STRATEGIC MANAGEMENT

Q. What is strategic management? It 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 a nutshell: Strategy Formulation Strategy Implementation Strategy Evaluation Strategy Formulation: Develop vision Develop mission Develop SWOT analysis Develop alternate strategies Strategy Implementation: Devise policies Motivate employees Allocate resources Create an effective organizational structure Improve efficiency in every unit of the organization Link employee compensation to organizational performance Strategy Evaluation: Review external and internal factors that are the bases of current strategies Measuring performance Taking corrective action

Strategic Management Process: It can be described as an objective, logical, systematic approach for making major decisions in an organization. It is a combination of intuition and analysis It is based on the belief that success of an organization is closely related to its ability to adapt to change.

Let us familiarize ourselves with 9 key terms for our study of strategic management: 1. Competitive Advantage: Anything a firm does especially well as compared to its rivals. Normally a firm can sustain a competitive advantage only for a certain period therefore a firm must strive to achieve sustained competitive advantage. How to achieve a sustained competitive advantage? Continually adapting to external & internal changes. Effectively formulating, implementing & evaluating strategies.

2. Strategists: Individuals who are most responsible for the success or failure of an organization. They help in gather, organize and analyze information. The CEO is the most visible and critical strategic manager. A CSO (Chief Strategy Officer) is another. 3. Vision and Mission Statements: Developing a vision statement is STEP 1 in strategic planning. It says What do we want to become? Mission statements are enduring statements of purpose that distinguish one business from other similar firms.

 A clear mission statement defines the scope of a firms operations in product and market terms. 4. External Opportunities and Threats: Opportunities and threats are largely beyond the control of a single organization thus external Threats could be economic, social, cultural, legal, demographic, technological, political etc. Threats can be alleviated or eliminated by industry analysis or environmental scanning. 5. Internal Strengths and Weaknesses: These can be controlled by an organization and can be performed with varying degrees of proficiency or incompetency. Strengths and weaknesses can also be determined relative to competitors. These can also be determined by performance measures and comparison to historical performance and industry averages. 6. Long-term Objectives: Can be defined as specific results that an organization seeks to achieve in pursuing its basic mission. Long-term means more than one year. Objectives should be challenging, measurable, consistent, reasonable and clear. In a large firm objectives must be defined for the overall company as well as for each division. 7. Strategies: Are the means by which long term objectives will be achieved. Business strategies may include geographic expansion, diversification, acquisition, product development, market penetration, retrenchment, divestiture, liquidation and joint ventures. Strategies require large amounts of resources.

8. Annual Objectives: Are short term milestones that organizations must achieve to reach long term objectives. They should be challenging, realistic, consistent, prioritized and measurable. Annual objectives should be stated in terms of management, marketing, accounting/finance, production/operations, R&D, MIS goals. Annual objectives represent the basis for resource allocation. 9. Policies: Are means by which annual objectives will be achieved. They include guidelines, rules, procedures established to support efforts to achieve stated objectives. Policies are guides to decision making. They address repetitive or recurring situations. Policies allow consistency and coordination within and between organizational departments.

The Strategic Management Model.

Internal Assessment

Strategy Formulation

Strategy Implementation

Strategy Evaluation

Environmenta l Analysis

Strategy Formulation.

Strategy Formulation

Establish Long-term objectives

Generate, Evaluate & Select Strategies

Strategy Implementation.

Strategy Implementation

Implementation Strategies Management Issues

Implement Strategies Marketing, Finance, Accounting, R & D, MIS

Strategy obviously has financial benefits, but does it have any non-financial benefits? Greenley states the following non-financial benefits of strategy: 1. It allows for the identification, prioritization, and exploitation of opportunities. 2. It provides an objective view of management problems. 3. It represents a framework for improved coordination and control of activities. 4. It minimizes the effects of adverse conditions and changes. 5. It allows major decisions to better support established objectives. 6. It allows more effective allocation of time and resources to identified opportunities. 7. It allows fewer resources and less time to be devoted to correcting erroneous or ad hoc decisions. 8. It creates a framework for internal communication among personnel. 9. It helps integrate the behavior of individuals into a total effort. 10. It provides a basis for clarifying individual responsibilities. 11. It encourages forward thinking. 12. It provides a cooperative, integrated, and enthusiastic approach to tackling problems and opportunities. 13. It encourages a favorable attitude toward change. 14. It gives a degree of discipline and formality to the management of a business.

Some firms do not engage in strategic planning. Why?? Poor reward structures. Fire fighting Waste of time Too expensive Laziness

 Content with success Fear of failure Overconfidence Prior bad experience Self Interest Fear of the unknown Honest difference of opinion Suspicion Potential Pitfalls in Strategic Planning: Using strategic planning to gain control over decision and resources. Doing strategic planning only to satisfy accreditation or regulatory requirements. Too hastily moving from mission development to strategy formulation Failing to communicate the plan to employees, who continue working in the dark. Top managers making too many intuitive decisions that conflict with the formal plan. Top managers not actively supporting the strategic-planning process. Failing to use plans as a standard for measuring performance. Delegating planning to a planner rather than involving all the managers. Failing to involve key employees in all phases of planning. Failing to create a collaborative climate supportive if change. Viewing planning as unnecessary or unimportant. Becoming so engrossed in current problems that insufficient or no planning is done. Being so formal in planning that flexibility or creativity is stifled.