1 – Introduction to Strategic Management

Introduction

Strategic management is both thrilling and challenging. It involves making fundamental decisions regarding a firm’s future orientation, including its purpose, resources, and interactions with its surroundings. Every facet of the organization—its personnel, finances, manufacturing processes, consumers, and so on—plays a role in strategy.

Strategic management can identify the organization’s goal and the strategies and actions to attain that mission. The set of managerial decisions and behaviours determines a company’s long-term performance. It entails developing and implementing strategies to assist in aligning the organization and its environment to achieve organizational goals. Strategic management does not replace conventional tasks like organizing, leading, controlling, and planning. Instead, it incorporates them within a broader context that considers the external environment, internal capabilities, and the general purpose and direction of the organization. Thus, strategic management refers to the management processes in organizations that determine the future impact of change and make present decisions to achieve a desired future. In a nutshell, strategic management is about envisioning and realizing the future.

1.1 Strategic Management Definition

So far, we’ve covered the ideas of strategic thinking, strategic decision-making, and strategic approach, which should provide us with a good foundation for understanding the nature of strategic management. However, starting with definitions of strategic management is helpful to grasp what happens in strategic management. Later in the course, we will discuss the elements and process of strategic management and its importance, benefits, and limitations.

As mentioned, various authors created strategic management principles, including Alfred Chandler, Kenneth Andrews, Igor Ansoff, William Glueck, Henry Mintzberg, Michael E. Porter, Peter Drucker, and others. As a result, there are various definitions of strategic management.

The following are some key definitions:

“Strategic management is concerned with determining an enterprise’s basic long-term goals and objectives, adopting courses of action, and allocating resources necessary for carrying out these goals”.

– Alfred Chandler, 1962

“Strategic management is a stream of decisions and actions that lead to developing an effective strategy or strategies to help achieve corporate objectives.”

– Glueck and Jauch, 1984

“Strategic management is a process of formulating, implementing, and evaluating cross-functional decisions that enable an organization to achieve its objective”.

– Fed R David, 1997

“Strategic management is the set of decisions and actions resulting in the formulation and implementation of plans designed to achieve a company’s objectives.”

– Pearce and Robinson, 1988

“Strategic management includes understanding the strategic position of an organization, making strategic choices for the future, and turning strategy into action.”

– Johnson and Sholes, 2002

“Strategic management consists of the analysis, decisions, and actions an organization undertakes to create and sustain competitive advantages.”

– Dess, Lumpkin & Taylor, 2005

We can see from the definitions above that different authors define strategic management differently. It is worth noting that the Chandler description we stated above is from the early 1960s when strategic management was first acknowledged as a separate subject. This definition is made up of three essential components:

1) Establishing long-term objectives

2) Choosing a plan of action

3) Allocation of resources to meet those objectives

Though this description is straightforward, it does not include all of the necessary components and does not convey the spirit of strategic management.

Some definitions of recent origin are those of Fred R. David, Pearce and Robinson, Johnson and Sholes and Dell, Lumpkin and Taylor. These definitions, when combined, capture three critical characteristics at the heart of strategic management. Strategic analysis, formulation, and implementation are the three ongoing activities. These three components correspond to the analysis, decision-making, and action processes. In other words, strategic management is primarily concerned with:

Examine the organization’s strategic goals (vision, mission, and objectives) and external and internal environments.

Decisions on two fundamental issues:

1) In which industries should we compete?

2) How should we compete to implement strategies in such businesses?

Strategy implementation actions This necessitates leaders allocating the required resources and designing the organization to make the planned strategy a reality. This also includes evaluation and control to verify that the tactics are implemented effectively.

The strategic challenge for managers is choosing tactics that deliver a sustainable competitive advantage over time. Dess, Lumpkin, and Taylor have accurately defined strategic management’s essence.

1.2 The Characteristics of Strategic Management

Strategic management is the art and science of designing, implementing, and evaluating cross-functional decisions that enable an organization to achieve its goals. Strategic management differs from other parts of management in its nature. Individual managers are frequently called upon to deal with operational issues. He generally concentrates on day-to-day topics like efficient product production, sales force management, financial performance monitoring, or designing a new system to improve customer service.

Strategic management entails a company’s long-term survival and attainment of management objectives. The content of a strategy-building process includes a desirable future, resource allocation, firm-environment management, and competitive business ethics. However, several conflicts may arise while determining strategy content, such as disparities in associate interaction patterns, inadequacy of available resources, and conflicts between the firm’s objectives and environment.

1.3 Strategic Management Dimensions

The following are the features of strategic management:

1) Involvement of top management:

Strategic management concerns several aspects of a company’s operations, so top management must be involved. In general, only senior management has the perspective required to comprehend the vast repercussions of its actions and the authority to make the necessary resource allocations.

2) Requirement for a vast number of resources:

Strategic management necessitates the firm’s commitment to initiatives over a long period. As a result, they necessitate ample resources such as physical assets, money, people, and so on. Decisions to expand geographically, for example, would have significant financial ramifications due to the requirement to create and service a new customer base.

3) Affect the firm’s long-term success:

Once a firm has committed to a specific strategy, its image and competitive advantage are related to that approach; its long-term prosperity depends on such a strategy.

4) Future-oriented:

Strategic management includes forecasts or what managers expect to happen in the future. Such selections emphasise formulating predictions allowing the organization to select the most promising strategic solutions. In a tumultuous climate, a company will only succeed if it takes a proactive approach to change.

5) Multi-functional or multi-business ramifications:

Strategic management has far-reaching repercussions for almost every aspect of the business. It impacts strategic business units, particularly in customer mix, competitive focus, organizational structure, etc. The allocations or reallocations of duties and resources that emerge from these decisions will impact these areas.

6) Non-self-generative decisions:

While strategic management may entail making decisions on a relatively irregular basis, the organization must be prepared to make strategic decisions at any time. This is why Ansoff refers to them as “non-self-generating decisions.”

1.4 The Importance of Strategic Management

No company can afford to travel haphazardly. It must travel with the assistance of a route map. Strategic management supplies the organization with a road map. It enables the company to make future decisions with a better understanding of their repercussions. It gives the company a sense of direction and shows how it might grow.

The external environment impacts any organization’s management practices. Strategy connects the organization to the outside world. Changes in these external influences generate opportunities and dangers to an organization’s position, but most importantly, they generate uncertainty. Strategic planning provides a systematic approach to dealing with uncertainty and adjusting to change. It enables managers to analyze how to seize opportunities and avoid issues, define and coordinate appropriate courses of action, and set achievement targets.

Third, strategic management aids in developing better plans by employing a more systematic, logical, and rational approach. Managers and employees become committed to supporting the organization due to their participation in the process. The procedure entails learning, assisting, educating, and supporting others. For the following reasons, a growing number of businesses are using strategic management:

– It enables the company to be more proactive in determining its destiny rather than reactive.

– It serves as the firm’s route map. It enables the company to make the most use of its resources.

– It enables the company to anticipate and manage change.

– It enables the company to better respond to environmental changes.

– It reduces the likelihood of errors and unpleasant surprises.

– It provides staff with clear objectives and direction.

1.5 Advantages of Strategic Management

The remark above summarises why today’s decision-makers must plan and manage strategically. The rapid speed of change and greater openness in political and economic contexts necessitate distinct perspectives in developing and developed countries.

When the environment was in equilibrium, as in the 1950s, with consistent positive economic growth, low debt, manageable budgets, and relative environmental stability, managers could focus almost entirely on their organizations’ internal dimensions and assume consistency in the external environment. Forward calculations were straightforward, inputs were predictable, and planning was mostly arithmetic.

Systems are much more open now; the environment is defined by increasingly uncertain economic growth, budgets are continually altered, inputs are entirely unpredictable, and traditional planning is no longer viable.

As a result, today’s businesses require strategic management to capitalize on business opportunities, overcome dangers, and stay ahead of the competition. Strategic management seeks to explore and create new and different chances for tomorrow, whereas long-term planning seeks to optimize today’s trends for tomorrow.

All of the world’s top corporations now practice strategic management. They are figuring out how to adapt to competitors, deal with severe environmental changes, fulfil changing client wants, and use existing resources most effectively. At a time when the economic environment is rapidly evolving, even established firms are focusing more on strategy because they may encounter new competitors who threaten their core business.

Should a company compete in all areas or focus on one? Should a corporation aim to expand the brand into even more diverse areas of activity, or would it benefit more from increasing earnings in the existing regions and achieving more significant group synergies? Should the corporation stick with its current approach or fundamentally rethink its strategy? These are only a few instances of strategic management tasks.

A structured approach to strategy formulation has various advantages. Smith (1995); Robbins (2000)

1) It lessens uncertainty:

Managers are forced to plan ahead of time, foresee change, and prepare suitable answers. This also encourages managers to consider the risks associated with various reactions or solutions.

2) It bridges the gap between long and short terms:

Planning establishes a communication channel between strategic goals and the operational operations that support those goals.

3) It improves control:

By outlining the organization’s broad strategic objectives and ensuring that they are mirrored at the operational level, planning assists departments in moving in the same direction toward the same set of goals.

4) It makes assessment easier:

By establishing objectives and criteria, planning offers a foundation for measuring performance.

Thus, strategic management offers both financial and non-financial advantages:

Financial Advantages: According to research, organizations that practice strategic management are more profitable and successful than those that do not. Businesses that used strategic management ideas saw considerable sales, profitability, and productivity increases compared to firms that did not engage in systematic planning efforts.

Non-financial benefits: Strategic management provides a corporation with other intangible benefits besides cash rewards. They are as follows:

– Increased awareness of external threats;

– Improved understanding of competitors’ strategies;

– Reduced resistance to change;

– A clearer understanding of the performance-reward relationship;

– Improved problem-prevention capabilities of the organization;

– Increased interaction among managers at all divisional and functional levels; and

– Increased order and discipline.

Strategic management, according to Gordon Greenley, provides the following advantages:

1) It enables opportunity discovery, prioritization, and exploitation.

2) It provides an objective perspective on management issues.

3) It provides a foundation for improved activity coordination and control.

4) It lessens the impact of unpleasant conditions and changes.

5) It enables decision-making to support specified goals.

6) It enables more efficient deployment of time and resources to identified opportunities.

7) It enables fewer resources and time to correct erroneous and haphazard decisions.

8) It establishes a foundation for internal communication among employees.

9) It aids in integrating individual behaviour into a more significant effort.

10) It serves as a foundation for defining individual responsibilities.

11) It promotes forward-thinking.

12) It offers a collaborative, innovative approach to addressing issues and possibilities.

13) It fosters a positive attitude toward change.

14) It adds a level of rigour and formality to corporate management.

1.6 Risks Associated with Strategic Management

Strategic management is a sophisticated and intricate process that pushes an organization into uncharted terrain. It does not deliver a ready-to-use success prescription. Instead, it takes the organization on a journey and provides a framework for answering questions and resolving issues.

Strategic management is thus not a guarantee of success; it might be dysfunctional if carried out haphazardly. It has the following limitations:

1) It is expensive in terms of the time managers must dedicate. Managers who spend time away from their typical activities may suffer significant consequences.

2) An adverse effect may occur when the participating managers fail to meet their expectations, resulting in dissatisfaction and disappointment.

3) Another negative consequence of strategic management may occur if people participating in strategy creation are not directly involved in strategy implementation. Participants in policy formulation may abdicate accountability for decisions made.

Some pitfalls to watch for and avoid in strategic planning, according to Fred R. David, are:

Using strategic planning to exert influence on decisions and resources
Creating strategic plans to meet certification or regulatory requirements
Rushing from mission development to strategy formulation
Failure to explain the strategy plan to staff, who thus continue to work in the dark,.
Many intuitive judgments by top managers contradict the formal plan
Top management is not actively participating in the strategy planning process.
Failure to use plans as a performance measurement tool.
Contracting out strategy planning to a professional rather than incorporating all managers
Failing to involve key employees in all phases of planning
Failing to create a collaborative climate supportive of change
Viewing planning as unnecessary or unimportant
Becoming so preoccupied with current issues that insufficient or no planning is done
Being so formal in planning that flexibility and creativity are stifled

1.7 Strategic Management Methodology

Creating an organizational strategy consists of four major components: strategic analysis, strategic selection, strategy implementation, and strategy evaluation and control. Each includes additional steps that correlate to a series of decisions and actions that form the foundation of the strategic management process.

Strategic Analysis: An organizational purpose definition serves as the foundation of strategy. This defines an organization’s business and the type of organization it aspires to be. Many organizations create broad declarations of purpose, such as vision and mission statements, to help them achieve their goals. These serve as springboards for establishing precise goals and selecting strategies.

The next step in the strategy process is environmental analysis, which involves examining external and internal settings. Managers must evaluate the external environment’s possibilities and risks in light of the organization’s strengths and shortcomings while keeping stakeholders’ expectations in mind.

This analysis enables the organization to establish more defined goals or objectives, such as where workers are expected to focus their efforts. After establishing a more detailed set of objectives, managers can plan how to attain them.

Strategic Choice: The analysis stage serves as the foundation for strategic decision-making. It enables managers to assess what the organization could do given its mission, environment, and capabilities—a decision that reflects the values of managers and other stakeholders. Dobson and colleagues (2004)

These decisions concern the general scope and direction of the firm. Managers frequently encounter multiple strategic options, which they must evaluate regarding feasibility, applicability, and acceptability before deciding on a course of action.

Strategy Implementation: Strategy implementation depends on the organization’s proper structure, necessary resources and competencies (skills, funding, technology, etc.), exemplary leadership, and the right culture. It also depends on the application of operational aspects.

Strategy Evaluation and Control: Organizations establish appropriate monitoring and control mechanisms, performance criteria, and targets.

Good strategists understand that strategy development and implementation rarely go as planned, partly because the continuously changing external environment presents new possibilities or challenges and partly because there may be insufficient internal competence.

Because these may require management to revise the plan, strategy formulation and implementation activities will constantly interact, and management may be required to return and reformulate the plan.’

Curriculum

Strategic Management