Conceptual framework for strategic management, the Concept of Strategy and the Strategy Formation Process Stakeholders in business Vision, Mission and Purpose Business definition, Objectives and Goals - Corporate Governance and Social responsibility-case study.
Strategic management is not a box of tricks or a bundle of techniques. It is analytical thinking and commitment of resources to action. Peter Drucker
Definition:
The on-going process of formulating, implementing and controlling broad plans guide the organizational in achieving the strategic goods given its internal and external environment.
Alfred D Chandler (1962) , Chandler defined strategy as: The determination of the basic long-term goals and objectives of an enterprise and the adoption of the courses of action and the allocation of resources necessary for carrying out these goals. Note that Chandler refers to three aspects
Features of strategic Management
1. On-going process: Strategic management is a on-going process which is in existence through out the life of organization.
2. Shaping broad plans: First, it is an on-going process in which broad plans are firstly formulated than implementing and finally controlled.
3. Strategic goals: Strategic goals are those which are set by top management. The broad plans are made in achieving the goals.
Evolution of strategic management From his extensive work in the field, Bruce Henderson of the Boston Consulting Group concluded that intuitive strategies cannot be continued successfully if (1) the corporation becomes large, (2) the layers of management increase, or
(3) the environment changes substantially.
Phase 1 - Basic financial planning: Seek better operational control by trying to meet budgets.
Phase 2 - Fore-cast based planning: Seeking more effective planning for growth by trying to predict the future beyond next year.
Phase 3. Externally oriented planning (strategic planning): Seeking increasing responsiveness to markets and competition by trying to think strategically.
Phase 4. Strategic management: Seeking a competitive advantage and a successful future by managing all resources.
Phase 4 in the evolution of the strategic management includes a consideration of strategy implementation and evaluation and control, in addition to the emphasis on the strategic planning in Phase 3. General Electric, one of the pioneers of the strategic planning, led the transition from the strategic planning to strategic management during the 1980s. By the 1990s, most corporations around the world had also begun the conversion to strategic management.
In general, a corporate strategy has the following characteristics:
It is generally long-range in nature, though it is valid for short-range situations also and has short-range implications.
It is action oriented and is more specific than objectives.
It is multipronged and integrated
It is flexible and dynamic.
It is formulated at the top management level, though middle and lower level managers are associated in their formulation and in designing sub-strategies.
It is generally meant to cope with a competitive and complex setting.
It flows out of the goals and objectives of the enterprise and is meant to translate them into realities.
It is concerned with perceiving opportunities and threats and seizing initiatives to cope with them. It is also concerned with deployment of limited organizational resources in the best possible manner.
It gives importance to combination, sequence, timing, direction and depth of various moves and action initiatives taken by managers to handle environmental uncertainties and complexities.
It provides unified criteria for managers in function of decision making.
Framework
The basic framework of strategic process can be described in a sequence of five stages as shown in the figure
- Framework of strategic management:
The five stages are as follows:
Stage one: This is the starting point of strategic planning and consists of doing a situational analysis of the firm in the environmental context. Here the firm must find out its relative market position, corporate image, its strength and weakness and also environmental threats and opportunities. This is also known as SWOT (Strength, Weakness, Opportunity, Threat) analysis. You may refer third chapter for a detailed discussion on SWOT analysis.
Stage two: This is a process of goal setting for the organization after it has finalised its vision and mission. A strategic vision is a roadmap of the companys future providing specifics about technology and customer focus, the geographic and product markets to be pursued, the capabilities it plans to develop, and the kind of company that management is trying to create. An organizations Mission states what customers it serves, what need it satisfies, and what type of product it offers.
Stage three: Here the organization deals with the various strategic alternatives it has.
Stage four: Out of all the alternatives generated in the earlier stage the organization selects the best suitable alternative in line with its SWOT analysis.
Stage five: This is a implementation and control stage of a suitable strategy. Here again the organization continuously does situational analysis and repeats the stages again.
6.2 Importance of Strategic Management
Strategic management provides the framework for all the major business decisions of an enterprise such as decisions on businesses, products and markets, manufacturing facilities, investments and organizational structure.
In a successful corporation, strategic planning works as the pathfinder to various business opportunities; simultaneously, it also serves as a corporate defence mechanism, helping the firm avoid costly mistakes in
product market choices or investments. S trategic management has the ultimate burden of providing a business organization with certain core competencies and competitive advantages in its fight for survival and growth.
It seeks to prepare the corporation to face the future and even shape the future in its favour. Its ultimate burden is influencing the environmental forces in its favour, working into the environs and shaping it, instead of getting carried away by its turbulence or uncertainties.
THE TASK OF STRATEGIC MANAGEMENT
The strategy-making/strategy-implementing process consists of five interrelated managerial tasks. These are
Setting vision and mission: Forming a strategic vision of where the organization is headed, so as to provide long-term direction, delineate what kind of enterprise the company is trying to become and infuse the organization with a sense of purposeful action.
Setting objectives: Converting the strategic vision into specific performance outcomes for the company to achieve.
Crafting a strategy to achieve the desired outcomes.
Implementing and executing the chosen strategy efficiently and effectively.
Evaluating performance and initiating corrective adjustments in vision, long-term direction, objectives, strategy, or execution in light of actual experience, changing conditions, new ideas, and new opportunities.
Strategy Formation Process
Simple model
Working model of strategic planning process
Step 1: Identifying the organisations current mission, objectives, and strategies Mission: the firms reason for being The scope of its products and services Goals: the foundation for further planning Measurable performance targets
Step 2: Conducting an external analysis The environmental scanning of specific and general environments Focuses on identifying opportunities and threats
Customers: Who are the organisations customers? Products or services: What are the organisations major products or services? Markets: Where does the organisation compete geographically? Technology: How technologically current is the organisation? Concern for survival growth, and profitability: Is the organisation committed to growth and financial stability? Philosophy: What are the organisations basic beliefs, values, aspirations, and ethical priorities? Self-concept: What is the organisations major competitive advantage and core competencies? Concern for public image: How responsive is the organisation to societal and environmental concerns? Concern for employees: Does the organisation consider employees a valuable asset? Source: Based on F. David, Strategic Management, 8th ed. (Upper
Step 3: Conducting an internal analysis Assessing organisational resources, capabilities, activities, and culture: Strengths (core competencies) create value for the customer and strengthen the competitive position of the firm. Weaknesses (things done poorly or not at all) can place the firm at a competitive disadvantage. Steps 2 and 3 combined are called a SWOT analysis. (Strengths, Weaknesses, Opportunities, and Threats)
Step 4: Formulating strategies Develop and evaluate strategic alternatives Select appropriate strategies for all levels in the organisation that provide relative advantage over competitors
Match organisational strengths to environmental opportunities Correct weaknesses and guard against threats
Step 5: Implementing strategies Implementation: effectively fitting organisational structure and activities to the environment The environment dictates the chosen strategy; effective strategy implementation requires an organisational structure matched to its requirements. Step 6: Evaluating results How effective have strategies been? What adjustments, if any, are necessary