Strategic Management Overview: Definition and Features

**OVERVIEW OF STRATEGIC MANAGEMENT** 1. **Strategic Management -- An Overview** **Strategic management is the process of setting goals, procedures, and objectives in order to make a company or organization more competitive. It looks at effectively deploying staff and resources to achieve these go...

**OVERVIEW OF STRATEGIC MANAGEMENT** 1. **Strategic Management -- An Overview** **Strategic management is the process of setting goals, procedures, and objectives in order to make a company or organization more competitive. It looks at effectively deploying staff and resources to achieve these goals.** Strategic Management is all about identification and description of the strategies that managers can carry so as to achieve better performance and a competitive advantage for their organization. An organization is said to have competitive advantage if its profitability is higher than the average profitability for all companies in its industry. Strategic management can also be defined as a bundle of decisions and acts which a manager undertakes and which decides the result of the firm's performance. The manager must have a thorough knowledge and analysis of the general and competitive organizational environment so as to take right decisions. They should conduct a [SWOT Analysis](https://www.managementstudyguide.com/swot-analysis.htm) (Strengths, Weaknesses, Opportunities, and Threats), i.e., they should make best possible utilization of strengths, minimize the organizational weaknesses, make use of arising opportunities from the business environment and shouldn't ignore the threats. Strategic management serves as a foundation for every important decision an organization makes. It gives overall direction by creating plans and policies intended to achieve goals and then designing resources to implement the plans. Unlike once-and-done strategic plans, effective strategic management continuously plans, monitors, and tests an organization's activities, resulting in a greater operational efficiency, market share, and profitability. Strategic management is nothing but planning for both predictable as well as unfeasible contingencies. It is applicable to both small as well as large organizations as even the smallest organization face competition and, by formulating and implementing appropriate strategies, they can attain sustainable competitive advantage. It is a way in which strategists set the objectives and proceed about attaining them. It deals with making and implementing decisions about future direction of an organization. It helps us to identify the direction in which an organization is moving. Strategic management is a continuous process that evaluates and controls the business and the industries in which an organization is involved; evaluates its competitors and sets goals and strategies to meet all existing and potential competitors; and then reevaluates strategies on a regular basis to determine how it has been implemented and whether it was successful or does it need replacement. Strategic management gives a broader perspective to the employees of an organization and they can better understand how their job fits into the entire organizational plan and how it is co-related to other organizational member**s**. It is nothing but the art of managing employees in a manner which maximizes the ability of achieving business objectives. The employees become more trustworthy, more committed and more satisfied as they can co-relate themselves very well with each organizational task. They can understand the reaction of environmental changes on the organization and the probable response of the organization with the help of strategic management. Thus the employees can judge the impact of such changes on their own job and can effectively face the changes. The managers and employees must do appropriate things in appropriate manner. They need to be both effective as well as efficient. One of the major roles of strategic management is to incorporate various functional areas of the organization completely, as well as, to ensure these functional areas harmonize and get together well. Another role of strategic management is to keep a continuous eye on the goals and objectives of the organization. Strategy - Definition and Features ================================== The word "strategy" is derived from the Greek word "strategos"; stratus (meaning army) and "ago" (meaning leading/moving). **Strategy** is an action that managers take to attain one or more of the organization's goals. Strategy can also be defined as "A general direction set for the company and its various components to achieve a desired state in the future. Strategy results from the detailed strategic planning process". A strategy is all about integrating organizational activities and utilizing and allocating the scarce resources within the organizational environment so as to meet the present objectives. While planning a strategy it is essential to consider that decisions are not taken in a vacuum and that any act taken by a firm is likely to be met by a reaction from those affected, competitors, customers, employees or suppliers. Strategy can also be defined as: a. knowledge of the goals -- to facilitate the process of knowledge transfer between individuals and organization. b. the uncertainty of events -- which may be a result of a gap between actual occurrence of events in the real world. c. the need to take into consideration the likely or actual behavior of others. Strategy is the blueprint of decisions in an organization that shows its objectives and goals, reduces the key policies, and plans for achieving these goals, and defines the business the company is to carry on, the type of economic and human organization it wants to be, and the contribution it plans to make to its shareholders, customers and society at large. ### Features of Strategy 1. Strategy is significant because it is not possible to foresee the future. Without a perfect foresight, the firms must be ready to deal with the uncertain events which constitute the business environment. 2. Strategy deals with long term developments rather than routine operations, i.e. it deals with probability of innovations or new products, new methods of productions which refers to the use of advance machinery and tools and the availability of knowledge regarding the events, or new markets to be developed in future. 3. Strategy is created to take into account the probable behavior of customers and competitors. Strategies dealing with employees will predict the employee behavior. 4. Strategy is a well-defined road map of an organizatio**n.** It defines the overall mission, vision and direction of an organization. The objective of a strategy is to maximize an organization's strengths and to minimize the strengths of the competitors. Strategy, in short, bridges the gap between "where we are" and "where we want to be". **The Five Stages of the Strategic Management Process** The strategic management approach entails more than just following a set of guidelines. It\'s a way of looking at business from a philosophical standpoint which is a specified or stated manner of consideration and an attitude on how one sees or thinks of something or his point of view. Upper management must first plan strategically, then put that strategy into action. When everyone in the company understands the strategy, the strategic management process works best. The five stages of the process are goal-setting, analysis, strategy formation, strategy implementation and strategy monitoring. 1. **Goal-Setting - Clarify Your Vision** The purpose of goal-setting is to clarify the vision for your business. This stage consists of identifying three key facets: First, define both short- and long-term objectives. Second, identify the process of how to accomplish your objective. Finally, customize the process for your staff and give each person a task with which he can succeed. **Keep in mind during this process your goals to be detailed (must be clear, well-defined, and measurable like precise amounts, dates, etc.), realistic (your goal must represent an objective in which you are willing and able to work towards achieving it), and match the values of your vision (which should provide insight into what the company hopes to achieve and become in the future).** The next step in this stage is usually to produce a mission statement that explains your aims to both your stockholders and your employees briefly and clearly. 2. **Analysis - Gather and Analyze Information** Analysis is a key stage because the information gained in this stage will shape the next two stages. In this stage, gather as much information and data relevant to accomplishing your vision. The focus of the analysis should be on **understanding the needs of the business** as a sustainable entity, its strategic direction and identifying initiatives that will help your business grow. It should understand and identify the goals of an organization while articulating a strategic direction. Examine any external or internal concerns that may have an impact on your aims and objectives. Make a list of your organization\'s strengths and weaknesses, as well as any threats or opportunities that may occur along the way. 3. **Formulate a Strategy** The first step in forming a strategy is to review the information gleaned from completing the analysis. Determine what resources the company currently has that can assist in achieving the set objectives and goals. Identify any places where the company will need to hire outside help. The difficulties that the company is facing should be prioritized based on how important they are to your success. Once prioritized, begin formulating the strategy. Because business and economic situations are fluid, it is critical in this stage to **develop alternative approaches** that target each step of the plan. This is aimed at reducing the vulnerabilities that lead to failure of developing new strategies. 4. **Implement Your Strategy** Successful strategy implementation is critical to the success of the business venture. This is the action stage of the strategic management process. If the overall strategy does not work with the business\' current structure, a new structure should be installed at the beginning of this stage. Everyone within the organization must be **made clear of their responsibilities and duties from management level down to staff level**, and how that fits in with the overall goal. Additionally, any resources or funding for the venture must be secured at this point. Once the funding is in place and the employees are ready, execute the plan. 5. **Monitor Your Strategy - Evaluate and Control** Strategy evaluation and control actions include **performance measurements**, consistent review of internal and external issues and making corrective actions when necessary. Performance measurements include regular measurements of outcomes and results which generate reliable data or the effectiveness and efficiency of programs. Any successful evaluation of the strategy begins with defining the parameters to be measured. These parameters should mirror the goals set in Stage 1 which refers to clarification of the vision statement of the company. Determine your progress by measuring the actual results versus the plan. Monitoring internal and external issues will also enable you to react to any substantial change in your business environment. If you determine that the strategy is not moving the company toward its goal, take corrective actions. If those actions fail, go through the strategic management process again. Because internal and external concerns are always changing, any information gathered at this point should be saved to aid future initiatives. **The Five Phases of Strategic Management** ### 1. Definition of the orientation/direction that the company wants to take At this level, we define not only the **Vision**, the **Mission**, and the **Goals**, but also the **Business Perimeter**. In this initial phase of building a business, the boundaries of the strategic business area are defined: what is the target market to which one refers, the needs that the new business will solve and the tools. A useful tool to define the strategic business area is the *Abell Model *(or *Abell's Cube*), which provides a three-dimensional view of the business based on three key factors: - **The functions of use**: the needs that the business wants to satisfy - One of the main aims of a business is to satisfy customer needs. There are many reasons why businesses need to ensure that their customers are satisfied: To sustain or maximize sales or profit -- If customers are satisfied they are more likely to spend money and recommend that company to other people. - **Customers**: the target market, with those needs, that we want to achieve - Your target customer is the person you\'ve identified as most likely to purchase your products. This is a much more segmented portion of your target market, as you\'ve identified certain aspects of this individual. These components might include a specific age instead of a range, a specific income level versus a large swath of income types, and the reasons these customers are most likely to purchase your products. - **Technologies**: the technical methods that the company wants to use to provide functions (1) to customers and (2) to satisfy customers through different products and services. A technology needs assessment is a systematic method for identifying gaps between the current state of your organization and its desired future state. It is often the initial phase of any company improvement initiative and a vital component of any business systems strategy. ### 2. Situational analysis (external and internal) The objective of this phase is to thoroughly investigate the context and the environment in which the company operates (internal-external and competitors), and which could influence: - the possibility of achieving strategic objectives; - commercial strategies to achieve these goals; - the possibilities to create and sustain a competitive advantage. Analysis and diagnosis are the results of combining two complementary perspectives (*SWOT Analysis*): - external perspective (external analysis) that aims to determine the attractiveness of the market. Consider the external environment in which the company operates, i.e. the business area in which it operates and investigates the general trends and phenomena that can create opportunities (Opportunities) or, vice versa, threats (Threats) for all competitors that operate in the field; - internal perspective (internal analysis) to identify the characteristics of the business with respect to competitors, in order to define the strengths and weaknesses with respect to the competition. Unfortunately, there are many cases in which accurate SWOT analyses are carried out, identifying them with a photograph of the business strategy. In reality, the weighted combination of an external perspective with an internal perspective reveals aspects that must feed and support subsequent phases for the formulation of the strategy. **SWOT (strengths, weaknesses, opportunities, and threats) analysis** is a framework used to evaluate a company\'s competitive position and to develop strategic planning. SWOT analysis assesses internal and external factors, as well as current and future potential. SWOT Analysis is a tool that can help you to analyze what your company does best now, and to devise a successful strategy for the future. SWOT can also uncover areas of the business that are holding you back, or that your competitors could exploit if you don\'t protect yourself. A SWOT analysis examines both internal and external factors -- that is, what\'s going on inside and outside your organization. So some of these factors will be within your control and some will not. In either case, the wisest action you can take in response will become clearer once you\'ve discovered, recorded and analyzed as many factors as you can. **PEST analysis** (**political, economic, social, and technologica**l) is a management method whereby an organization can assess major external factors that influence its operation in order to become more competitive in the market. The main purpose of PEST analysis is to understand what external forces may affect your organization and how those factors could create opportunities or threats to your business. PEST analysis helps you: Understand current external influences on the business so you can work on facts rather than assumptions. ### 3. Decision-making process The decision-making process, i.e. deciding which strategic alternative to implementing, consists of two moments: the generation of strategic alternatives and the evaluation and selection of alternatives. Decision making is the process of making choices by identifying a decision, gathering information, and assessing alternative resolutions. Using a step-by-step decision-making process can help you make more deliberate, thoughtful decisions by organizing relevant information and defining alternatives. Strategic alternatives include the following: a. Diversification -- the process of a business enlarging or varying its range of products or services or field of operation. Business diversification refers to expanding a company\'s operations into new or unrelated products, services, markets, or industries. The goal of diversification is often to reduce the overall risk of the business and to generate new sources of revenue. b. Product Development -- a series of steps that includes the conceptualization design, development, and marketing of newly created or rebranded goods or services. In business and engineering, product development or new product development covers the complete process of bringing a new product to market, renewing an existing product or introducing a product in a new market. A central aspect of NPD is product design, along with various business considerations. c. Market Development -- a growth strategy that involves selling your existing products or services to a new group of customers. Market development is a growth strategy that identifies and develops new market segments for current products. A development strategy targets non-buying customers in currently targeted segments. It also targets new customers in new segments. d. Market Penetration -- refers to the successful selling of a good or service in a specific market. It is measured by the amount of sales volume of an existing product or service compared to the total target market for the product or service. Market penetration is a measure of how much a product or service is being used by customers compared to the total estimated market for that product or service. Market penetration can also be used in developing strategies employed to increase the market share of a particular product or service. #### *Generation of strategic alternatives* The SWOT analysis allows the company to formulate a series of possible strategic alternatives. That is a set of possible strategic decisions aimed at achieving the company's objectives: value creation through competitive advantage. #### *Evaluation of strategic alternatives and final choice* Evaluating the situational analysis, economic and financial forecasts and sustainability analysis of the various alternatives, the business strategy to be adopted is chosen. ### 4. Implementation The strategy is then performed through a series of tactical choices that together must lead the company to the achievement of strategic objectives. ### 5. Control Finally, the application of the strategy must be constantly monitored to check its efficiency. The **analysis of budget variance **is often used as a control tool: the measurement of the delta between expected and achieved performance and the analysis of the causes that lead this variance to be positive or negative. Usually, this type of analysis is performed annually, to confirm the strategy, but also to assess business objectives. On the other hand, a very useful tool to monitor strategic trends is s**ales forecast**, which can be used to monitor revenues and expenses on the basis of previously assumed performance forecasts. A sales forecast is a projection of future sales revenue and a prediction of which deals will move through the sales cycle. Sales forecasts drive short-term spending decisions and impact decisions on key deals. Components of a Strategy Statement ================================== The strategy statement of a firm sets the firm's long-term strategic direction and broad policy directions. It gives the firm a clear sense of direction and a blueprint for the firm's activities for the upcoming years. The main constituents of a strategic statement are as follows: ***Strategic Intent*** An organization's strategic intent is the purpose that it exists and why it will continue to exist, providing it maintains a competitive advantage. Strategic intent gives a picture about what an organization must get into immediately in order to achieve the company's vision. It motivates the people. It clarifies the vision of the company. Strategic intent helps management to emphasize and concentrate on the priorities. Strategic intent is, nothing but, the influencing of an organization's resource potential and core competencies to achieve what at first may seem to be unachievable goals in the competitive environment. A well-expressed strategic intent should guide/steer the development of strategic intent or the setting of goals and objectives that require that all of organization's competencies be controlled to maximum value. Strategic intent includes directing organization's attention on the need of winning; inspiring people by telling them that the targets are valuable; encouraging individual and team participation as well as contribution; and utilizing intent to direct allocation of resources. Strategic intent differs from strategic fit in a way that while strategic fit deals with harmonizing available resources and potentials to the external environment, strategic intent emphasizes on building new resources and potentials so as to create and exploit future opportunities. ### *Mission Statement* Mission statement is the statement of the role by which an organization intends to serve its stakeholders. It describes why an organization is operating and existing and thus provides a framework within which strategies are formulated. It describes what the organization does (i.e., present capabilities), who all it serves (i.e., stakeholders) and what makes an organization unique (i.e., reason for existence). A mission statement differentiates an organization from others by explaining its broad scope of activities, its products, and technologies it uses to achieve its goals and objectives. It talks about an organization's present (i.e., "about where we are"). For instance, **Microsoft's** mission is to help people and businesses throughout the world to realize their full potential. **Wal-Mart's** mission is "To give ordinary folk the chance to buy the same thing as rich people." Mission statements always exist at top level of an organization, but may also be made for various organizational levels. Chief executive plays a significant role in formulation of mission statement. Once the mission statement is formulated, it serves the organization in long run, but it may become ambiguous with organizational growth and innovations. In today's dynamic and competitive environment, mission may need to be redefined. However, care must be taken that the redefined mission statement should have original fundamentals/components. Mission statement has three main components-a statement of mission or vision of the company, a statement of the core values that shape the acts and behavior of the employees, and a statement of the goals and objectives. ### *Features of a Mission* 1. Mission must be **feasible** and attainable. It should be possible to achieve it. 2. Mission should be **clear** enough so that any action can be taken. 3. It should be **inspiring** for the management, staff and society at large. 4. It should be **precise** enough, i.e., it should be neither too broad nor too narrow. 5. It should be **unique** and distinctive to leave an impact in everyone's mind. 6. It should be **analytical** i.e., it should analyze the key components of the strategy. 7. It should be **credible** i.e., all stakeholders should be able to believe it.