THE NATURE OF STRATEGIC MANAGEMENT
This term paper is to examine the following key arrears in relation to the topic above:
The evolution and the definition of Strategic management, the dimension and scope, various strategic decision making process, the strategic management process, stages of strategic management, various strategic management models, developing the strategic movement process, the tools and techniques used in strategic management, the advantages, values and disadvantages of strategic management.
THE ORIGIN OF STRATEGIC MANAGEMENT
Strategic management was discovered amid high optimism and industrial growth in the 1960’s and early 1970’s. In the beginning, organizations tried to cope with the new and rapidly-changing technological, economic and organizational developments by means of long-range planning. Long-range planning soon ran into numerous problems when it became clear that simply forecasting past events into the future could not always provide accurate results, nor achieve the organization’s desired objectives. There was need for Organizational transformation strategic planning into a vital management discipline. Long-range planning has been replaced by strategic management, which incorporates the possibility that changes and trends can and do occur and it is not based on the assumption that development can be assured (Burnes, 1992:91). Whereas long-range planning was essentially concerned with plotting trends and planning actions to achieve identified. Targets all aimed financial goals and budgetary control.
STRATEGIC MANAGEMENT DEFINITION
Strategic management is a management field focusing on long-term planning and the direction of the organization. Strategic management in an organization ensures that things do not happen randomly but according to pre-planned, long-term plans. It serves, on one hand, the transmission of the owners’ requirements to the management and on the other hand, the organizational management for the organization, unification and directing the behavior of all people in all parts of the organization.
Phases of strategic management
The whole process of strategic management takes place in four primary, recurrent phases (the so-called Strategic cycle):
• Strategy Formulation (organization mission, its vision and strategic objectives)
• Strategic Planning (establishment of a strategic plan and schedule implementation)
• Strategy Implementation (resource allocation, implementation of projects, activities and measures to meet strategic objectives)
• Strategic Control, status monitoring and strategy evaluation (strategy evaluation and possible update).
THE DIMENSION AND SCOPE OF STRATEGIC MANAGEMENT
Strategic management focuses on the total enterprise. It involves the planning, directing, organizing, and controlling of the strategy-related decisions and actions of the business.
The Scope of Strategic Management
This incorporates five key areas.
• 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 (how to avoid a threat; how to capitalize on an opportunity).
• Time scales
. The strategic time horizon is long. However, it for company in real trouble can be very short.
• 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.
• Activities of the organization
. This is a potentially limitless area of study and we normally shall center upon all activities which affect the organization. These all five themes are fundamental to a study of the strategic management field and are discussed further in this chapter and other part of this thesis.
.Dimensions of Strategic Management
Strategic management process involves the entire range of decisions. Typically, strategic issues have six identifiable dimensions:
• Strategic issues require top-management decisions
• Strategic issues involve the allocation of large amounts of company resources
• Strategic issues are likely to have significant impact on the long-term prosperity of the firm
• Strategic issues are future oriented
• Strategic issues usually have major multifunctional or multi business consequences
• Strategic issues necessitate considering factors in the firm’s external environment.
STRATEGIC DECISION MAKING IN STRATEGIC MANAGEMENT
Strategic decision-making is the process of charting a course based on long-term goals and a longer term vision. By clarifying your company’s big picture aims, you’ll have the opportunity to align your shorter term plans with this deeper, broader mission — giving your operations clarity and consistency.
Mission and Vision
Strategic decision-making should start with a clear idea of your company’s mission and vision — the reasons you exist as a business. Your business may be dedicated to providing environmental solutions, or you may simply want to make as much money as possible. Either way, if you know what you want over the long term, you’ll be better positioned to infuse these aims and principles into your daily decisions. Start by writing your mission and your vision. This statement can be as simple or complex as you wish, depending on the degree of formality you use in your everyday business decisions as you run your company. Even if your mission is only one sentence — the act of thinking about and articulating this sentence will help you develop a better idea of what you want. Having this written statement will also enable you to communicate your long-term vision to your employees and to other stakeholders, to get them on board with the strategic decisions you make.
Long-term goals are the concrete embodiment of your mission and vision. A vision is an idea, and long-term goals are expressions of how these ideas play out — with milestones and real-world objectives. These goals are critical to the strategic decision-making process, because they guide your choices, and provide measurable and quantifiable ways to assess whether you are successfully aligning your company’s direction with the values you’ve articulated to guide your business. If your business designs environmentally friendly technologies, you might create a long-term goal of wanting to be carbon-neutral within five years. With this goal in mind, you’ll then make strategic decisions aimed at reducing your carbon footprint during that time
It’s easy to lose sight of the strategic decision-making process when you’re focusing on short-term goals and decisions that concern day-to-day activities and issues. Short-term goals and decisions usually relate to immediate needs, such as improving cash flow so that you can cover outstanding bills. Despite the immediacy and urgency of these goals, your strategic decision-making process should still enable you to proceed with an eye toward both your vision and your longer term objectives. If your values are centered on sustainability, and your company’s official company car dies, it would be more consistent with your mission to finance a fuel-efficient replacement than to buy a cheap gas guzzler.
Steps in the Decision-Making Process of a Manager
Small business owners and managers make decisions on a daily basis, addressing everything from day-to-day operational issues to long-range strategic planning. The decision-making process of a manager can be broken down into six distinct steps. Although each step can be examined at length, managers often run through all of the steps quickly when making decisions. Understanding the process of managerial decision-making can improve your decision-making effectiveness.
? Identify Problems
? Seek Information
? Brainstorm Solutions
? Choose an Alternative
? Implement the Plan
? Evaluate Outcomes
Levels of Management Decision Making
Managers at all levels must make decisions on behalf of a company. The difference between decisions at various levels lies in the scope of the choices made. Long-term decisions affecting the company as a whole belong to the highest management levels, while decisions affecting day-to-day operations fall to bottom management. All decisions relate directly or indirectly to broader management functions: planning, organizing, leading, staffing and controlling. Different management levels spend more time on certain functions than on others.
Board or Owner
All business and management activity follows from a company’s mission – its reason for being in business. A company’s board or owners create the mission and write a mission statement for the internal and external audiences. Success in accomplishing the mission could take many forms. The form chosen gives a company its vision, an ideal the business seeks to actualize. A caterer, for instance, might envision becoming the first choice for jet-set soirees. Besides defining a lofty ambition and the existential question of mission, a company’s board or owners also articulate a company’s core values, those standards the business will never compromise.
Upper management must translate the vast scope of mission and vision into concrete achievements over time. In other words, upper management needs a strategic plan. Decisions related to strategy involve company-wide matters enacted over the long term. The goals are what the company hopes to accomplish at least a year – more often five years – into the future. Management then chooses a grand strategy, such as growth or diversification, to reach strategic goals. Of all management levels, upper managers spend the most time making decisions involving plans. They also have decision power over middle management.
Once upper management decides the overall direction of the company, it’s up to middle management to choose smaller tactical objectives that, put together, accomplish strategic goals. Middle managers create tactical plans, which have more detail than strategic plans. The tactics often are geared toward some function or department such as production, where a possible objective could involve some measurable efficiency or quality improvement. Middle management’s choices and plans see fruition in a year or less. Managers in this tier oversee other middle managers or operational managers.
Also called first-line management, operational management is the level directly responsible for employees. By choosing their own goals on a daily, weekly or monthly basis, first-line management accomplishes the objectives of middle management. The scope of operational management covers departments, sections or teams. Inventory, scheduling and budgeting are examples of plans and decisions that operational managers adopt. Goals might include a certain number of sales for the day.
The Decision-Making Process in an Organization
Decision-making is one of the most important aspects of your small business, but the process of arriving at a decision must be precise, so that it will yield the best results. It’s also important to remember that even though you and your executive team will make the major decisions, there are a number of smaller decisions that your managers and staff members will make, sometimes without your input. To ensure that decision-making is uniform throughout your organization, you should implement a process that everyone can follow which includes:
1. Understand the Decision You Have to Make
2. Collect All the Information
3. Identify All Alternatives
4. Evaluate the Pros and Cons
5. Select the Best Alternative
6. Make the Decision
7. Evaluate the Impact of Your Decision
Approaches to Strategic Management
Fundamentally, there are four different approaches to do formal strategic planning. The approaches are:-
1. Top-Down Approach:
In a centralized company, such planning is done at the top of the corporation and the departments and outlying activities are advised straightway what to do. In a decentralized company, the CEO or the President may give the divisions guidelines and ask for plans. The plans after review at the head office are sent back to the divisions for modifications or with a note of acceptance.
2. Bottom-Up Approach:
The top management gives the divisions no guidelines but asks them to submit plans. Such plans may contain information on:
(I) Major Opportunities and threats;
(ii) Major objectives;
(iii) Strategies to achieve the objectives;
(iv) Specific data on sales/profits/market share sought;
(v) Capital requirements, etc.
These plans are then reviewed at top management levels and the same process, as in the top-down approach, is then followed.
3. Mixture of the Top-Down and Bottom-Up Approaches:
This is practiced in most large decentralized companies. In this approach, the guidelines given by the top management to the divisions are broad enough to permit the divisions a good amount of flexibility in developing their own plans. Sometimes, the top management may decide basic objectives by dialogue with divisional managers in respect of sales and return on investments especially when divisional performance is measured upon those criteria.
4. Team Approach:
The chief executive, in a small centralized company, often use his line managers to develop formal plans. The same approach is used even by the president of a large company. In many other companies, the president meets and interacts with his group of executives on a regular basis to deal with all the problems facing the company so that the group can develop written strategic plans.
Within each of these approaches, there are many alternatives as follows:
(i) Complete SWOT analysis or not:
In some companies, the divisions supply the top management with perceived opportunities and threats and with the strategies to exploit opportunities and avoid threats.
(ii) Depth of analysis:
Some companies, at the initial stage, do not make in-depth analysis of all aspects of planning. They increase the intensity of analytical exercise gradually as experience is gained.
(iii) Degree of formality:
Divergent practices are in vogue as regards formality. For some large companies having centralized organization structures, and comparatively stable environment and homogeneous product lines, planning is less formal than large diversified companies with decentralized and semi-autonomous product division structures.
High technology companies usually have more formal systems; yet, they recognize informality in decision making and managerial activities associated with planning.
(iv) Reliance on staff:
It is up-to the managers to decide the extent of delegation.
(v) Corporate planner or not:
Large corporations employ corporate planners to help in the planning process. Smaller companies cannot afford to this luxury.
(vi) Linkage with plans.
(vii) Getting the process started:
Strategic planning may begin with an effort to solve a particular problem. It may begin with a SWOT analysis or simply with a review of current strategy.
(viii) Degree of documentation:
A balance has to be struck between too little and too much paper work.
(ix) Role of CEO:
The chief executive officer’s role is critical depending on the degree of complexity of organizations.
STRATEGIC MANAGEMENT MODELS
The strategic management model — or strategic planning model, as it is also known — is a tool used by managers to plan and implement business strategies. Although there are variations of the strategic management model, most are divided into six stages. Understanding these six stages will help managers to create and implement strategies in their own firms.
The mission — the most basic part of the strategic management model — is a broad focus that the firm’s top management team must decide before any other strategic planning can take place. A mission should roughly outline what a firm wants to do and how it will do it. An example of a mission is to provide low cost consumer goods directly to customers in the United States, Canada and Mexico.
The firm’s objectives follow from its mission. The objectives are measurable goals for achieving the mission. Objectives might include constructing a factory, successfully filing for a patent, raising capital or others
The stage of strategy formulation takes into account the firm’s objectives and the situation analysis. Strategies are created that aim to achieve the firm’s objectives given the environmental situation.
The application stage of the strategic management model involves the actual implementation of the strategies. This is often the most difficult stage because it requires the most extensive cooperation of all members of the organization. The application stage can take several months or longer to complete.
The control stage is the final step in the strategic management model. The purpose of this stage is to make adaptations to the strategy after the implementation. Often, the environment and even firm objectives will change. This step is used to recognize this and make adjustments to the firm strategies to adapt to these changes.
DEVELOPING THE STRATEGIC MOVEMENT PROCESS
The strategic management process is more than just a set of rules to follow. It is a philosophical approach to business. Upper management must think strategically first, then apply that thought to a process. The strategic management process is best implemented when everyone within the business understands the strategy. The five stages of the process are goal-setting, analysis, strategy formation, strategy implementation and strategy monitoring.
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, give each person a task with which he can succeed. Keep in mind during this process your goals to be detailed, realistic and match the values of your vision. Typically, the final step in this stage is to write a mission statement that succinctly communicates your goals to both your shareholders and your staff.