What is Strategic Management?
Strategic management (Academic Term) or Strategic Planning (Business Term) is the art and science of formulating, implementing, and evaluating cross-functional decisions that enable an organization to achieve its objectives.
As this definition implies, to achieve organizational success, strategic management focuses on integrating:
- Finance and Accounting
- Production and Operations
- Research and Development (R&D)
- Information Systems
Sometimes the term strategic management is used to refer to strategy formulation, implementation, and evaluation, with strategic planning referring only to strategy formulation. The purpose of strategic management is to exploit and create new and different opportunities for tomorrow; long-range planning, in contrast, tries to optimize for tomorrow the trends of today.
A strategic plan is, in essence, a company’s game plan. Just as a football team needs a good game plan to have a chance for success, a company must have a good strategic plan to compete successfully.
Stages of Strategic Management
The strategic-management process consists of three stages:
- Strategy Formulation
- Strategy Implementation
- Strategy Evaluation
Strategy formulation includes:
- Developing a Vision and a Mission
- Identifying an Organization’s External Opportunities and Threats
- Determining Internal Strengths and Weaknesses
- Establishing Long-term Objectives
- Generating Alternative Strategies
- Choosing particular Strategies to Pursue
Issues of Strategy-formulation include:
- Deciding what New Businesses to Enter
- What businesses to abandon
- Whether to Expand Operations or Diversify
- Whether to Enter International Markets
- Whether to Merge or Form a Joint Venture
- How to Avoid a Hostile Takeover
Economic resources are limited; economics have to decide which alternative strategies will benefit the organization most. Strategies determine long-term competitive advantages. Over an extended period of time, Strategy-formulation decisions commit an organization to specify:
To execute formulated strategies, strategy-implementation requires a firm to establish:
- Annual Objectives
- Devise Policies
- Motivate Employees
- Allocate resources
Strategy implementation includes:
- Developing a Strategy-Supportive Culture
- Creating an Effective Organizational Structure
- Redirecting Marketing Efforts
- Preparing Budgets
- Developing and Using Information Systems
- Linking Employee Compensation to Organizational Performance
SI often is called the “action stage” of strategic management. Implementing strategy means mobilizing employees and managers to put formulated strategies into action. SI is often considered to be the most difficult stage in strategic management.
Strategic Implementation requires:
- Personal Discipline
Successful strategy implementation hinges on managers’ ability to motivate employees, which is more an art than a science. There is no useful purpose to formulate Strategies formulated but not implemented.
Interpersonal skills are especially critical for successful strategy implementation. Strategy-implementation activities affect all employees and managers in an organization. Every division and department must decide on answers to questions such as:
- What must we do to implement our part of the organization’s strategy?
- How best can we get the job done?
The challenge of implementation is to stimulate manager and employees throughout an organization to work with pride and enthusiasm toward achieving stated objectives.
The Final Stage in Strategic Management is the Strategic Evaluation. Managers desperately need to know when particular strategies are not working well; strategy evaluation is the primary means for obtaining this information. All strategies are subject to future modification because external and internal factors constantly change. Three fundamental strategy-evaluation activities are:
- Reviewing External and Internal Factors that are the bases for current strategies
- Measuring Performance
- Taking Corrective Actions
Strategy Evaluation is needed because:
- Today’s Success is no guarantee of Tomorrow’s Success
- Success always creates new and different problems
- Complacent organizations experience demise
Strategy Formulation, Strategy Implementation, and Strategy Evaluation of strategy activities occur at three hierarchical levels in a large organization accordingly:
- Divisional or Strategic Business Unit
By fostering communication and interaction among managers and employees across hierarchical levels, strategic management helps a firm function as a competitive team. Most small businesses and some large businesses do not have divisions or strategic business units; they have only the corporate and functional levels. Nevertheless, managers and employees at these two levels should be actively involved in strategic-management activities.
Peter Drucker says the prime task of strategic management is thinking through the overall mission of a business— by asking question such as “What is our Business?” This leads to the setting of objectives, the development of strategies, and the making of today’s decisions for tomorrow’s results.
Concepts and cases
A COMPETITIVE ADVANTAGE APPROACH
Fred r. David
Francis Marion University
Florence, South Carolina
Forest r. David
Strategic Planning Consultant