Strategic Management

Strategic Management is a stream of decisions and actions which lead to the development of an effective strategy or strategies to help achieve corporate objectives. The Strategic Management process is the way in which strategists determine objectives and make strategic decisions. Strategic Management can be found in various types of organizations, business, service, cooperative, government, and the like.

Strategic Management can be defined as “the art and science of formulating, implementing and evaluating cross-functional decisions that enable an organization to achieve its objectives”. In fact, Strategic Management focuses on integrating management, marketing, finance/accounting, production/operations, research and development, and computer information systems to achieve organizational success.

The term Strategic Management is used synonymously with the term Strategic Planning. The later term is more often used in the business world, whereas the former is often used in academia.

At time, the term Strategic Management is used to refer to strategy formulation, implementation, and evaluation, with strategic planning referring only to strategy formulation. The purpose of Strategic Management is to exploit and create new and different opportunities for tomorrow long-range planning in contrast, tries to optimize for tomorrow the trends of today.

A Strategic Plan is, in essence, a company’s game plan. Just as a football team needs a good game plan to have a chance for success, a company must have a good strategic plan to be able to complete successfully. A strategic plan results from tough managerial choices among numerous good alternatives, and signals commitment to specific markets, policies, procedures, and operations in line of other, “less desirable” courses of action.

Strategic management is a science of management of strategies. Hence, it deals with different types of strategies, i.e., different types of decisions. Different situations, different challenges, different opportunities, or different problems require different types of strategies to be formed and implemented. So, it is just not sufficient to put all the strategies in one category.

It is highly advantageous to know the classified information on different strategies and their characteristics to make right decisions at right time. Although the practice of decision-making is more of experience-oriented skill; it is significant to have clear knowledge of different types of strategies to understand the situations in which they are useful.

As the strategies are always crucial, every strategy must be formed after careful study of the situations, challenges, opportunities or problems being encountered. Ignorance about types of strategies may lead the managers to wrong conclusions or to wrong choice of strategies. Hence, the following account of types of strategies has practical significance in managing the firm well.

At the heart of strategic management is the question – ‘How and why do some firms outperform others?’ Thus, the challenge to managers is to decide on ‘strategies’ that provide advantages that can be sustained over time. Much of strategic management is about identifying and developing the strategies that managers can pursue to attain superior performance and a competitive advantage for their organisations.

Strategic management is the process of assessing the firm and its environment in order to meet the long-term objectives of the firm. It refers to the series of decisions taken by management to determine the strategies to achieve organisational goals.

Strategic management involves systematic analysis of the internal and external environments, to evaluate a company’s current policies, strategy and goals to build new strategic moves and plans.

Thus, strategic management is the process of planning, directing, organising, and controlling a company’s strategy-related decisions and actions to achieve competitive advantage and the long-run performance goals of a company.

By ‘Strategy’, managers mean:

1. Large-scale, future-oriented plans for interacting with the competitive environment.
2. An integrated and coordinated set of commitments and actions designed to exploit core competencies.
3. A company’s game and action plan of how, when and where it should compete, against whom it should compete; and for what purposes it should compete.

Different phases of development of strategic management are explained below:

Phase 1 Basic Financial Planning:

The first phase of the strategic development is fairly a simple routine of basic financial planning. The main concern during this phase is simply meeting annual budget requirement, operational functions like production, marketing, finance and human resources and emphasizing on the operational control.

Phase 2 Forecast-Based Planning:

During this phase, the primary concern is mainly on effective plans, environmental scanning, plan for the future and allocation of resources.

Phase 3 Externally-Oriented Planning:

There is a remarkable shift during this phase. The notable developments include: increasing response to markets and competition, complete situational analysis and assessment of competitive strength, evaluation of strategic alternatives and allocation of resources based on changing needs from time to time.

Phase 4 Strategic Management:

The focus shifts over time from meeting the budget to planning for the future, to thinking abstractly, to working to create desired future. To create future decision-makers, orchestrate and integrate all their organisation’s resources to gain a competitive advantage. They build flexibility into the organisational planning process, and foster a supportive, participative climate within the organisation.

Thus, developing an effective and efficient strategic management process can be a long and difficult task. It requires sustained effort, enormous patience and sharp political skills. Strategic management requires efficient leadership.

Some important objectives of strategic management are as follows:

1. To exploit and create new and different opportunities for tomorrow.
2. To provide the conceptual frameworks that will help a manager understand the key relationships among actions, context, and performance.
3. To put an organisation into a competitive position.
4. To sustain and improve that position by the deployment and acquisition of appropriate resources and by monitoring and responding to environmental changes.
5. To monitor and respond to the demands of key stakeholders.
6. To find, attract, and keep customers.
7. To ensure that the company is meeting the needs and wants of its customers, which is a cornerstone in providing the quality product or service that customers really want.
8. To sustain a competitive position.
9. To utilize the company’s strengths and take full advantage of its competitor’s weaknesses.
10. To understand the various concepts involved like strategy, policies, plans and programmes.
11. To have knowledge about environment—how it affects the functioning of an organisation.
12. To determine the mission, objectives and strategies of a firm and to visualize how the implementation of strategies can take place.
13. To find the solutions of problems in real-life business.
14. To develop analytical ability to identify threats and opportunities present in the environment.
15. To develop the skills of strategic decision making.
16. To develop a creative and innovative attitude and to think strategically.

Nature of strategic management specifies its characteristics which are as follows:

1. Strategic Management as a Process:

Strategic management is basically a process. It has emerged out of management in other fields where the concept of management is taken as a process for achieving certain objectives of the organization. Thus, strategic management involves establishing a framework to perform various processes. The concept of strategic management must embody all general management principles and practices devoted to strategy formulation and implementation in the organization.

2. Top Management Function:

Strategic management is basically top management function. Thus, in order to ensure effective top management function, it is necessary that a distinction should be made between strategic management and operational management which emphasises day-to-day operations in the organization, so that top management can focus more attention on the strategic aspect rather than emphasising on operational management.

Since the environment of the organization is always changing providing new opportunities and threats, top management must spend more and more time on this aspect. Thus, there is a considerable change on the emphasis of top management functions in the organizations, particularly in large and complex organizations. The change is from operational management to strategic management.

3. General Management Approach:

Strategic management has general management approach. This approach has three characteristics – (i) This approach uses system frame of reference in dealing with wholeness of an organization. In this dealing, the emphasis is put on identifying tendencies of various phenomena in the organization and relationships among these tendencies, (ii) Decision criteria are based on overall betterment of the organization as a whole, not the criteria used by functional specialists, (iii) Attempt is made to achieve organizational equilibrium and generation of synergy. This may be even suboptimal for some departments or units of the organization.

4. Relating Organization to Environment:

The focus of strategic management is on relating the organization to its external environment. This emphasises that there is continuous interaction between the organization and its environment taking an open systems approach. Thus, the organization must create adequate channel through which external information will pass to various points in the organization.

5. Long-Term Issues:

Strategic management deals primarily with long-term issues of the organization that may or may not have an immediate effect. For example, investment in research and development (R&D) may yield no immediate effect in terms of new product development. However, this investment may lead to development of new products and, therefore, enhanced profits.

6. Flexibility:

Strategic management has flexibility. This flexibility is required because strategic management works in the context of environment which is quite dynamic. As a result, many strategic actions planned maybe either left, postponed, or changed in the light of environmental requirements.

7. Innovation:

Strategic management puts emphasis on innovation which is the process of introducing new things or new ways of working. Innovation is achieved through new strategic actions which are quite different from the previous actions. Innovation is required to face environmental challenges effectively.

Strategic Management Importance

1. It helps the organization to be more proactive instead of reactive in shaping its future. Organizations are able to analyze and take action instead of being mere spectators.
2. It provides framework for all the major business decisions of an enterprise such as – decisions on businesses, products, and markets, manufacturing facilities, investments and organizational structure.
3. It seeks to prepare the corporation to face the future and acts as a pathfinder to various business opportunities. Organizations are enabled to identify the available opportunities and identify ways and means to reach them.
4. It helps organizations to avoid costly mistakes in product market choices or investments.
5. It helps organizations to evolve certain core competencies and competitive advantages that assist in their fight for survival and growth.
6. Strategic management looks at the threats present in the external environment and thus companies can either work to get rid of them or else neutralizes the threats in such a way that they become an opportunity for their success.

vii. It also adds to the reputation of the organizations because of the consistency that results from organizational success.