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The Nature And Value Of Strategic Management

Strategic Management Defined o Elements Of Strategic Management o Key Terms In Strategic Management Purpose Mission Goals Objectives Strategy Tactics Policy Strategists The Scope And Dimension Of Strategic Management The Scope Of Strategic Management Dimensions Of Strategic Management The Strategic Decision Makers Top Management Other Managers And Staff Members Board Of Directors The Strategic Management Process Stages Of Strategic Management Strategy Formulation Strategy Implementation Strategy Evaluation And Control Strategic Management Models Andrews' Models Glueck's Model The Schendel And Hofer Model The Thompson And Strickland Model Korey's Model Schematic Model Developing The Strategic Management Process Evolution Of Strategic Management o Position Systems o Real-time Systems o Choosing The Management System For A Firm

Strategic Management Tools And Techniques o Tools For Developing Organizational Strategies o Tools For Planning And Problem Solving - Management Science Aids o Control Tools And Techniques The Importance And Value Of Strategic Management SUMMARY

INTRODUCTION TO STRATEGIC MANAGEMENT


A logical starting in studying strategy formulation is a comprehensive look at the nature of strategic management. Hundreds of studies have attempted to understand the nature of strategic management decisions. Fortunately, the results from these studies are reasonably consistent. The theme that follows through and ties four chapters of this part together is effective the strategic management process requires and understanding of what strategic managers do and how they do works the way it does. In essence, strategic management is a set of functions and processes. Effective strategic management is knowing about these functions and processes and knowing when and how to implement them. Introduction to Strategic Management defines the scope of strategic management and sets out concepts that are basic to a working knowledge of this field.

The Nature And Value Of Strategic Management


This chapter will introduce us to the world of strategic management. Strategic management is a process which determines whether an organization excels, survives, or dies. All organizations engage in the strategic management process either formally or informally. Strategic management is equally applicable to public, private, not-for-

profit, and religious organizations. An attempt is made in this thesis to show the applicability of strategic management to all types of organizations, but the emphasis is on private-enterprise organizations. Organizations usually employ one of the three general decision-making processes: 1. Managers want to resolve current problems. Firms often face problems resulting from falling sales, low profit rates, or production inefficiencies. Managers try to identify the sources of those problems and resolve them as best they can. 2. Managers want to solve current problems and prevent future problems. For example, faced with rising production costs, managers may apply statistical techniques to create an optimal solution. 3. Managers want to design or create a better relationship between the firm and its operating and general environments. That involves the firm in strategic decision making. Three factors distinguish strategic decisions from other business considerations: 1. Strategic decisions deal with concerns that are central to the livelihood and survival of the entire organization and usually involve a large portion of the organization's resources. 2. Strategic decisions represent new activities or areas of concern and typically address issues that are unusual for the organization rather than issues that lend themselves to routine decision making. 3. Strategic decisions have repercussions for the way other, lower-level decisions in the organization are made. To summarize, there are two essential areas of management tasks: strategic management and operating management. Operating management deals with the ongoing, day-to day "operations" of the business. However, my concern here is with the strategic management alone.

Strategic Management Defined


The term strategic management is used to refer to the entire scope of strategicdecision making activity in an organization. Strategic management as a concept has evolved over time and will continue to evolve. As result there are a variety of

meanings and interpretations depending on the author and sources. For example, some scholars and practitioners the term strategic planning connote the total strategic management activities. Moreover, sometimes managers use the terms strategic management, strategic planning, and long-range planning interchangeable. Finally, some of the phrases are used interchangeably with strategic management are strategy and policy formulation, and business policy. To purpose of this thesis I use the terminology strategy management, as opposed to the more narrow term business policy. The following statements serve as a number of workable definitions of strategic management: Strategic management is the process of managing the pursuit of organizational mission while managing the relationship of the organization to its environment (James M. Higgins). Strategic management is defined as the set of decisions and actions resulting in the formulation and implementation of strategies designed to achieve the objectives of the organization (John A. Pearce II and Richard B. Robinson, Jr.). Strategic management is the process of examining both present and future environments, formulating the organization's objectives, and making, implementing, and controlling decisions focused on achieving these objectives in the present and future environments (Garry D. Smith, Danny R. Arnold, Bobby G. Bizzell). Strategic management is a continuous process that involves attempts to match or fit the organization with its changing environment in the most advantageous way possible (Lester A. Digman).

Elements Of Strategic Management


Strategic management, as minimum, includes strategic planning and strategic control. Strategic planning describes the periodic activities undertaken by organizations to cope with changes in their external environments (Lester A. Digman) It involves formulating and evaluating alternative strategies, selecting a strategy, and developing detailed plans for putting the strategy into practice.

Strategic planning consists of formulating strategies from which overall plans for implementing the strategy are developed. Strategic control consists of ensuring that the chosen strategy is being implemented properly and that it is producing the desired results. Based on Robert Anthony's framework, three types of planning and control are required by organizations: * Strategic Planning and Control - the process of deciding on changes in organizational objectives, in the resources to be used in attaining these objectives, in policies governing the acquisition and use of these resources, and in the means (strategies) of attaining the objectives. Strategic planning and control involve actions that change the character or direction of the organization. * Management Planning and Control - the process of ensuring that resources are obtained and used efficiently in the accomplishment of the organization's objectives. Management planning and control is carried on within the framework established by strategic planning and is analogous to operating control. * Technical Planning and Control - the process of ensuring efficient acquisition and use of resources, with respect to those activities for which the optimum relationship between outputs and resources can be accurately estimated (e.g., financial, accounting, and quality controls). Another important term in the study of strategic management is long-range planning. Long-range planning, planning for events beyond the current year, is not synonymous with strategic management (or strategic planning). Not all longrange planning is strategic. Certain strategic actions and reactions can be relatively short range and may include more than just planning aspects. It is perfectly reasonable to have long-range operating or technical plans that are not strategic. However, it should be noted that most strategic decisions have longterm ramifications.

Key Terms In Strategic Management


Strategic management, like many other subjects, has developed terminology to identify important concepts. Each of the following definitions is amplified and supplemented with additional examples in subsequent chapters.

Purpose
The organization's purpose outlines why the organization exists; it includes a description of its current and future business (Leslie W. Rue, and Loyd L. Byars) The purpose of an organization is its primary role in society, a broadly defined aim (such as manufacturing electronic equipment) that it may share with many other organizations of its type.

Mission
The mission of an organization is the unique reason for its existence that sets it apart from all others (A. James, F. Stoner, and Charles Wankel) The organization's mission describes why the organization exists and guides what it should be doing. Often, the organization's mission is defined in a formal, written mission statement. Decisions on mission are the most important strategic decisions, because the mission is meant to guide the entire organization. Although the terms "purpose" and "mission" are often used interchangeably, to distinguish between them may help in understanding organizational goals.

Goals
A goal is a desired future state that the organization attempts to realize (Amitai Etzioni).

Objectives
The term objective is often used interchangeably with goal but usually refers to specific targets for which measurable results can be obtained. Organizational objectives are the end points of an organization's mission. Objectives refer to the specific kinds of results the organizations seek to achieve through its existence and operations (William F. Glueck, and Lawrence R. Jauch) Objective define what it is the organization hopes to accomplish, both over the long and short term. In this paper the terms "goals" and "objectives" are used interchangeably. Specifically, where other works are being referred to and those authors have used the term goal as opposed to objective, their terminology is retained.

Strategy
Strategies are the means by which long-term objectives will be achieved. "A strategy is a unified, comprehensive, and integrated plan that relates the strategic advantages of the firm to the challenges of the environment. It is designed to ensure that the basic objectives of the enterprise are achieved through proper execution by the organization" (William F. Glueck, and Lawrence R. Jauch). The role of strategy is to identify the general approaches that the organization utilize to achieve its organizational objectives. Therefore, the choice of strategy is so central to the study and understanding of strategic management.

Tactics
In contrast, tactics are specifics actions the organization might undertake in carrying its strategy.

Policy
In years past it was common practice to title courses and books in the strategic management areas as "Business policy," if one wished to take up broader range of organizations. In one sense, what has happened is that word strategy has replaced policy. But there is another sense in which the term policy is used that differentiates it from strategy, and from tactics as well. In this view, policies are the means by which objectives will be achieved. "Policies are guide to action. They include how resources are to be allocated and how tasks assigned to the organization might be accomplished ... (William F. Glueck, and Lawrence R. Jauch " Policies include guidelines, procedures, rules, programs, and budgets established to support efforts to achieve stated objectives. Therefore, policies become important management tools for implementing them.

Strategists
The final key term to be highlighted here is "strategists". Strategists are the individuals who are involved in the strategic management process. Several levels of management may be involved in strategic decision making. However, the people responsible for major strategic decisions are the board of director,

president, the chief executive officer, the chief operating officer, and the division managers.

The Scope And Dimension Of Strategic Management


Strategic management focuses on the total enterprise. It involves the planning, directing, organizing, and controlling of the strategy-related decisions and actions of the business.

The Scope Of Strategic Management


J. Constable has defined the area addressed by strategic management as "the management processes and decisions which determine the long-term structure and activities of the organization". This definition incorporates five key themes: * Management process. Management process as relate to how strategies are created and changed. * Management decisions. The decisions must relate clearly to a solution of perceived problems (how to avoid a threat; how to capitalize on an opportunity). * Time scales. The strategic time horizon is long. However, it for company in real trouble can be very short. * Structure of the organization. An organization is managed by people within a structure. The decisions which result from the way that managers work together within the structure can result in strategic change. * Activities of the organization. This is a potentially limitless area of study and we normally shall centre upon all activities which affect the organization. These all five themes are fundamental to a study of the strategic management field and are discussed further in this chapter and other part of this thesis.

Dimensions Of Strategic Management


Strategic management process involves the entire range of decisions. Typically, strategic issues have six identifiable dimensions: * Strategic issues require top-management decisions * Strategic issues involve the allocation of large amounts of company resources * Strategic issues are likely to have significant impact on the long-term prosperity of the firm * Strategic issues are future oriented * Strategic issues usually have major multifunctional or multibusiness consequences * Strategic issues necessitate considering factors in the firm's external environment.

The Strategic Decision Makers


The strategic management process requires competent individuals to ensure its success. Therefore, to understand strategic management, we must know where strategic decisions are made in organizations. Inputs to strategic decisions can be generated in a number of ways. Overall, top management, board of directors, and planning staff tend to be those positions that have the most significant involvement and influence in the strategic management process of organizations. The failure of an organization to achieve its objectives can often be traced to a breakdown at the level of the board or top management. However, the final responsibility rests with top management. Some of the strategic management responsibilities are outlined in

Top Management
The term "top management" refers to a relatively small group of people include president, chief executive officer, vice president, and executive vice president.

Because the insights of these executives play such a critical role, a number of writers have stressed the importance of matching the characteristics of these executives with the firm's strategies. The strategic management process of today tends to be dominated by the chief executive officer (CEO). For example, Kenneth R. Andrews described the chief executive's role as "Chief Executive as Architect of Purpose." George Steiner summarized the role of the CEO in strategic management as follows: 1. The CEO must understand that strategic management is his responsibility. Parts of this task, but certainly not all of it, can be delegated. 2. The CEO is responsible for establishing a climate in the organization that is congenial to strategic management. 3. The CEO is responsible for ensuring that the design of the process is appropriate to the unique characteristics of the company. 4. The CEO is responsible for determining whether there should be a corporate planner. If so, the CEO generally should appoint the planner (or planners) and see that the office is located as close to that of the CEO as practical. 5. The CEO must get involved in doing planning. 6. The CEO should have face-to-face meetings with executives for making plans and should ensure that there is a proper evaluation of the plans and feedback to those making them. 7. The CEO is responsible for reporting the results of the strategic management process to the board of directors. The chief executive officer (CEO) is responsible for the final decisions, but its decisions is the culmination of the ideas, information, and analyses of others.

Other Managers And Staff Members


In many organizations, the job of strategic management can become so overwhelming, that the chief executive must assign individuals, usually called planning staff personnel, to help with the tasks. Recent theory and studies suggest that middle-level managers attempt to influence business strategy and often initiate strategic proposals.

Board Of Directors
The business which exists in corporate form has a board of directors, elected by stockholders and given ultimate authority and responsibility. Boards typically elect a chairperson who is responsible for overseeing board business, and they form standing committees which meet regularly to conduct their business. A strategy committee is a board committee that works with CEO to develop strategic management process. It is common practice for organizations to have boards of directors consisting of both outsiders and insiders. One approach used to reconcile the differing roles of outside directors and inside strategic decision makers is agency theory. Agency theory defines as a nexus of contractual relationships among various stakeholders, including shareholders, managers, employees, and customers, each motivated by self-interest. In this view, a firm exists to exploit the potential advantages of cooperative behavior among stakeholders, and strengthening the link between the company and its environments. Board of directors it plays an important role in the strategic management process. A strategy committee commonly audits various components of an organization's strategic management process in order to make it more effective and efficient. For example, the board can demand reexamination of the company's mission, its long-term goals, its corporate strategy, and its approach to the competition. To quote Kenneth Andrews, "A responsible and effective board should require of its management a unique and durable corporate strategy, review it periodically for its validity, use its as the reference point for all other board decisions,"" The boards guides the affairs of corporation and protects stockholder interests. A growing literature suggests that boards can make a difference in the way the firms is managed. Each of the four cells in the matrix can be labelled according to type: caretaker, statutory, proactive, and participative boards. Variations in these qualities affect company performance in different ways:

1. The caretaker board is characterized by a low level of power in both the board and in the CEO. This type of board does not contribute significantly to effective company performance. 2. The statutory board differs from the caretaker board in that a powerful CEO is the central figure in organization decision making. The CEO does not consider the board as a true partner in shaping the strategic posture of the company. 3. The proactive board commands powers that surpass those of its CEO. These boards are a true instrument of corporate governance. 4. The participative board is characterized by discussion, debate, and disagreement. Leadership is shared among management, board members, and outside directors, who constitute a majority. In this case, negotiation and compromise are essential for effective governance. Recently, the role of the directors has been growing in importance because of increasingly vocals stockholders.
In essence, the board functions as the brain and soul of the organization and as the guardian of shareholders interests, its pervasive influence in many aspects of organizational life is believed to enrich the firm. Strategic decisions are evaluated by the board of directors, but are the responsibility of top management, supported by corporate planning staffs, that perform analyses and manage the planning processes.

The Strategic Management Process


There probably is general acceptance of the idea that strategic management is concerned with the strategic processes that produce desired responses to an organization's changing environment. The strategic management process is concerned with a long-run perspective. The time horizon involved often is at least 3 years and normally may be 5 or 10 years into the future. However, in certain extremely dynamic industries, the strategic management process could be concerned with much shorter time frames. Strategic management is the management of change. This involves the system of corporate values, the corporate culture, and all managerial process of change, such as leadership, planning, control, and human resources management.

Hence, strategic management can be viewed as a series of steps in which top management should accomplish at least five tasks that C. West Churchman suggested in The Systems Approach (1968): 1. Identify the business's fundamental values and the goals and objectives that arise from them. 2. Assess the business's environment - forces outside the business itself that may be opportunities or threats. 3. Assess the business' resources and capabilities - those things within the control of the business, such as people, machinery, facilities, contracts, image, and goodwill - that can be allocated to achieve goals and objectives. 4. Identify or form the organization's component's (a) internal units that receive allocated resources and carry out the business's work and (b) an organizational structure that includes the units themselves and the relationships of authority, responsibility, and communication that they have with one another. 5. Develop the management and decision-making structure: the process used to allocate the business's resources to its components so as to realize goals and sustain values within constraints of environment. At the center of the model is embedded Churchman's first imperative: to identify the organization's values. Without knowledge of its values, an organization cannot develop a mission, goals, and objectives. Churchman's remaining four imperatives can be found within the four boxes in the circle. The arrows in Figure 2-3 shows important interdependency among the four factors of strategic management: strategic planning, resource requirements, organizational structure, and strategic control. Strategic planning is the key link between strategic management and the organization's external environment. Resource requirement is the factor that links strategic management to the organizations's resources, including finances, facilities and equipment, land, access to information, goodwill, and personnel. Strategic control relates to the implementation of a strategy. Organizational structure links strategic management to organizational realities. According to this model, environmental demands are met through a strategic planning process, involving the formulation of missions, goals, and objectives.

Strategic management can thus be seen as a "total" system perspective and not merely as the process of choosing from among alternative long-range plans. It reflects the organization's "strategic capability" to balance the demands imposed by external and internal forces and to integrate the overall functioning of the organization so as to allocate resources in a manner best designed to meet goals and objectives (Alan Rowe, Richard O. Mason, and Karl E. Dickel). Today's manager is faced with an accelerating rate of change in technical, social, political, and economic forces. As a result of these changing forces, the management process has become more difficult, requiring greater skills in planning, analysis, and control. Thus, the concept of strategic management is still involving and will continue to undergo change.

Stages Of Strategic Management


The strategic management process represents a logical, systematic, and objective approach for determining an enterprise's future direction. However, a clear separation is needed between the managerial process by which an organization formulates, evaluates, implements, and controls the relationships between its objectives, its strategies, and its environment. Researchers usually distinguish three stages in the process of strategic management: strategy formulation, strategy implementation, and evaluation and control.

Strategy Formulation
Strategy formulation is the process of establishing the organization's mission, objectives, and choosing among alternative strategies. Sometimes strategy formulation is called "strategic planning."

Strategy Implementation
Strategy implementation is the action stage of strategic management. It refers to decisions that are made to install new strategy or reinforce existing strategy. The basic strategy - implementation activities are establishing annual objectives, devising policies, and allocated resources. Strategy implementation also includes

the making of decisions with regard to matching strategy and organizational structure; developing budgets, and motivational systems.

Strategy Evaluation And Control


The final stage in strategic management is strategy evaluation and control. All strategies are subject to future modification because internal and external factors are constantly changing. In the strategy evaluation and control process managers determine whether the chosen strategy is achieving the organization's objectives. The fundamental strategy evaluation and control activities are: reviewing internal and external factors that are the bases for current strategies, measuring performance, and taking corrective actions.

Strategic Management Models


Strategic management is a broader term that includes not only the stages already identified but also the earlier steps of determining the mission and objectives of an organization within the context of its external environment. The basic steps of the strategic management can be examined through the use of strategic management model. The strategic management model identifies concepts of strategy and the elements necessary for development of a strategy enabling the organization to satisfy its mission. Historically, a number of frameworks and models have been advanced which propose different normative approaches to strategy determination. However, a review of the major strategic management models indicates that they all include the following elements: 1. 2. 3. 4. 5. Performing an environmental analysis. Establishing organizational direction. Formulating organizational strategy. Implementing organizational strategy. Evaluating and controlling strategy.

Strategic management is a continuous and dynamic process. Therefore, it should be understood that each element interacts with the other elements and that this interaction often happens simultaneously.

The major models differ primarily in the degree of explicitness, detail, and complexity. These differences derive from the differences in backgrounds and experiences of the authors. Some of these models are briefly presented below.

Andrews' Models
In 1965, Kenneth Andrews developed a simple model. This model includes the choice of a strategy, but ignores implementation and control. In 1971, Andrews formulated a more complete model that included implementation, but it still ignores a strategic control and evaluation.

Glueck's Model
William F. Glueck developed several models of strategic management based on the general decision-making process. The phases of this model are as follows: * Strategic managements elements: "...to determine mission, goals, and values of the firm and the key decision makers." * Analysis and diagnosis: " ...to search the environment and diagnose the impact of the threats and opportunities." * Choice: ...to consider various alternatives and assure that the appropriate strategy is chosen." * Implementation: "...to match plans, policies, resources, structure, and administrative style with the strategy." * Evaluation: "...to ensure strategy and implementation will meet objectives." As major contribution to the strategic management process, Glueck considered two elements: "enterprise objectives" (the mission and objectives of the enterprise," and "enterprise strategists" (who are involved in the process). Moreover, Glueck broke down the planning process into analysis and diagnosis, choice, implementation, and evaluation functions. This model also treats leadership, policy, and organizational factors.

However, Glueck omitted the important medium- and short-range planning activities of strategy implementation.

The Schendel And Hofer Model


Dan Schendel and Charles Hofer developed a strategic management model, incorporating both planning and control functions. Their model consists of several basic steps: (1) goal formulation, (2) environmental analysis, (3) strategy formulation, (4) strategy evaluation, (5) strategy implementation, and (6) strategic control. According to Schendel and Hofer, the formulation portion of strategic management consists of at least three subprocesses: - environmental analysis, - resources analysis, - and value analysis. Resource and value analyses are not specifically shown, but are considered to be included under other items (strategy formulation).

The Thompson And Strickland Model


Thompson and Strickland developed several models of strategic management.

According to Thompson and Strickland strategic management is an ongoing process: "nothing is final and all prior actions and decisions are subject to future modification." This process consists of five major five ever-present tasks: 1. Developing a concept of the business and forming a vision of where the organization needs to be headed. 2. Converting the mission into specific performance objectives. 3. Crafting a strategy to achieve the targeted performance. 4. Implementing and executing the chosen strategy efficiently and effectively. 5. Evaluating performance, reviewing the situation, and initiating corrective adjustments in mission, objectives, strategy, or implementation in light of actual experience, changing conditions, new ideas, and new opportunities. Thompson and Strickland suggest that the firm's mission and objectives combine to define "What is our business and what will it be?" and "what to do now" to achieve organization's goals. How the objectives will be achieved refers to the strategy of firm. In general, this model highlights the relationships between the organization's mission, its long- and short-range objectives, and its strategy.

Korey's Model
Modern theorist and writer, Jerzy Korey-Krzeczowski, founder and President Canadian School of Management, have proposed an integrated model of strategic management. Korey's model consists of three discrete major phases: (1) preliminary analysis phase, (2) strategic planning phase, (3) strategic management phase.

Further, Korey states that the systematic planning consists of at least four continuous subprocesses: (1) planning studies, (2) review and control, (3) feasibility studies, and (4) feasibility studies. The planning is ongoing process, thus all these subprocesses are integrated and they are interacted each other; creating the fully dynamic model. Korey's model incorporates both planning and control functions. Moreover, it describes not only long-range strategic planning process, but also includes elements of medium and short range planning. Korey's model is based on existing models; but it differs in content, emphasis, and process. This model adds several facets to the planning process that the reader has not seen in other models. Some of these are: development of educational philosophy, analysis of the value systems, review of community orientation and social responsibilities, definition of planning parameters, planning studies, and feasibility studies. Using Kory's model for strategic planning provides both new direction and new energy to the organization.

Schematic Model
As an aid in envisioning the strategic management process in this paper. This model was developed by Peter Wright, Charles Pringle and Mark Kroll (1994). It consists of five stages: 1. Analyze the environmental opportunities and threats. 2. Analyze the organization's internal strengths and weaknesses. 3. Establish the organizational direction: mission and goals. 4. Strategy formulation.

5. Strategy Implementation. 6. Strategic Control. The model begins with an analysis of environmental opportunities and threats. The organization is affected by environmental forces; but the organization can also have an impact upon its environment. The organization's mission and goals are linked to the environment by a dual arrow. This means that the mission and goals are set in the context of environmental opportunities and threats. The next arrow depicts the idea that strategy formulation sets strategy implementation in motion. Specifically, strategy is implemented through the organization's structure, its leadership, and its culture. Then, the final downward arrow indicates that the actual strategic performance of the organization is evaluated. The control stage is demonstrated by the feedback line that connects strategic control to the other parts of the model.

Developing The Strategic Management Process


Frederick W. Glueck, Stephan P. Kaufman, and A. Steven Walleck, studied the evolution of strategic management in 120 companies. They suggested that strategic planning in most organizations must evolve through four sequential phases. Phase 1 Basic financial planning. Organizations in phase 1 emphasize preparing and meeting annual budgets. Financial targets are established and revenues and costs are carefully monitored. The emphasis is short-term, and the primary focus is on the functional aspects of the organization. Most organizations in this phase exhibit few other characteristics relating to the future

Phase 2 Forecast-based planning. Organizations in phase 2 usually extend of the time frames covered by the budgeting process. Managers tend to seek more sophisticated forecasts and to become aware of their external environment and its effect on their organizations. Therefore, organization in phase 2 has more effective resource allocation and more timely decisions relating to organization's long-range competitive position. Phase 3 Externally oriented planning. Phase 3 is characterized by the attempt to understand basic marketplace phenomena. Organization begin to search for new ways to define and satisfy customer needs. Moreover, phase 3 differs from the earlier phases that the corporate planners are expected to generate a number of alterative courses of action for top management. Top management begins to evaluate strategic alternatives in a formalized manner to planning and actions. Phase 4 Strategic Management. Phase 4 is characterized by the merging of strategic planning and management into a single process. This integrated approach is accomplished through the presence of three elements: pervasive strategic thinking (managers all levels have learned to think strategically), comprehensive planning process, and supportive value system. The evolution of strategic management from an historical perspective will be presented in the next section.

Evolution Of Strategic Management


Several researchers in the field of strategic management have developed models describing the evolution of strategic management. In this section I present Ansoff's model. H. Igor Ansoff analyzed the changing environmental challenges facing organizations during this century and the managerial responses, competitive strategies, and entrepreneurial strategies employed to cope with them. According to Ansoff, during the twentieth century, two different types of system have evolved: * positioning systems (long range planning, strategic planning, strategic position management) which direct the firm's thrust in the environment;

* real-time systems (strong signal issue management, weak signal issue management, surprise management) which respond one at a time to rapid and unpredicted environmental developments. The systems can be grouped into four distinctive stages of evolution, that were responsive to the progressively decreasing familiarity of events and decreasing visibility of the future: 1. Management by (after the fact) control of performance, which was adequate when change was slow. 2. Management by extrapolation, when change accelerated, but the future could be predicted by extrapolation of the past. 3. Management by anticipation, when discontinuities began to appear but change, while rapid, was still slow enough to permit timely anticipation and response. 4. Management through flexible/rapid response, which is currently emerging, under conditions in which many significant challenges develop too rapidly to permit timely anticipation.

Position Systems
In this section, I compare the different systems, starting with long range planning. Long range planning and strategic planning One basic difference between long range planning (sometimes called corporate planning) and strategic planning is their respective views of the future. "In long range planning the future is expected to be predictable through extrapolation of the historical growth." Management typically assumes that future performance can and should be better than in the past. The process typically produces optimistic goals which are not fully met in reality. The jagged, called the "hockey stick effect," illustrates the typical goal-setting process that occurs in long range planning.

"In strategic planning the future is not necessarily expected to be an improvement over the past, nor is it assumed to be extrapolable." There are the following steps of the analysis in strategic planning: * An analysis of the firm's prospects is made which identifies trends, threats, opportunities and singular "breakthrough" events, which may change the historical trends. The results of prospects analysis are shown in the lower half of Figure 2-12. Determination of prospects closes the surveillance gap between extrapolation and the performance the firm is likely to attain if it follows its historical strategies. * The second step, is a competitive analysis which identifies the improvement in the firm's performance which can be obtained from improvements in the competitive strategies in the respective business areas of the firm. * The third step is a process which is called strategic portfolio analysis: the firm's prospects in the different business areas are compared, priorities are established, and future strategic resources are allocated among the business areas. The results of competitive analysis and of the portfolio balance is shown as the present potential line. This closes the competitive gap. * The next step is a diversification analysis which diagnoses the deficiencies in the present portfolio and identifies new business areas, into which the firm will seek to move. When the performance expected from the new business areas is added to the present potential line, the results are the overall goals and objectives of the firm shown in figure. These are determined by two factors: the ambitions and drive of the top management and by the strategic resources which will be available for diversification. There are differences in the process between long range planning (LRP) and strategic planning. In strategic long planning the goals are elaborated into action programs, budgets and profit plans for each of the key units of the firm. The programs and budgets are next implemented by these units. Strategic planning replaces extrapolation by an elaborate strategy analysis, which balances the prospects against objectives to produce a strategy.

The next step is to establish two sets of goals: for the near term-performance goals and strategic goals. Operating programs/budgets guide the operating units of the firm in their continuing profit-making activity, and strategic programs/budgets generate the firm's future profit potential. Strategic implementation requires a separate and different control system (strategic control). This means that LPR will effectively respond to environmental challenges on turbulence levels 2.5 to 3.5. Strategic planning becomes necessary on level 4 when future challenges become discontinuous. Strategic Posture Management The first significant difference between strategic planning and strategic posture management is the addition of capability planning to strategy planning. General management capability is determined by five supporting components: qualifications and mentality of the key managers, social climate (culture) within the firm, power structure, systems and organization structure, capacity of general management to do managerial work. The second difference between strategic planning and strategic posture management is the addition of systematic management of the resistance to change during implementation of the strategy and capability plans.

Real-time Systems
As environmental turbulence has begun to approach level 4, firms have begun to use real-time systems, called strategic issue management. Figure 2-14 illustrates strategic issue management. The ingredients of issue management are the following: 1. A continuous surveillance is instituted over environmental-businesstechnological-economic- social-political trends. 2. The impact and urgency of the trends are estimated and presented as key strategic issues to top management at frequent meetings and whenever a new major threat or opportunity is perceived.

3. Together with the planning staff, top management then sorts issues into one of four categories: o Highly urgent issues of far-reaching effect which require immediate attention. o Moderately urgent issues of far-reaching effect which can be resolved during the next planning cycle. o Non-urgent issues of far-reaching effect which require continuous monitoring. o Issues that are "false alarms" and can be dropped from further consideration. 4. The urgent issues are assigned for study and resolution, either to existing organizational units, or whenever rapid cross-organizational response is essential, to special taskforses. 5. The resolution of issues is monitored by top management both for strategic and tactical implications. 6. The list of the issues and their priorities is a kept up-to-date through periodic review by the top management. Issues identified through environmental surveillance will differ in the amount of the information they contain. Strong signal issues will be sufficiently visible and concrete to permit the firm to compute their impact and to devise specific plans for response. Other issues will contain weak signals, imprecise early indications about impending impactful events. Some issues will slip by the environmental surveyors and become strategic surprises. Particularly, if the firm expects its environmental turbulence to be around level five, it needs to invest a strategic surprise system.

Choosing The Management System For A Firm


The choice of the system combination for a particular firm depends on the turbulence characteristics of the environments in which it participates and expects to enter. To identify the combination of systems that will be needed by the firm: (1) Diagnose the future turbulence.

(2) Select the system(s) which will be needed by the firm.

Strategic Management Tools And Techniques


In recent years, the strategic management process has become more complex and costly. Growing competitiveness in many markets and along many combinations of dimension is increasing of analysis facing managers. Therefore, in order to assist strategic managers, a wide variety of tools and techniques have been developed. These techniques can be divided into three categories: tools for developing organizational strategies, strategic planning techniques, control techniques.

Tools For Developing Organizational Strategies


The process of identification and evaluation a wide range of possible strategies has generated a number of conceptual tools or techniques for these purposes. These tools and techniques are related but distinct. Managers must decide on the extent to which they will be involved in strategic and operational decision making process. Several of the most widely used tools are: critical question analysis, gap analysis, industry analysis, product-market matrix, product life cycles, and many analytical frameworks are used in portfolio management (e.g., SWOT analysis, the BCG matrix ). This section only emphasises on critical question analysis, as the most important aid to guide top management in selecting the right strategy. Critical Question Analysis A synthesis of the ideas of several writers suggests that formulating appropriate organizational strategy is a process of critical question analysis - answering the following four basic questions: * What are the purpose(s) and objectives of the organization? The answer to this question states where the organization wants to go.

* Where is the organization presently going? The answer to this question can tell managers if an organization is achieving organizational goals and, if so, whether or not the level of such progress is satisfactory. * Is what kind of environment does the organization now exist? Both internal and external environments are covered in this question. * What can be done to better achieve organizational objectives in the future? The answer to this question actually results in the strategy of the organization.

Tools For Planning And Problem Solving - Management Science Aids


To help managers improve their planning and problems solving, a variety of techniques and tools have been developed. The most important of these tools are management science research techniques. The term management science (MS) and operations research (OR) are, in general, used interchangeably. Management science is defined as "a set of quantitatively based decision models used to assist management decisions makers" (Richard L. Daft). There are three key components in this definition: - management science is a set of quantitative tools; - management science uses decision models; - quantitative models assist decision makers; they cannot substitute for or replace a manager. Management science research techniques help managers improve the quality of their problem solving. These techniques seek to describe, understand, and predict the behaviour of complex system of human being and equipment. Types of Models and Science Techniques There are the variety of management science models and techniques that are designed to supplement managerial planning and decision making. Some writers consider forecasting to be management science (although others do not). Forecasting is the process of using past and current information to predict future events. It involves identifying opportunities and threats in the firm 's external

environment. Forecasts are an important aspect of planning and decisions making process. A management science also includes many quantitative techniques, and other management science aids. Some of these are: * The Program Evaluation and Review Technique (PERT). PERT is planning and control technique that allows managers to decompose a project into specific activities and to plan far in advance when its is to be completed. The main function PERT is to determine the time required to complete a project. * Breakeven Analysis. Breakeven analysis helps managers determine how many units must be sold before a product is profitable. * Linear Programming. Linear programming are used to determine the best way to allocate resources to achieve some desired objectives. * Game Theory. Game theory attempts to predict how rational people will behave in competitive situation. For example, game theories attempt to describe how competitors will respond to a price increase, the introduction of a new product, or a new advertising campaign. * Simulation Models. Simulation models are mathematical representations of the relationships among variables in real-life organizational situations. The try to replicate a part of an organization's operations in order to see what will happen to that part over time, or to experiment with that part by changing certain variables. For example, simulations are popular for the risky business of newproduct innovations.

Control Tools And Techniques


The controlling function includes activities undertaken by managers to ensure that actual results conform to planned results. Control tools and techniques help managers pinpoint the organizational strengths and weaknesses on which useful control strategy must focus. In order to simplify the discussion of the tools and control techniques, many authors divide them into two categories: nonfinancial and financial. Nonfinancial control techniques do not require financial data to be used, while financial

control techniques require some form of financial data such as profits, costs, or revenues. Each of the control techniques is intended for a different purpose. Therefore, in order to make rational choices about which control techniques to implement, managers must understand what a given control techniques can and cannot do. Nonfinancial control techniques. Nonfinancial control techniques include rewards and punishments, selection procedures, socialization and training, the management hierarchy, management by exception, inventory and quality control, and PERT. Financial Control Techniques. Financial controls help managers to keep costs in line, maintain a viable relationship between assets and liabilities, sustain adequate liquidity, and achieve general operating efficiency. Some of the bestknown and most commonly used financial control techniques are: budgets, ratio analysis, break-even analysis, and accounting audits.

The Importance And Value Of Strategic Management


A number of reasons are given by authors to as why organizations should engage in strategic management. Many research studies show both financial and nonfinancial benefits which can be derived from a strategic-management approach to decision making.

Financial Benefits
The question "Why should an organization engage in strategic management?" must be answered by looking at the relationship between strategic management and performance. Research performed by Eastlack and McDonald (1970), Thune and House (1970), Ansoff et. al. (1971), Karger and Malik (1975), and Hofer and Schendel (1978) indicate that formalized strategic management (strategic planning) does result in superior performance by organizations. Each of these studies was able to provide conceiving evidence of the profitability of strategy formulation and implementation. The formalized strategic management process does make a

difference in the recorded measurements of profits, sales, and return on assets. Organizations that adopt a strategic management approach can expect that the news system will lead to improved financial performance.

Nonfinancial Benefits
Regardless of the profitability of strategic management, several behavioral effects can be expected to improve the welfare of the firm. Yoo and Digman emphasize that strategic management is needed to cope with and manage uncertainty in decision making. They present several benefits of strategic management: 1. It provides a way to anticipate future problems and opportunities. 2. It provides employees with clear objectives and directions for the future of the organization. 3. It results in more effective and better performance compared to nonstrategic management organizations. 4. It increases employee satisfaction and motivation. 5. It results in faster and better decision making and 6. It results on cost savings. Moreover, Greenley stresses that strategic management offers the following process and personal benefits: 1. It allows for identification, prioritization, and exploitation of opportunities. 2. It provides an objective view of management problems. 3. It represents a framework for improved coordination and control of activities. 4. It minimizes the effects of adverse conditions and changes. 5. It allows major decisions to better support established objectives. 6. It allows more effective allocation of time and resources to identified opportunities. 7. It allows fewer resources and less time to be devoted to correcting erroneous or ad hoc decisions. 8. It creates a framework for internal communication among personnel. 9. It helps to integrate the behavior of individuals into a total effort. 10.It provides a basic for the clarification of individual responsibilities. 11.It gives encouragement to forward thinking.

12.It provides a cooperative, integrated, and enthusiastic approach to tackling problems and opportunities. 13.It encourages a favorable attitude towards change. 14.It gives a degree of discipline and formality to the management of a business. These and other research studies have concluded that strategic management is an integral and important function of organization life. However, successful organizations are successful for many reasons: adequate resources, good products and services, and so on. While not a panaceas, the strategic management process is only a powerful tool. It value lies with executive and the ability to use this strategic management tool in effectively managing the enterprise.

SUMMARY
Strategic management is a continuous process. There are three stages in this process: strategy formulation, strategy implementation, and evaluation and control. Strategy management is also viewed as series of steps. Therefore, the strategicmanagement process can be best be studied and applied using the model. A review of the major strategic management models indicates that they all include the following steps: performing an environmental analysis, establishing organizational direction, formulating organizational strategy, implementing organizational strategy, evaluating and controlling strategy. The strategic management process mostly involves top management, board of directors, and planning staff. In its final form, a strategic decisions is moulded from the streams of inputs, decisions, and actions. All organizations engage in the strategic management process. The success of an organization is generally dependent upon the strategic management and organizational abilities of the managers. Many research studies show both financial and nonfinancial benefits which can be derived from a strategic-management approach to decision making.

Moreover, the concept of strategic management is still involving and will continue to undergo change. Therefore, understanding and following and complete process of strategic management can be helpful to practicing managers to gain organizations' objectives.