Everything you need to know about the importance of strategic management. Strategic management is the latest addition to the management disciplines.
It is about success and failure, about the ability to plan wars and win them. Effective strategic management can transform the performance of an organisation, make fortunes for shareholders or change the structure of an industry. Ineffective strategic management can bankrupt companies and ruin the careers of executives.
Strategic management helps a decision-maker to get equipped with management tools or anticipating changes and directing the organizational activities along the right path.
Practice of strategic management reduces the risk of operation by helping the enterprise to innovate in time and take an early action.
The importance of strategic management can be understood under the following points:-
1. Foundation of Ultimate Success or Failure 2. Sign of Brilliant Management 3. Deals with Real-Life Business Situations 4. Enriches the Practice of Management 5. Forward Thinking 6. Route Map
7. Provides Real-World View of Business Management 8. Raises the Level of Success 9. Whole Approach to Managing 10. Solution of Multiple Problems 11. Comprehensive Approach to Managing Discontinuous and Complex Changes 12. Renews Confidence in Current Strategies
13. Long-Term Organisational Success 14. Important Way to Keep Track of International Developments 15. Operating Successfully in Dynamic Environment 16. Shaping Organisation’s Destiny and 17. Lighthouse Effect.
Why is Strategic Management Important: For Firms, International Business and Managers
Importance of Strategic Management – Why is Strategic Management Important for Firms?
Strategic management helps a decision-maker to get equipped with management tools or anticipating changes and directing the organizational activities along the right path. Practice of strategic management reduces the risk of operation by helping the enterprise to innovate in time and take an early action.
Further, strategic management being objective oriented can provide all the employees with clear ideas about what to do, when to do, where to do and how to do. Thus, an orientation towards strategic management can assure better performance and greater unity in the enterprise.
A number of reasons are given by authors and executives as to why firms should engage in strategic management:
1. Allows Firms to Anticipate Changing Conditions:
Those who oppose this say that conditions change so fast, that managers cannot do any planning especially the long-term planning. Some of the irony about change is that it makes planning more difficult. However, firms need not just react to change, they can pro act or even make changes happen.
It will also allow the firm to innovate in time to take advantage of new opportunities in the environment and reduce the wish because the produce was anticipated. In addition, it helps to ensure full exploitation of opportunities.
In sum strategic management allows an enterprise to base its decisions on long-range forecasts, not spur-of-the moment reactions. It allows the firm to take action at an early stage of a new trend and consider the lead time for effective management.
The strategic management process stimulates thinking about the future. Plans resulting from the process should be flexible enough to allow for unanticipated change.
2. Provides Clear Objectives and Direction for Employers:
Those who oppose it say that objectives must often be vague and general. However, most people perform better if they know what is expected of them and where the enterprise is going. Strategic management provides a strong incentive for employees and management to achieve company objectives.
It serves as the basis for management control and evaluation. Strategic management also ensures that the top executives have a unified opinion on strategic issues and actions.
3. Research in Advancing so that the Process can Help Managers:
The counter argument is that managers pay little attention to research and studies are not done well. Yet, it is to be noted that strategic management is now widely practiced.
4. Business which Perform Strategic Management are More Effective:
The counter argument is that there are many reasons for success and many firms are effective without formal planning. There is no such thing as a definitive study which proves that strategic management causes better performance. In fact, some studies suggest better performance leads to strategic planning.
There are some studies and theorists suggesting that strategic planning makes no difference for performance. But the majority of the studies suggest that there is a relationship between better performance and formal planning. To summarise, the business which perform formal strategic planning have a higher probability of success than those which do not.
Importance of Strategic Management
Formulation and implementation or strategies, which constitute the two main aspects of strategic management, may be expected to yield several benefits.
1. The conditions of most businesses change so fast that strategic management is the only way to anticipate future problems and opportunities. It allows an enterprise to make its decisions based on long range forecasts, not spur-of-the moment reactions.
2. Strategic management provides financial benefits – On the basis of empirical studies and logical analysis it may be claimed that the impact of strategic management is primarily that improved financial performance in terms of profit and growth of firms with a developed strategic management system having major impact on planning and implementation of strategies
3. Strategic management provides all the employees with clear objectives and directions about the future of the enterprise – People perform better if they know what is expected of them & where the enterprise is going. This also helps reduce conflict. It provides a strong incentive to employees and management to achieve company’s objective. It also ensures that the top executives have unified opinion on strategic issues and actions.
4. Strategic management improves quality of strategic decisions through group interaction – The process of group interaction for decision-making facilitates generation of alternative strategies and better screening of opinion due to specialised perspectives of group members. The best alternatives are thus likely to be chosen and acted upon.
5. Strategic management provides greater employee motivation – Participation of employees or their representatives in strategy formulation leads to a better understanding of the priorities and operation of the reward system. Also, there is better appreciation on their part of the productivity- reward linkage inherent in the strategic plan. Hence, goal-directed behaviour is likely to follow incentives.
6. Strategic management minimises resistance to change – The benefit of acceptability of change with minimum resistance is also likely to follow participative process of strategy making, as there is greater awareness on the basis of choosing a particular option and the limits to available alternatives. The uncertainty, which is associated with change, is also eliminated in the process and resistance to change is rendered innocuous.
Strategic management is widely practised in Indian industry nowadays by most large and medium-sized firms and also by the more sophisticated smaller firms. Research in strategic management is advancing so that it can now be helpful to the practising managers, as well.
Importance of Strategic Management – Accomplishment of Long-Term Objectives, Study the Business Environment, Identify Business Opportunities and a Few Others
1. Accomplishment of Long-Term Objectives:
Business environment changes rapidly. A business concern cannot achieve its long- term objectives of profitability — a higher rate of return, productivity, technological leadership, market standing, market leadership— industry leader etc., without formulating an appropriate strategy and without implementing it effectively. Strategic management thus enables to achieve the long-term objectives of an organisation through its strategic management processes.
2. Helpful to Study the Business Environment:
Strategic management is helpful to a business concern to study the external business environment accurately because every incident or change in the business environment will have either positive or negative impact on the business. Such a study enables the business concern to formulate a suitable strategy to exploit the opportunities or manage threats.
3. Helpful to Identify Business Opportunities:
Strategic management is helpful to a business concern to identify the opportunities systematically with the help of its analytical tools, SWOT analysis, BCG matrix etc., so that the business concern can formulate an appropriate strategy.
4. Diagnosis of Business Environmental Threats:
Strategic management also enables a business concern to diagnose business environmental threats systematically with the help of its analytical tools, SWOT analysis, BCG matrix etc., so that the business concerns can formulate a suitable strategy to overcome threats.
5. Assistance in Identifying Strategic Advantages:
Strategic management assists business concern to identify its strategic advantages in the areas of fiancé, production, marketing, technology, research and development, and human resource management over other firms in the industry through a thorough internal analysis of the firm.
This will enable a business concern to formulate and implement either intensive growth strategy of market penetration, market development, product development or diversification growth strategies of concentric diversification, conglomerate diversification when the external business environment is favourable.
6. Suggestions to Overcome Internal Weakness:
Strategic management suggests a business concern how to overcome internal weaknesses through its tools of strategic analysis. Such analysis will enable the business concern to choose the growth strategy of vertical integration or conglomerate diversification externally when the external business environment is favourable.
7. Suggestions to Maximise Internal Strengths:
Strategic management suggests a business concern how to maximise internal strengths through its tools of strategic analysis. Such analysis will enable the business concern to choose the growth strategy of horizontal integration or concentric diversification externally when the external business environment is favourable.
8. Strategic Fit:
Strategic management matches the external business environmental opportunities to the internal strengths of an organisation. This will enable the business concern to deploy effectively its resources to exploit the opportunities.
9. Helpful to Face Competition Effectively:
Strategic management suggests a business concern to select a suitable strategy in order to face the competition effectively. This will enable the business concern to survive, grow, and prosper in the industry.
10. Effective Control:
Strategic management ensures an effective control in an organisation by providing continuous monitoring system and tracking the strategy. This will enable the organisation to implement the strategy successfully and to achieve the desired results.
11. Helpful to Face Uncertainties in Future:
Future is uncertain. But strategic management helps a business concern to face uncertainties in the future with the help of the techniques of business forecast. Such a forecast provides clues about the future happenings. This will enable a business concern to formulate a suitable strategy.
12. Maximisation of Profits:
Strategic management helps to formulate a suitable strategy systematically after analysing the business environment, the industry, the firm and to implement it successfully and to control it effectively. This will enable a business concern to maximise its profits.
13. Diversification of Risk:
Strategic management enables a business concern to diversify its risk or reduce its risk by formulating a suitable strategy of integration or diversification when the external business environment is favourable.
14. Prevention from Incurring Losses:
Strategic management helps a business concern to formulate a suitable strategy to prevent it from incurring losses by diagnosing business environmental threats systematically with the help of its analytical tools, SWOT analysis, BCG matrix etc.
Importance of Strategic Management – Financial Benefits, Offsetting Uncertainty, Clarity in Objectives, Increased Organisational Effectiveness and Personnel Satisfaction
The importance of strategic management can be identified in the following contexts:
1. Financial Benefits:
Effective strategic management results in financial benefits to the organizations in the form of increased profit. Many research studies, particularly in the USA, have confirmed this proposition. These studies have measured the profit performance of those companies which have adopted strategic management approach and those who have not adopted this approach.
Companies adopting strategic management approach outperformed those not adopting strategic management approaches. The basic reason for this phenomenon is that the companies which adopt strategic management are able to realign their strategies according to the needs of environment much more quickly than those which do not follow this approach. Therefore, former types of companies are able to generate more profit even in the face of environmental threats.
2. Offsetting Uncertainty:
Strategic management tries to offset environmental uncertainty by prescribing the future course of action in the light of various forecasts made by the organization. Forecasting and strategic planning are the basic core of strategic management and these provide a clue about what is likely to happen in future.
This process though cannot check the happenings of future, can provide an organization enough time and capability to cope with these happenings. This process allows the top management of an organization to provide direction and control for its success. It allows the organization to innovate in time to take advantage of new opportunities in the environment and reduces its risk because it anticipates the future.
3. Clarity in Objectives and Direction:
Strategic management focuses on organizational objectives and direction of action for achieving these objectives. Sometimes, people in the organization may not be specific about its objectives because of lack of clarity and precise definitions. For example, often we take profit as the objective of a business organization. It is too abstract to be pursued.
In order to enforce management actions, this should be defined more precisely. When strategic management functions are taken in a formal way, they focus on clarity of objectives by taking various forces into operation. When the objectives are clearly spelled out, these provide clear direction to persons in the organization who are responsible for implementing the various courses of action. Most people perform better if they know clearly what they are expected to do and where their organization is going.
4. Increased Organizational Effectiveness:
Strategic management ensures organizational effectiveness in several ways. The concept of effectiveness is that the organization is able to achieve its objectives within the given resources. Thus, for effectiveness, it is not only necessary that resources are put to the best of their efficiency but also that they are put in a way which ensures their maximum contribution to organizational objectives.
In fact, this can be done by taking strategic management which states the objectives of the organization in the context of given resources. Therefore, each resource of the organization has a specific use at a particular time. Thus, strategic management ensures that resources are put in action in a way in which these have been specified. If this is done, the organization will achieve effectiveness.
5. Personnel Satisfaction:
Strategic management contributes towards organizational effectiveness by providing satisfaction to the personnel of the organization. In an organization where formal strategic management process is followed, people are more satisfied by definite prescription of their roles thereby reducing role conflict and role ambiguity.
If the decisions are systematised in the organization, everyone knows how to proceed, how to contribute towards organizational objectives, where the information may be available, who can make decisions, and so on. Such clarity will bring effectiveness at the individual level and consequently at organizational level. Strategic management provides all these things in the organization through which everything is made crystal clear.
Importance of Strategic Management – Why Firms are Adopting Strategic Management? (Reasons)
Edward Freeman has remarked, “Managers in today’s corporation are under fire. Throughout the world, their ability to manage the affairs of the corporation is being called into question. The emergence of a multitude of government regulations, corporate critics, media attacks, and most importantly, substantial competition from Far Eastern and European firms have put the modern manager in a pressure cooker. He finds an increase in the external demands placed on the corporation and a decrease in the internal flexibility of the corporation to respond. Criteria for performance are no longer clear and the notion of “effective management” is increasingly becoming a contradiction in terms. And, I believe that the modern managers must have new concept to view the world as it is today, not as it was 30 years ago. By paying attention to strategic management, executives can begin to put their companies back on the road to success.”
Following are some of the reasons why firms are adopting strategic management as evident from a number of empirical studies:
1. Risky and Uncertain Environment:
Future is always uncertain that creates many types of risks. It also makes planning very difficult. Increasing risks of error, costly mistakes, and even economic ruin are causing today’s professional managers in all organisations to take strategic management seriously in order to keep their companies competitive in an increasingly volatile environment.
2. Increased Pace of Change:
Today many changes are happening in the environment. Rapid changes in technology, increasing competition, fast changing market and economic conditions, changing work methods and workforce and developing resource shortages have all increased the complexities of modern management. The pace of change is accelerating. These pressures on managers have compelled them to make both major and minor changes in a firm’s strategic direction.
3. Increasing Globalisation in Business:
Today, companies have forayed into global markets. The concept of ‘global village’ has had a critical impact on the way companies work. Globalisation has created a real challenge for the managers of business firms. As more industries become global, strategic management is becoming an increasingly important way to keep track of international developments and for long-term competitive advantage.
Abbass F. Alkhafaji says, “Thinking strategically has become a necessity in global business world. Strategies are essential ingredients for success in a global market. Companies without strategic planning are no longer guarded.” Balsmeier and Borne write, “Successful companies are, of course, the first to consider the global marketplace as their arena for competition.”
4. Higher Possibility of Success:
Strategic management focuses on objectives. It has higher possibility of success. It can create competitive advantages in the marketplace. It brings operational effectiveness. Strategy is all about being different.
5. Improves Managerial Skills:
Strategic management improves managerial skills. It integrates all types of business learning into one subject. It is suited for modern business environment. Strategic management is designed to prepare current as well as future managers to meet the challenges of today’s competitive and ever- changing environments. It also assists in better decision making. It helps to improve managerial knowledge.
6. Outdated Disciplines:
Traditional business disciplines like accounting, economics, finance, etc., have become outdated to face more complex, more competitive, more turbulent, rapid and unpredictable environments. Today, it has become essential to think about new concepts and new approaches to manage the ever-changing business trends. Strategic management integrates the traditional subjects with the main purpose of providing a practical, real-world view of business management.
7. Widely Practised:
Strategic management is widely practiced. A lot of research studies show its effectiveness. Strategic managers have the ability to see the interdependent and interrelated nature of internal and external events and activities.
Abbass F. Alkhafaji writes, “Strategic management is designed to develop an awareness of the processes by which organisations can achieve synergies of the whole through the effective cooperation and interaction of the many departments within an organisation.” Researches have also proved that a strong correlation exists between strategic management and corporate success.
8. Societal Pressures:
For organisations to survive and prosper requires that they adapt to the values and expectations of society. The business enterprise is a social institution which must identify the goals and aspirations of society. Thus, it implies that “when the values and attitudes of society are changing, so must the strategies and behaviours of companies.” Strategic managers can adapt to society’s growing demands for fairness, ethics and environmental sustainability. They can adopt strategies and actions that are conducive to society’s welfare.
9. Web-Based Technology:
The advancement of web-based technology and e-commerce models have also created the need for strategic management. These models have changed the landscape of business. With the result, many risks, challenges and difficulties have arisen. Hence, companies must learn to balance the risks and rewards of new technologies through strategic management process.
10. Changing Purpose and Priorities:
In new environment, the goals, purpose and priorities of organisations are changing very fast. Earlier, firms were focused on profit maximisation and strategy devising was far simpler.
Today, companies are increasingly run by professionals who focus on changing goals like market reach, market leadership, global trade, future economic growth, social power, global leadership, social expectations fulfillment, protection of natural environment, social fairness, ethical values, reorienting customer values, corporate success and image, internal strength, public accountability, etc.
Hence, this require; the skills and vision of strategic management. In addition, competitive move; are easily copied due to easy availability of information. Thus, the necessity of strategic management has increased in all spheres of industry and commerce.
Importance of Strategic Management
Strategic management is the latest addition to the management disciplines. It is about success and failure, about the ability to plan wars and win them. Effective strategic management can transform the performance of an organisation, make fortunes for shareholders or change the structure of an industry. Ineffective strategic management can bankrupt companies and ruin the careers of executives.
The concept of strategy in business is analogous to that in war. Strategy as an area of management is concerned with the general direction and long-term policy of the business as distinct from short- term tactics and may by defined as its long-term objectives and the general means by which it intends to achieve them.
Strategic management is the process by which an organisation formulates its objectives and manages to achieve them. Strategy is the means to achieve the organisational ends.
The word strategy is derived from the Greek word ‘Strategic which means the art and science of directing military forces. The strategy includes the determination and evaluation of alternative paths to an already established mission or objective and eventually, choice of the alternative to be adopted. To put it simply, a strategy outlines how management plans to achieve its objectives. Strategy is the product of the strategic management process.
According to Sun Tsu’s book, The Art of War, the aim of strategy is defeating the enemy by fighting as few battles as possible. He defines priorities for gaining advantage over an adversary. The highest priority is to foil the enemy’s plots, second to ruin his alliances, third, to attack the enemy and lastly, besiege his castle. In his view, strategy is as much about avoiding battles as it is about fighting them.
In the dynamic environment of today, it is not only desirable but rather essential for any kind of organisation to have a strategy. The operating decisions, however effectively made and implemented, cannot ensure long-term success. As strategic decisions tend to be non-self-generative, the management of the organisation must see to it that such decisions are made and constantly updated.
The strategic management process consists of determination of mission and objectives of the organisation in the light of its unique strengths and weaknesses and assessment of opportunities and threats. It then goes on to formulation of strategy, its implementation, monitoring and evaluation. The feedback obtained from the review and evaluation can be used for revising the objectives and strategies.
The importance of strategic decisions cannot be over-emphasised. An incorrect strategic decision may ruin a company, whereas incorrect operating or administrative decisions can usually be weathered.
Strategic management is both a skill and an art. It is a skill because there is a body of knowledge that can be learnt and techniques that can be used with greater or lesser competence. It is an art because it deals with the future that is unknowable and with the hearts and minds of people that transcend reason. Good strategic management requires both clear thought and sound judgment.
Effective strategic managers should have the knowledge, the skills and the vision necessary to (i) understand the total company i.e. its mission, its goals, or objectives, its culture, and the activities of the different functional areas; (ii) understand the environment in which the company is operating, with particular reference to the opportunities and the threats that are present; (iii) develop strategies that are appropriate to the company and its environment; (iv) implement chosen strategies; and (v) control, evaluate and amend the strategies that have been selected.
The importance of strategic management can be understood under the following points:
1. Foundation of Ultimate Success or Failure:
Thompson and Strickland have said, “Among all the things managers do, nothing affects a company’s ultimate success or failure more fundamentally than how well its management team sets the company’s long-term direction, develops competitively effective strategic moves and business approaches, and implements what needs to be done internally to produce good day in, day out strategy execution. Indeed, good strategy and good strategy execution are the most trustworthy signs of good management.”
2. Sign of Brilliant Management:
Thompson and Strickland have said, “Managers don’t deserve a gold star for designing a potentially brilliant strategy but failing to put the organisational means in place to carry it out in high-caliber fashion – weak implementation undermines the strategy’s potential and paves the way for shortfalls in customer satisfaction and company performance. Competent execution of a mediocre strategy scarcely merits enthusiastic applause for management’s efforts either. The standards for good management rest to a very great extent on how well-conceived the company’s strategy is and how competently it is executed. Any claim of talented management that disregards these standards is likely to be false.”
3. Deals with Real-Life Business Situations:
Functional area disciplines are based on a structured and specialised body of knowledge. They have well-developed, simplified, set concepts. In contrast, strategic management deals with the real-life complex business situations resulting from the interaction of various external forces.
4. Enriches the Practice of Management:
Strategic management makes the study and practice of management more meaningful and rich. It gives managers something very precious —the ability to perceive reality. It guides managers’ assumptions and sensitizes their thinking to potential competitive arenas substantially different from current ones.
5. Forward Thinking:
Strategic management creates a favourable attitude towards change. It encourages forward thinking. It develops the managerial ability to see ‘tomorrow’ and to anticipate the future strategies.
No business firm can afford to travel in a haphazard manner; it has to travel with the support of some route map. Strategic management provides the route map for the firm. It makes it possible for the firm to take decisions concerning the future with greater awareness of their implications. It provides direction to the company. It indicates how growth could be achieved. It ensures that decisions are taken in a systematic and purposeful way.
7. Provides Real-World View of Business Management:
Strategic management integrates the traditional subjects and concepts with the main purpose of providing a practical, real-world view of business management. It integrates all prior learning into one subject suited for application in the modern business environment.
8. Raises the Level of Success:
The chief executive officer of one successful company explains it well when he said – “In the main, our competitors are acquainted with the same fundamental concepts and techniques and approaches that we follow, and they are as free to pursue them as we are. More often than not, the difference between their level of success and ours lies in the relative thoroughness arid self-discipline with which we and they develop and execute our strategies for the future.”
9. Whole Approach to Managing:
Strategic management is the fundamental and whole approach to managing organisations.
Thompson and Strickland have made it clear, “Doing a good job of managing inherently requires good strategic thinking. Today’s managers have to think strategically about their company’s position and about the impact of changing conditions. They have to monitor the company’s external environment and internal capabilities closely enough to know when to institute strategy changes. They have to know the business well enough to determine what kinds of strategic changes to initiate. Simply said, the fundamentals of strategic management need to drive the whole approach to managing organisations.”
10. Solution of Multiple Problems:
Toffler says, “Futuristic organisations are no longer responsible simply for making a profit or producing goods but for simultaneously contributing to the solutions of extremely complex ecological, moral, political, racial, sexual, and social problems.” Thus, the demands on strategic management are expected to rise tremendously. The strategic managers of tomorrow may be called upon to shoulder a set of entirely new concepts and techniques in strategic management.
11. Comprehensive Approach to Managing Discontinuous and Complex Changes:
Ansoff says that strategic management is emerging as a comprehensive approach to managing discontinuous changes, which take account of psychological, sociological, political, and systemic characteristics of complex organisations.
12. Renews Confidence in Current Strategies:
Fred R. David says that the strategic management may renew confidence in the current business strategy or point to the need for corrective actions. It allows for prioritization and exploitation of opportunities. It also provides an objective view of management problems.
13. Long-Term Organisational Success:
Strategic management emphasizes long-term performance. Many companies can manage short-term bursts of high performance, but only a few can sustain it over a longer period of time. E. D. Beinhocker says, “To be successful in the long-run, companies must not only be able to execute current activities to satisfy an existing market, but they must also adapt those activities to satisfy new and changing markets. And, this requires the skill and ability of strategic management”.
B. W. Wirtz, E. J. Zajac and P. Brews have revealed that organisations that engage in strategic management generally outperform those that do not. The attainment of an appropriate match, or “fit,” between an organisation’s environment and its strategy, structure, and processes has positive effects on the organisation’s performance. Strategic management becomes increasingly important as the environment becomes more unstable. Thus, it has been proved that strategic management is crucial for long-term organisational success.
14. Important Way to Keep Track of International Developments:
As more industries become global, strategic management is becoming an increasingly important way to keep track of international developments and position a company for long-term competitive advantage.
15. Operating Successfully in Dynamic Environment:
Thomas Wheelen and Hunger write, “Strategic management has now evolved to the point that its primary value is in helping an organisation operate successfully in a dynamic, complex environment.” It helps the firm to be competitive and to gain competitive advantage in dynamic environments. It offers a methodology by which the firm could anticipate and project the future and be internally equipped to face it.
It helps develop processes, systems, mechanisms, and managerial attitudes that are essential for this purpose. There is no such thing as a permanent competitive advantage.
Richard D’ Aveni says, “A firm has to gain any sustainable competitive advantage which lies not in five-year plan but in stringing together a series of strategic short-term thrusts.” This means that strategic management helps to develop “strategic flexibility” — it is the ability to shift from one dominant strategy to another that helps to operate in dynamic environment.
16. Shaping Organisation’s Destiny:
Fred R. David writes, “Strategic management allows an organisation to be more proactive than reactive in shaping its own future; it allows an organisation to initiate and influence (rather than just respond to) activities— and thus to exert control over its own destiny.”
Abbass F. Alkhafaji says, “In the present turbulent, globalized, and rapidly changing business environment, organisations can easily lose a sense of mission and direction. Strategic management is an instrument for controlling an organisation’s destiny.”
17. Lighthouse Effect:
Abbass F. Alkhafaji has remarked, “Strategic management has a lighthouse effect and forces members of an organisation to think futuristically, highlights new opportunities and threats, and enables organisations to refocus on their mission. Strategic planning enables firms to remain proactive, be competitive, and develop calculated methods to resolve interrelated sets or problems and issues from an eagle-eye perspective.”
Importance of Strategic Management – In an International Business
Special complications confront a firm involved in international operations. Multinational corporations (MNC) with headquarters in one country and subsidiaries in others experience difficulties associated with operating in two or more different competitive arenas.
Awareness of the strategic opportunities and threats posed and faced by MNCs is important in every domestic industry also operating abroad.
Now the question is why companies internationalise. The answer to this question is specific to each company. However, it can be said that companies go international when they can no longer achieve their strategic objectives by remaining at home.
They go abroad for the following reasons:
i. Achieve profitable growth that is restricted at home by saturated or slow growing markets
ii. Keep up with domestic competitors, the so-called bandwagon effect
iii. Follow their domestic customers who are going international
iv. Earn additional income on existing technology
v. Take advantage of faster-growing foreign economies
vi. Spread fixed manufacturing and development costs over longer sales volume
vii. Compete more effectively with foreign companies invading their home markets
viii. Achieve other objectives.
These objectives become explicit only after a company has made its first, tentative ventures into foreign markets. The motive behind the first entry as an exporter is simply the prospect of securing profits on immediate sales. After some success in exporting, companies begin to design strategies for a sustained build-up of international business over the long-run.
Importance of Strategic Management – For Managers
Strategic Management is wide and encompasses all functions and thus it seeks to integrate the knowledge and experience gained in various functional areas of management. It enables one understand and make sense of the complex interaction that takes place between different functional areas.
In real life, there are constraints and complexities, which strategic management deals with. In order to develop a theoretical structure of its own, strategic management cuts across the narrow functional boundaries. This is turn helps to create an understanding of how policies are formulated and also in creating an appreciation of the complexities of the environment that the senior management faces in policy formulation.
Managers need to be in control and therefore begin by gaining an understanding of the business environment. They can become more receptive to the ideas and suggestions of the senior management. When they become capable of relating environmental changes to policy changes within an organization, and what the top management is thinking, managers feel themselves to be a part of a process, which helps to reduce their feeling of isolation.
According to Mr. Kamat, CEO, ICICI some of the reasons for which strategic management is important to the Indian managers in the current scenario are shown below:
1. Managing and understanding Information Technology, which is changing the face of business.
2. As public and common investors own more and more companies, managers need to be oriented towards shareholder value. Managers would need to acquire skills to maximize shareholder value.
3. It is essential for managers to foresee the future and track changes in customer expectations thus take a strategic perspective. Intuitive and conceptual ways using sound reasoning and logic as well as instinct and perceptions in decision-making would be needed.
4. Increasingly, the success of companies depends on its people, thus people management would be a requirement of management. They would have to create capability for initiating and managing change through leadership and personal qualities of patience, commitment, and perseverance.
5. Due to rapid changes in the environment and scenarios that the business faces, responsiveness would be important. Managers would have to provide speedy responses to environmental changes through information systems and organizational processes.
6. As companies are becoming more and more integrated with public life and their impact on society increases, Corporate Governance is becoming important, which will be a key for managers, who would have to enhance good governance practices.
7. Lateral thinking managers would have to learn to deal with chaotic situations and the complex relationship between decision variables.
8. Boundaries across business and countries are shrinking. Thus, there is a need for global sensitivity and experience. Managers would have to develop the sensitivity to deal with global managers and cultural preferences, business protocols, and market conditions.
9. As situations become complex and uncertain, managers will need courage in decision-making. Managers would have to develop the courage to make unconventional decisions.
10. Social responsibility – Managers would have to maintain high ethical standards in business and focus on social responsibility.
Thus, it is said that the purpose of strategic management is many fold. For success in the business, it is necessary to have a holistic view and thus the need for integration of knowledge gained in various functional areas of management. This requires managers, especially senior management, to adopt a generalist approach to problem solving. This would require understanding the complex inter-linkages operating within an organization through the use of a systems approach to decision-making and relating these to the changes taking place in the external environment.