Category: Management Notes

The term ‘strategic management’ is used to denote a branch of management that is concerned with the development of strategic vision, setting out objectives, formulating and implementing strategies and introducing corrective measures for the deviations (if any) to reach the organization’s strategic intent. It has two-fold objectives:

• To gain competitive advantage, with an aim of outperforming the competitors, to achieve dominance over the market.
• To act as a guide to the organization to help in surviving the changes in the business environment.

Here, changes refer to changes in the internal environment, i.e. within the organization, introduced by the managers such as the change in business policies, procedures etc. and changes in the external environment as in changes in the government rules that can affect business, competitors move, change in customer’s tastes and preferences and so forth.

Strategic Management Process

1. Defining the levels of strategic intent of the business:
   • Establishing vision
   • Designing mission
   • Setting objectives
2. Formulation of strategy
   • Performing environmental and organizational appraisal
   • Considering strategies
   • Carrying out strategic analysis
   • Making strategies
   • Preparing strategic plan
3. Implementation of strategy
   • Putting strategies into practice
   • Developing structures and systems
   • Managing behavioural and functional implementation
4. Strategic Evaluation and Control
   • Performing evaluation
   • Exercising control
   • Recreating strategies

Strategic Management is all about specifying organization’s vision, mission and objectives, environment scanning, crafting strategies, evaluation and control.

Importance of Strategic Management

• It guides the company to move in a specific direction. It defines organization’s goals and fixes realistic objectives, which are in alignment with the company’s vision.
• It assists the firm in becoming proactive, rather than reactive, to make it analyse the actions of the competitors and take necessary steps to compete in the market, instead of becoming spectators.
• It acts as a foundation for all key decisions of the firm.
• It attempts to prepare the organization for future challenges and play the role of pioneer in exploring opportunities and also helps in identifying ways to reach those opportunities.
• It ensures the long-term survival of the firm while coping with competition and surviving the dynamic environment.
• It assists in the development of core competencies and competitive advantage, that helps in the business survival and growth.

The basic purpose of strategic management is to gain sustained-strategic competitiveness of the firm. It is possible by developing and implementing such strategies that create value for the company. It focuses on assessing the opportunities and threats, keeping in mind firm’s strengths and weaknesses and developing strategies for its survival, growth and expansion.

Strategic Management Levels: Corporate, SBU and Functional Strategies

In a multi-business enterprise, having several SBUs, there would be three levels of strategy, viz., – corporate strategy, SBU strategy and functional strategy. In enterprises which do not have SBUs, there will be only two levels of strategy, i.e., corporate strategy and functional strategies.

1. Corporate Strategy:

Corporate strategy is the long-term strategy encompassing the entire organisation. Corporate strategy addresses fundamental questions such as what is the purpose of the enterprise, what business/businesses it wants to be in (portfolio strategy) and how to expand/get into such business/businesses (for example – by establishing greenfield enterprises or by M&As).

In other words, “corporate-level strategic management is the management of activities which define the overall character and mission of the organisation, the product/service segments it will enter and leave, and the allocation of resources and management of synergy among its SBUs.”

Corporate strategy is formulated by the top level corporate management (board of directors, CEO, and chiefs of functional areas).

2. SBU Strategy:

SBU-level strategy, sometimes called Business Strategy or Competitive Strategy, is concerned with decisions pertaining to the product mix, market segments and manoeuvring competitive advantages for the SBU.

While corporate strategy decides the business portfolio (i.e., the types of business), the competitive strategy decides the strategy/strategies to succeed in the chosen business/businesses.

SBU strategy has to conform, obviously, to the corporate philosophy and strategy.

In short, “the SBU-level strategic management is the management of an SBU’s effort to compete effectively in a particular line of business and to contribute to overall organisational purposes.”

The responsibility for SBU strategy is with the top executives of the SBU who are normally second-tier executives in the corporate hierarchy. In single-SBU organisations, senior executives have both corporate and SBU-level responsibilities.

3. Functional Strategies:

Functional-level strategies are strategies for different functional areas like production, finance, personnel, marketing, etc. In other words, “functional-level strategic management is the management of relatively narrow areas of activity, which are of vital, pervasive, or continuing importance to the total organisation.”

Functional-level strategy is the responsibility of functional area heads.

Strategic Management Functions

(a) Determination of basic long-term goals and objectives of the organization.

(b) Adoption of courses of action to achieve organization’s objectives.

(c) Adopting course of action necessary for allocation of resources.

(d) Relates formulation of company’s mission, including broad statements about its purpose, philosophy and goals.

(e) Long-term, future oriented plans for interacting with the competitive environment to achieve company’s objectives.

(f) Developing the company from its present position to the desired future position.

(g) Top management’s decision that directs organization and business towards predetermined goal,

(h) Carefully crafted plan with a stream of decisions and actions over time.

(i) Concerned with efficiency i.e. perceiving opportunities and threats and seizing initiatives to cope with them.

(j) Flows out of goals and objectives of the enterprise and is meant to translate them into realities.

(k) Recognize which competitor’s actions need critical attention.

(l) Identifies strengths and weaknesses compared with those of its competitors.

(m) Plan of action that reveals its objectives, purposes, goals, policies and plans that are required in achieving corporate mission.

(n) Analyze the company’s options by matching its resources with the external environment.

(o) Forward looking and it has orientation towards future.

(p) Provides an integrated and unified framework for managers, for effective decision making affecting all subsystems in an organization.

(q) Creates a fit between the organization and its external environment.

(r) Provides a framework for thinking about the business.

(s) Pattern in a stream of decisions and actions.

(t) Commonality of approach that exists in diverse organizational activities including the products and markets that define the current and planned nature of business.

(u) Way of stating current and desired future position of the company.

Following are the outstanding attributes of strategic decision:

(1) Strategic decision is major one which is fundamental in that it influences the entire or major part of the organisation.

(2) Strategic decision is one that contributes directly in the realisation of organisation. All other decisions are the off-springs of such a decision.

(3) Strategic decision is separating itself from day-to- operational decisions. It is strategic in the sense that it is innovative effective and has different approach in each area be it a production, personnel, finance and marketing.

(4) Strategic decision has in its kit wide range of alternatives to withstand the on sleights of environment which is ever changing. These alternatives provide vital differences in terms of the outcome and inputs needed.

(5) Strategic decision is found on trade-offs between the costs and the risks of innovating and the time vulnerability of competitors. Between the competing alternatives, the best one is chosen.

In a sense, what is strategic or non-strategic is a matter of individual’s independent interpretation. Though the distinction is not very fine, such classification provides management to achieve the benefits of delegation of authority in that routine, repetitive and day to day decisions can be passed on to the lower-level where it is a source of motivation and preparing the aspirants in the art of decision making.

As a result, strategic decisions can be taken with deep thought and logic of applying mental faculty of fertile imagination and sound judgment.

Strategic decision making, or strategic planning, describes the process of creating a company’s mission and objectives and choosing the course of action a company should pursue to achieve those goals. Strategic decisions are different in nature from all other decisions which are taken at various levels of the organization during their day-to-day working.

The major dimensions of strategic decisions are given below:

1. Strategic issues require top-management decisions.
2. Strategic issues involve the allocation of large amounts of company resources.
3. Strategic issues are likely to have a significant impact on the long term prosperity of the firm.
4. Strategic issues are future-oriented.
5. Strategic issues usually have major multi-functional or multi-business consequences.
6. Strategic issues necessitate consideration of factors in the firm’s external environment.

Strategic Management: Tasks

Strategic thinking provides the vision for Strategic Management; by providing an insight into the forces behind the new completion by helping us develop a sustainable competitive advantage based on our organization’s core competencies; creating in infrastructure for the review and redefinition of our strategic direction; and along us to recognize and capitalize on new developments and opportunities in the market. The vision and direction provided by strategic thinking has to be incorporated into the Strategic Management framework.

Strategic Management process can be described by a number of tasks to be undertaken by the organization. In the final analysis, the success of the Strategic Management process boils down to the ability of the organization to carry out these tasks effectively and efficiently.

1. Evolve business goals, by formulating its future mission and vision in terms of the expectations of the stakeholders.
2. Set objectives that are achievable in light of changing external factors that include regulation, competition, technology and customers.
3. Evolve and develop a competitive strategy to achieve the mission.
4. Create an effective organizational structure and arrange the resources to successfully carry out the strategy.
5. Finally, evaluate the performance so that necessary corrective measures can be taken to keep it on track to achieve the vision.

1. Entrepreneurial Mode

In entrepreneurial mode, strategic planning is done by one person. He takes the full responsibility of planning for the production department. That is, he does production planning on behalf of the production department. He has entrepreneurial skills. That is, he is good in planning, organizing, motivating, etc. He is also a strong and bold leader.

2. Adaptive Mode

In adaptive mode, the production managers go on changing his plans according to the changes in the environment. He first makes a big plan, then he breaks it into smaller plans. This is done to adjust with the dynamic environment. Then he tries to combine all these plans to make a strategic production plan. In this method, the production manager is not at peace. He works in a disorganized environment. Therefore, his planning is also disorganised.

3. Planning Mode

In planning mode, the production manager makes the plan after analyzing the objectives and resources of the organization. He carefully considers all the factors before making the plan. In this method, his approach is very rational. He gives prime importance to management science. Therefore, his plan is very logical.

Strategic planning means planning for making and implementing strategies to achieve organisational goals. It starts by asking oneself simple questions like: What are we doing, should we continue to do it or change our product line or the way of working, what is the impact of social, political, technological and other environmental factors on our operations, are we prepared to accept these changes etc.

Strategic planning helps in knowing where we are and where we want to go so that environmental threats and opportunities can be exploited, given the strengths and weaknesses of the organisation. Strategic planning is “a thorough self-examination regarding the goals and means of their accomplishment so that the enterprise is given both direction and cohesion.”

It is “a process through which managers formulate and implement strategies geared to optimising strategic goal achievement, given available environmental and internal conditions.” Strategic planning is planning for long periods of time for effective and efficient attainment of organisational goals. Strategic planning is based on extensive environmental scanning. It is a projection into environmental threats and opportunities and an effort to match them with organisational strengths and weaknesses.

Strategic planning is done to comprehend, anticipate and absorb environmental vagaries. It is a continuous process. Every time business organisations want to increase the growth rate or change their operations, desire for better management information system, co-ordinate activities of different departments, remove complacency from organisations; they make strategic plans.

Process

1. Objective Formulation:

Strategies are goal-oriented. The overall purpose or mission of the organisation must be clearly stated. Mission explains the reason why business is in existence. It identifies the scope of products/services. The goals can be economic or social and may relate to size of the organisation, goods or services or simply the technology or the way an organisation operates its business.

Missions justify existence of the organisation in terms of purpose (objectives), markets, products/services, consumers etc.; relationship between organisation’s internal and external environment, its culture, values, ethics and beliefs. Missions formulate objectives and objectives help to formulate strategies.

2. Analyse the Impact of Environment:

Environmental analysis is the “systematic assessment of information about the firm’s external environment during the strategic planning process to identify strategic opportunities for the company as well as major threats, problems, or other possible impediments.” Managers scan the environment, pick relevant information and use it for strategy formulation.

A successful strategy aligns with the environment. Strategies are made to integrate the organisation with its environment. Managers examine both general and specific environmental factors to see what changes are occurring. External factors which indirectly affect strategic planning are technological, social, political, and legal and those which directly influence are competitors, suppliers, government and customers.

Whether these factors promote or restrain business activities is analysed in framing strategies. Complete information collected from various sources like government agencies, banks, customers, journals, bulletins, suppliers, other business associations etc., may not be required for strategy formulation. Information is screened and only relevant information is analysed to formulate strategies.

This information may be related to production (plant location, layout, inventory management repairs and maintenance etc.), marketing (market share, consumer needs, promotion mix, product mix etc.), finance (debt-equity ratio, dividend policy etc.) or human resource (manpower planning, recruitment and selection procedures, training and development etc.).

Environmental analysis helps to:

1. prepare strategies to convert threats into opportunities
2. create environmental threat and opportunity profile (ETOP) which analyses the environmental factors and assesses their impact on the organisation.

3. Analyse Resource Position of the Firm:

After analysing the external environment, firms evaluate their internal resource position to identify their strengths and weaknesses in relation to environmental threats and opportunities. Knowing environmental threats and opportunities is not enough unless the organisations know their strengths that can overcome the threats and exploit the opportunities.

Organisational weaknesses, if any, have to be overcome to take benefit of environmental opportunities. Resources being limited, organisational strengths and weaknesses should be analysed to use the resources in areas where they can be optimally utilised.

Matching of strengths and weaknesses (internal environment) with threats and opportunities (external environment) is known as SWOT analysis. It helps in generating strategies and answer the basic question of strategic planning—what we are and what we want to be or where we are and where we want to go?

The following steps are identified by Hofer and Schendel to analyse resource position of the organisation:

(a) Develop a profile of the organisation’s principal resources and skills in three broad areas: financial; physical, organisational and human; and technological.

(b) Determine the key success requirement of the product/market segments in which the organisation competes or might compete.

(c) Compare resource profile with key success requirements to determine the major strengths on which effective strategy can be based and major weaknesses to be overcome.

(d) Compare organisation’s strengths and weaknesses with those of competitors to identify which resources and skills are needed to have competitive advantage in the marketplace.

Analysing the organisation (corporate appraisal) helps in setting priorities over areas where organisations need to pay more attention. These areas could be operations/marketing/hum an resource/finance etc.

4. Establish Alternative Strategies:

Managers carry out gap analysis to develop alternative strategies, i.e., analyse the present strategies and the objectives formulated. “It is the difference between the objectives established in the goal formulation process and the results likely to be achieved if the existing strategy is continued.”

It reveals gap between the present state and future aspirations of the organisation. If existing strategies can help in reaching the desired objectives, new strategies need not be formulated but if there is a gap, managers develop strategies to attain the objectives.

The following strategies can be made:

(a) Strategy to concentrate:

Companies want to specialise in the existing line of products, capture bigger market share and become market specialists in that product line.

(b) Strategy to diversify:

Companies want to enter new markets to increase the share of market.

(c) Strategy to enter international markets:

Besides increasing share in the national markets, firms want to expand their business in other countries.

(d) Strategy to enter into joint ventures:

Firms enjoy the benefits of synergy by collectively exploiting the resources and enlarging their area of operation.

(e) Liquidation strategy:

It means to drop the existing product if it is not profitable.

(f) Retrenchment strategy:

It means dropping some of the resources (human and non-human) to make best use of the remaining ones. Surplus resources are shed off in this strategy. It results in optimum use of resources. The list of strategies is not exhaustive. New strategic options may be considered by the firms depending upon the situation.

5. Evaluate Alternative Strategies:

Different strategic options are evaluated on the basis of their competitive advantages in terms of:

(a) Risk:

Will the strategy be able to achieve the objectives?

(b) Time:

Is it being adopted and implemented at the right time?

(c) Target:

Does it target at matching internal strengths and weaknesses of the organisation with its external environment?

Four criteria for evaluating strategies are identified by Richard R Rumelt:

(a) Is the strategy consistent with broad objectives of the company?

(b) Does the strategy focus organisational resources on critical success factors in the product/market area for which it is intended to be formulated?

(c) Does it maximise company’s internal strengths and minimise its weaknesses?

(d) Is the strategy realistic? Will it be able to produce the desired results? i.e., it is a workable strategy or not?

Various quantitative techniques such as ratio analysis, break-even analysis, linear programming, networking etc. are used to evaluate strategies.

6. Choice of a Strategy:

After evaluating strategies in terms of risks and returns (ability to achieve the goals), they are ranked in order of priority and the strategy best suited to achieve the goals is chosen. The chosen strategy should be directed to maximise long-term goals of the organisation.

7. Implement the Strategy:

After selection, the strategy is put into action and practiced. It becomes a guide for the organisation and members to direct their efforts in a unified direction. Implementation requires designing the suitable organisation structure, developing a sound system of communication, motivation and control, allocating authority responsibility, resources etc.

8. Measurement and Control of Strategy:

Organisational performance is measured at periodic intervals to assess whether strategic objectives are being achieved or not.

A formal strategic control system is designed which answers questions such as:

(a) Is the strategy being implemented as planned?

(b) Are the critical assumptions on the basis of which it was selected still valid?

(c) Is the strategy achieving the intended results?

If the results are similar to objectives, the strategies become the basis for future action. However, if the objectives are not achieved, reasons are found for the same and suitable actions are taken to overcome the problem.

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.

A mission statement defines what an organization is, why it exists, its reason for being. At a minimum, your mission statement should define who your primary customers are, identify the products and services you produce, and describe the geographical location in which you operate.

If you don’t have a mission statement, create one by writing down in one sentence what the purpose of your business is. Ask two or three of the key people in your company to do the same thing. Then discuss the statements and come up with one sentence everyone agrees with. Once you have finalized your mission statement, communicate it to everyone in the company.

It’s more important to communicate the mission statement to employees than to customers. Your mission statement doesn’t have to be clever or catchy just accurate.

If you already have a mission statement, you will need to periodically review and possibly revise it to make sure it accurately reflects your goals as your company and the business and economic climates evolve. To do this, simply ask yourself if the statement still correctly describes what you’re doing.

If your review results in a revision of the statement, be sure everyone in the company is aware of the change. Make a big deal out of it. After all, a change in your mission probably means your company is growing-and that’s a big deal.

Once you have designed a niche for your business, you’re ready to create a mission statement. A key tool that can be as important as your business plan, a mission statement captures, in a few succinct sentences, the essence of your business’s goals and the philosophies underlying them. Equally important, the mission statement signals what your business is all about to your customers, employees, suppliers and the community.

The mission statement reflects every facet of your business: the range and nature of the products you offer, pricing, quality, service, marketplace position, growth potential, use of technology, and your relationships with your customers, employees, suppliers, competitors and the community.

In the context of management, a vision is an expression of what the organization wants to become, what it wants to be, to be known as or to be known for. It is the long-term objective of the organization.

The vision comes from the leaders it is how they express the future for the organization or its strategic direction. However, it must be practical and feasible while representing a challenge for the organization. The vision must also be shared by the members of the organization so that everyone clearly understands what the organization is striving to become. To create a vision for the organization top management should identify the key potential influences on the organization over the next ten years in terms of the economic, political, social and technological influences.

A vision statement describes what a company desires to achieve in the long-run, generally in a time frame of five to ten years, or sometimes even longer. It depicts a vision of what the company will look like in the future and sets a defined direction for the planning and execution of corporate-level strategies.

Key Elements of a Good Vision Statement

While companies should not be too ambitious in defining their long-term goals, it is critical to set a bigger and further target in a vision statement that communicates its aspiration and motivates the audience. Below are the main elements of an effective vision statement:

• Forward-looking
• Motivating and inspirational
• Reflective of a company’s culture and core values
• Aimed at bringing benefits and improvements to the organization in the future
• Defines a company’s reason for existence and where it is heading