Strategic management plays significant role in functions of organizations. In a business organization, these functions are production/operations, marketing, finance, and human resource, commonly referred to as functional areas of management.
Strategic aspects of these areas are closely linked with strategic management. As a result, the current trend is to prefix the term ‘strategic’ in these areas. Besides, because of globalization, attempt is made to develop global competitiveness through the effective strategic management practices.
Learn about the role of strategic management in various segments and departments of business.
The different roles of strategic management can be studied under the following heads:-
A: The general roles of strategic management are:- 1. Strategic Visionary 2. Strategic Leader and Decision Maker 3. Creating Superior Performance and Competitive Advantage 4. Integrative Role 5. Adapting to Change 6. Thinking through the Overall Mission 7. Protecting Natural Environment 8. Managing in an Economic Crisis 9. Marching with Globalisation 10. Creating a Learning Organisation and a Few More.
B: Learn about the role of strategic management in specific segment of business. They are:- 1. Strategic Management and Business Units 2. Strategy Management and Non-Business Units 3. Public Sector Units and Strategic Management 4. Small-Scale Units and Strategic Management.
C: Learn about the role of strategic management in various sectors. They are:- 1. Production/Operations 2. Role of Strategic Management in Marketing 3. Finance 4. Human Resource 5. Global Competitiveness.
D: Learn about the role in NFP organisations. They are:- 1. Efficient Use of Resources 2. Achievement of Performance Goals 3. Maintaining Scarce Resources 4. Coping with Unanticipated Changes 5. Greatest Chances of Survival and Endurance 6. Fulfilling Goals and Mission 7. Foundation of Success 8. Basis of Funding 9. Dealing with Societal Pressures 10. Brings Efficiency and Effectiveness and a Few More.
Role of Strategic Management
Role of Strategic Management – In Business Organisations: Strategic Visionary, Strategic Leader and Decision Maker, Integrative Role and a Few More
Strategic management plays some very important general roles in business organisations.
These are discussed below:
Strategic manager points an organisation in a particular direction. He charts a strategic path for it to follow. He then communicates the strategic vision down the line to lower-level managers and employees. This has motivational value. He can convey a larger sense of purpose —so that employees see themselves as “building a cathedral” rather than “laying stones”. When strategic managers can point an inspiring picture of the company’s strategic vision they can arouse a committed organisational effort.
Strategic leaders use Strategic Management process to help the firm reach its vision and mission. They are decisive and committed to nurturing those around them. They create value for customers and returns for shareholders and other stakeholders. Changing external conditions and new strategic priorities call for new approaches to leadership. It is necessary to make better use of information to make good decisions.
Eisenhardt and Zbaracki write, “It is important that strategic managers learn to make better use of the information they have and understand the reasons that sometimes they make poor decisions. One important way in which managers can make better use of their knowledge and information is to understand how to become an effective or strategic leader and to learn how to understand and manage their emotions during the course of decision making.”
Charles Hill and Jones state, “One of the key strategic roles of both general and functional managers is to use all their knowledge, energy, and enthusiasm to provide strategic leadership for their subordinates and develop a high-performing organisation.”
Thompson and Strickland write, “Companies whose managers neglect the role of thinking strategically about the company’s future business path are prone to drift aimlessly and lose any claim to being an industry leader.”
In the business world, superior performance is typically thought of in terms of one company’s profitability relative to that of other companies in the same kind of business or industry. The profitability of a company can be measured by the return that it makes on the capital invested in the enterprise. The return on invested capital that a company earns is defined as its profit over the capital invested in the firm.
Much of strategic management is about identifying and describing the strategies that managers can pursue to attain superior performance and a competitive advantage for their organisation. If a company’s strategy results in superior performance, it is said to have a competitive advantage. A company can best maximize shareholder returns by pursuing strategies that maximize its own profitability.
Strategic management also plays the role of integrator. It requires managers to take an integrative view of the organisation and assess how all of the functional areas and activities fit together to help an organisation achieve its goals and objectives. It motivates isolated functional areas to strive and work towards overall goals. It promotes ‘integrative thinking’ and acting at all levels. While challenge is great, so is the potential payoff. It helps to harness the collective genius of the people in his organisation.
The strategic management believes that organisations should continually monitor internal and external events, trends and crises so that timely changes can he made as needed. The rate and magnitude of changes that affect organisations are increasing dramatically. This needs strategic managers that allow organisations to adapt effectively to change over the long run. In today’s business environment, the only constant is change. Successful organisations effectively manage change through dynamic strategies.
The need to adapt to change leads organisations to key strategic management questions, such as “What kind of business should we become” “Are we in the right field(s)?” “Should we reshape our business?” “What new competitors are entering our industry?” “What strategies should we pursue?” “How are our customers changing?” “Are new technologies being developed that could put us out of business?”
Peter Drucker says that the prime role of strategic management is thinking through the overall mission of a business. To play this role, the managers must ask these questions – “What is our Business?” This leads to the setting of objectives, the development of strategies, and the making of today’s decisions for tomorrow’s results.
This clearly must be done by a part of the organisation i that can see the entire business; that can balance objectives and the needs of today against the needs of tomorrow; and that can allocate resources of men and money to key results.
Today, the natural environment has become an important strategic issue. Global warming, bioterrorism, and increased pollution suggest that perhaps there is now no greater threat to business and society than the continuous exploitation and decimation of our natural environment. Mark Starik says, “Halting and reversing worldwide ecological destruction and deterioration…is a strategic issue that needs immediate and substantive attention by all businesses and managers.”
In times of economic crisis, strategic management plays a great role. Strategic managers can develop promising new strategies during a severe recession, business cycles, a serious economic downturn or business breakdown. In hard and severe economic times and financial crisis, strategic management adopts dual strategies – “Surviving today and competing tomorrow.”
It can make the most of the firm’s existing resources and capabilities to maximize performance in the present while also developing to meet the requirements of the future. Strategic managers can safeguard core capabilities and can make shrewd investments to prepare the firm for the next upturn. They then invest in technology, human resources and in improving capabilities.
In recessionary times strategic management offers opportunities for doing things differently, adapts low-cost technical solutions, develops products at low cost for emerging market countries, finds low-cost customer solutions, and discovers the markets for product. Such strategies can bring massive industrial change and economy can flourish.
Strategic management always walks with global trends and changes. It considers global economies. Globalisation increases the range of opportunities and challenges. One of the challenges for firms is to understand the need for culturally sensitive decisions when using the strategic management process and to anticipate ever-changing complexity in their decisions and operations. Globalisation also affects the design, production, distribution and servicing of goods and services.
Strategic managers very well understand that globalization has led to higher levels of performance standards in many competitive dimensions, including those of quality, cost, productivity, product introduction time, and operational efficiency. They also understand that globalization is not risk free – it has a “liability of foreignness.”
Two risks are important to consider for strategic managers – (a) One risk of entering the global market is that typically a fair amount of time is required for firms to learn how to compete in markets that are new to them. (b) Secondly, a firm’s performance may suffer with substantial amount of globalization.
It is important to note the words of Fred R. David – “Global considerations impact virtually all strategic decisions! The boundaries of countries no longer can define the limits of our imaginations. To see and appreciate the world from the perspective of others has become a matter of survival for businesses. The underpinnings of strategic management hinge upon managers’ gaining an understanding of competitors, markets, prices, suppliers, distributors, governments, creditors, shareholders, and customers worldwide. The price and quality of a firm’s products and services must be competitive on a worldwide basis, not just on a local basis.”
Strategic management plays an important role in helping an organisation operate successfully in a dynamic, complex environment. It helps the firms become less bureaucratic and more flexible to be competitive in dynamic environments. It helps develop strategic flexibility—the ability to shift from one dominant strategy to another. It helps to get competitive advantage.
Strategic management helps the company become a learning organisation — which becomes skilled at creating, acquiring, and transferring knowledge and at modifying its behaviour to reflect new knowledge and insights. It demands everyone to be involved in the process of actively learning and adapting. To adapt to change, foster creativity, and remain competitive, strategic managers are creating learning organisations.
Strategic management has become a self-reflective learning process that familiarizes managers and employees with strategic issues and feasible alternatives for resolving those issues. Fred R. David says, “A key role of strategists is to facilitate continuous organisational learning and change.”
R. T. Lenz writes, “Remember, strategic management is a process for fostering learning and action, not merely a formal system for control. It stimulates creativity and builds a culture of learning”. No organisation has unlimited resources. There is no such thing as a permanent competitive advantage. Therefore, no organisation can pursue all the strategies that potentially could benefit the firm. Strategic decisions thus are always made on the basis of continuous learning.
Strategic management shows employees “paths of learning”. It builds learning organisation to avoid stagnation through continuous experimentation and learning. It suggests changes to strategies and programmes to take advantage of environmental shifts. It creates organisations that are willing to experiment and are able to learn from their experiences.
It has become very difficult for business organisations to compete in the twenty-first century dynamic and complex environment without the help of strategic management.
This competitive landscape reflects the following noteworthy features:
i. The fundamental nature of competition in many of the world’s industries is changing.
ii. Business environment has become hyper competitive.
iii. The pace of change is relentless and is increasing.
iv. Even determining the boundaries of an industry has become challenging.
v. Conventional sources of competitive advantage such as economies of scale and huge advertising budgets are not as effective as they once were.
Strategic managers have a new mind-set that values flexibility, speed, innovation, integration, and the challenges that evolve from constantly changing conditions. R. M. Grant asserts, “Developing and implementing strategy remains an important element of success in this environment. It allows for strategic actions to be planned and to emerge when the environmental conditions are appropriate. It also helps to coordinate the strategies developed by business units in which the responsibility to compete in specific markets is decentralized.”
One important role of strategic management is to remove status quo and bring about change in the firm. Strategic management is growth-oriented. It tries to eradicate the barriers like vested interests in the status quo, systematic barriers, behavioural barriers, political barriers, and personal time constraints. By overcoming such barriers, strategic management tries to foster creativity and enable it to permeate the firm.
In this direction, strategic management takes the following actions:
i. To challenge a ‘status quo’ mentality in the firm.
ii. To forcefully create a sense of urgency.
iii. To establish a “culture of dissent” whereby dissenters can openly question a superior’s perspective without fear.
iv. To foster a culture of risk-taking.
v. To cultivate cultures of experimentation, freedom to fail, and curiosity.
Inspiring employees with definite goal is a critical role of strategic management. It motivates all employees to use their intelligence and apply their imagination to achieve the purpose. It creates commitment and encourages employees for action orientation. It inspires them for meaningful participation whereby people may feel that they are the part of an enabling mission It encourages people to share their values. Strategies may serve as the tools of motivation.
Strategic managers generally adopt the bottom-up view of empowerment which is concerned with risk taking, growth, and change. It involves trusting people to “do the right thing” and having a tolerance for future. It encourages employees to act with a sense of ownership. It encourages intelligent risk-taking. It also strengthens employees’ sense of effectiveness.
In an era of technological explosion, process rigour, and knowledge-centric work cultures, strategic management alone can help a firm to build market leadership. It allows a firm to anticipate, initiate, and influence actions ahead of the market in order to be a leader in the market. Strategic management can design competitive moves by anticipating the actions of rival firms.
Good business ethics is a prerequisite for good strategic management. It is said that “good ethics is just good business.” In fact, all strategy formulation, implementation and evaluation decisions have ethical bases.
A new wave of ethics issues related to product safety, employee health, women harassment, crimes in the workplace, acid rain, waste disposal, foreign business practices, takeover tactics, conflicts of interest, employee privacy, layoffs has created the need for strategists to develop a clear code of business ethics. Strategic management can develop an “ethics culture” to permeate organisations.
Strategists have a prime responsibility for ensuring ethical behaviour. They should provide ethics leadership. They must be responsible for developing and implementing ethical decision making.
Strategic management is a path finder to various business opportunities. It provides the framework for all major business decisions of an enterprise — decisions on business projects, products and markets, manufacturing facilities, investments and organisational structure.
It also serves as a corporate defence mechanism, helping the company avoid costly mistakes in product-market choices or investments. In fact, strategic management allows the company to innovate in time to take benefit of new opportunities in the dynamic environment. Thus, it ensures full exploitation of emerging new opportunities.
Abbass F. Alkhafaji has asserted, “Strategic management develops 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.” Strategic managers have the ability to see the interdependent and interrelated nature of organisations.
Thus, strategic management:
i. Focuses on problems of the whole enterprise.
ii. Helps in unifying the organization, and
iii. Helps integrate the behaviour of individuals into a total effort.
Peter Fitzroy and James M. Herbert assert, “A fundamental role for strategic managers (including the CEO) is to create organisations that both respond to and introduce change. Change requires an entrepreneurial culture in the firm, one that encourages creativity and innovation, experimentation and learning. CEOs cannot do everything themselves; they need to work with and through other members of the firm. Thus strategic management also involves such tasks as designing organisational structure, systems, and decision-making processes; creating culture and values; developing compensation and incentive methods; and selecting and developing people—what we term the architecture of the organisation.”
Strategic management is deeply involved with such concepts as leadership, vision, integrity, empowerment, creativity, and risk taking. Despite the simplistic prescriptions of some gurus, there are rarely simple solutions to complex problems, and the strategic management agenda is therefore complex, requiring professional analytic skills. Strategic managers need strong vision and a sense of direction about where the firm should go. They must be prepared to go into new areas, to create the future of their companies.
They are often rule breakers, for to demonstrate industry leadership usually requires going outside traditional boundaries.
Peter Fitzroy and James Herbert write, “Strategic management is about creativity, not following the herd. Winning companies have a strategy that is different from, and superior to, that of their competitors; a firm can never win if it has adopted a strategy identical to that of its competitors. Successful strategic managers develop innovative strategies that deliver significant improvements to customers and thereby generates substantial increases in shareholder value. In a dynamic world, the strategic management must change and innovate if it is to be successful — although there is a risk with this, the risk of action is often lower than the risk of inaction. Strategic managers should challenge the status quo, challenge the boundaries and positions within the firm, as well as consider how to invent new competitive spaces. They should challenge industry beliefs or norms, tap into the creative aspirations of all staff, and encourage ongoing questioning of traditional assumptions about the company and its businesses. Strategic managers must prevent cultural inertia, minimize resistance to change, encourage learning and experimentation, and develop new competences.”
The activities of strategic management create value. A firm is primarily an economic entity. It may have social and political features, but the reason for its existence is economic—it promises to deliver products and services in such a ways that its revenue is larger than its costs, including capital costs. If the strategic management does not generate value, it has no reason to exist. It must meet the expectations of financial markets. This is an important role. It is easier to create firms that destroy value rather than generate value.
As Schumpeter noted, “creative destruction” is an ongoing process, and firms do not live forever. R. N. Foster and S. Kaplan assert, “Firms do not have any intrinsic right to exist; instead, this right must be continually earned in the marketplace against fierce competitors.”
Strategic management plays a role to capture the full potential of the firm today, meeting shareholder expectations, and choosing tomorrow’s game in the light of turbulence and discontinuity. This requires imagining the future and what the firm will have to do to get there, a task that mandates considerable intelligence, learning, and feedback. By any measure, strategic management is total task to gain the full potential of the firm.
The barriers inhibiting closer interaction between strategic management and OD have been breaking down. It has been suggested, for example, that strategic management has a primarily external focus whereas OD has an internal focus, but this is inaccurate. It has been recognized within the strategy field that unless broad strategic directions become translated into internal operational systems, processes, structures, competencies, and cultural norms then the desired strategic direction cannot be pursued effectively.
The OD field, in addition, has from its early days been concerned with “long-range efforts to improve an organisation’s problem-solving capabilities and its ability to cope with changes in its external environment”. Strategic change has in fact been an important influence on the development of the theory and practice of OD. While the knowledge and skills of agents within strategic management and OD have differed strategic management has increasingly incorporated concerns traditionally within the domain of OD, and vice versa.
Role of Strategic Management – In Business and Non-Business Organisations
The role of strategic management can be seen from both general view and specific components of business and non-business organisations.
A. General Role:
There are certain points which are common to all types of business organisations irrespective of their exact nature in terms of the activities carried out, size, aims, sector and so on.
Following are the points that speak of strategic importance of strategic management:
Though it is almost impossible to do away with the odds created by uncertainties of future, it is strategic management can reduce the severities of uncertainties through strategic forecasting and planning future course. What holds for the firm can be better known by strategic forecasting and planning of future by gearing the organisation to face boldly the odds of future which is certainly uncertain.
It is strategic management, and hence, the strategic manager can make the things happen in his way. Strategic planning calls for strategic organisation, that provides for better direction and control. Risks of business are reduced by proper shaping of future for the firm where innovative approaches used to use the resources in requisite time period.
By very definition, strategic management process is hinged on organisational objectives and the direction all resources and action in attaining these objectives. Many firms fail to define with utmost clarity the objectives. The stated objectives may lack clarity in definition and precision.
When the objectives are not clear, it is futile to accept direction and achievement of results. Instead of saying to “good return on capital or sales”, say or state the “the company’s profits after tax will be 25 per cent and shall grow at the rate of 10 per cent every year”.
This makes the difference. The clearly stated goals the manpower the achievers will get clear direction to use physical and human resources to achieve the same. The total task of achievement is properly divided into departmental responsibilities and who is who and what for he is responsible? and to what extent?
It goes without saying that the people in the organisation who know perfectly what is expected of them will certain perform much better than those who are ignorant or confused as to what is expected of them.
Organisational effectiveness is something whereby the organisation is geared to use its resources to attain the goals stated. In other words, the term “effectiveness” stands for productive use or prudent use in terms of time, quality and cost.
As strategic management is most particular about statement of objectives and the way in which they are to be used to produce the best-result. That is, organisation effectiveness is felt when the resources at the disposal of the firm are made to produce the very best result.
In all those organisations where the strategic management becomes the way of life, the people in organisation are made to contribute much more that they can. Strategically managed firm is one where every person knows clearly as to what his role-in converting the resources into products and services. Systematising the decisions in organisation each know as to what is his contribution in the total firm level achievements.
It is the individuals who make the organisation. That is, contribution of each individual at individual level means aggregate contribution of all towards the attainment of organisational goals. It is micro-level thinking and acting in the back drop of strategic management that reflects in macro-level performance. Strategic management is clear as to who will make what decisions?
What is his responsibility? What are his authorities or powers that extended to perform his duty is an easy and cosy manner. The people in the organisation are satisfied and motivated as they know who is who? and what is what? and his powers and responsibilities. The greatest capital of the rich organisation is satisfied people who are accountable for achievement.
The strategic management approach emphasizes the interactions by the managers all levels of organisational hierarchy both in planning and implementation. Strategic management, as a result, has certain behavioural consequences. One such encouraging behavioural consequence is that it reduces the resistance to change that takes place in any area of management caused by external forces.
It is because of participative type of decision-making and implementation. Strategic management grants the freedom of choice of the participants. These individual employees though they are capable of resisting the change in common tooth and nail, it is reduced because, they have a say in the management.
They will accept the change as they believe in fighting out any problem together. Here, the employee look to change as a challenge to groups and the team-spirit makes them to stay above such resistance.
It is because, it is looked upon as something combating the uncertainty. It is the magic of employee motivation granted through participative type of management. Hence, the environmental changes that influence the individual organisations, and hence, the individuals of those organisations.
The fundamental appeal of any managerial approach is the expectation of profit maximisation. This is truer in case of strategic management system, that changes very face and pace of both formulation and implementation of plans.
In fact the studies, conducted by experts in advanced nations of the West and North and developing countries of the East and South, clearly demonstrated that the firms which are wedded strategic management have given better financial results in terms of parameters as sales, sales price, earnings per share, assets and earnings growth. On the other hand, the firms which non-formal planners fared much lower than the formal strategic planners.
It pays to consider the role of strategic management of different types of business organisation-as to business and non-business public sector and private sector undertakings and large scale and small-scale units.
The major issue of these business units is how to maintain and improve the operating efficiency. That is, to survive successfully by competing away the business and to attain higher rate of growth. What it implies to get the best out of limited resources in the background of external environmental threats and opportunities.
By maximising profit and wealth, such units are to keep everybody happy—both internal and external stake- holders. Each function of management right four planning to control have to be performed in a smart and innovative way which is possible only when the unit is married the philosophy and principles of strategic management.
It is strategic management which has the ability to integrate the organisation to ever changing external environment so as to grab the opportunity and encash on that. Strategic management is the solution to the changing variables that has a strategy to fight out each problem it faces.
Strategic management is as important as in case of business units though non-business units are known for creation of utilities without profit maximisation and risk shouldering and decision-making process is more influenced by direct outside forces or segments. These non-business units are engaged in religious and social service activities and knowledge organisations.
The primary beneficiary is the general public, and, therefore, the government takes keen interest in protecting the interests of general public. From the angle of strategic management, non- business units differ from business units in terms of objectives, decision-making process, nature of environment, sources of revenues and performance evaluation criteria, strategic management is important rather more important because these non-business units have-
i. Large number of interest groups having conflicting demands. It is strategic management which integrates these organisations to full together in meeting vast variety of public interests. The tight rope dance of keeping every public interest happy is possible by adaptive nature of strategic management.
ii. Strategic management makes clear statements to those who are likely to pressurize so that what these groups can expect from a given non-profit making unit. Once the goals are clarified, it becomes easier to measure its performance—that is how these units are meeting the expectations of general public or interest groups.
The stupendous task of forging ahead in troubled waters is rendered easy by the weapons of strategic management. Thus, Indian Red Cross was brought into being to help the victims of war and other natural calamities now charged or extend their scope to the achievement of goals of preserving and improving public health.
Most of the religious and social organisations who primarily meant to meet the religious and spiritual goals now extended to education and physical exercise. It means a strategic change in their goals and performance to survive and survive successfully.
In an economy which believes in the co-existence of public and private sectors, both need better management. As we have seen private sector units have done well as they charged from general management to strategic management. It goes without saying that public sector and private sector units have differences that of North and South Poles.
All public-sector units differ from private-sector units in respect of objective decision making process, nature of environment, sources of funds and performance evaluation. Strategic management is expected to play a special role in case public-sector units because, these-
(i) Organisations function in an environment safety studded with conflicting goal setting by the organs of government.
(ii) Organisations are engaged in core segments involving huge public invest which are meant to create ideal basic conditions of working other public sector units. The investments in resources both physical and manpower should go waste.
(iii) Goals are set by the central authority namely the Planning Commission of India. These units are to work within the frame- work provided by the supreme authority. The managers have limited choice and yet they are to meet these goals which is possible by shifting to principles of strategic management.
(iv) These units cannot remain isolated from the environment in which they functions where clarity of objectives is very significant so as to prove that they are doing in to the expectations of each and every one. This clarity of objectives and expectations is quite easily achieved by strategic management.
Many might think that strategic management is more suitable for large-scale units. It is not true. In fact, it more suited to small-scale units. In a country like India where we have more man power resources than financial and technological, small-scale units play their vital role. Because of their easy entry point, least investment, they are not only small but effective.
That is why, even the most advanced nations have more tiny industrial units than large and medium because the large units depend on small units for their inputs and service requirements, for small units have an edge over large units. The shampoo industry of India has come out with sachets than plastic bottles.
These sachets are manufactured by not big units but supplied by small units where both big and small units are benefitted in turn, giving benefits to final consumers- particularly small. The use of shampoo is not restricted to upper and middle-class, but everyone, because sachets cost each Rs.1.50 to 2.00 instead of Rs.35 to 65 a bottle.
Strategic management make these small- scale units much more effective or smart by relate the small units to the external environment, making them more competent by developing competitive strategies, and making clear the extent to which a small- scale unit can grow. That is, to determine the scope of operations beyond which it is going to be uneconomical.
Role of Strategic Management – In Various Sectors: Production, Marketing, Finance, Human Resource and in Global Competitiveness
Strategic management plays significant role in functions of organizations. In a business organization, these functions are production/operations, marketing, finance, and human resource, commonly referred to as functional areas of management. There are two aspects of activities performed in these areas- strategic aspects and operational aspects.
Strategic aspects of these areas are closely linked with strategic management. As a result, the current trend is to prefix the term ‘strategic’ in these areas. Besides, because of globalization, attempt is made to develop global competitiveness through the effective strategic management practices. Let us see how strategic management plays these roles.
1. Role of Strategic Management in Production/Operations:
Production/operations management involves managing activities involved in transformation of a set of inputs into predetermined outputs with a view to achieve organizational objectives. These activities are undertaken in the light of corporate strategy formulated through strategic management process.
Thus, the role of strategic management in production/operations is as follows:
1. Strategic management provides the framework within which decisions about the types of products (goods/services) to be produced or outsourced from outside, product quality, and product costs are made. The basic objective of providing this framework is to ensure that the products meet requirements of the corporate strategy.
2. In production/operations, there are certain types of activities which produce desired results much after the expenses incurred in performing these activities, for example, research and development (R&D). Extent to which such activities should be performed and, consequently, the expenses to be incurred are based on requirements of the corporate strategy.
2. Role of Strategic Management in Marketing:
Marketing management is the process of managing activities related to marketing of products to satisfy the customers’ needs to achieve organizational objectives. Emphasis in performing these activities depends on the nature of strategy which is under implementation.
In the light of this, the role of strategic management in marketing is as follows:
1. Marketing plans and policies are based on corporate strategy formulated through strategic management process; these are not formulated independently. Thus, strategic management provides direction for marketing activities and affects the entire marketing efforts.
2. When marketing plans and policies are implemented, the corporate strategy is put into action from marketing point of view. Thus, effectiveness of strategy implementation depends, to a great extent, on effective implementation of marketing plans and policies.
If there are problems in implementation of marketing plans and policies effectively, it indicates that there is something wrong either in terms of perception about industry characteristics or fault in internal mechanism. If there is wrong perception about industry characteristics, more information is collected about these either by environmental analysis unit of the organization or by marketing research unit of marketing department. Thus, there is two-way interaction between strategic management and marketing.
3. Role of Strategic Management in Finance:
Financial management involves planning, organizing, directing, and controlling financial activities—rising and utilization of funds. These funds are required to implement the corporate strategy.
Thus, the role of strategic management in finance is as follows:
1. Amount of funds, period for which funds are required, and sources from which these funds should be raised depend on the nature of corporate strategy, formulated through strategic management process. For example, if the corporate strategy involves substantial expansion of business by undertaking a new project, large amount of funds will be required for a longer period. Therefore, funds should be raised from long-term sources of funds. Thus, strategic management shapes the activities of financial management.
2. Strategy implementation takes time. This time depends on the nature of strategy. For example, in the above case, strategy implementation takes long time. During this period, progress of strategy implementation is monitored. In many cases, this monitoring is in financial terms. If anything goes wrong in implementation of strategy, suitable strategic actions are taken to overcome the problem. Thus, finance works as a feedback mechanism for strategic management.
4. Role of Strategic Management in Human Resource:
Human resource management involves activities through which right type of people, at right time, and at right place is available. What type of people will be required depends on the strategy under implementation.
Thus, role of strategic management in human resource management (HRM) is as follows:
I. There is high linkage between HRM actions and corporate strategy. This linkage implies that there is close interaction between HRM actions and corporate strategy. In this interaction process, corporate strategy determines, to a very great extent, what HRM actions are suitable to implement the strategy.
II. This linkage between HRM actions and strategy is established through strategic HRM which deals with strategic issues, like number and type of personnel to be acquired, the type of compensation to be paid to them, etc.
III. Very often, top management of an organization, which is responsible for formulation of corporate strategies, performs some strategic HRM functions, like appointment of senior managers and fixing terms and conditions of their employment.
5. Role of Strategic Management in Developing Global Competitiveness:
In the present age of globalization, various countries are using strategic management to develop global competitiveness. Competitiveness, in general, pertains to the ability and performance of a firm, sub-sector, or country to sell and supply products in a given market, in relation to the ability and performance of other firms, sub-sectors, or countries in the same market.
In the light of this, World Economic Forum has defined global competitiveness as the ability of a nation to create and maintain an environment that sustains more value creation for its enterprises and more prosperity for its people. Value creation is expressed in terms of rates of growth in gross domestic product (GDP) per capita. Therefore, only nations with high levels of productivity will become domestically and globally competitive and have the capacity to exploit existing market opportunities to sustain and expand employment and real income growth in the long term.
The imperatives for global competitiveness involve addressing the following issues- macroeconomic policies; government practices and regulations; cost of doing business; education and skills upgrading; R&D and innovation; sustainable environmental management; conformity with international standards; and factor productivity.
According to Global Competitiveness Index 2012-13 prepared by World Economic Forum, India’s rank is 63, out of a total of 123 countries. This may be considered quite low. Major factors that affect India’s competitiveness favourably are large domestic market size, availability of scientists and engineers, local supplier quality, and quality B-schools.
Major factors that affect global competitiveness unfavourably are fiscal deficit of government, trade-weighted tariff, high tax rate, and low power supply. The question is- can India’s competitiveness be increased through use of strategic management concepts?
Some answers of this question are as follows:
1. In strategic management, organizations put emphasis on their strengths to capitalize the environmental opportunities. This is true for India as a whole too. Its strengths lie in human resources in the form of availability of scientists and engineers and quality B- schools. Therefore, attempt may be made to undertake those businesses in which quality human resources may be used to develop national competitiveness. Though global competitiveness is expressed in national term, individual organizations may take initiative in this context.
2. Strategic management also prescribes that an organization may overcome its weaknesses by taking suitable actions. Major weaknesses of the country are mostly due to government policies and actions. For overcoming these weaknesses, these may be classified into critical, high, and moderate. For overcoming the weaknesses, first moderate weaknesses should be undertaken as overcoming high and critical weaknesses takes much longer time. The attempt should be systematic and integrated, not unsystematic and fragmented.
Role of Strategic Management – Specific Roles in Various Functional Departments: HRM, Marketing, Finance, Production and Operation Departments
Strategic management plays a noteworthy role in developing the strategies, policies, and programmes of the department of an organisation. Every department has its own set of plans and policies to achieve the goals of an organisation.
These specific roles of strategic management in different functional departments are discussed below:
In an organisation, the role of human resource is very significant and is subject to constant change. The central idea behind strategic human resource management is that all initiatives involving how people are managed need to be aligned with and in support of the organisation’s overall strategy. No organisation can expect to be successful if it has people management systems that are at odds with its vision and mission.
According to Horace Parker, strategic human resource management is about “getting the strategy of the business implemented effectively”. Strategic human resource management involves the development of a consistent, aligned collection of practices, programmes, and policies to facilitate the achievement of the organisation’s strategic objectives. It considers the implications of corporate strategy for all HR systems within an organisation by translating company objectives into specific people management systems.
Strategic management can play the following roles with regard to effective management of human resources in an organisation:
i. Change leader – the role associated with facilitating, driving, and leading change.
ii. HR strategist – the role associated with integrating HR activities and results with the strategic objectives of the organisation.
iii. Business strategist – the role associated with participating in strategy formulation and developing possible solutions to challenges facing the organisation, thus leading the business to competitive success.
iv. HR functional alignment – the role associated with integrating HR functions vertically.
v. Problem solver/consultant – the role associated with troubleshooting or averting human performance problems.
vi. Integrator – to combine company and HR strategy to create organisational effectiveness and thus to enhance performance.
vii. Solutions adviser – to advice regarding the changing human resource trends.
viii. To be an expert at building flexible and customized HR systems.
ix. Developing high quality workforce by hiring and retaining talented people.
x. Enabling employee participation for the achievement of objectives.
xi. Ensuring special motivational programmes for employees.
xii. Establishing performance targets for employees.
xiii. Providing appraisal systems, and training and development to employees.
xiv. Helping in measurement of performance of employees.
xv. Providing help in human resources philosophy, policies, programmes, practices and processes.
2. Role of Strategic Management in Marketing:
In order for marketing management to cope with the changing market environment there is a need for it to become increasingly market-led.
In taking a leading role in the development and implementation of strategy the role of strategic management can be described as follows:
i. Identifying customer requirements and to communicate them effectively throughout the organisation.
ii. Deciding on the competitive positioning to be adopted.
iii. Implementing the marketing strategy.
iv. To marshal all the relevant organisational resources to plan and execute the delivery of customer satisfaction.
v. To ensure that the company’s capabilities are matched to the competitive market environment in which it operates, not just for today but into the foreseeable future.
vi. Expanding the distribution channels of the organisation.
vii. Helping the marketers to develop effective plans for product development.
viii. Developing ‘relationship marketing’ with the clients.
ix. Increasing sales by penetrating new markets.
x. Competing through innovation and creating sustainable competitive advantage.
xi. Building strategic alliances and networks.
xii. Identifying strategic customer management tasks.
xiii. Promoting marketing in multilayered environment.
Organisations aim at achieving wealth maximization and maximized returns on invested funds and to gain financial success through effective strategic management. A strategist financial manager makes plans and policies manage the funds of the firm. He makes strategic decisions regarding finance investment, procurement of funds, reserves and surplus.
The role of strategic management in the finance area focus on:
i. Developing strategies to maximize profit and shareholders’ wealth.
ii. Taking investment decisions that maximize the net present value assets and financial resources.
iii. Determining the least of capital and resources.
iv. Raising funds for the organisation at low cost.
v. Performing cash, credit, risk and return analysis.
vi. Formulating strategies for profitability, liquidity of funds, working capital, and financial restructuring.
vii. Determining time value of money and valuing securities.
viii. Formulating strategies that aim at the optimum utilization of financial resources.
Good results require that operations strategy must be consistent with corporate strategy. Strategic management provides the distinctive competence on which a firm competes. It can create opportunities for new production strategies. Production and operations management strategic thinking is “find the best product configurations and then make them at the lowest cost, highest quality, and overall at max productivity levels.”
As Peter Drucker is quoted to have said, “Do the right thing, and then do the thing right.” Strategy planning for operations is directly concerned with “Do the right thing.” Strategic thinking for production and operations is related to altering the competitive situation by means of operating plans and decisions. A company must develop operations strategies that will achieve its business strategies and corporate mission.
The strategic management plays an important role for production area.
It helps in formulating the strategies for production management which are focused on:
i. Understanding the competitive dynamics at the marketplace,
ii. Identifying order-winning and order-qualifying attributes,
iii. Deciding on strategic options for sustaining competitive advantage,
iv. Matching the strategic options with the resources, constraints, values, and objectives of the organisation to arrive at the overall corporate strategy,
v. Developing the operations strategy on the basis of the corporate strategy, and
vi. Using the operations strategy to select appropriate options for configuring an operations system and establishing relevant measures for operational excellence.
vii. Positioning the production system.
viii. Helping in product plans, outsourcing plans, process and technology plans, and facility plans.
ix. Providing strategic allocation of resources.
x. Providing help in (a) goods and service design, (b) determining customer’s quality expectations, (c) location selection, (d) layout design, (e) inventory, (f) scheduling and maintenance management.
xi. Deciding the policies as to what is to be made and what is to be purchased.
Role of Strategic Management – In NFP Organisation: Efficient Use of Resources, Achievement of Performance Goals, Maintaining Scarce Resources and a Few More
Almost all types of organisations, whether for profit or not-for-profit, adopt some kind of strategic management in their operations.
A not-for-profit (NFP) organisation may be social, governmental, charitable or cultural that may serve four main purposes:
i. To perform tasks in society that benefit the public interest;
ii. To raise the voice of weakest sections of the society; and
iii. To influence policy making by governments and other organisations.
iv. To work for social cause.
In many sectors, NFP organisations compete not only with one another, but also with for-profit organisations and government. Today, NFP organisations are almost as competitive as organisations in the for-profit sector. NFP organisations are often protected from their competitors. It is not rare for state and federal government agencies to implement policies to shelter NFP organisations. If such protection is not provided, it could lead to the extinction of NFP organisations.
They have legal status. Private NFP organisations are referred to as third-sector organisations because they are not-for-profit, nor are they government based. There are eight major categories of private NFP organisations: Religious, social, cultural, knowledge, protective, political, philanthropic, and social cause. These include private museums, charities, foundations, public interest groups, universities, religious institutions, and hospitals.
The role of strategic management in non-business organisations is discussed under the following headings:
By definition, nonprofit enterprises are not in “business” to make profits. Nevertheless, they are expected to use their resources efficiently and operate effectively. They have to incur regular expenses. Strategic management serves as a-means to improve the utilization of physical, human and financial resources.
In non-business enterprises, managers also set goals to measure their performance. The performance goals of these enterprise relate to their social cause or public interest. For example, the performance goal for a charity might be to prevent childhood illnesses in the country. The performance goal for a government agency might be to improve its services while not exceeding its budget. The managers of nonprofits need to map out strategies to attain these goals.
It is also important to understand that nonbusiness enterprises compete with each other for scarce resources just as businesses do. For example, charities compete for scarce donations. Their managers must plan and develop strategies that lead to high performance.
They must demonstrate a track record of maintaining the scarce resources. A successful strategy gives potential donors a compelling message as to why they should contribute additional donations. Thus, planning and thinking strategically is important in the nonprofit sector to improve and maintain its scarce resources.
For an NFP corporation to survive as a vital force, it must have the ability to deal with funding crises and, more importantly, to anticipate and plan for the future in this turbulent, complex, and resource-scarce environment. Strategic management is thus equally important to not-for-profit organisations. Without a clear plan, no organisation can survive. Strategic planning enables an organisation to face unanticipated changes effectively and takes advantage of the existing opportunities.
Organisations that competently utilize strategic planning and management have the greatest chance of survival and endurance. It is important for all organisations to analyze their environment, formulate their mission, goals, and objectives, and streamline resources in the proper manner to meet their goals. By the mid-1990s, most NFP organisations were turning to strategic management concepts.
All organisations also must articulate a clear mission. Not-for-profit organisations typically articulate their mission in the public domain. If organisations are to succeed, they must set specific goals and craft a strategy to accomplish their objectives. Strategic management helps provide unique insight into a nonbusiness organisation’s culture, values, and future directions Strategic policy is essential because NFP organisations focus their mission on service, mutual, benefit, and commonwealth rather than profit.
In the short run, any firm with a strategic advantage can survive and prosper. Organisations with a long-term strategic management commitment will continue to succeed. Fortunately, many organisations, both profit and not-for-profit, have begun realizing the importance of strategic management.
Today, not-for-profit organisations are more effective and bigger than ever. Over three-fourths of all their funding now is created due to the adoption of strategic planning practices and strategic decisions.
The climate, values and attitudes of society are changing, so must the strategies and behaviours of enterprises. Adapting to society’s growing demands for fairness, equity, ethics and environmental sustainability presents challenges to the leaders of nonbusiness enterprises. Thus, strategic management has become very essential to practise to reconcile social demands. Managers of NFP organisations can adopt social and ethical strategies to meet the expectations of society.
According to Cynthia Massarsky, “Nonprofits are looking to be more efficient to ensure their survival in the way they do things. By taking a few lessons from the business world, perhaps they have learned how to use strategic decision making and planning to operate a little more efficiently.” Fred R. David writes, “Strategic management allows nonprofit organisations to be efficient, but more importantly, it allows them to be more effective.”
When strategic management is applied to ‘not-for-profit’ organisations, it creates ‘institutional advantage’ for them. Due to this advantage, such nonbusiness enterprise can perform its tasks more effectively than other comparable organisations. It builds the reputation of that enterprise.
It can be observed that SWOT analysis, mission statements, stakeholder analysis, and corporate governance are just as relevant to a not-for-profit as they are to a profit-making organisations. Portfolio analysis can be very helpful but is used very differently in nonbusiness firms. Many nonprofits find that a well-crafted mission statement not only helps in finding donors but also in attracting volunteers.
Compared to for-profit firms, nonprofit and governmental organisations may be totally dependent on outside financing. Especially for these organisations, strategic management provides an excellent vehicle for developing and justifying requests for needed financial support.
Strategic management may represent a radical change in philosophy for nonbusiness organisations. Thus, such enterprises may develop the ability to constructively respond to questions and issues as they arise. Strategic management can represent a new beginning for many nonbusiness firms.
Through involvement in strategic management activities, managers and employees achieve a better understanding of priorities and operations in nonbusiness enterprises.
Although strategic management does not guarantee organisational success, the process allows proactive rather than reactive decision making in nonbusiness organisations.
Educational institutions are more frequently using strategic management techniques and concepts. Richard Cyert, former president of Carnegie Mellon University, once said, “I believe we do a far better job of strategic management than any company I know. Due to strategic plans we have been able to create a significant change in the competitive climate for attracting the best high school level candidates every year.”
Medical organisations are also using strategic management techniques to improve margins, capacity, health care costs, diversification programmes and high administrative turnover. Many health maintenance organisations, urgent care centers, outpatient surgery centers, diagnostic centers, specialised clinics, etc. are using strategic management concepts to face environmental threats and to remove their financial troubles. Hospitals are creating new strategies today as advances in the diagnosis and treatment of chronic diseases.
Strategic management concepts are generally required and thus widely used to enable governmental organisations to be more effective and efficient. Due to strategic management techniques used in these governmental agencies, there is more predictability in the management of public sector enterprises. Gerry Johnson says, “The concepts of strategy and strategic management are just as important in the public sector as in commercial firms.”
Government agencies and departments are finding that their employees get excited about the opportunity to participate in the strategic-management process and thereby have an effect on the organisation’s mission, objectives, strategies, and policies. In addition, government agencies are using a strategic-management approach to develop and substantiate formal requests for additional funding.
Non-profit organisations can enormously create social values with the help of strategic management. Strategic plans and decisions in such organisations help in framing out the choices that are needed to be maintained to create social value. Strategic management in nonprofit organisations deals not only with the preparation of the strategic plan according to the available resources but with the analysis of operational tasks also. It also facilitates ways of adapting changes to remain competitive.