Lecture Notes: Nature of 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.”

cross-functional decisions

- decisions that involve multiple departments or functions within an organization. These decisions
often involve trade-offs between different departments or functions, and require coordination and
cooperation across the organization to be implemented effectively.

Examples of cross-functional decisions in strategic management include decisions related to:

- Product development: Decisions involving R&D, engineering, production, and marketing

departments to develop new products or improve existing ones.
- Supply chain management: Decisions involving procurement, logistics, and manufacturing
departments to optimize the flow of materials, goods, and services.
- Marketing and sales: Decisions involving marketing, sales, and product development departments
to develop and implement effective marketing strategies.
- Organizational structure: Decisions involving HR, IT, and finance departments to optimize the
organization's structure and processes.
- Cross-functional decisions require effective communication, collaboration, and coordination
between different departments and functions in order to be successful. The process of making
cross-functional decisions is often more complex and time-consuming than decisions that only
involve one department or function.
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Strategic management is sometimes used synonymously with the term strategic planning.

The strategic-management process consists of three stages: strategy formulation, strategy

implementation, and strategy evaluation.
Stages of Strategic Mgt.

I. Strategy formulation includes developing a vision and mission, identifying an organization’s

external opportunities and threats, determining internal strengths and weaknesses,
establishing long-term objectives, generating alternative strategies, and choosing particular
strategies to pursue.
II. Strategy implementation is the stage in the strategic management process that involves
putting the chosen strategy into action. David's approach to strategy implementation
involves several key steps
1. Establishing objectives and policies: This step involves setting specific, measurable
objectives and developing policies to guide the implementation of the chosen strategy.
2. Organizing and staffing: This step involves organizing the resources and personnel
needed to implement the chosen strategy, including creating new positions and roles,
and reallocating existing resources.
3. Allocating resources: This step involves allocating the necessary resources, such as
financial, human and technological resources to ensure that the chosen strategy is
implemented effectively.
4. Developing a budget: This step involves developing a budget to ensure that resources
are allocated effectively and efficiently.
5. Developing operating plans: This step involves developing detailed plans for
implementing the chosen strategy, including timelines, milestones, and performance
measures.
6. Implementing the strategy: This step involves taking the necessary actions to
implement the chosen strategy, including communicating the strategy to employees,
customers, and other stakeholders, and providing the necessary support and resources.
7. Monitoring and controlling the strategy: This step involves monitoring the
implementation of the chosen strategy, measuring progress, and making adjustments as
needed to ensure that the strategy is on track to achieve its objectives.

David's approach to strategy implementation emphasizes the importance of clear

objectives, effective organizational structure, and efficient resource allocation. It also
highlights the importance of developing detailed plans, monitoring progress, and making
adjustments as needed to ensure the strategy is on track to achieve its objectives.

III. Strategy Evaluation stage in strategic management is the process of monitoring and
controlling the implementation of the chosen strategy. David's approach to evaluation
involves several key steps:

1. Establishing performance standards: This step involves setting specific, measurable

performance standards to evaluate the implementation of the chosen strategy.

2. Measuring performance: This step involves measuring performance against the

established standards and collecting data on key performance indicators.

3. Analyzing results: This step involves analyzing the data to determine whether the
strategy is on track to achieve its objectives and whether any adjustments are needed.
 4. Taking corrective action: This step involves taking corrective action to address any
issues or problems identified during the analysis of results.

5. Communicating results: This step involves communicating the results of the evaluation
to key stakeholders, including employees, customers, and shareholders.

David's approach to evaluation emphasizes the importance of clear performance

standards, accurate data collection, and thorough analysis. It also highlights the
need for timely corrective action and effective communication to ensure that the
strategy is on track to achieve its objectives. This approach focuses on the ability to
identify any deviations from the plan as soon as possible and taking corrective
actions quickly to get back on track.

These are three important questions to answer in developing a strategic plan:

Where are we now?
Where do we want to go?
How are we going to get there?
Strategic management can bring several benefits to an organization, including:

1. Long-term perspective: Strategic management provides an organization with a long-term

perspective and helps it to anticipate and respond to changes in the internal and external
environment.

2. Improved decision-making: Strategic management helps an organization to make better

decisions by providing a framework for analyzing internal and external factors and evaluating
different options.

3. Increased competitiveness: Strategic management can help an organization to gain a

competitive advantage by identifying and exploiting unique resources, capabilities and
opportunities.

4. Improved performance: Strategic management can help an organization to improve its

performance by setting clear goals and objectives and aligning its resources and activities to
achieve them.

5. Increased stakeholder value: Strategic management can help an organization to create value for
its stakeholders by identifying and exploiting opportunities to create value for customers,
shareholders, employees, and other stakeholders.

6. Better alignment of resources: Strategic management can help an organization to align its
resources and activities to achieve its goals and objectives, which can result in more efficient
and effective use of resources.

7. Better communication and coordination: Strategic management can help an organization to

improve communication and coordination between different departments and functions, which
can lead to better decision-making and improved performance.

8. Greater flexibility: Strategic management can help an organization to be more flexible and
adapt to changes in the internal and external environment.

Overall, strategic management is a critical process that can help an organization to achieve its goals and
create value for its stakeholders. Effective strategic management requires a long-term perspective,
careful analysis, and effective execution.

Why Some Firms Do Not Do Strategic Planning

• Lack of knowledge or experience in strategic planning—No training in strategic planning.

• Poor reward structures—When an organization assumes success, it often fails to reward success.
When failure occurs, then the firm may punish.

• Firefighting—An organization can be so deeply embroiled in resolving crises and firefighting that it
reserves no time for planning.

• Waste of time—Some firms see planning as a waste of time because no marketable product is
produced. Time spent on planning is an investment.
• Too expensive—Some organizations see planning as too expensive in time and money.

• Laziness—People may not want to put forth the effort needed to formulate a plan.

• Content with success—Particularly if a firm is successful, individuals may feel there is no need to plan
because things are fine as they stand. But success today does not guarantee success tomorrow.

• Fear of failure—By not taking action, there is little risk of failure unless a problem is urgent and
pressing. Whenever something worthwhile is attempted, there is some risk of

failure.

• Overconfidence—As managers amass experience, they may rely less on formalized planning. Rarely,
however, is this appropriate. Being overconfident or overestimating experience can bring demise.
Forethought is rarely wasted and is often the mark of professionalism.

• Prior bad experience—People may have had a previous bad experience with planning, that is, cases in
which plans have been long, cumbersome, impractical, or inflexible. Planning, like anything else, can be
done badly.

• Self-interest—When someone has achieved status, privilege, or self-esteem through effectively using
an old system, he or she often sees a new plan as a threat.

• Fear of the unknown—People may be uncertain of their abilities to learn new skills, of

their aptitude with new systems, or of their ability to take on new roles.

• Honest difference of opinion—People may sincerely believe the plan is wrong. They may view the
situation from a different viewpoint, or they may have aspirations for themselves or the organization
that are different from the plan. Different people in different jobs have different perceptions of a
situation.

• Suspicion—Employees may not trust management.

Pitfalls in Strategic Planning

- Using strategic planning to gain control over decisions and resources.

- Doing strategic planning only to satisfy accreditation or regulatory requirements.
- Too hastily moving from mission development to strategy formulation.
- Failing to communicate the plan to employees, who continue working in the dark.
- Top managers making many intuitive decisions that conflict with the formal plan.
- Top managers not actively supporting the strategic-planning process.
- Failing to use plans as a standard for measuring performance.
- Delegating planning to a “planner” rather than involving all managers.
- Failing to involve key employees in all phases of planning.
- Failing to create a collaborative climate supportive of change.