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Nature of Strategic Management

Strategic Management is the art and science of formulating, implementing and

evaluating the cross-functional decisions that enable the organization to achieve its objectives
(David, 2009). It focuses on integrating management, marketing, finance/accounting,
productions/operations, research and development and computer information systems to
achieve organizational success.

In essence, the strategic plan is a companys game plan. It is fundamental planning,

away from daily operations to bring focus & direction.
Strategy Formulation
Strategy Implementation
Strategy Evaluation and Internal Review
Control
To come up with Issues to deal with
Vision, mission New business opportunities
Internal strengths and Business to abandon
weaknesses Allocation of resources
External opportunities and Expansion or diversification
threats International markets
Long-term objectives Merger or joint ventures
Alternative strategies Avoidance of hostile
Strategy selection turnover
Annual objectives Most difficult stage
Policies Mobilization of employees
Employee Motivation and managers
Resource Allocation Interpersonal skill-critical
Consensus on goal pursuit
Subject to future
External review modification
Performance Metrics Todays success does not
Corrective actions guarantee future success
New/different problem
Complacency leads to
demise

Elements of Strategic Management

Strategic management, as minimum, includes strategic planning and strategic control.

Strategic planning describes the periodic activities undertaken by organizations to cope with
changes in their external environments (Lester A. Digman)

It involves formulating and evaluating alternative strategies, selecting a strategy, and

developing detailed plans for putting the strategy into practice.

Strategic planning consists of formulating strategies from which overall plans for
implementing the strategy are developed. Strategic control consists of ensuring that the
chosen strategy is being implemented properly and that it is producing the desired results.
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Robert Anthony's, three types of planning and control maybe used by organizations:

* Strategic Planning and Control - the process of deciding on changes in organizational

objectives, in the resources to be used in attaining these objectives, in policies governing the
acquisition and use of these resources, and in the means (strategies) of attaining the
objectives. Strategic planning and control involve actions that change the character or
direction of the organization.

* Management Planning and Control - the process of ensuring that resources are
obtained and used efficiently in the accomplishment of the organization's objectives.
Management planning and control is carried on within the framework established by strategic
planning and is analogous to operating control.

* Technical Planning and Control - the process of ensuring efficient acquisition and use
of resources, with respect to those activities for which the optimum relationship between
outputs and resources can be accurately estimated (e.g., financial, accounting, and quality
controls).

The Importance and Value of Strategic Management

A number of reasons are given by authors as to why organizations should engage in

strategic management. Many research studies show both financial and nonfinancial benefits
which can be derived from a strategic-management approach to decision making.

Financial Benefits

The question "Why should an organization be engaged 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 new
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. It provides a way to anticipate future problems and opportunities.

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2. It provides employees with clear objectives and directions for the future of the
organization.
3. It results in more effective and better performance compared to non-strategic
management organizations.
4. It increases employee satisfaction and motivation.
5. It results in faster and better decision making and
6. It results on cost savings.

Moreover, Greenley stresses that strategic management offers the following process and
personal benefits:

1. It allows for 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 to integrate the behavior of individuals into a total effort.
10. It provides a basic for the clarification of individual responsibilities.
11. It gives encouragement to forward thinking.
12. 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.

The Scope and Dimension of Strategic Management

Strategic management focuses on the total enterprise, It involves planning, directing,

organizing and controlling of the strategy-related decisions and actions of the business.

J. Constable has defined the area addresses by strategic management as the

management processes and decisions which determine the long-term structure and activities
of the organization. This definition incorporate five key themes:

Management process. Management process as relate to how strategies are created

and changed.

Management decisions. The decisions must relate clearly to a solution of perceived

problems (e.g. how to avoid a threat, to capitalize on an opportunity).

Time Scales. The strategic time horizon is long. .

Structure of the organization. An organization is managed by people within a

structure. The decisions which result from the way that managers work together within the
structure can result in strategic change.
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Activities of the organization. This is a potentially limitless area of study and normally
shall center upon all activities which affect the organization.

The Three Levels of Enterprise Strategy

Role of Enterprise Strategy. Successful companies are those that focus their efforts
strategically. Strategy should be a stretch exercise, not a fit exercise.

To meet and exceed customer satisfaction, the business team needs to follow an
overall organizational strategy. A successful strategy adds value for the targeted customers
over the long run by consistently meeting their needs better than the competition does.

Strategy is the way in which a company orients itself towards the market in which it
operates and towards the other companies in the marketplace against which it competes. It is
a plan an organization formulates to gain a sustainable advantage over competition.

Enterprise strategy can be formulated and implemented at three different levels:

Corporate level, Business unit level, and Functional or departmental level

Products and services are developed by business units. The role of the corporation is
to manage its business units, products and services so that each is competitive and so that
each contributes to corporate purposes.

Strategy Levels Nature of Strategy Nature of Decisions/Focus

Corporate Level Strategy
Top Management Nature of decisions tend to be
overall plan for the value oriented and conceptual.
entire organization and
its strategic business Types of Growth Strategies
units(SBUs)
Growth, Stability, Renewal,
Occupies the highest Concentration
level of decision making

Seeking to increase the

organizations business
by expanding into new
products and markets

Business level Strategy
is concerned with
selection of businesses
in which your company
should compete and
with development and
coordination of that
portfolio of businesses.
At the business unit Positioning and
level, strategy seeks to differentiating the business
determine how an and/or products against rivals
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organization should
compete in each SBUs Business-level cross-
functional process
Allocation of resources management
among functional level
and coordinate with the Anticipating changes in
functional level to the technology and customer
achievement of the perceptions and adjusting the
corporate level strategy to accommodate
objectives them.

A strategic business Influencing the nature of

unit may be any competition through strategic
profit center that can be actions such as virtual
planned independently integration and through political
from the other business actions
units.
Building strategic
partnerships and co-innovating
with other business units,
partners, and customers.

Business Level Strategies

Cost Leadership
Differentiation
Market Focus

Functional Level Strategy The functional level Functional units of the

strategy of organization are involved in
organization is the level higher level strategies by
of the operating providing input into the
divisions and business unit level and
departments. corporate level strategy, such
as providing information about
The strategic issues at customer feedback or
the functional level are resources and capabilities of
related to functional which the higher level
business processes strategies can be based.
and value chain.
Once the higher level strategy
Functional level or strategic intent is developed,
strategies in R&D, the functional units translate
operations, them into discrete action plans
manufacturing, that each department or
marketing finance, and division must accomplish for
human resources the strategy to succeed.
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involve

The development and

coordination of
resources through
which business unit
level strategies can be
executed effectively
and efficiently.
Current Trends in Strategic Management

Trend/s To deal with

The New Economy International competition intensifies
Corporate scandals
War
Age of disbelief
Fear of disease
Unstable currencies
Collapse of new economy
Decline of multilateralism
New Directions in Strategic Thinking Cost Cutting, squeezing overhead,
business process re engineering,
increasing labor productivity
Outsourcing/refocusing/divestment
Performance management and incentive
alignment

Redesigning the Organizations Organizing for capacity development

New Models of Leadership
From unitary to parallel structures
Process-based organization
Network and virtual organizations
The leadership needs of an organization:
ability to build confidence, build
enthusiasm, co-operate, deliver results,
form networks, influence others and use
information

Important Concepts in Strategic Management

Strategy? Consists of the combination of competitive moves and business approaches

used by managers to run the company.

Managements game plan to;

Attract and please customers,

Stake out a market position,
Compete successfully,
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Grow the business, and

Achieve targeted objectives.

The Hows That Define a Firm's Strategy on;

How to please customers,

How to respond to changing market conditions,
How to outcompete rivals,
How to grow the business,
How to manage each functional piece of the business and develop needed
organizational capabilities, and
How to achieve strategic and financial objectives.

Strategy. Strategies are the means by which long-term objectives will be achieved. "A
strategy is a unified, comprehensive, and integrated plan that relates the strategic advantages
of the firm to the challenges of the environment. It is designed to ensure that the basic
objectives of the enterprise are achieved through proper execution by the organization"
(William F. Glueck, and Lawrence R. Jauch). The role of strategy is to identify the general
approaches that the organization utilize to achieve its organizational objectives. Therefore,
the choice of strategy is so central to the study and understanding of strategic management.

Purpose. The organization's purpose outlines why the organization exists; it includes a
description of its current and future business (Leslie W. Rue, and Loyd L. Byars) The purpose
of an organization is its primary role in society, a broadly defined aim (such as manufacturing
electronic equipment) that it may share with many other organizations of its type.

Mission. The mission of an organization is the unique reason for its existence that sets
it apart from all others (A. James, F. Stoner, and Charles Wankel) The organization's mission
describes why the organization exists and guides what it should be doing. Often, the
organization's mission is defined in a formal, written mission statement. Decisions on mission
are the most important strategic decisions, because the mission is meant to guide the entire
organization. Although the terms "purpose" and "mission" are often used interchangeably, to
distinguish between them may help in understanding organizational goals. Purpose

Goals. A goal is a desired future state that the organization attempts to realize (Amitai
Etzioni).

Objectives. The term objective is often used interchangeably with goal but usually
refers to specific targets for which measurable results can be obtained. Organizational
objectives are the end points of an organization's mission. Objectives refer to the specific
kinds of results the organizations seek to achieve through its existence and operations
(William F. Glueck, and Lawrence R. Jauch) Objective defines what the organization hopes
to accomplish, both over the long and short term.
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Tactics. In contrast, tactics are specifics actions the organization might undertake in
carrying its strategy.

Policy. Policies are the means by which objectives will be achieved. "Policies are guide
to action. They include how resources are to be allocated and how tasks assigned to the
organization might be accomplished (William F. Glueck, and Lawrence R. Jauch) ". Policies
include guidelines, procedures, rules, programs, and budgets established to support efforts to
achieve stated objectives.

Strategists. Strategists are the individuals who are involved in the strategic
management process. Several levels of management may be involved in strategic decision
making. However, the people responsible for major strategic decisions are the board of
director, president, the chief executive officer, the chief operating officer, and the division
managers.

The Strategic Decision Makers. The strategic management process requires

competent individuals to ensure its success. Therefore, to understand strategic management,
we must know where strategic decisions are made in organizations.

Inputs to strategic decisions can be generated in a number of ways. Overall, top

management, board of directors, and planning staff tend to be those positions that have the
most significant involvement and influence in the strategic management process of
organizations. The failure of an organization to achieve its objectives can often be traced to a
breakdown at the level of the board or top management. However, the final responsibility
rests with top management.

Top Management. The term "top management" refers to a relatively small group of
people that includes the 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:

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.
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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.

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.

Strategic Management Models

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:

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.

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.
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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.

The Schendel And Hofer Model. Dan Schendel and Charles Hofer developed a
strategic management model, incorporating both planning and control functions.

Their model consists of several basic steps:

goal formulation,
environmental analysis,
strategy formulation,
strategy evaluation,
strategy implementation, and
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.
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Resource and value analyses are not specifically shown, but are considered to be
included under other items (strategy formulation).

The Thompson and Strickland Model. Thompson and Strickland developed several
models of strategic management. According to Thompson and Strickland strategic
management is an on going process: "nothing is final and all prior actions and decisions are
subject to future modification."

This process consists of five major five ever-present tasks:

1. Developing a concept of the business and forming a vision of where the organization
needs to be headed.
2. Converting the mission into specific performance objectives.
3. Crafting a strategy to achieve the targeted performance.
4. Implementing and executing the chosen strategy efficiently and effectively.
5. Evaluating performance, reviewing the situation, and initiating corrective
adjustments in mission, objectives, strategy, or implementation in light of actual experience,
changing conditions, new ideas, and new opportunities.

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 short-range 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) planning studies,

(2) review,
(3) control, and
(3) feasibility studies

Planning is an ongoing process, thus all these subprocesses are integrated and they
interact with each other.
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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. This

model was developed by Peter Wright, Charles Pringle and Mark Kroll (1994). It consists of
five stages:

1. Analyze the environmental opportunities and threats.

2. Analyze the organization's internal strengths and weaknesses.
3. Establish the organizational direction: mission and goals.
4. Strategy formulation.
5. Strategy Implementation.
6. 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. This means that
the mission and goals are set in the context of environmental opportunities and threats.

Strategy formulation sets strategy implementation in motion. Specifically, strategy is

implemented through the organization's structure, its leadership, and its culture.

Then, the actual strategic performance of the organization is evaluated.

The control stage is demonstrated by the feedback as a basis for strategic control and
to the other stages.

Evolution of Strategic Management

Several researchers in the field of strategic management have developed models

describing the evolution of strategic management. H. Igor Ansoff analyzed the changing
environmental challenges facing organizations and the managerial responses, competitive
strategies, and entrepreneurial strategies employed to cope with them.
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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. 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." These 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.
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.
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* 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. These are
determined by two factors: the ambitions and drive of 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).

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 four 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, firms have begun to

use real-time systems, called strategic issue management.:
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A continuous surveillance is instituted over environmental-business-technological-

economic- social-political 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:

Highly urgent issues of far-reaching effect which require immediate attention.

Moderately urgent issues of far-reaching effect which can be resolved during the
next planning cycle.
Non-urgent issues of far-reaching effect which require continuous monitoring.
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
task forces.

The resolution of issues is monitored by top management both for strategic and tactical
implications. The list of issues and priorities is kept up-to-date through periodic review by
top management. 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 be ready with the 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 crucial, it needs
to invest a strategic surprise system.

Choosing the Management System For A Firm. The choice of the system
combination for a particular firm depends on the turbulence characteristics of the
environments in which it participates and expects to enter. To identify the combination of
systems that will be needed by the firm:

(1) Diagnose the future turbulence.

(2) Select the system(s) which will be needed by the firm.

"Effective managers live in the present but concentrate on the future."

~ James L. Hayes

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