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What is strategic management?

Strategic Management can be defined as “the art and science of formulating, implementing and
evaluating cross-functional decisions that enable an organization to achieve its objective.”

Interpretation:

1. On-going process:
Strategic management is a on-going process which is in existence through out the life of
organization.
2. Shaping broad plans:
First, it is an on-going process in which broad plans are firstly formulated than
implementing and finally controlled.
3. Strategic goals:
Strategic goals are those which are set by top management. The broad plans are made in
achieving the goals.
4. Internal and external environment:
Internal and external environment generally set the goals. Simply external environment forced
internal environment to set the goals and guide them that how to achieve the goals?

• Environment Scanning

• Strategy Formulation

• Strategy Implementation

• Evaluation & Control

Strategic Management Process

• Strategic Formulation

• Strategic Implementation

• Strategic Evaluation
Strategic Formulation:

Strategic formulation means a strategy formulate to execute the business activities. Strategy
formulation includes developing:-

 Vision and Mission (The target of the business)


 Strength and weakness (Strong points of business and also weaknesses)
 Opportunities and threats (These are related with external environment for the
business)
Strategy formulation is also concerned with setting long term goals and objectives, generating
alternative strategies to achieve that long term goals and choosing particular strategy to pursue.
The considerations for the best strategy formulation should be as follows:

 Allocation of resources
 Business to enter or retain
 Business to divest or liquidate
 Joint ventures or mergers
 Whether to expand or not
 Moving into foreign markets
 Trying to avoid take over
Strategy Implementation

Strategy implementation requires a firm to establish annual objectives, devise policies, motivating
employees and allocate resources so that formulated strategies can be executed. Strategy
implementation includes developing strategy supportive culture, creating an effective
organizational structure, redirecting marketing efforts, preparing budgets, developing and utilizing
information system and linking employee compensation to organizational performance.
Strategy implementation is often called the action stage of strategic management.
Implementing means mobilizing employees and managers in order to put formulated strategies
into action. It is often considered to be most difficult stage of strategic management. It
requires personal discipline, commitment and sacrifice. Strategy formulated but not
implemented serve no useful purpose.

Strategy evaluation:
Strategy evaluation is the final stage in the strategic management process. Management
desperately needs to know when particular strategies are not working well; strategy evaluation is
the primary means for obtaining this information. All strategies are subject to future modification
because external and internal forces are constantly changing
Development of Vision and Mission

Mission statements

• Describe the overall purpose of an organization: what we do, who we do it for, and how
and why we do it.
• Set the boundaries of the organization’s current activities.
• Are the starting point in developing a strategic vision.

A mission review gets an organization back to basics. The essential activity of determining whom
you serve can be a wake-up call for organizations that have started to skew their activities to
meet the needs other stakeholders (such as their funders or lobby targets) and not their actual
clients.

Vision statements

• Describe an ideal future.


• Reflect the essence of an organization’s mission and values.
• Answer the question, what impact do we want to have on society?
• Unite an organization in a common, coherent strategic direction.
• Convey a larger sense of organizational purpose, so that employees see themselves as
“building a cathedral” rather than “laying stones”.

Characteristics Strategic decision

Strategy:

Strategy is the mean by which long term objectives will be achieved.

Strategic Decision

Strategic decisions are the decisions that are concerned with whole environment in which the firm
operates, the entire resources and the people who form the company and the interface between
the two.

Characteristics/Features of Strategic Decisions

a. Strategic decisions have major resource propositions for an organization. These


decisions may be concerned with possessing new resources, organizing others or
reallocating others.
b. Strategic decisions deal with harmonizing organizational resource capabilities with the
threats and opportunities.
c. Strategic decisions deal with the range of organizational activities. It is all about what they
want the organization to be like and to be about.
d. Strategic decisions involve a change of major kind since an organization operates in
ever-changing environment.
e. Strategic decisions are complex in nature.
f. Strategic decisions are at the top most level, are uncertain as they deal with the future,
and involve a lot of risk.
g. Strategic decisions are different from administrative and operational decisions.
Administrative decisions are routine decisions which help or rather facilitate strategic
decisions or operational decisions. Operational decisions are technical decisions which
help execution of strategic decisions. To reduce cost is a strategic decision which is
achieved through operational decision of reducing the number of employees and how we
carry out these reductions will be administrative decision.

Strategic hierarchy
In most (large) corporations there are several levels of strategy. Strategic management is the highest in the
sense that it is the broadest, applying to all parts of the firm. It gives direction to corporate values, corporate
culture, corporate goals, and corporate missions. Under this broad corporate strategy there are often
functional or business unit strategies.

Comparing Business and Military Strategy


A fundamental difference between military and business strategy is that business strategy is
formulated, implemented, and evaluated with an assumption of competition, whereas military strategy
is based on an assumption of conflict. Nonetheless, military conflict and business competition are so
similar that many strategic-management military thinkers have refined over time. Superior strategy
formulation and implementation can overcome an opponent; superiority in numbers and resources.

Both business and military organizations must adapt to change and constantly improve to be
successful. Too often, firms do not change their strategies when their environment and competitive
conditions dictate the need to change.

External Opportunities and Threats

• Economic
• Social
• Cultural
• Demographic
• Environmental
• Political
• Governmental
• Technological
• Competitive trends & events
Internal Strengths & Weaknesses

Based on functional analysis of activities in the firm’s:

• Management
• Marketing
• Finance/accounting
• Production/operations
• Research and development
• Computer information systems

Organizations strive to pursue strategies that capitalize on strengths and improve weaknesses

Long-Term Objectives

Results to be achieved in pursuing the organization’s mission. Time frame is beyond one year.

• State direction
• Aid in evaluation
• Create synergy
• Reveal priorities
• Focus coordination
• Provide basis for effective management

Mechanisms by which long-term objectives are realized

• Geographic expansion
• Diversification
• Acquisition
• Product development
• Market penetration
• Retrenchment
• Divestiture
• Liquidation
• Joint venture

Annual Objectives

Short-term milestones necessary to achieve long-term objectives.

• Represent the basis for allocating resources


• Established at corporate, divisional, and functional levels

Policie

Important in strategy implementation as the means by which annual objectives will be achieved

• Guide to decision making and address repetitive situations


• Established at corporate, divisional, or functional levels
• Allow consistency & coordination within and between organizational departments

Comprehensive Strategic Management


Model

External
Audit

Impleme
Long-Term Measure
nt
Objectives Generate, Implement &
Strategie
Evaluate, Strategies: Evaluate
s:
Vision Select Marketing, Performa
Mgmt
& Strategies Fin/Acct, nce
Issues
Mission R&D, CIS
Statements Chapter 8
Chapter 7 Chapter 9

Internal
Audit

Benefits of Strategic Management

Financial Benefits

• More profitable and successful


• Improvements in sales, profitability, and productivity
• High-Performing Firms

1. Systematic planning

• Fluctuations in external and internal environments

Nonfinancial Benefits

o Enhanced awareness of external threats


o Understanding of competitors’ strategies
o Increased employee productivity
o Reduced resistance to change
o Clear performance-reward relationships
o Order and discipline to the firm
o View change as opportunity

Pitfalls to Avoid in Strategic Planning

• Using to gain control over decisions & resources


• Doing only to satisfy regulatory requirements
• Moving hastily from mission to strategy formulation
• Failing to communicate to employees
• Intuitive decisions that conflict with formal plan
• Top management not supportive of process
• Failing to use as standard for performance measurement
• Delegating to a “planner” vs. involvement of managers
• Failing to involve key personnel
• Failing to create collaborative environment
• Formality that stifles creativity and flexibility