Strategic Management: An Overview

Nature of Strategic Management

• Strategic management involves formulating, implementing, and evaluating cross-functional decisions to enable an organization to achieve its objectives.
• In this course, strategic management is synonymous with strategic planning.
• Sometimes, strategic management refers to strategy formulation, implementation, and evaluation, while strategic planning refers only to strategy formulation.
• A strategic plan is a company’s game plan that results from tough managerial choices, signaling commitment to specific markets, policies, procedures, and operations.

Strategic-Management Model

• The strategic-management model addresses three key questions: "Where are we now?", "Where do we want to go?", and "How are we going to get there?".

Stages of Strategic Management

• The three stages of strategic management include formulation, implementation, and evaluation.

Strategy Formulation

• Strategy formulation involves developing a vision and mission.
• Identifying an organization’s external opportunities and threats also forms part of strategy formulation.
• This stage includes determining internal strengths and weaknesses.
• Establishing long-term objectives and generating alternative strategies are key.
• Strategy formulation culminates in choosing particular strategies to pursue.

Strategy Formulation Decisions

• Key decisions include which new businesses to enter and which to abandon.
• Consideration is given to whether to expand operations or diversify.
• Decide whether to enter international markets or to merge/form a joint venture.
• Determine how to avoid a hostile takeover.

Strategy Implementation

• It requires establishing annual objectives.
• Devising policies and motivating employees also are aspects of strategy implementation.
• Allocating resources so that formulated strategies can be executed is also key.
• Strategy implementation is often called the "action stage".

Strategy Evaluation

• Involves determining which strategies are not working well.
• The evaluation has three fundamental activities: reviewing external/internal factors.
• Activities also include measuring performance and taking corrective actions.

Key Terms in Strategic Management

Competitive Advantage

• Competitive advantage is any activity a firm performs especially well compared to rival firms, or any resource a firm possesses that rivals desire.
• Firms must strive to achieve a sustained competitive advantage.

Strategists

• Strategists are individuals most responsible for the success or failure of an organization.
• They help an organization gather, analyze, and organize information.

Vision and Mission Statements

• A vision statement answers the question, “What do we want to become?"
• A mission statement answers the question, “What is our business?”

External Opportunities and Threats

• External opportunities and threats encompass economic, social, cultural, demographic, environmental, political, legal, governmental, technological, and competitive trends/events.
• These could significantly benefit or harm an organization.

Internal Strengths and Internal Weaknesses

• Internal strengths and weaknesses are an organization’s controllable activities that are performed especially well or poorly, determined relative to competitors.

Opportunities and Threats Examples

• Consumer expectations for green operations and products, rising 8% annually in Western Europe.
• Internet marketing grows 11% annually in the United States.
• Commodity food prices rose 6% the prior year.
• Oil and gas prices declined 18% in the last twelve months.
• Computer hacker problems are increasing 14% annually.

Long-Term Objectives

• Specific results that an organization seeks to achieve in pursuing its basic mission.
• “Long-term” usually means more than one year.
• Objectives need to be challenging, measurable, consistent, reasonable, and clear.

Strategies

• Strategies define how long-term objectives will be achieved.
• They include geographic expansion, diversification and acquisition.
• Strategies also cover product development, market penetration, retrenchment, divestiture, liquidation, and joint ventures.

Annual Objectives

• Annual objectives are short-term milestones for achieving long-term objectives.
• The objectives need to be measurable, quantitative, challenging, realistic, consistent, and prioritized.
• They are established at corporate, divisional, and functional levels in large organizations.

Policies

• Policies define the means by which annual objectives will be achieved.

Benefits of Strategic Management

• It allows an organization to be more proactive than reactive in shaping its future.
• The process empowers organizations to initiate, influence activities, and exert control over destiny.

Financial Benefits

• Strategic-management concepts improves sales, profitability, and productivity.
• Improvement happens compared to firms without systematic planning.
• High-performing firms systematically plan.
• This enables them to prepare for future internal/external fluctuations in their environment.

Nonfinancial Benefits

• Enhanced awareness of external threats.
• Improved understanding of competitors’ strategies.
• Increased employee productivity.
• Reduced resistance to change.
• Clearer understanding of performance-reward relationships.

Reasons for Avoiding Strategic Planning

• No formal training in strategic management.
• A firm may have no understanding of or appreciation for the benefits of planning.
• Lack of monetary rewards or punishment for planning.
• Firms are too busy "firefighting" or view planning as a waste of time.
• Laziness and overconfidence.
• Contentment with current success.
• Prior bad experience with strategic planning done sometime/somewhere.

Pitfalls in Strategic Planning

• Strategic planning shouldn't be used to gain control over decisions and resources.
• Avoid strategic planning just to satisfy accreditation or regulatory requirements.
• Moving too fast from mission development to strategy formulation causes problems.
• Not communicating the plan to employees while intuitive decisions conflict with the formal plan.
• Ensure top managers support the process via use of plans to measure performance.
• Avoid delegating planning rather than involving all managers/key employees.
• It's important to facilitate a climate that supports change and to remain flexible.