Strategic management is the process of specifying an organization’s objectives, developing policies and plans to achieve these objectives, and allocating resources to implement the plans. It includes both strategic formulation and implementation activities. It provides outlines that help control the strategy implementation process and evaluate whether the strategy’s desired goal is achieved.
Definitions of Strategic Management
A few important definitions of strategic management are given below:
According to David (2005):
“Strategic Management can be defined as the art and science of formulating, implementing and evaluating cross-functional decisions that enable an organization to achieve its objectives.”
According to Wheelen and Hunger (2002):
“Strategic management is a set of managerial decisions and actions that determines the long-term performance of a corporation.”
According to Johnson and Scholes (2004):
“Strategic management includes understanding the strategic position of an organization, strategic choices for the future and turning strategy into action.”
The definition presented above clearly states that strategic management is a powerful tool for deciding how to achieve an organization’s objectives. It integrates management accounting, production/operations, research and development, and computer information systems to achieve organizational success. It is a blueprint as now a firm will compete in the marketplace. It aims to evaluate changes in the environment and make decisions on different dimensions of the internal management process for long-term growth and prosperity. It activates all resources to compete in the market in a changing environmental context. However, it all depends on the firm’s ability to implement strategy properly.
In the process of strategy formulation, a firm has to engage in activities such as scanning the internal and external environment, setting objectives, and developing a strategic plan. Implementation of strategy depends on effective management practices – HRM, marketing, financial, operational management, including a distinct organizational culture and philosophy to run it and use its resources. Therefore, it is important to note that strategic management is related to a higher degree of uncertainty, integrating different activities to achieve the organization’s objective and making strategic decisions related to the changes.
Components of Strategic Management
Briefly, the main components of strategic management are:
- Strategic planning
- The analysis of environmental forces (SWOT analysis)
- Matching organizational structure, managerial activities and policies with explicit business strategies
- Managing resources strategically for achieving a competitive advantage
- Strategy implementation
- Strategic control
1. Strategic Planning:
Strategic planning is setting mission, objectives, and strategies: a clear mission is required to define the field and scope of an organization. It is the purpose or reason for the organization’s existence. For example, Mark and Spencer in Great Britain defined its mission as being the change
agent in British society by becoming the first classless retailer. Objectives are qualitative and quantitative expressions of indicators used to ensure the proper implementation of the corporate mission. They represent the endpoint of planning. Strategies are made for achieving corporate objectives. They are formulated at the corporate, business, and operational levels.
Corporate strategy defines the type of business in which an organization needs to be involved. Business strategies are required to compete with specific products or services. Finally, operational strategies are required to use organizational resources in different activities, viz., physical, financial, information and human.
2. The Analysis of Environmental Forces (SWOT Analysis)
Environmental forces pressure organizational internal management systems and organizational outcomes (profit, return on investment, etc.). These forces comprise political, economic, social, and technological forces. The internal environment or management system is the inner context of a business’s culture, structure, leadership, task technology, etc. The mechanism used to analyze such effects is SWOT (strengths, weaknesses, opportunities, and threats) analysis.
Usually, it is difficult for a manager to interpret the state of relationships of these forces just based on SWOT analysis. However, when managers have access to many business information sources, they can fairly establish relations.
3. Matching Organizational Structure, Managerial Activities and Policies With Explicit Business Strategies
When an organization attempts to implement its strategies with the help of an outmoded organizational structure and organizational culture, it may fail to do so. Thus, the implementation of strategies depends on how far they can be integrated with the organizational structure, managerial activities, and policies. There might be a need for rethinking the prevailing corporate culture to do so. When the American automaker Chrysler and German carmaker Daimler-Benz decided to merge, they had difficulties with their dominant cultures. Chrysler valued lean efficiency, empowerment, and fairly egalitarian relations among staff. In contrast, the German automaker Benz appreciated the respect for authority, bureaucratic precision, and centralized decision-making. Thus, while deciding on a merger strategy, the principle of strategic fit is essential.
4. Managing Resources Strategically For Achieving A Competitive Advantage
A firm should use resources to achieve its objectives. It has to identify and use core competencies. Core competency reflects a firm’s unique knowledge about how to accomplish something and its effectiveness in using this knowledge to satisfy customers. Individual firms should manage their human, financial, and information resources together with their core competencies to achieve a competitive advantage in the market.
Organizations also have to look for new competencies to compete in the market with specific skills, knowledge, and abilities. To illustrate, Marks and Spencer, around 1930, defined its core competency as the ability to identify, design, and develop the products it sold. Because it is believed that it is the merchant, rather than the manufacturer, who knew the customers. Therefore, the merchant should design, develop and find producers to make the goods complying with the designs, specifications, and costs.
5. Strategy Implementation
Strategy implementation is the process by which strategies and policies are put into action by developing programs, budgets, and procedures. It is concerned with ensuring that strategies are working in practice. This is the main element of strategic management. Unless strategies are properly disseminated and understood by all organizational members, there is no matter how powerful they are planned. To implement, it is necessary to structure a company or its business unit to increase performance and support the implementation process by allocating financial and physical resources. Finally, implementation depends on a company’s capacity to manage the change process. It is essential to put the strategy into action to change the prevailing organizational culture and politics.
6. Strategic Control
Strategic control and evaluation processes help strategists monitor the progress of strategy implementation. This process identifies performance improvement, exploring gaps between actual and standard performance. Performance is the result of activities. It includes the actual outcomes of the strategic management process. The process of strategic control comprises a) establishing performance targets, standards, and tolerance limits for the objectives strategy and implementation plan; b) measuring the actual position of the targets at a given time; c) analyzing deviations from acceptable tolerance limits and d) execute modification if/any are necessary and/or feasible.
Also Read: Concept of Strategy & The Need For Strategy