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Strategic management focuses on the total enterprise. It involves the planning, directing, organizing, and controlling of the strategy-related decisions and actions of the business.
Top Management
The term "top management" refers to a relatively small group of people include president, chief executive officer, vice president, and executive vice president. Because the insights of these executives play such a critical role, a number of writers have stressed the importance of matching the characteristics of these executives with the firm's strategies. The strategic management process of today tends to be dominated by the chief executive officer (CEO). For example, Kenneth R. Andrews described the chief executive's role as "Chief Executive as Architect of Purpose." George Steiner summarized the role of the CEO in strategic management as follows: 1. 2. 3. 4. The CEO must understand that strategic management is his responsibility. Parts of this task, but certainly not all of it, can be delegated. The CEO is responsible for establishing a climate in the organization that is congenial to strategic management. The CEO is responsible for ensuring that the design of the process is appropriate to the unique characteristics of the company. The CEO is responsible for determining whether there should be a corporate planner. If so, the CEO generally should appoint the planner (or planners) and see that the office is located as close to that of the CEO as practical.
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The CEO must get involved in doing planning. The CEO should have face-to-face meetings with executives for making plans and should ensure that there is a proper evaluation of the plans and feedback to those making them. The CEO is responsible for reporting the results of the strategic management process to the board of directors.
The chief executive officer (CEO) is responsible for the final decisions, but its decisions is the culmination of the ideas, information, and analyses of others.
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At the center of the model is embedded Churchman's first imperative: to identify the organization's values. Without knowledge of its values, an organization cannot develop a mission, goals, and objectives. Churchman's remaining four imperatives can be found within the four boxes in the circle. The arrows in Figure 2-3 shows important interdependency among the four factors of strategic management: strategic planning, resource requirements, organizational structure, and strategic control. Strategic planning is the key link between strategic management and the organization's external environment. Resource requirement is the factor that links strategic management to the organizations's resources, including finances, facilities and equipment, land, access to information, goodwill, and personnel. Strategic control relates to the implementation of a strategy. Organizational structure links strategic management to organizational realities. According to this model, environmental demands are met through a strategic planning process, involving the formulation of missions, goals, and objectives. Strategic management can thus be seen as a "total" system perspective and not merely as the process of choosing from among alternative long-range plans. It reflects the organization's "strategic capability" to balance the demands imposed by external and internal forces and to integrate the overall functioning of
the organization so as to allocate resources in a manner best designed to meet goals and objectives (Alan Rowe, Richard O. Mason, and Karl E. Dickel). Today's manager is faced with an accelerating rate of change in technical, social, political, and economic forces. As a result of these changing forces, the management process has become more difficult, requiring greater skills in planning, analysis, and control. Thus, the concept of strategic management is still involving and will continue to undergo change.
Strategy Formulation
Strategy formulation is the process of establishing the organization's mission, objectives, and choosing among alternative strategies. Sometimes strategy formulation is called "strategic planning."
Strategy Formulation
Strategy formulation is the process of establishing the organization's mission, objectives, and choosing among alternative strategies. Sometimes strategy formulation is called "strategic planning."
Strategy Implementation
Strategy implementation is the action stage of strategic management. It refers to decisions that are made to install new strategy or reinforce existing strategy. The basic strategy - implementation activities are establishing annual objectives, devising policies, and allocated resources. Strategy implementation also includes the making of decisions with regard to matching strategy and organizational structure; developing budgets, and motivational systems.
Strategy Implementation
Strategy implementation is the action stage of strategic management. It refers to decisions that are made to install new strategy or reinforce existing strategy. The basic strategy - implementation activities are establishing annual objectives, devising policies, and allocated resources. Strategy implementation also includes the making of decisions with regard to matching strategy and organizational structure; developing budgets, and motivational systems.
Strategic management is a broader term that includes not only the stages already identified but also the earlier steps of determining the mission and objectives of an organization within the context of its external environment. The basic steps of the strategic management can be examined through the use of strategic management model. The strategic management model identifies concepts of strategy and the elements necessary for development of a strategy enabling the organization to satisfy its mission. Historically, a number of frameworks and models have been advanced which propose different normative approaches to strategy determination. However, a review of the major strategic management models indicates that they all include the following elements: 1. 2. 3. 4. 5. Performing an environmental analysis. Establishing organizational direction. Formulating organizational strategy. Implementing organizational strategy. Evaluating and controlling strategy.
Strategic management is a continuous and dynamic process. Therefore, it should be understood that each element interacts with the other elements and that this interaction often happens simultaneously. The major models differ primarily in the degree of explicitness, detail, and complexity. These differences derive from the differences in backgrounds and experiences of the authors. Some of these models are briefly presented below.
Strategic management is a continuous and dynamic process. Therefore, it should be understood that each element interacts with the other elements and that this interaction often happens simultaneously. The major models differ primarily in the degree of explicitness, detail, and complexity. These differences derive from the differences in backgrounds and experiences of the authors. Some of these models are briefly presented below.
Andrews' Models
In 1965, Kenneth Andrews developed a simple model. This model includes the choice of a strategy, but ignores implementation and control. In 1971, Andrews formulated a more complete model that included implementation, but it still ignores a strategic control and evaluation.
Glueck's Model
William F. Glueck developed several models of strategic management based on the general decision-making process.
The phases of this model are as follows: * Strategic managements elements: "...to determine mission, goals, and values of the firm and the key decision makers." * Analysis and diagnosis: " ...to search the environment and diagnose the impact of the threats and opportunities." * Choice: ...to consider various alternatives and assure that the appropriate strategy is chosen." * Implementation: "...to match plans, policies, resources, structure, and administrative style with the strategy." * Evaluation: "...to ensure strategy and implementation will meet objectives." As major contribution to the strategic management process, Glueck considered two elements: "enterprise objectives" (the mission and objectives of the enterprise," and "enterprise strategists" (who are involved in the process). Moreover, Glueck broke down the planning process into analysis and diagnosis, choice, implementation, and evaluation functions. This model also treats leadership, policy, and organizational factors. However, Glueck omitted the important medium- and short-range planning activities of strategy implementation.
Glueck's Model
William F. Glueck developed several models of strategic management based on the general decision-making process. The phases of this model are as follows: * Strategic managements elements: "...to determine mission, goals, and values of the firm and the key decision makers." * Analysis and diagnosis: " ...to search the environment and diagnose the impact of the threats and opportunities." * Choice: ...to consider various alternatives and assure that the appropriate strategy is chosen." * Implementation: "...to match plans, policies, resources, structure, and administrative style with the strategy." * Evaluation: "...to ensure strategy and implementation will meet objectives." As major contribution to the strategic management process, Glueck considered two elements: "enterprise objectives" (the mission and objectives of the enterprise," and "enterprise strategists" (who are involved in the process). Moreover, Glueck broke down the planning process into analysis and diagnosis, choice, implementation, and evaluation functions. This model also treats leadership, policy, and organizational factors. However, Glueck omitted the important medium- and short-range planning activities of strategy implementation.
(4) strategy evaluation, (5) strategy implementation, and (6) strategic control. According to Schendel and Hofer, the formulation portion of strategic management consists of at least three subprocesses: - environmental analysis, - resources analysis, - and value analysis. Resource and value analyses are not specifically shown, but are considered to be included under other items (strategy formulation).
Thompson and Strickland suggest that the firm's mission and objectives combine to define "What is our business and what will it be?" and "what to do now" to achieve organization's goals. How the objectives will be achieved refers to the strategy of firm. In general, this model highlights the relationships between the organization's mission, its long- and shortrange objectives, and its strategy.
Korey's Model
Modern theorist and writer, Jerzy Korey-Krzeczowski, founder and President Canadian School of Management, have proposed an integrated model of strategic management. Korey's model consists of three discrete major phases: (1) preliminary analysis phase, (2) strategic planning phase, (3) strategic management phase. Further, Korey states that the systematic planning consists of at least four continuous subprocesses: (1) (2) (3) (4) planning studies, review and control, feasibility studies, and feasibility studies.
The planning is ongoing process, thus all these subprocesses are integrated and they are interacted each other; creating the fully dynamic model. Korey's model incorporates both planning and control functions. Moreover, it describes not only long-range strategic planning process, but also includes elements of medium and short range planning. Korey's model is based on existing models; but it differs in content, emphasis, and process. This model adds several facets to the planning process that the reader has not seen in other models. Some of these are: development of educational philosophy, analysis of the value systems, review of community orientation and social responsibilities, definition of planning parameters, planning studies, and feasibility studies. Using Kory's model for strategic planning provides both new direction and new energy to the organization.
Schematic Model
As an aid in envisioning the strategic management process in this paper. This model was developed by Peter Wright, Charles Pringle and Mark Kroll (1994). It consists of five stages: 1. 2. 3. 4. 5. 6. Analyze the environmental opportunities and threats. Analyze the organization's internal strengths and weaknesses. Establish the organizational direction: mission and goals. Strategy formulation. Strategy Implementation. Strategic Control.
The model begins with an analysis of environmental opportunities and threats. The organization is affected by environmental forces; but the organization can also have an impact upon its environment. The organization's mission and goals are linked to the environment by a dual arrow. This means that the mission and goals are set in the context of environmental opportunities and threats. The next arrow depicts the idea that strategy formulation sets strategy implementation in motion. Specifically, strategy is implemented through the organization's structure, its leadership, and its culture. Then, the final downward arrow indicates that the actual strategic performance of the organization is evaluated.
The control stage is demonstrated by the feedback line that connects strategic control to the other parts of the model.
Several researchers in the field of strategic management have developed models describing the evolution of strategic management. In this section I present Ansoff's model. H. Igor Ansoff analyzed the changing environmental challenges facing organizations during this century and the managerial responses, competitive strategies, and entrepreneurial strategies employed to cope with them. According to Ansoff, during the twentieth century, two different types of system have evolved: * positioning systems (long range planning, strategic planning, strategic position management) which direct the firm's thrust in the environment; * real-time systems (strong signal issue management, weak signal issue management, surprise management) which respond one at a time to rapid and unpredicted environmental developments. The systems can be grouped into four distinctive stages of evolution, that were responsive to the progressively decreasing familiarity of events and decreasing visibility of the future: 1. Management by (after the fact) control of performance, which was adequate when change was slow. 2. Management by extrapolation, when change accelerated, but the future could be predicted by extrapolation of the past. 3. Management by anticipation, when discontinuities began to appear but change, while rapid, was still slow enough to permit timely anticipation and response. 4. Management through flexible/rapid response, which is currently emerging, under conditions in which many significant challenges develop too rapidly to permit timely anticipation.
Position Systems
In this section, I compare the different systems, starting with long range planning. Long range planning and strategic planning One basic difference between long range planning (sometimes called corporate planning) and strategic planning is their respective views of the future. "In long range planning the future is expected to be predictable through extrapolation of the historical growth." Management typically assumes that future performance can and should be better than in the past. The process typically produces optimistic goals which are not fully met in reality. The jagged, called the "hockey stick effect," illustrates the typical goal-setting process that occurs in long range planning. "In strategic planning the future is not necessarily expected to be an improvement over the past, nor is it assumed to be extrapolable." There are the following steps of the analysis in strategic planning: * An analysis of the firm's prospects is made which identifies trends, threats, opportunities and singular "breakthrough" events, which may change the historical trends. The results of prospects analysis are shown in the lower half of Figure 2-12. Determination of prospects closes the surveillance gap between extrapolation and the performance the firm is likely to attain if it follows its historical strategies. * The second step, is a competitive analysis which identifies the improvement in the firm's performance which can be obtained from improvements in the competitive strategies in the respective business areas of the firm. * The third step is a process which is called strategic portfolio analysis: the firm's prospects in the different business areas are compared, priorities are established, and future strategic resources are allocated among the business areas. The results of competitive analysis and of the portfolio balance is shown as the present potential line. This closes the competitive gap. * The next step is a diversification analysis which diagnoses the deficiencies in the present portfolio and identifies new business areas, into which the firm will seek to move. When the performance expected from the new business areas is added to the present potential line, the results are the overall goals and objectives of the firm shown in figure. These are determined by two factors: the ambitions and drive of the top management and by the strategic resources which will be available for diversification. There are differences in the process between long range planning (LRP) and strategic planning. In strategic long planning the goals are elaborated into action programs, budgets and profit plans for each of the key units of the firm. The programs and budgets are next implemented by these units. Strategic planning replaces extrapolation by an elaborate strategy analysis, which balances the prospects against objectives to produce a strategy. The next step is to establish two sets of goals: for the near term-performance goals and strategic goals. Operating programs/budgets guide the operating units of the firm in their continuing profit-making activity, and strategic programs/budgets generate the firm's future profit potential. Strategic implementation requires a separate and different control system (strategic control). This means that LPR will effectively respond to environmental challenges on turbulence levels 2.5 to 3.5. Strategic planning becomes necessary on level 4 when future challenges become discontinuous. Strategic Posture Management The first significant difference between strategic planning and strategic posture management is the addition of capability planning to strategy planning. General management capability is determined by five supporting components: qualifications and mentality of the key managers, social climate (culture) within the
firm, power structure, systems and organization structure, capacity of general management to do managerial work. The second difference between strategic planning and strategic posture management is the addition of systematic management of the resistance to change during implementation of the strategy and capability plans.
Real-time Systems
As environmental turbulence has begun to approach level 4, firms have begun to use real-time systems, called strategic issue management. Figure 2-14 illustrates strategic issue management. The ingredients of issue management are the following: 1. 2. 3. A continuous surveillance is instituted over environmental-business-technological-economic- socialpolitical trends. The impact and urgency of the trends are estimated and presented as key strategic issues to top management at frequent meetings and whenever a new major threat or opportunity is perceived. Together with the planning staff, top management then sorts issues into one of four categories: o Highly urgent issues of far-reaching effect which require immediate attention. o Moderately urgent issues of far-reaching effect which can be resolved during the next planning cycle. o Non-urgent issues of far-reaching effect which require continuous monitoring. o Issues that are "false alarms" and can be dropped from further consideration. The urgent issues are assigned for study and resolution, either to existing organizational units, or whenever rapid cross-organizational response is essential, to special taskforses. The resolution of issues is monitored by top management both for strategic and tactical implications. The list of the issues and their priorities is a kept up-to-date through periodic review by the top management.
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Issues identified through environmental surveillance will differ in the amount of the information they contain. Strong signal issues will be sufficiently visible and concrete to permit the firm to compute their impact and to devise specific plans for response. Other issues will contain weak signals, imprecise early indications about impending impactful events. Some issues will slip by the environmental surveyors and become strategic surprises. Particularly, if the firm expects its environmental turbulence to be around level five, it needs to invest a strategic surprise system.
* Where is the organization presently going? The answer to this question can tell managers if an organization is achieving organizational goals and, if so, whether or not the level of such progress is satisfactory. * Is what kind of environment does the organization now exist? Both internal and external environments are covered in this question. * What can be done to better achieve organizational objectives in the future? The answer to this question actually results in the strategy of the organization.
A number of reasons are given by authors to as why organizations should engage in strategic management. Many research studies show both financial and nonfinancial benefits which can be derived from a strategicmanagement approach to decision making. Financial Benefits The question "Why should an organization engage in strategic management?" must be answered by looking at the relationship between strategic management and performance. Research performed by Eastlack and McDonald (1970), Thune and House (1970), Ansoff et. al. (1971), Karger and Malik (1975), and Hofer and Schendel (1978) indicate that formalized strategic management (strategic planning) does result in superior performance by organizations. Each of these studies was able to provide conceiving evidence of the profitability of strategy formulation and implementation. The formalized strategic management process does make a difference in the recorded measurements of profits, sales, and return on assets. Organizations that adopt a strategic management approach can expect that the news system will lead to improved financial performance. Nonfinancial Benefits Regardless of the profitability of strategic management, several behavioral effects can be expected to improve the welfare of the firm. Yoo and Digman emphasize that strategic management is needed to cope with and manage uncertainty in decision making. They present several benefits of strategic management: 1. 2. 3. 4. 5. 6. It provides a way to anticipate future problems and opportunities. It provides employees with clear objectives and directions for the future of the organization. It results in more effective and better performance compared to non-strategic management organizations. It increases employee satisfaction and motivation. It results in faster and better decision making and It results on cost savings.
Moreover, Greenley stresses that strategic management offers the following process and personal benefits: 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. It allows for identification, prioritization, and exploitation of opportunities. It provides an objective view of management problems. It represents a framework for improved coordination and control of activities. It minimizes the effects of adverse conditions and changes. It allows major decisions to better support established objectives. It allows more effective allocation of time and resources to identified opportunities. It allows fewer resources and less time to be devoted to correcting erroneous or ad hoc decisions. It creates a framework for internal communication among personnel. It helps to integrate the behavior of individuals into a total effort. It provides a basic for the clarification of individual responsibilities. It gives encouragement to forward thinking. It provides a cooperative, integrated, and enthusiastic approach to tackling problems and opportunities. 13. It encourages a favorable attitude towards change. 14. It gives a degree of discipline and formality to the management of a business.
These and other research studies have concluded that strategic management is an integral and important function of organization life. However, successful organizations are successful for many reasons: adequate resources, good products and services, and so on. While not a panaceas, the strategic management process is only a powerful tool. It value lies with executive and the ability to use this strategic management tool in effectively managing the enterprise.
SUMMARY
Strategic management is a continuous process. There are three stages in this process: strategy formulation, strategy implementation, and evaluation and control. Strategy management is also viewed as series of steps. Therefore, the strategic- management process can be best be studied and applied using the model. A review of the major strategic management models indicates that they all include the following steps: performing an environmental analysis, establishing organizational direction, formulating organizational strategy, implementing organizational strategy, evaluating and controlling strategy. The strategic management process mostly involves top management, board of directors, and planning staff. In its final form, a strategic decisions is moulded from the streams of inputs, decisions, and actions. All organizations engage in the strategic management process. The success of an organization is generally dependent upon the strategic management and organizational abilities of the managers. Many research studies show both financial and nonfinancial benefits which can be derived from a strategicmanagement approach to decision making. Moreover, the concept of strategic management is still involving and will continue to undergo change. Therefore, understanding and following and complete process of strategic management can be helpful to practicing managers to gain organizations' objectives.