Role of Strategic Management

20/03/2020 1 By indiafreenotes

Strategic management is a continuous process of decision-making that is vital to the very survival, growth and flourishment of an organization that contribute to wealth maximization. Strategic management is different from routine management in the sense that it is making of strategic decisions and implementation of those to get pre- calculated results.

These strategic issues influence the decisions as management is a decision making process. One point is to pounder that all the decisions are important; however, all the decisions are of not of equal importance; hence, they become strategic and non-strategic. As a decision-making process, strategic management is characterized by at least six distinct points.

These are:

  1. Strategic Issues Warrant Top Management Decisions

Strategic decisions have far-reaching impact on several areas of firms operations. Hence, top management involvement in decision making is imperative. These decisions must be made by top management as these are the pillars of the organization. Let us take the example of a pharmaceutical firm.

The quality of the product and the price you are charging they are most important. These decisions will not be left to business level or functional level. Only at the top level there is perfect perspective understanding, anticipating broad implications and the branching out and ramifications and the power to authorize the resource allocation that is needed for implementation of what is contemplated.

  1. Strategic Issues Involve the Allocation of Large Amounts and Resources

By very nature, strategic issues call for allocation of large amounts and resource deployment. The strategic issue is one of expansion or expanding the production capacity, or entering into new market or modernization to cut cost (technological up-gradations). All these are so vital that they eat huge amounts of funds in sunk assets; in addition they need more people, other inputs to reach the goal of expansion to reap the benefits.

This resource allocation takes place in one of the ways:

(i) By sparing the internal funds out of accumulated reserves and surplus;

(ii) By fresh issue of capital both owned and borrowed;

(iii) Any combination of the two to reach the third alternative whichever is viable. These issues need commitment to spare and spend as per the plan of expansion or modernisation. It is top management which again has upper hand.

  1. Strategic Issues are Likely to have Impact on the Long Term Prosperity of the Firm

The strategic decisions are such that their impact good or bad will be known in the long-run. When a company sticks to a particular strategic option, its competitive image and merits are tied to that strategy option only.

A firm which is spending huge amount on building company’s image which is dependent on its position in product market, capital market and labour market will be known in due course of time but not immediately.

The company’s products may be well in demand giving a larger share of market; investors are lured by constant and high rate of dividends; it might be a good pay master where every, stake- holder is happy. These need change in market mix, market-segmentation, and public-relations building and so on.

These decisions are to be taken by top level authorities. Of course, taking the business level and operation level also man power. The effects are felt over a longer period of time where the business environment has undergone a thorough change. All firms will not succeed, and even if succeed not equally.

That is why some wise person has said “There are companies that make things happen; there are companies which keep on watching things happening and there are those companies who wonder as to what happened?” A company committed to strategic management belongs to first category. In a nutshell, these strategic decisions have enduring effects on firm.

  1. Strategic Issues are Future Oriented

Whether it is dynamic business world or the ground reality living of us-what is important is—what you are? and what you will? not what were? Past is past, present is present and future is future. However, one cannot manage past; one can manage present; but managing for future is most ticklish and dare-devil activity.

Management-we mean managing the future because first function of management is foreseeing the future or planning-then rest of the functions come into picture. Strategic decisions are future oriented. Each manager worth calling is one who wants to calculate what future holds for him or his firm.

Prediction of future is almost very difficult, if not impossible. You know the mightiest nation-the USA succeeded in using all its resources to capture Osama Bin Laden and of Saddam Hussain; however, the results were not commensurate with. What they put in terms of treasure, time and talent.

However, if they are really strategic, their plans are going to be true. Business world in quite vibrant, turbulent where competitive forces are driving, one cannot have smooth sailing, strategic management teaches to be pro-active rather than reactive because, one has no control over external forces. It is situational or contingency approach that is going to solve the problems.

  1. Strategic Issues have Consequences of Multi Business

Strategic decisions are not one man show. The CEO has to invite people from all levels namely top, functional and operative. That is, these strategic decisions are coordinative or participative in nature. Top management may have wonderful plan but it should be carried out because there vast difference between promise and performance a dream and a reality.

Each one-departmental heads, divisional heads, sectional heads all are to consist and work as a team. There are many vital decisions-about marketing mix, market-segments, organizational structure, competitive emphasis that involve a firm’s strategic business units (SBUs) functions, divisions, programmes units and so on. Such segregation, segmentation, compartmentalization calls for allocation and reallocation of firm’s resources and responsibilities which have impact on final results.

  1. Strategic Issues Warrant due Weightage to the Firm’s External Environment

Each business unit is a sub-system that exists in open and supra-system which is otherwise known as environment. A firm as a sub-system has great influence of the environmental forces on it and it has its own impact on environment. However, the environmental forces are so powerful that it is very difficult to exert control on them.

To survive each firm has to adjust to these external forces in future because these forces are constantly changing. That is why, the strategic managers have to look beyond the limits of firm’s operations.

They will have to watch and act their competitors, customers, suppliers, creditors, labour force, governmental policies, technology and so on. The smooth functioning of a firm depends on how well it understands the behaviour of all these variables in future.

  1. Strategic Management is a Process

Strategic management has emerged out of management in other areas where the concept of management is taken as a process for achieving certain objectives of the organization for which it is brought into existence.

Strategic management brings in a frame-work that helps in performing various processes. The configuration strategic management embodies all general management principles and practices devoted to strategy formulation and implementation in the organization.

As a process, it has logical steps namely, formulation of objectives of the organization; keen observation and monitoring of environment-both external and internal so as to identify the opportunities and threats; evaluation of firm’s strengths and weaknesses, viz a viz the opportunities and threats, formulation of variant and matching strategies to achieve these objectives; implementation of these strategies and evaluation and monitoring of the results of these strategies to ensure the organizational objectives are being achieved.

  1. Strategic Management Stresses both Efficiency and Effectiveness

This is very important point because many people do not differentiate “efficiency” from “effectiveness.” The professors Alex Miller and George Dess have pinpointed the difference between ‘efficiency’ and effectiveness. Many a times what is efficient may not be effective but other way round not normally may not be true.

“Doing things right” is efficiency and “doing the right things” is effectiveness. Generally, a manager who takes the word in narrow sense concentrates on efficiency or improving on his efficiency level yet he may not be successful all the time because he is concentrating on his functional or divisional area than overall business.

By working so hard at trying to do ‘things right’, they forget to look up from their work occasionally to consider, whether they are working on the right things that will be effective in moving their organisation towards the final vision. A strategic manager or a strategist has right blend of ‘efficiency’ and ‘effectiveness’ in his performance. He knows not only to hit but he knows where exactly to hit.