Concept of Strategy05/03/2020
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
- Defining the levels of strategic intent of the business:
- Establishing vision
- Designing mission
- Setting objectives
- Formulation of strategy
- Performing environmental and organizational appraisal
- Considering strategies
- Carrying out strategic analysis
- Making strategies
- Preparing strategic plan
- Implementation of strategy
- Putting strategies into practice
- Developing structures and systems
- Managing behavioural and functional implementation
- 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.
- 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).
- 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.
- 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.