Strategic Management

Strategic Management – defined as the art and science of formulating,

implementing and evaluating cross functional decision that enables an organization to achieve its objective.

It involves – integrating management, finance/accounting, production/operations, R & D, and CIS to achieve organizational success

Strategic Management is synonomous with the term Strategic Planning (strategic formulation)

Strategic Management is a combination of strategic formulation, implementation, and evaluation.

The purpose of Strategic Management is to exploit and create new and different opportunities for tomorrow.

Stages of Strategic Management

1.Strategy formulation (Corporate )

2.Strategy Implementation (Divisional)

3.Strategy Evaluation (SBU)

Strategy formulation including a firm’s mission and vision, SWOT Analysis, creating

long term objectives, alternative strategies and choosing particular strategies to pursue.

Other issues include, deciding what new businesses to enter, which business to abandon, how to allocate resources, whether to expand or diversify (Garments vs Fresh/Rahim Afrooz)

Entering into the international market

How to avoid hostile take over

Due to resource limitation, strategist must decide which alternatives will benefit the firm most

Strategies determine long term competitive advantage, and only top management team must have the foresight to understand the full ramification of strategy formulation decisions, and have the authority to disperse the resources for implementation

Strategy implementationStrategy implementation demands a firm to

establish annual objective, create policies, motivate employees and allocate resources so the formulated strategies can be implemented.

Strategy Implementation involves - developing strategy supportive cultureCreating effective organizational structureRedirecting marketing effortsPreparing budgesDeveloping and utilizing information system

Strategic EvaluationStrategic Evaluation – is the final stage of

Strategic Management where all strategies are modified as internal and external factors are constantly changing

Reviewing external and internal factors which are linked to current strategies

Measuring performanceTaking corrective actions

Competitive AdvantageAnything that a firm does better compared to its rival

firmGetting and sustaining C.A. is essential for a firms long

term successPursue of competitive advantage can leads to a firm’s

success or failureNormally a firm can sustain a competitive advantage for

a certain period of time due to rivals imitation and undermining the advantage (i.e. Vigin Cans, City Cell)

Firms try to sustain competitive advantage via Continually adapting to changes in external trends and

events, and internal capabilities, competencies and resources

Effectively formulating, implementing and evaluating strategies that capitalizes upon these factors

Strategist-those individuals who are most responsible

for the success or failure of an organization – CEO, Chairman, BOD etc . Their main role is to gather, analyze and organize information i.e. Steve Jobb – Apple Bill Gates - Microsoft

These individuals track industry and competitive trends, forecasting models, spot emerging markets etc

Vision & Mission StatementsVision – 1st step in strategic planning and

consist of one sentence ‘what do we want to become’i.e. Stokes Eye Clinic – Our vision is to take

care of your vision

Mission – used to distinguish one business from another, and identifies scope of a firm’s operations in product and market terms’

Internal Strength & WeaknessAre a firms controllable activities – Marketing,

finance/accounting, production/operations, R & D, and CIS to achieve organizational success

Firms are constantly trying to increase their internal strengths and eliminate their weaknesses i.e. TQM - Edward Deming

Firms measure internal strengths viaComputing ratio’s ( turnovers, measuring

performance, comparing past periods & industry averages

Surveys – employee morale, production efficiency, advertising effectiveness and customer loyalty

External Opportunities and Threats

Refers to economic, social, cultural, demographic, environmental, political, legal, governmental, technological and competitive trends which may benefit or harm an organization in the future

Opportunities and Threats are beyond the span of control of an organization

The theory of strategic management is that firms need to take advantage of external opportunities and reduce the impact or external threats

Internet has revolutionized the way how people conduct business, and focus is now on changing work values and attitude, space exploration, recyclable packages and increased competition from foreign companies

Long Term & Short Term objectivesObjective – is a state of direction, which help in

evaluations, creating synergy, reveal priorities, focus coordination and provides basis for effective planning, organization and motivation controlling activities

Objectives -must be challenging, measurable consistent reasonable and clear

Long term objective are objectives which takes more an a year to achieve (usually 5 years or more)

Strategies means long term objectives – which could be geographic expansion, diversification, acquisition, product development, market penetration, joint venture or liquidation

Short term objectivesAre also known as annual objectives which are short

term mile stones that a firm must achieve to reach long term objectives

Short term objective must be measurable, quantifiable, challenging, realistic, consistent and prioritized

Annual objectives are stated in all parts of the organization in terms of management, finance, production, R& D, MIS accomplishment.

A set objective is needed for each long term objectives

Annual objectives are most important in strategy implementation

Annual objectives represent basis for resource allocation

Benefits of Strategic Management

Firms must be more proactive than reactive – initiate influence and have control over its own destiny

Strategic Management helps to formulate better strategies via systematic, logical and rational approach

Communication is the key to successful Strategic Management

Understanding the important of S M helps employees understand what an organization is doing and why they are doing it

This helps to make build commitment from employees and they feel empowered

Empowerment is the act of strengthening employees sense of effectiveness by encouraging them to take part in decision making

Why some firms do not focus on strategic planning

Poor reward structure – failing to reward successFire fighting – crisis management they do not have enough

time to planWaste of timeToo expensive – culturally some firms are opposed to spending

moneyLaziness – don’t want to put the effort to formulate a planContent with success – they are happy with todayFear of Failure – what is the guarantee of successOverconfidence –some firms rely on their own experience and

expertise. But overestimating their experience can bring their demise

Prior bad experience - people may have had some bad experience with planning, which may have been long, impractical or inflexible.

Pitfalls in Strategic Planning

Using strategic planning to gain control over decision and resourceSatisfy a credential and regulatory requirementsHastily moving from mission development to strategy formulationFailing to communicate plans with employeesTop manager are making too many intuitive decision which effects

formal planTop managers not actively supporting strategic planning processDelegating ‘planning’ to plannerFailing to involve key employees in all phases of planningViewing planning as unnecessary or un importantBeing engrossed with current problems where no emphasis is

given on planningBeing so formal in planning that flexibility and creativity is shifted

Reference Books1. STRATEGIC MANAGEMENT (12th Edition)

Author: Fred R. David

2. STRATEGIC MANAGEMENT & BUSINESS POLICY (12TH EDITION)Authors : THOMAS L. WHEELEN & J. DAVID HUNGER

Optional Recommended book2. STRATEGIC MANAGEMENT, Thinking, Analysis & Action

– (2nd Edition)Author: Graham Hubbard