy. The key point to consider is
wether the would address the key strategic issues underlined by the organisations strategic
position.
* Does it make economic sense?
* Would the organisation obtain economies of scale, economies of scope or experience
economy?
* Would it be suitable in terms of environment and capabilities?
Tools that can be used to evaluate suitability include:
* TOWS matrix
* Ranking strategic options
* decision trees
* what-if analysis
[edit] Feasibility
Feasibility is concerned with the resources required to implement the strategy are
available, can be developed or obtained. Resources include funding, people, time and
information.
Tools that can be used to evaluate feasibility include:
* cash flow analysis and forecasting
* break-even analysis
* resource deployment analysis
[edit] Acceptability
Acceptability is concerned with the expectations of the identified stakeholders (mainly
shareholders, employees and customers) with the expected performance outcomes, which
can be return, risk and stakeholder reactions.
* Return deals with the benefits expected by the stakeholders (financial and non-financial).
For example, shareholders would expect the increase of their wealth, employees would
expect improvement in their careers and customers would expect better value for money.
* Risk deals with the probability and consequences of failure of a strategy (financial and
non-financial).
* Stakeholder reactions deals with antecipating the likely reaction of stakeholders.
Shareholders could oppose the issuing of new shares, employees and unions could oppose
outsourcing for fear of loosing their jobs, customers could have concerns over a merger
with regards to quality and support.
Tools that can be used to evaluate feasibility include:
* what-if analysis
* stakeholder mapping
[edit] General approaches
In general terms, there are two main approaches, which are opposite but complement each
other in some ways, to strategic management:
* The Industrial Organizational Approach
o based on economic theory *ƒ²*ƒ”€š deals with issues like competitive rivalry, resource
allocation, economies of scale
o assumptions *ƒ²*ƒ”€š rationality, self discipline behaviour, profit maximization
* The Sociological Approach
o deals primarily with human interactions
o assumptions *ƒ²*ƒ”€š bounded rationality, satisfying behaviour, profit sub-optimality.
An example of a company that currently operates this way is Google
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 organization. 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 organizations are starting to experiment with collaborative strategic planning
techniques that recognize the emergent nature of strategic decisions.
[edit] The strategy hierarchy
In most (large) corporations there are several levels of strategy. Strategic management is
the highest in the sense that it is the broadest, applying to all parts of the firm. It gives
direction to corporate values, corporate culture, corporate goals, and corporate missions.
Under this broad corporate strategy there are often functional or business unit 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 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 organizational structure is not an efficient way to
organize activities so they have reengineered according to processes or strategic business
units (called SBUs). A strategic business unit is a semi-autonomous unit within an
organization. It 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. Each SBU is responsible for developing its business strategies, strategies that
must be in tune with broader corporate strategies.
The “lowest”“ level of strategy is operational strategy. It is very narrow in focus and deals
with day-to-day operational activities such as scheduling criteria. It must operate within a
budget but is not at liberty to adjust or create that budget. Operational level strategy was
encouraged by Peter Drucker in his theory of management by objectives (MBO).
Operational level strategies are informed by business level strategies which, in turn, are
informed by corporate level strategies. Business strategy, which refers to the aggregated
operational strategies of single business firm or that of an SBU in a diversified corporation
refers to the way in which a firm competes in its chosen arenas.
Corporate strategy, then, refers to the overarching strategy of the diversified firm. Such
corporate strategy answers the questions of “in which businesses should we compete?” and
“how does being in one business add to the competitive advantage of another portfolio
firm, as well as the competitive advantage of the corporation as a whole?”
Since the turn of the millennium, there has been a tendency in some firms to revert to a
simpler strategic structure. This is being driven by information technology. It is felt that
knowledge management systems should be used to share information and create common
goals. Strategic divisions are thought to hamper this process. Most recently, this notion of
strategy has been captured under the rubric of dynamic strategy, popularized by the
