Strategic Management
Introduction
To deal effectively with the wide array of factors affecting the ability of a business to grow
and prosper, managers need advanced processes they feel will facilitate the optimal
positioning of the business in its competitive environment. Such positioning is possible
with strategic management because this process improves preparedness for unexpected
internal or competitive demands.
Therefore, strategic management is an all-encompassing approach for formulating,
implementing and evaluating managerial decisions in a way that permits the business to
reach its objectives.
For a strategic management plan to be successful, however, every manager should:
Clearly see the need for change
Be firmly committed to the idea of changing the business planning process
Assure that the strategic management process has credibility with everyone involved
Make sure that final plans are realistic and reflect actual resources and capabilities
Train all participants in the procedures essential to the strategic management process
Develop concise and well-organized plans
One of the worlds best performing natural resources companies created a unique
organizational structure that combines the advantages of small business units with “virtual
structures” – groupings of these business units – that can address different strategic issues
and competitive environments.
Overview
The formality of the strategic management process varies widely. Formality refers to the
degree to which membership, responsibilities, authority and discretion in decision making
are specified. It is an important consideration in the study and application of strategic
management because the degree of formality is usually positively correlated with the cost,
comprehensiveness, accuracy and success of planning. The requirements for small
business indicate the need for a moderate degree of formality. This is consistent with the
ability to communicate face-to-face (size) and the need for flexibility (changing demands).
The important issue is involvement with the process, not generating reams of paperwork
(Camerer, 195-219).
Resistance to change should be reduced. Businesses vary in the processes they use to
formulate and direct their strategic management activities. Many using sophisticated
planning techniques have developed more detailed processes than similarly sized, less
formal planners. Small businesses that rely on the strategy formulation skills and limited
time of an entrepreneur typically exhibit very basic planning concerns when contrasted
with larger firms in their industries (Harrison, St. John, 44-59).
Understandably, organizations with diverse operations due to multiple products, markets or
technologies also tend to use more complex strategic management systems. Despite
differences in detail and degree of formalization, the basic components of the models used
to analyze strategic management operations are very similar.
The strategic management process is based on the belief that businesses should continually
monitor internal and external events so timely changes can be made. To survive, firms
must be able to identify and adapt to change. This involves timely planning, directing,
organizing and controlling of the strategy-related decisions and actions of the firm
(Camerer, 195-219).
The strategic management process is sometimes improperly perceived as a unidirectional
flow of objectives, strategies and decision parameters from management to the employees.
In fact, the process should be highly interactive since it is designed to stimulate input from
creative, skilled and knowledgeable people working at every level of the business.
Tools Used in Strategy Development
This section very briefly describes several key tools that can be used during the course of
strategy development and strategic planning. The list is not intended to be comprehensive
but to illustrate the types of tools that are available.
Environmental scanning (or competitive intelligence) is a rigorous approach to collecting,
analyzing, and communicating information about competitors activities, market changes
that are occurring, changes related to the supply of raw materials, and other issues that
could affect strategic directions. Such information is legally and ethically obtained from a
wide range of sources using formalized techniques and can be factored into decision
making, e.g., to support the application of the “five-forces” model or other frameworks for
developing strategy (Burgelman, 193-214).
Scenario planning and forecasting helps planners deal with an uncertain future by
providing a mechanism for envisioning a range of future scenarios, examine the possible
impacts of them, develop a common view of the changing world, and prepare for it.
Scenarios sometimes are best used not as a basis for strategy, but as a way to improve how
managers do it. For a classic example of how Royal Dutch/Shell used scenario planning
and was prepared for the eventuality, if not the timing, of the oil crisis of 1973.
Capital planning and budgeting is the process by which unit managers (e.g., division
directors) propose individual projects up the hierarchy for approval. This usually involves
cost/benefit assessment of each proposal (combined into a return-on-investment measure),
allowing senior managers to compare and rank them, and accept only as many as the
capital funding allows. This is sometimes called “bottom-up” strategic planning. Most
proposals with sponsorship from a division director have more or less free passage (a
“rubber stamp”), that the analysis is rarely unbiased, and that the hard-to-quantify costs
and benefits are excluded (Harrison, St. John, 44-59).
Portfolio analysis is a technique, similar in some respects to capital budgeting but usually
at the business rather than project level, used to examine the relative value of the various
businesses, subsidiaries, or other units within a company, and to determine if a balanced
“mix” has been achieved. This helps corporate-level planners reach a better understanding
of the competitive position of the overall portfolio of businesses, to suggest strategic
alternatives for the businesses, to understand the value of acquiring new businesses, and,
overall, to develop priorities for resource allocation. Often, this is done through use of
portfolio matrices, a set of graphic displays that help managers visualize the portfolio
