Everything you need to know about process of strategic management. Strategic management process can be described as ‘a set of managerial decisions and actions which determines the long-run direction and performance of the organization’.
Setting the organizational mission, developing the objectives based on the mission, developing and implementing the strategies to achieve the objectives, measuring the achievements and adjusting the strategies to the organizational needs are all involved in the strategic management process.
The purpose of strategic management is to determine the organisation’s strategy. Through strategic management process, managers determine strategies for the organisation which will enable it to achieve its strategic goals and objectives.
Strategic management is a continuous process that analyses the business, its competitors and industries in which the organisation is operating, it determines goals and objectives to meet the present and future needs of its own and competitor’s and then reassesses each strategy.
Strategic management process can be described as a set of managerial decisions and actions which determines the long-run direction and performance of the organization’.
It includes:- 1. Environmental Scanning 2. Developing Vision, Mission and Objectives 3. Debarking to Corporate Analysis 4. Strategy Formulation 5. Strategy Implementation 6. Strategy Evaluation and Control.
Strategic management as a process involves a set of activities or elements. One thing should be made clear at this juncture, that all experts do not agree over these activities or elements of strategic management process and the fashion in which they interact among themselves.
Though strategic management process philosophy remains the same, it is bound to differ in case of those firms which have single SBUs and those which have multiple SBUs.
The following are the steps of strategic management process in case single SBU enterprise and multiple SBUs enterprises and the integrated over model where the elements of it remain same.
What is Strategic Management Process: Steps, Stages and Components
Process of Strategic Management – 6 Important Steps in Strategic Management Process
The following paragraphs discuss strategic management process:
Strategic management process begins with the development of corporate vision, mission and objectives. Every organisation has a vision, mission and objectives, even if they are not consciously developed, written or communicated. If the firm’s existing vision, mission and objectives are not relevant to its business, they need to be rewritten. A corporate vision delineates management’s aspirations for the business, providing a panoramic view of “where we are going” and convincing rationale for why this makes good business sense for the organisation.
A mission statement defines the core purpose of the organisation — why it exists; it examines the “raison d’etre” for the organisation beyond simply increasing shareholder’s wealth, and reflects employees’ motivation for engaging in the company’s work. Effective missions are inspiring, long-term in nature and easily understood and communicated.
Objective is a desired future state or goal that a company attempts to realise. The goals or objectives for an organisation are based on vision and mission. Objective must be specific, realistic and must be measurable. The detailed discussion on vision, mission and objectives is in order.
Vision is the starting point for articulating organisation’s hierarchy of goals and objectives. A vision statement is a vivid idealised description of a desired outcome that inspires, energizes and helps firm to create a mental picture of its target. It represents a destination that is driven by and evokes passion, but it does not specify the means that will be used to reach the desired destination. The vision provides the point of reference on the horizon — a beacon of light. It seeks to answer the basic question, “What do we want to become?”
The corporate success depends on the vision articulated by the chief executive officer or the top management. In other words, developing and implementing a vision is one of a leader’s central roles. CEO or top management need to have not only a vision statement but also a plan to implement it. This view was supported by a research conducted with sample of 1500 top level employees (630 senior leaders and 870 CEOs) from 20 different countries.
The respondents were asked what they believed were the key traits that leaders must have ninety-eight per cent of respondents opined that “a strong sense of vision,” was the most important trait. Similarly, when asked about the critical knowledge skills, the respondents cited “strategy formulation to achieve a vision,” as the most important skill.
Mission follows vision. Creating strategic vision is concerned with “what do we want to become?” On the other hand, a company’s mission statement outlines the core purpose of the organisation, “why it exists?” The mission examines the “raison d’etre” of a company. The vision becomes tangible as a mission statement.
A company’s mission statement is defined by the buyer needs it seeks to satisfy, the customer groups and market segments it is endeavouring to serve and the resources and technologies that is developing in trying to please its customers. A mission statement is a message designed to be inclusive of the expectations of all stakeholders for the company’s performance over the long run. The executives and board who prepare the mission statement attempt to provide a unifying purpose for an organisation, that will lay emphasis on business and thereby path for development.
Vision statement tends to be very short in length but broad in scope and can be described as a destination. On the other hand, mission statements are more specific and address questions concerning the reason for an organisation to exist, and its competitive advantage in the marketplace. Vision and mission statements need to be followed by objectives. Mission statements seek to make a vision more specific and objectives are attempts to make mission statements more concrete.
Put in simple words, objectives are used to operationalize the mission statement, and use them as performance targets. These objectives act as yardstick for measuring company’s performance. Objectives are futuristic that a company attempts to realise.
The second phase of strategic management process is analysis of organisation’s external operating environment. The prime purpose of analysing external operating environment is to identify (organisation’s) strategic opportunities and threats for the organisation, in which organisation pursues its vision, mission and goals.
The key environmental factors that affect an organisation are political and legal, economic, technological, socio-cultural and societal factors. All these factors may be grouped into three categories, they are – (i) industry environment, (ii) national environment, and (iii) macro environment.
It is the third phase of strategic management process. The essential purpose of the internal analysis is to identify strengths and weaknesses of the organisation. The internal environment of organisation consists of variables that are within the organisation itself. They are the structure, culture and resources. A business becomes strong when it has all these three in balance. The absence of all these or any of them makes the firm weak.
Step # 4. Strategy Formulation:
Strategy formulation is the development of long-range plans for the effective management of environmental opportunities and threats. In this step, managers develop a series of strategic alternatives to pursue. The alternative strategies may be at global level, corporate level, business level, and functional level. Managers develop a firm specific model, which will align, fit or match the company’s resources and capabilities. Strategies should help build competitive advantage.
Step # 5. Strategy Implementation:
After developing alternative strategies and selecting a specific strategy to achieve competitive advantage, strategy developers must ask managers to put it into action. Sometimes, the existing culture, structure and policies may not support the strategy implementation. In such cases, there is a need to change them or modify them according to the requirement. Managers should not pursue a strategy that does not suit the existing culture, structure and policies. Generally, strategy implementation is done by middle and operating level managers and the same is reviewed by top level managers.
Step # 6. Strategy Evaluation and Control:
Strategy Evaluation and Control go side by side strategy implementation. Just strategy formulation and implementation may not help in achieving corporate objectives. Good control is critical for corporate success.
Strategic evaluation and control is the process in which corporate activities and performance results are measured and monitored with a view to compare actual result with the predetermined target performance. If the corporate objectives are not achieved, then managers need to take corrective action. Evaluation and control helps in identifying weakness in implementing strategies.
Process of Strategic Management – Brief Summary of Strategic Management Process
Strategic management begins with developing a vision, mission, and goals for the company. However today, by and large, a top-down method is adopted by most companies, although in certain cases the bottom-up approach is also essential. In the top-down approach, top management drives strategy for the middle and junior management to implement. In the bottom-up approach, strategies are conceived at the field and operational levels, and presented to top management.
This is followed by SWOT analysis wherein the firm looks at the external environment, namely political, sociological, cultural, environmental, and legal, relevant to organizational goals. Similarly, an in-depth analysis of internal factors especially on resources and competency is critical. This would help to identify the gaps and work on them so that the organizational goals are met. Contemporary strategic management thinkers also lay a lot of stress on resource-based strategy deployment, as resource acquisition and allocation are immensely relevant in a cost-conscious, competitive, time-bound world.
At this stage, a quick re-affirmation of long-term objectives is important in order to translate a company’s vision, mission, and goals into achievable numbers. Based on input from preceding stages, management will develop a set of strategic options and exercise choice. The options chosen would mainly be based on soft issues such as culture and leadership, as internal analysis would have thrown enough light on both hard and soft factors.
After arriving at an executable strategic plan, the company must work on the actual implementation of the plan. Implementation is a critical exercise, as the effectiveness of a strategic plan is more in the execution than in the crafting. Effective deployment of strategy will involve monitoring diverse variables including leadership, corporate culture, communication, policies and procedures, systems of hierarchy and authority, budgets, and allocation of resources and rewards.
The company must ensure that a planned strategic management initiative delivers value by way of performance. For this, the organization must set desired performance indicators and tools, as well as a schedule at which performance would be evaluated. Throughout this strategic management process, there must be a feedback mechanism that runs through all nodes providing information to management on its effectiveness.
Mintzberg (1988) suggested that the traditional way of thinking about strategy implementation focused only on planned or deliberate strategies. In such a traditional approach, organizations initiate strategy formulation as a formal planned process, by specifying their vision, mission, goals, and objectives.
Minztberg claimed that some organizations begin implementing strategies before they clearly articulate mission, goals, or objectives. In this case, strategy implementation actually precedes strategy formulation. According to him, strategies that unfold in this way are emergent strategies. The implementation of emergent strategies involves the allocation of resources even though an organization has not explicitly chosen its strategies.
Organizations nowadays must use both deliberate and emergent strategies to maintain their footing in a rapidly changing global landscape.
During the last thirty years, free markets and the drift towards capitalism have given birth to a new breed of entrepreneur. To pre-empt such rapid competitive growth, companies empirically start allocating resources and implementing strategies on an emergent basis. Subsequently, a comprehensive analysis of business and competition leads to formation of deliberate strategy. At this stage, there could be corrections to the emergent strategy as well.
Process of Strategic Management – 4 Step Process: Environmental Scanning, Strategy Formulation, Strategy Implementation and Strategy Evaluation
The purpose of strategic management is to determine the organisation’s strategy. Through strategic management process, managers determine strategies for the organisation which will enable it to achieve its strategic goals and objectives. Strategic management is a continuous process that analyses the business, its competitors and industries in which the organisation is operating, it determines goals and objectives to meet the present and future needs of its own and competitor’s and then reassesses each strategy.
Strategic management process has the following four steps:
1. Environmental Scanning
2. Strategy Formulation
3. Strategy Implementation
4. Strategy Evaluation
Step # 1. Environmental Scanning:
Environmental scanning is the process of collecting, scrutinizing and providing information for strategic purposes. It helps in analysing the internal and external factors influencing an organisation. After the environmental analysis process, the strategist should evaluate it on a continuous basis and devise ways to improve it.
Organisational environment consists of both external and internal factors. Environment is scanned to find out the development taking place and forecast the factors that will influence organisational success. Environmental scanning refers to possession and utilization of information about occasions, patterns, trends, and relationships within an organisation’s internal and external environment.
It helps the managers to decide the future path of the organisation. Environmental scanning helps in identifying the threats and opportunities existing in the environment. While formulating strategy, the organisation must take advantage of the opportunities and minimize the threats. A threat for one organisation may be an opportunity for another.
Step # 2. Strategy Formulation:
Strategy formulation is the process of choosing the most appropriate course of action for the realization of organisational goals and objectives and thereby achieving the organisational vision. The process of strategy formulation basically involves six main steps. Though these steps do not follow a rigid chronological order, however they are rational and can be followed in this order.
These steps are:
i. Setting Organisations’ Objectives:
The key component of any strategy is to set the long-term objectives of the organisation. The strategy is the medium for achieving organisational objectives. Objectives indicate the position the organisation want to achieve whereas strategy indicates the path or the process of reaching there. Strategy includes both, setting of objectives as well the medium to be used to realize those objectives. Thus, strategy is a wider term which believes in the manner of deployment of resources so as to achieve the objectives.
While fixing the organisational objectives, it is essential that the factors which influence the selection of objectives must be analysed before the selection of objectives. Once the objectives and the factors influencing strategic decisions have been determined, it is easy to take strategic decisions.
ii. Evaluating the Organisational Environment:
The next step is to evaluate the general economic and industrial environment in which the organisation operates. This includes a review of the organisation’s competitive position. It is essential to conduct a qualitative and quantitative review of an organisation’s existing product line.
The purpose of such a review is to make sure that the factors important for competitive success in the market can be discovered so that the management can identify their own strengths and weaknesses as well as their competitors’ strengths and weaknesses. After identifying its strengths and weaknesses, an organisation must keep a track of competitors’ moves and actions so as to discover probable opportunities of threats to its market or supply sources.
iii. Setting Quantitative Targets:
In this step, an organisation must practically fix the quantitative target values for some of the organisational objectives. The idea behind this is to compare with long-term customers, so as to evaluate the contribution that might be made by various product zones or operating departments.
iv. Aiming in Context with the Divisional Plans:
In this step, the contributions made by each department or division or product category within the organisation is identified and accordingly strategic planning is prepared for each sub-unit. This requires a careful analysis of macroeconomic trends.
v. Performance Analysis:
Performance analysis includes discovering and analysing the gap between the planned or desired performance. A critical evaluation of the organisation’s past performance, present condition and the desired future conditions must be done by the organisation. This critical evaluation identifies the degree of gap that between the actual position and the long-term aspirations of the organisation. The organisation also tries to estimate its probable future condition if the current trends continue.
vi. Choice of Strategy:
This is the ultimate step in strategy formulation. The best course of action is chosen after considering organisational goals, organisational strengths, potential and limitations as well as the external opportunities.
Step # 3. Strategy Implementation:
Strategy implementation converts the chosen strategy into organisational action so as to achieve strategic goals and objectives. Strategy implementation is the process where organisation develops, utilizes, and amalgamates organisational structure, control systems, and culture to follow strategies that lead to competitive advantage and better performance.
Organisational structure allocates special value developing tasks and roles to the employees and states how these tasks and roles can be correlated so as maximize efficiency, quality, and customer satisfaction—the pillars of competitive advantage.
Creating organisational structure for implementing strategy alone is not sufficient to motivate the employees, an efficient organisational control system is also required. The control system gives powers to the managers with motivational incentives for employees as well as feedback on employees and organisational performance.
Following are the main steps in implementing a strategy:
i. Creating an appropriate organisation structure for implementing the strategy successfully.
ii. Allocation of resources to strategy related activities.
iii. Making policies suitable to strategy implementation.
iv. Employing best policies and programmes for improvement in the organisation.
v. Devising incentives and reward systems according to the accomplishment of results.
vi. Making use of strategic leadership.
Excellently formulated strategies will fail if they are not properly implemented. Also, it is essential to note that strategy implementation is not possible unless there is stability between strategy and each organisational dimension such as organisational structure, reward structure, resource-allocation process, etc.
Step # 4. Strategy Evaluation:
Strategic evaluation is the final phase of strategic management. Strategy evaluation is as significant as strategy formulation because it demonstrates the efficiency and effectiveness of the strategic plans in achieving the stated goals and objectives. The strategic managers can also assess the appropriateness of the current strategy in today’s dynamic world with socio-economic, political and technological innovations.
The significance of strategy evaluation lies in its capacity to coordinate the task performed by managers, groups, departments, etc., through control of performance. Strategic evaluation is significant because of various factors such as developing inputs for new strategic planning, the urge for feedback, appraisal and reward, development of the strategic management process, judging the validity of strategic choice, etc.
Process of Strategic Management – 3 Different Stages of Strategic Management Process: Strategy Formulation, Implementation and Evaluation
A Strategy is developed within the firm. The final product or outcome will necessarily be shaped by the background of that firm, the processes it has in place for arriving at basic business decisions and the interest and perspectives of its senior managers. Typically, these factors come together in a formal strategy process through which strategy is defined and evaluated by the firm’s managers.
After discussing the meaning of Strategy, Strategic Management, need for the Strategic Management, let us now proceed to the process of Strategic Management.
Strategic Management process can be described as ‘a set of managerial decisions and actions which determines the long-run direction and performance of the organization’. Setting the organizational mission, developing the objectives based on the mission, developing and implementing the strategies to achieve the objectives, measuring the achievements and adjusting the strategies to the organizational needs are all involved in the Strategic Management process. In other words, the Strategic Management process consists of three stages.
1. Strategy formulation,
2. Strategy implementation, and
3. Strategy evaluation.
The process of strategic management covering the full set of commitments, decisions and actions is needed for a firm to achieve strategic competitiveness and to earn increased rate of returns. Strategic competitiveness is achieved when a firm successfully formulates and implements a value creating strategy.
When a firm implements such a strategy that other firms are unable to duplicate or find too costly to imitate, this firm has a sustainable competitive advantage. By achieving strategic competitiveness and successfully exploiting its competitive advantage, the firm is in a position to achieve the enhanced rate of returns.
Keeping the above aspects in mind, let us understand in detail the three different stages of strategic management:
Stage # 1. Strategy Formulation:
Strategy formulation includes developing a vision and mission, identifying an organization’s external opportunities and threats (external audit), determining internal strengths and weaknesses (internal audit), establishing long-term objectives, generating alternative strategy, and choosing particular strategies to pursue.
Strategy formulation issues include deciding what new businesses to enter, what businesses to abandon, how to allocate resources, whether to expand operations or diversify, whether to enter international markets, whether to merge or form a joint venture, and how to avoid a hostile takeover.
Because, every organization has limited resources, strategists must decide which alternative strategies will benefit the firm most. Strategy formulation decisions commit on organization to specific products, markets, resources and technologies over an extended period of time. Strategies decide long-term competitive advantages.
Strategic decisions for good or bad have major multifunctional consequences and enduring effects on a company. Top management people have the acumen and the best perspective to understand fully that the consequences are strategy formulation decisions; they have the authority to commit the resources necessary for implementation.
Stage # 2. Strategy Implementation:
Strategy implementation requires an organization to establish annual objectives, device policies, motivate employees, and allocate resources so that formulated strategies can be executed. Strategy implementation includes developing a strategy-supportive culture, creating an effective organizational structure, redirecting marketing efforts, preparing budgets, developing and utilizing information system, and linking employee compensation to organizational performance.
Strategy implementation is frequently called as the action stage of Strategic Management. Implementing strategy means mustering employees and managers to put formulated strategies into action. Strategy implementation requires personal discipline, commitment, participation, and sacrifice. The success of strategy implementation depends upon manager’s ability to motivate employees, which is more an art than a science.
Strategy formulated but not implemented serve no useful purpose. Another important critical requirement for successful strategy implementation is inter personal skills because strategy implementation activities affect all employees and managers in an organization. The real challenge of implementation is to stimulate and inspire the people in the organization to work with pride and enthusiasm towards achieving the stated objectives.
Stage # 3. Strategy Evaluation:
This is the final stage in strategic management. 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 are constantly changing. Strategy evaluation comprises of three important fundamental activities.
i. Reviewing external and internal factors that are the bases for current strategies,
ii. Measuring performance, and
iii. Taking corrective actions.
Strategy evaluation is needed because success today is no guarantee of success tomorrow Success always creates new and different problems; complacent organizations experience demise.
Thus, strategy formulation, implementation and evaluation activities occur at three hierarchical levels in a large organization – corporate, divisional or Strategic Business Unit (SBU) and functional. By fostering communication and interaction among managers and employees across hierarchical levels, strategic management helps an organization function as a competitive team. Almost all organizations are engaged in strategic management process either formally or informally. Firms that consciously engage in strategic management generally follow formal process and the rest follow informal approach.
Process of Strategic Management – Broad Phases of Strategic Management Process Encompassing a Number of Steps
The strategic management process encompasses three phases which together involve a number of systematic steps. These three phases are strategy formulation, implementation and evaluation and control. These broad phases encompass a number of important steps. These steps are also known as Tasks of Strategic Management and Components of Strategic Management. Here outlines the different steps/tasks.
Strategy formulation involves four important steps, viz., determination of mission and objectives, analysis of strengths and weaknesses of the firm and the environmental opportunities and threats (SWOT), generation of alternative strategies and choosing the most appropriate strategy.
1. Determination of Vision/Mission and Objectives:
“Strategic management can be defined as the art and science of formulating, implementing and evaluating cross-functional decisions that enable an organisation to achieve its objectives.” In short, strategy is a means to achieve the objectives. It is, therefore, quite obvious that determining the mission (which influences objectives) and objectives is the first step in strategy formulation.
The mission defines the broad social purpose and scope of the organisation whereas objectives more specifically define the direction to achieve the mission. Objectives help translate the organisational mission into results. While objectives may be generic in their expression, goals set specific targets to be achieved within a time frame.
For example – a fertilizer company may state its mission as to fight world hunger and its objectives as to increase agricultural productivity through development, efficient production of improved fertilizers, generate profits to finance R&D and to ensure satisfactory returns on investment. The goals will specify the quantity of production or growth rate or market penetration to be achieved within specified periods.
2. SWOT Analysis:
In strategic management, the term strategic is used to refer to the firm-environment fit. This indicates the role of SWOT in strategic management.
The strengths and weaknesses of the firm and opportunities and threats in the environment will indicate the portfolio strategy and other strategies it should pursue.
An organisation should address questions such as – what are the changes, including possible future changes, in the environment which have implications for us and how should we respond to them? What are the opportunities in the environment which can be exploited utilising our strength? What are the threats and do we have the strength to combat the threats? How can we mass up our strength? What are our weaknesses? Can we overcome or minimise the weaknesses?
The economic liberalisation in India has opened up enormous new opportunities. The liberalisation, at the same time, has posed severe threats to many existing firms because of the increase in competition. Taking advantage of these opportunities, many Indian companies have entered new businesses and expanded the existing ones.
A number of companies have made an exit from some of their businesses as they realised that they do not have enough strength to be successful or that the resources can be put to better use elsewhere. Several companies have both added new businesses and dropped some of the existing ones.
3. Strategic Alternatives:
Given the mission and objectives and having analysed the strengths and weaknesses of the firm and the environmental opportunities and threats, the strategists should proceed to generate possible alternative strategies. There may be different strategic options for accomplishing a particular objective. For example – growth in business may be achieved by increasing the share in the existing markets or by entering new markets, by horizontal integration or by a combination of these.
Increase in supply may be achieved by putting up new plants or by M&A. An entry into new business may be affected by establishing a greenfield wholly owned enterprise, a joint venture or acquisition. There are, thus, a number of strategic options. It is necessary to consider all possible alternatives to make the base for choice wide.
4. Evaluation and Choice:
The purpose of considering different strategic options is to adopt the most appropriate strategy. This necessitates the evaluation of the strategic alternatives with reference to certain criteria.
Criteria such as – suitability, feasibility and acceptability are commonly employed to evaluate the strategic options.
Operationalizing the strategy requires transcending the various components of the strategy to different levels, mobilisation and allocation of resources, structuring authority, responsibility, tasks and information flows, and establishing policies.
In a multi-SBU enterprise, strategies for the SBUs, based on the corporate strategy, will also have to be formulated.
Evaluation and control is the last phase of the strategic management process. The objective is to examine whether the strategy as implemented is meeting its objectives and if not to take corrective measures.
Continuous monitoring of the environment and implementation of the strategy is essential. The loop connecting the evaluation and control to the starting point of the strategic management process indicates that strategic management is a continuous process, the evaluation providing the feedback for modifications.
Process of Strategic Management – 7 Steps of Strategic Management Process in Single and Multiple SBUs Enterprise
When we all have accepted management as a process, undoubtedly strategic management is part and parcel of thin line of thinking. We are talking of management as a process of decision making.
Strategic management is one which involves making series of strategic decisions to achieve organisation goals. In this article a process stands for an identifiable flow of information through interrelated stages of analysis which are directed towards the attainment of a given objective or objectives.
A process is an identifiable flow of information through interrelated stages of analysis directed toward the achievement of an aim. Process is, therefore dynamic than static entity. Hence, events and relationships between variables are dynamic, flexible and continuous taken in an integrated whole; it implies a dynamic interaction both affecting and being affected by good many relevant and emergent variables.
Strategic management as a process involves a set of activities or elements. One thing should be made clear at this juncture, that all experts do not agree over these activities or elements of strategic management process and the fashion in which they interact among themselves.
Though strategic management process philosophy remains the same, it is bound to differ in case of those firms which have single SBUs and those which have multiple SBUs. The following are the steps of strategic management process in case single SBU enterprise and multiple SBUs enterprises and the integrated over model where the elements of it remain same.
No human activity is unintentional. There is some objective behind his activities or creations—good or bad for what is good for one may not be good for another necessarily. Organisations are the deliberate creations of human beings having a definite mission towards which all efforts, energies, and resources are directed.
A mission is a fundamental and a unique purpose by which it becomes outstanding or distinct from another. The scope of its function is identified in its operation in product and market forms. A mission is long lasting making its intentions clear. It reflects the very philosophy of a decision maker.
It is the image the organisation wants to imprint on everybody who comes in contact with it. A mission is the hub around which all managerial functions revolve. In the light of the mission—the main stay—company has objectives to attain or results are to be attained.
Compared to ‘mission’ the ‘objectives’ are of lesser value in that they cannot be repugnant to the basic mission. Goods are the aims or destinations or direction in which the corporate is to move.
Once the mission is clear, the objectives are stated the attainment of which is not that easy. To plunge in the race, there is need for understanding that environment. Every organisation is a sub-system which works as a part of supra-system namely environment made up of different external forces namely, social, cultural, legal, technological, ecological psychological and physical which are constantly changing themselves and influencing the entire environment.
An organisation being part of this environment is subject to influence of different variables and influence the environment. Any interaction is an attempt to adjust itself with the environment. These environmental forces are uncontrollable by the organisation and only action is interaction of adjusting to the flowing currents. In interacting every firm is exposed to opportunities backed by threats also.
External environment releases opportunities studded with threats and the extent the company encashes on this will depend on its ability that is its internal strengths and weaknesses. It is corporate analysis which touches the measurement of these company’s strengths and weaknesses.
Internal strengths will help to overcome the weaknesses if they are gauged in proper perspectives. This internal analysis of strengths and weaknesses will also determine its ability to adjust to external environment. A wise man will look before he leaps.
As the organisation is interacting with its external environment knowing its internal strengths and the weaknesses, stands to find opportunities and threats which have strategic alternatives. This exercise of exposing it to external environment and keeping updated of its strengths and weaknesses will render itself bolder and shape to dense and develop more alternatives.
It is like a “nine point puzzle” where you generate more and more alternatives of joining all nine points without lifting your pen from the paper and without duplicate the routes. Resultantly, the manager is to choose between or among the alternatives as to which is the best suited its internal strengths and weaknesses.
There is need for choosing the strategic alternative; one which is the best filling in the framework of company mission, objectives on one hand and strengths and weaknesses on the other.
Once the alternatives are available, there is need for right strategy to tackle the situation. Strategy formulation is the result of making strategic decisions taking into account all the factors that determine or govern a given strategy.
A given strategy is sure to influence organisation’s operation or working in any predetermined manner, the process of choice scientifically takes note of how each alternative strategy affects the variant critical factors that determine company’s working.
Again, a chosen alternative should be acceptable in the backdrop of company’s objectives. One should not jump to the conclusion that critically chosen strategy is the best one.
It is because, in addition to environmental and organisational forces, there are some personal factors because choice of strategy is done by individuals who have their own personal value judgments and aspirations too. Though a manager, strategist is to be objective and open minded, there is a tendency to be subjective to a certain extent.
Once the strategists finalise the strategy and has the approval by the higher ups, this dream is to be translated into a reality; a promise should result in performance without any gap. It is time to put the strategy into gear and seeing that strategy is put to action. It is because, the soundest strategy has no meaning unless, and it is put to bring the expected result.
However, implementation of strategy is not a child’s play. It calls for designing the suitable organisational structure, able and effective leadership, development of functional or operational policies, developing and allocating the resources, design of effective information system and structuring the control system for monitoring and so on.
This is the terminal stage of strategic management process. However, as business is on-going activity, this function of control never ends. It is more a futuristic function that control and monitoring belong to. Continuous monitoring of the implementation of a strategy is a must so that corrective action can be taken if need there be.
The variations between what is expected and actually happening, are measured, causes are traced and corrective action can be taken to put the strategy on the path of progress.
These variations are likely to be the areas of choice of strategy, change in the mission and objectives or change in organisational structure. As change is another name for business, strategic business management is a dynamic process.
This strategic business management process brings to light certain implications.
These implications are:
(i) The elements that make this strategic process are occurring in a definite sequence. Each step is logical.
(ii) These elements are not independent but inter dependent or interrelated.
(iii) To keep the strategic process on going, there is need for feed-back and
(iv) The strategic management process is dynamic because variables are interrelated.
This portion of the process of strategic managements has explained as to how to do it?
Process of Strategic Management – Simplistic View of the Process in Sequence: From Analysis to Evaluation
Like any other management, strategic management is a process. The logic of a process is that its particular elements are undertaken in a sequence through time. In order to understand this phenomenon, let us take strategic management as an action for a moment. Every action has two dimensions – substantive and procedural. Substantive dimension of action involves determination of what to do and procedural dimension of action involves determination of how to do.
Both these dimensions are interdependent and taken together help in achieving the objective for which action is contemplated. In the case of strategic management, substantive dimension involves determination of a strategy or a set of strategies and procedural dimension deals with putting a strategy into operation. When both these dimensions are completed, a natural requirement emerges, that is, to see whether both dimensions have been completed effectively; if not, what additional efforts are required to ensure the completion of these dimensions. This is done through control of these dimensions.
The above discussion is more relevant to a process which is more or less static, for example, assembly line production process. However, strategic management process is dynamic with no apparent beginning or end because of close interaction of different phases. For example, if we take establishing strategic intent as the beginning of strategic management process, the question arises – Is strategic intent established in vacuum or is it shaped by likely future environment?
If we presume that strategic intent is set in environmental context, which is reality, the question is – Does not environmental analysis, even in a very raw form, precede establishing strategic intent? There are similar other instances too. This kind of phenomenon of a dynamic process poses problems in putting various phases in a sequence though putting these in a sequence eases understanding of the process.
The strategic management process begins with careful analysis of a firm’s internal strengths and weakness and external opportunities commonly referred to as SWOT analysis.
Information derived from SWOT analysis is used to conduct a strategy that will enable the firm to use its distinctive competence to build competitive advantages. A strategy must be formulated that matches the external opportunities found in the environment with the firm’s internal strengths. Effective strategy formulation is based upon using the firm’s distinctive competence and strengths in such ways as other firms cannot duplicate. This is key to building competitive advantage.
Implementation measures or requirements include organizing the firm’s tasks, incorporating new technologies to better monitor value-creating activities, hiring individuals to perform designated activities, assigning them responsibility for carrying out such activities, training them to perform activities properly and rewarding them if they carry out responsibilities effectively.
The industry environment within which a firm operates inevitably changes over a time. Also, a firm’s performance may fall below desired levels. Either event compels a firm to re-examine its existing approach and make adjustments that are necessary to regain high performance.
Mechanism must be put into place to monitor potential environmental changes alert managers to developments that require a change in strategy and implantation practices.
Process of Strategic Management – Formulation of Objectives, SWOT Analysis, Consideration of Strategic Alternatives, Choice of Strategy, Implementation and Evaluation
The strategic management process is given below:
1. Formulation of Objectives:
A strategy is a means to achieve the ends or objectives. However, objectives should not be static, they should be dynamic. Changes in the environment and/or changes in the organisational strengths and weaknesses may call for modifications of the objectives. As Kotler remarks, Objectives can grow obsolete because of the continuous changes occurring in the company’s marketing environment.
Therefore a company should appraise how well its objectives tap the firm’s opportunities and resources. Dynamic companies conduct audit of their objectives and reform or reorient the objectives, to ensure that the company’s objectives are the most appropriate in the given environment and the company resources. It is such appraisal and the resultant reorientation of the business which have enabled many companies to achieve remarkable successes often reflected in the prudent diversification and fast growth of business.
Glueck has aptly remarked, “Objectives help define the organization is its environment”. Environment analysis will help find answer to the questions what should be the company’s business. If ‘what should be the business’ is different from ‘what is the business’, there is a need for redesigning the business, matching the company resources to the environment.
As Peter F. Drummer succinctly puts it, ‘what will the business be’ is related to “what changes in the environment are already discernible that are likely to have high impact on the characteristics, mission, and purpose of our business? And how do we now build these anticipations into our theory of business, into its objectives, strategies and work assignments.”
Most companies have multiplicity of objectives which call for assignment of relative priorities. A company having multiple objectives pursues some objectives in the short- run and others on the long-term. An example, the short-run objective of market penetration may be a strategy to help achieve the long-run objective of market dominance or profit. As Kotler points out, “The Japanese are patient capitalists who are willing to wait even a decade before realizing their profits.”
A company will normally pursue the secondary objectives listed as long-run objectives. This does not mean that long- term objectives are secondary objectives. Some of the long-term objectives like profit, are essentially primary objectives like development of the local community, assisting the development of the industry of which the firm is a part, serving the society, good corporate citizenship etc., are secondary objectives.
The change of some of the objectives and the definition of the business may be necessitated by environmental factors. As Drummer points out, “Very few definitions of the purpose and mission of a business have anything like expectancy of thirty, let alone fifty, years. To be good for ten years is probably all one can normally expect. The environmental trends of the last two decades indicate that the life expectancy is becoming shorter due to very fast and frequent changes in the environment, particularly in the field of technology.”
2. SWOT Analysis:
SWOT analysis is the identification of the threats and opportunities in the environment. The strengths and weaknesses of the firm is the cornerstone of business policy formulation. These factors determine the course of action to ensure the survival and growth of the firm. Though the environment might present many opportunities a company may not have the strength to exploit all of them.
Similarly, sometimes a firm will not have the strength to meet the environmental threats. In such a situation it will be prudent to give it up and concentrate on such business for which the firm is most competent. The environment dynamics necessitates such restructuring. Certain products which were exported in the early stages of the product life cycle by high income countries like the U.S.A., were later imported by them. Other countries which have acquired the technology would be able to produce them cheaper because of low above cost or would sometimes improve the technology.
Thus, although the U.S., had a very dominant position in electronic products and had been exporting them in the beginning, later countries like Japan started exporting them to the U.S., and replacing the U.S., in other markets too. An analysis of products treated by countries like Japan, Korea, Taiwan, etc., would show the changes in the comparative advantages.
3. Consideration of Strategic Alternatives:
The environment opportunities and threats should be evaluated in the light of the strengths and weaknesses of the internal factors comprising finance, technology and skill, production facilities, personnel and marketing capabilities. The capability of a company to exploit the environmental opportunities or to meet the challenges depends on the strength of these factors, hence the importance of the internal resource audit. A company may be strong in respect of finance, technology, production facilities, and personnel marketing capabilities. The task is to make best use of its strategic strengths.
4. Choice of Strategy:
After the identification of the environmental opportunities and threats and the organisation strengths and weaknesses, the next step in the strategic management process is the choice of the most appropriate strategy/strategies.
A company planning market its product in foreign markets may have the following alternatives:
(i) Manufacture the product completely in the home country and export it to the foreign market.
(ii) Establish manufacturing facility in a free area like an export possessing zone and make exports from there.
(iii) Manufacture the components at home and assemble the product in the foreign market.
(iv) Contract some foreign firm for manufacturing the product and do only the marketing of it.
(v) Establish manufacturing facility in the foreign country and undertake the complete manufacturing of the product there.
(vi) Establish a joint venture abroad for manufacturing and marketing the product.
(vii) Enter into licensing agreement with a firm in the foreign market.
The choice of the strategy should invariably be based on the evaluation of the various alternatives.
Many good strategies fail to achieve the results because of poor implementation. The term implementation has been used in a broad sense so that it encompasses also the formulation of the plan to implement the strategy.
Formulation of different levels of strategies is an essential and important aspect of implementation in a multi-unit business.
Following three levels of strategies are applicable to such a business:
(i) Corporate Level Strategy:
It is the master strategy to achieve the overall corporate objectives. The other levels of strategies are designed to implement the corporate strategy, they are, therefore, formulated with reference to the corporate strategy.
(ii) SBU Level Strategy:
It is the strategy to achieve the specific objectives of the strategic business unit (SBU) in order to help achieve the overall corporate objectives. According to William F. Glueck SBU is “an operating division of a firm which serves a distinct product/ market segment or a well-defined set of customers or a geographic area. The SBU is given the authority to make its own strategic decision within corporate guide-lines as long as it meets corporate objectives”. The SBU is also known as ‘operating division’.
(iii) Functional Level Strategy:
The ultimate success of the SBU level strategy depends on the effectiveness with which it is translated to management functions like marketing, finance, production, R and D etc. For example, if some of the SBU level objectives are to be achieved by introducing a new product the R and D, production, finance and marketing departments will have to be geared up to this task.
There are only two levels of strategies in a single unit business namely, the corporate level and the functional level. Implementation involves mobilisation and deployment of resources, including personnel, needed for implementation, organising and assigning tasks to the various elements of the organisation. It is essential to formulate an implementation strategy for effective implementation of the strategy.
Besides their potential capability, motivation and high morale of people from top to bottom of the organization are essential for successful implementation of the strategy, is essential to formulate an implementation strategy.
In the words of William F. Glueck, “Evaluation of strategy is that phase of the strategic management process in which the top managers determine whether their strategic choice is implemented in meeting the objectives of the enterprise”.
Failure to achieve the results may be due to any one or more of the following:
(i) Improper Implementation of the Strategy:
This may be due to:
(a) Inappropriateness of the implementation strategy;
(b) Inefficiency and/or lack of commitment of the personnel in charge of implementation;
(c) Wrong assignments of the tasks; or
(d) Inadequacy of resources.
(ii) Environmental Changes:
These include increase in competition, changes in consumer preference or attitudes, technological changes which could not be anticipated while formulating the strategy etc. These may come in the way of achieving the results.
Sometimes environment changes make the achievement of the objectives easier. The chances of environmental changes affecting the achievements of the strategy indicate the need for constant monitoring of the environment and modification or reformulation of the strategy, as and when necessary.
(iii) Inappropriate Strategy:
It may be the result of a wrong diagnosis to the environmental threats and opportunities or the internal strengths and weaknesses or of a wrong strategic choice resulting from the faulty evaluation of the alternatives.
To conclude, the key to business success is the most effective utilisation of the company’s existing and additional resources and those it can mobilise and augment for any specific task. This involves the evaluation of the company’s strengths and weaknesses in the light of the environmental threats and opportunities and taking appropriate measure to harness the opportunities or to combat the threats and formulation of strategies accordingly.
Companies which fail to do so are often doomed to failure. As Glueck point out, “In the 50 years between 1918 and 1968, almost half of the 100 largest American firms went out of business or became significantly less important… Often a company become convinced it is almost invincible and need not examine what is happening in the market place. When the company ceases to adjust the environment to its strategy or does not react to the demands of the environment, by changing its strategy, the results are lessened achievement of the corporate objectives.”
Process of Strategic Management – Adopted by an Organisation having a Single Business
Strategic management process has three major steps- strategy formulation, strategy implementation, and strategic control.
The strategic management process is relevant for an organization having a single business. Organization that has more than one business creates strategic business unit (SBU) for each business. A strategic business unit serves a distinct independent product/ market segment.
Therefore, strategic management process of such an organization is slightly changed to incorporate strategies of strategic business units though the major steps remain the same.
Strategy formulation involves establishing organization’s strategic intent, undertaking environmental analysis and organizational analysis, identifying strategic alternatives, and choosing the most appropriate strategy. Let us briefly go through these aspects.
i. Organization’s Strategic Intent:
“Strategic intent envisions a desired leadership position and establishes the criterion the organization will use to chart its progress.” Strategic intent has three elements- vision, mission, and objectives. Vision of an organization represents what it would be in future.
It implies that the organization should create projection about where it should go in future and what major challenges lie ahead. Mission of the organization defines why it exists. Mission specifies the scope of the organization’s operations in product/market terms and how the organization will deal with its various stakeholders like customers, suppliers, government, society, and employees.
Objectives are the end results which the organization intends to achieve within a long-term specified period. Often, vision and mission of an organization are set by the founder/s of the organization and both these work on perpetual basis unless there are compelling reasons to incorporate changes in these.
Objectives are set after regular time intervals. The time duration adopted by most of the organizations in India is five years. For setting objectives, inputs are received from different stakeholders. For example, while setting objectives, Tata Steel collects inputs from shareholders, customers, suppliers, employees, community, public, and government.
ii. Environmental Analysis:
Environmental analysis is undertaken to assess what opportunities or threats in the environment exist for the organization. An opportunity is a favourable situation for the organization while a threat is an unfavourable situation for it. In environmental analysis, various environmental factors — economic, political-legal, technological, socio-cultural, international, and competitive — are assessed.
This exercise is undertaken mostly by corporate planning department of an organization if it exists or by a team of persons closely associated with planning function.
iii. Organizational Analysis:
Organizational analysis is undertaken to assess organizational strengths and weaknesses. Strength is a competence of the organization which it can use to develop competitive advantage. Weakness is a limitation or constraint of the organization which creates competitive disadvantage to it.
Strengths and weaknesses are assessed in the areas of production/operations, marketing, finance, human resource, information systems, and general management.
In human resource area, strengths and weaknesses are assessed in employment-related factors — HR planning, recruitment and selection, training and development, appraisal and compensation management, and human resource mobility; maintenance-related factors — employee retention, safety and health management, and other benefits related to employee maintenance; and industrial relations-related factors — union- management relationship, grievance handling mechanism, and systems for settling industrial disputes. Inputs for assessing strengths and weaknesses in human resource area are provided by HR professionals.
iv. Strategic Alternatives:
After taking the above exercise, an organization arrives at a position where it can identify various alternative strategies.
At the corporate level (organization level), various strategies available to an organization are as follows:
1. Stability — getting incremental growth by making present facilities more efficient.
2. Growth — growth through additional investment-
(а) Expansion of same product/service
(b) Vertical integration either forward or backward
(c) Diversification in other product/service
(d) Joint venture with other/s
(e) Takeover of business of other organizations.
3. Retrenchment — reducing level of operation or eliminating it in totality-
Identification of various alternative strategies is undertaken by corporate planning department.
v. Choice of Strategy:
After alternative strategies have been worked out, these are evaluated against some criteria. Generally, these criteria are derived from organization’ strategic intent (vision, mission, and objectives), environmental analysis, and organizational analysis. Besides, some personal factors of key strategist like his personal preference, risk taking attitudes, and value system also affect choice of a strategy.
Generally, this choice is made by a core group consisting of top level managers in which HR manager may or not be included depending on the practices of individual organizations. For example, when Tata Steel considered the strategy of taking over of Corus, an Anglo-Dutch steel firm (the largest takeover deal by an Indian company involving a sum of $11.3 billion), the core group consisted of Head of Tata Group, CEO of Tata Steel, VP Finance of Tata Steel, and Head of M&A (mergers and acquisitions) cell of Tata Group.
As against this, in many IT companies where knowledge workers are employed, HR head is included in core group constituted for takeover of another company as a whole or part of its business.
After a strategy is formulated, its implementation is undertaken. Strategy implementation is the process through which a chosen strategy is put into action. Various issues involved in strategy implementation are activating strategy, structural implementation, behavioural implementation, and functional implementation. Let us go through these issues.
i. Activating Strategy:
Activation is the process of stimulating an activity so that it is undertaken effectively. Activation of strategy is required because only a very small group of people is involved in strategy formulation while its implementation involves large number of people in the organization.
Activation of strategy requires institutionalization of strategy by undertaking communication of strategy organization-wide, formulation of derivative plans based on strategy, translation of long-term broad objectives into specific time-bound objectives, and resource mobilization and allocation.
Besides activation of a strategy, implementation of some strategies involves procedural implementation and project implementation. Procedural implementation involves completing various formalities as prescribed by legal framework like licensing, capital issue requirements, foreign collaboration requirements, and so on.
Project implementation involves undertaking the various activities relevant to implementing the project as envisaged by the strategy.
ii. Structural Implementation:
Structural implementation deals with redesigning organization structure according to the requirements of the strategy. The degree of this redesigning depends on the degree of similarity/dissimilarity between the existing and new strategies. If both the strategies have quite close similarity, the degree of organizational redesign will be very low, for example, growth through expansion in the same business line.
If both the strategies do not have similarity, the degree of organizational redesign will be quite high, for example, diversification in a new business line. In undertaking structural implementation, an attempt is made to achieve fit between strategy and organization structure so that the latter helps in achieving the results envisaged by the former.
iii. Behavioural Implementation:
Behavioural implementation deals with those aspects of strategy implementation that have impact on the people in an organization. Since an organization is a deliberate and purposive entity of human beings, the activities and behaviours of its members need to be directed in the way in which the strategy requires.
In behavioural implementation, activities relevant to shape leadership styles, organizational culture, organizational politics, values and ethics, and corporate governance as per strategy requirements are performed.
iv. Functional Implementation:
Functional implementation deals with formulating various functional strategies and plans and implementing these. When these strategies and plans are put into action, they bring results. Functional strategies are derived from corporate or business strategy which is under implementation.
Generally, these strategies are formulated by functional managers based on the guidelines provided by higher level managers in this regard. Depending on the nature of a strategy, various functional strategies may be in the areas of production/operations, marketing, finance, and human resource.
Strategic control is related to that aspect of strategic management through which an organization ensures whether it is achieving its objectives contemplated in the strategic action or not. If not, corrective actions are required for strategic effectiveness. Thus, there are two aspects in strategic control setting criteria for control and exercising control.
i. Setting Criteria for Control:
In order to evaluate whether the strategy under implementation is working effectively or not, some criteria have to be fixed. Normally, such criteria are fixed at two levels- intervening level and end-result level. Intervening criteria show whether the organization would achieve its objectives or not.
Such intervening criteria are fixed in three terms- product-related criteria (product quality and performance, product cost and price, new products introduced, etc.), market-related criteria (customer service, customer satisfaction, customer loyalty, etc.), and employee-related criteria (attracting and retaining human talent, human resource competence, human resource motivation and attitudes, etc.).
End-result criteria show whether the organization has achieved its objectives or not. Such criteria may be in two forms- financial performance (rate of growth in sales/assets/market share, profitability, addition to shareholder value, etc.) and social performance (degree of satisfaction of various stakeholders).
ii. Exercising Control:
After fixing the criteria for control, results are evaluated against these criteria. If actual results and control criteria match, no further action is required as the organization is moving on its track rightly. However, if both differ beyond the tolerance limit, an attempt is made to assess the factors responsible for such a deviation. Based on this analysis, suitable corrective actions are taken.