strategic management
Strategic Management
Strategic management is the process of specifying an organization’s objectives, developing policies and plans to achieve these objectives, and allocating resources so as to implement the plans. It is the highest level of managerial activity. It is not a task, but a rather a set of managerial skills that ought to be exerted throughout the organization, in a wide array of functions.
An organization’s strategy must be appropriate for its resources, environmental circumstances, and core objectives. The process involves matching the company’s strategic advantages to the business environment the organization faces. One objective of an overall corporate strategy is to put the organization into a position to carry out its mission effectively and efficiently.
A good corporate strategy should integrate an organization’s goals, policies, and tactics into a cohesive whole, and must be based on business realities. Business enterprises can fail despite ‘excellent’ strategy because the world changes in a way they failed to understand. Strategy must connect with vision, purpose and likely future trends.
Strategic management can be seen as a combination of strategy formulation and strategy implementation, but strategy must be closely aligned with purpose.
Strategy formulation involves doing a situation analysis: both internal and external, both micro-environmental and macro-environmental; setting objectives–crafting vision statements (long term view of a possible future), mission statements (the role that the organization gives itself in society), overall corporate objectives (both financial and strategic), strategic business unit objectives (both financial and strategic), and tactical objectives; and planning. This three-step strategy formulation process is sometimes described as determining where you are now, determining where you want to go, and then determining how to get there. These are the essence of strategic planning.
Strategy implementation involves allocation of sufficient resources (financial, personnel, time, technology support); establishing a chain of command or some alternative structure (such as cross functional teams); assigning responsibility of specific tasks or processes to specific individuals or groups; managing the process–monitoring results, comparing to benchmarks and best practices, evaluating the efficacy and efficiency of the process, controlling for variances, and making adjustments to the process as necessary. When implementing specific programs, this involves acquiring the requisite resources, developing the process, training, process testing, documentation, and integration with legacy processes.
Strategy formulation and implementation is an on-going, never-ending, integrated process requiring continuous reassessment and reformation. Strategic management is dynamic. It involves a complex pattern of actions and reactions. It is partially planned and partially unplanned. Strategy is both planned and emergent, dynamic, and interactive.
For strategic management to be a success, organizations must not fail to follow the plan. They should be guided by the set of objectives that they have formulated, envisioning a prosperous business. They should strive to understand customers more thoroughly. Over-estimation of resource competence and under-estimation of time requirements should be avoided. Employee and senior management commitment should be obtained through keeping communication channels open and healthy. Most crucially, the management should acquire the ability to predict environmental reaction and manage change.
Copyright 2007 Ismael D. Tabije
Strategic Management
It is very important to understand upfront the difference between the terms strategy and strategic management.
Coulter defines a strategy as “a series of goal directed decisions and actions that match an organization’s skills and resources with environmental opportunities and threats” (Coulter, 23). It further defines strategic management as “those decisions and actions in which organizational members analyze the current situation; develop appropriate strategies; put those strategies into action; and, evaluate, modify, or change those strategies as needed” (Coulter, 23).
Consider these two definitions and the differences between them very carefully. Strategic Management is a business function, analogous to other business functions such as accounting, marketing, advertising, etc. It involves the development and management of strategies.
The strategies themselves that are being managed can be directed at almost anything of concern to the business or organization. Strategies can exist that are directed at any organizational level. High level strategies can and often do give rise to lower level strategies which in turn can give rise to even lower level strategies, etc. Like wise the function of strategic management can exist at any organizational level.
The reason for this paper is that this class is concerned with the study of strategic management as a business function, i.e. how are strategies developed, implemented, measured, etc. You will find as we proceed through the business analogy that there are even strategies (for example, SWOT analysis) for strategic management, which means that there are strategies for developing, implementing, and measuring the effect of strategies. When you fully understand that strategic management is a business function this should not surprise you.
One of the problems, I typically see is managers confusing the management of strategies with the strategies that are being managed. In this class, since we are discussing the business function of strategic management, when discussing a particular strategy let’s say an example of a marketing strategy, you should also keep in mind the strategic management dimension of that strategy, that is, how was it developed, how was it implemented, how is its effectiveness measured, and how will it be changed if that is necessary. Similarly if, for example, you are comparing the advertising strategies of two companies in a particular industry, you should also consider what effect the comparison of those strategies should or could have on the strategic management function in each of the companies involved.
Let me try and clarify what I am trying to say by using an analogy. Suppose we were having a class on how to manage a used car lot. We might easily find ourselves discussing the differences between Ford cars and Dodge cars. But since we are having a class on managing the used car lot we should probably be the most interested in those differences that actually impacted how we would manage a used car lot.
Works Cited
Coulter, Mary. Strategic Management in Action. 2nd ed-custom ed. New Jersey: Prentice-Hall. 2002.
Strategic Management Process – The Building Stage
If a business operates according to a sound strategic management process, by this point in the process the business has defined a market strategy that differentiates it from competitors and leverages its core strengths. It has also taken the necessary steps to internalize its market strategy with all stakeholders of the business, including customers, suppliers, employees, and owners. In addition, and this is the best part, the business should now start seeing improvements in its revenue and profitability. This is always an exciting time for a business. Morale is beginning to run high throughout the organization. A new strategic direction has been implemented, and it is leading to growth in revenue and profits. That makes everyone happy and creates a positive environment within which to proceed with the next stage of the strategic management process – The Building Stage.
One might ask, if revenue and profits are already growing at this point, why go further? Why do we even need The Building Stage? Well, even though the results from a properly executed strategic management process are beginning to show during The Building Stage, the business still needs to do the work necessary to optimize those results and to sustain them over the long-term. That work takes place in The Building Stage. The underlying theme for The Building Stage is performance measurement. Performance measurement is the tool that measures and rewards people and business units for operating in a manner consistent with the business’s market strategy. Quite simply, the performance measurement process should reward behavior that leverages and solidifies the business’s market strategy. There are two components of The Building Stage that deserve further discussion – Management Accounting Policies and the Performance Evaluation Process.
Management Accounting Policies
Management accounting policies can be an effective strategic management tool. Management reports, or internal profitability and performance reports, are created based on a set of defined management accounting policies. Therefore, the management accounting policies must be designed properly for management reports to be successful. In addition, management accounting policies communicate what is truly important for raises, bonuses, and promotions better than any other internal communication vehicle. Here are a few keys to designing a successful set of management accounting policies.
Ensure collaboration right from the beginning. A broad working group, composed of representatives of all business units, cost centers, and support groups, should be formed to review and approve all policies. Disagreements should be presented to senior management for resolution. A strategist should chair the working group to ensure that all policies enhance and underscore the business’s market direction. The decisions that this group make will spread through an organization extremely quickly.
Be thorough. All units, groups, and individuals to the extent possible, should be covered by the management accounting policies. For units that are not revenue centers, measures of productivity and quality should be defined that are consistent with the business’s strategic direction.
Handle complex issues. There are many complex issues that must be handled correctly within the management accounting policies, and none of them should be ignored. Authorities within the organization must be defined, because measurements should reflect only those items that the unit, group, or individual has the full authority to change. In addition, items such as investments, risks, and use of capital, must be handled within the scope of the management accounting policies to ensure equitable and long-range measurements.
Distribute the policies broadly within the organization. There are multiple internal audiences for management accounting policies. Senior management should be able to view and understand the principles and concepts underlying the policies. In addition, people working on the production of management reports need details of exactly how each item is to be handled in reports. Broad internal distribution of the policies allows everyone to understand how their performance will be measured.
Management accounting policies must be in sync with a business’s strategic direction. They communicate to everyone in the business how they will be measured, and they establish a foundation for an effective Performance Evaluation Process.
Performance Evaluation Process
From a strategic process perspective, it is essential that performance evaluations mirror the measurements that have been created in management reports. This is true for performance ratings, as well as for raises, bonuses, and promotions, that go along with them. This ensures that the performance evaluation process underscores the business’s strategic direction and market strategy.
Of course, there are always subjective criteria that should be factored into performance evaluations, but their impact on ratings and compensation should be kept to a minimum. Allowing subjective criteria to significantly affect ratings and compensation will just simply destroy the credibility of the entire process.
After a business has defined an effective strategic direction and market strategy, and it has internalized that strategy within the organization, it is time to create the environment within which to optimize the strategy and sustain it over the long-term. That takes place in The Building Stage of a strategic management process. The Building Stage is focused on creating performance measurements that are in sync with the business’s strategy, and rewarding those in the organization that have succeeded in implementing and enhancing the strategy. This should establish a foundation for growth in revenue and profitability for many years to come.