Lesson 1 STRATEGIC MANAGEMENT Strategic management is the ongoing planning, monitoring, analysis and assessment of all necessities an organization needs to meet its goals and objectives. Changes in business environments will require organizations to constantly assess their strategies for success. The strategic management process helps organizations take stock of their present situation, chalk out strategies, deploy them and analyze the effectiveness of the implemented management strategies. Strategic management strategies consist of five basic strategies and can differ in implementation depending on the surrounding environment. Strategic management applies both to on-premise and mobile platforms. Benefits of strategic management Strategic management is generally thought to have financial and nonfinancial benefits. A strategic management process helps an organization and its leadership to think about and plan for its future existence, fulfilling a chief responsibility of a board of directors. Strategic management sets a direction for the organization and its employees. Unlike once-and-done strategic plans, effective strategic management continuously plans, monitors and tests an organization's activities, resulting in greater operational efficiency, market share and profitability. Strategic management concepts Strategic management is based around an organization's clear understanding of its mission; its vision for where it wants to be in the future; and the values that will guide its actions. The process requires a commitment to strategic planning, a subset of business management that involves an organization's ability to set both short- and long-term goals. Strategic planning also includes the planning of strategic decisions, activities and resource allocation needed to achieve those goals. Having a defined process for managing an institution's strategies will help organizations make logical decisions and develop new goals quickly in order to keep pace with evolving technology, market and business conditions. Strategic management can, thus, help an organization gain competitive advantage, improve market share and plan for its future. Five stages of strategic management process There are many schools of thought on how to do strategic management, and academics and managers have developed numerous frameworks to guide the strategic management process. In general, the process typically includes five phases: assessing the organization's current strategic direction; identifying and analyzing internal and external strengths and weaknesses; formulating action plans; executing action plans; and evaluating to what degree action plans have been successful and making changes when desired results are not being produced. Effective communication, data collection and organizational culture also play an important part in the strategic management process -- especially at large, complex companies. Lack of communication and a negative corporate culture can result in a misalignment of the organization's strategic management plan and the activities undertaken by its various business units and departments. (See Value of organizational culture.) Thus, strategy management includes analyzing cross-functional business decisions prior to implementing them to ensure they are aligned with strategic plans. Types of strategic management strategies The types of strategic management strategies have changed over time. The modern discipline of strategic management traces its roots to the 1950s and 1960s. Prominent thinkers in the field include the Peter Drucker, sometimes referred to as the founding father of management studies. Among his contributions was the seminal idea that the purpose of a business is to create a customer, and what the customer wants determines what a business is. Management's main job is marshalling the resources and enabling employees to efficiently address customers' evolving needs and preferences. In the 1980s, a Harvard Business School professor called Theodore Levitt, developed a different strategy with a focus on the customer. This strategy was different from the previous emphasis on production -- i.e., creating a product of high quality ensured success. Distinctive competence, a term introduced in 1957 by sociology and law scholar Philip Selznick, focused on the idea of core competencies and competitive advantage in strategic management theory. This enabled the creation of frameworks for assessing the strengths and weaknesses of an organization in relation to the threats and opportunities in its external environment. (See SWOT analysis). Canadian management scientist Henry Mintzberg concluded that the strategic management process could be more dynamic and less predictable than management theorists had thought. In his 1987 paper, "The Strategy Concept I: Five Ps for Strategy," he argued "the field of strategic management cannot afford to rely on a single definition of strategy." Instead, he outlined five definitions of strategy and their interrelationships: Plan: Strategy as a consciously intended course of action to deal with a situation. Ploy: Strategy as a maneuver to outwit a competitor, which can also be part of a plan. Pattern: Strategy stemming from consistency in behavior, whether or not intended and which can be independent of a plan. Position: Strategy as a mediating force or match between the organization and environment, which can be compatible with any or all of the Ps. Perspective: Strategy as a concept or ingrained way of perceiving the world -- e.g., aggressive pacesetter vs. late mover -- which can be compatible with any or all of the Ps. SWOT analysis A SWOT analysis is one of the types of strategic management frameworks used by organizations to build and test their business strategies. A SWOT analysis identifies and compares the strengths and weaknesses of an organization with the external opportunities and threats of its environment. The SWOT analysis clarifies the internal, external and other factors that can have an impact on an organization's goals and objectives. The SWOT process helps leaders determine whether the organization's resources and abilities will be effective in the competitive environment within which it has to function and to refine the strategies required to remain successful in this environment. Balanced scorecard in strategic management The balanced scorecard is a management system that turns strategic goals into a set of performance objectives that are measured, monitored and changed, if necessary, to ensure the strategic goals are met. The balanced scorecard takes a four-pronged approach to an organization's performance. It incorporates traditional financial analysis, including metrics such as operating income, sales growth and return on investment. It also entails a customer analysis, including customer satisfaction and retention; an internal analysis, including how business processes are linked to strategic goals; and a learning and growth analysis, including employee satisfaction and retention, as well as the performance of an organization's information services. As explained by the Balanced Scorecard Institute: "The system connects the dots between big picture strategy elements such as mission (our purpose), vision (what we aspire for), core values (what we believe in), strategic focus areas (themes, results and/or goals) and the more operational elements such as objectives (continuous improvement activities), measures (or key performance indicators, or KPIs, which track strategic performance), targets (our desired level of performance), and initiatives (projects that help you reach your targets)." Value of organizational culture Organizational culture can determine the success and failure of a business and is a key component that strategic leaders must consider in the strategic management process. Culture is a major factor in the way people in an organization outline objectives, execute tasks and organize resources. A strong organizational culture will make it easier for leaders and managers to motivate employees to execute their tasks in alignment with the outlined strategies. At organizations where lower-level managers and employees are expected to be involved in the decision-making and strategy, the strategic management process should enable them to do so. It is important to create strategies that are suitable for the organization's culture. If a particular strategy does not match the organization's culture, it will hinder the ability to accomplish the strategy's intended outcomes. Part I. What is Strategy? To comprehend what is strategic management, we need to know what Strategy means. The word ‘strategy’ is adopted from military administration. In the military, most often strategy refers to ‘deployment’ of troops – that means maneuvering of troops into position before the enemy is engaged. In business, we can substitute ‘resources’ for troops. Business people deploy resources of various types to achieve objectives. A strategy is considered as a long-term plan that relates the strategic advantages of an organization to the challenges of the environment. It involves the determination of the long-term objectives of the organization and the adoption of courses of action. It also involves the allocation of resources necessary to achieve the objectives. When defined this way, objectives are considered as part of strategy formulation. According to the definition provided by Thompson and Strickland, a strategy is the means used to achieve the ends. According to MICHAEL PORTER, the undisputed guru of competitive strategy, “strategy is about the competitive position, about differentiating yourself in the eyes of the customer, about adding value through a mix of activities different from those used by competitors.” In his book, he defines competitive strategy as “a combination of the ends for which the firm is striving and how it is seeking to get there.” Mintzberg's 5 Ps for Strategy The word "strategy" has been used implicitly in different ways even if it has traditionally been defined in only one. Explicit recognition of multiple definitions can help people to maneuver through this difficult field. Mintzberg provides five definitions of strategy: Plan Strategy is a plan - some sort of consciously intended course of action, a guideline (or set of guidelines) to deal with a situation. By this definition strategies have two essential characteristics: they are made in advance of the actions to which they apply, and they are developed consciously and purposefully. Ploy As plan, a strategy can be a ploy too, really just a specific maneuver intended to outwit an opponent or competitor. Pattern If strategies can be intended (whether as general plans or specific ploys), they can also be realized. In other words, defining strategy as plan is not sufficient; we also need a definition that encompasses the resulting behavior: Strategy is a pattern - specifically, a pattern in a stream of actions. Strategy is consistency in behavior, whether or not intended. The definitions of strategy as plan and pattern can be quite independent of one another: plans may go unrealized, while patterns may appear without preconception. Plans are intended strategy, whereas patterns are realized strategy; from this we can distinguish deliberate strategies, where intentions that existed previously were realized, and emergent strategies where patterns developed in the absence of intentions, or despite them. Position Strategy is a position - specifically a means of locating an organization in an "environment". By this definition strategy becomes the mediating force, or "match", between organization and environment, that is, between the internal and the external context. Perspective Strategy is a perspective - its content consisting not just of a chosen position, but of an ingrained way of perceiving the world. Strategy in this respect is to the organization what personality is to the individual. What is of key importance is that strategy is a perspective shared by members of an organization, through their intentions and / or by their actions. In effect, when we talk of strategy in this context, we are entering the realm of the collective mind - individuals united by common thinking and / or behavior. Characteristics of Strategy 1. Strategy is a systematic phenomenon: Strategy involves a series of action plans, no way contradictory to each other because a common theme runs across them. It is not merely a good idea; it is making that idea happen too. Strategy is a unified, comprehensive and integrated plan of action. 2. BY ITS NATURE, IT IS MULTIDISCIPLINARY: Strategy involves marketing, finance, human resource and operations to formulate and implement strategy. Strategy takes a holistic view. It is multidisciplinary as a new strategy influences all the functional areas, i.e., marketing, financial, human resource, and operations. 3. By its influence, it is multidimensional: Strategy not only talks about vision and objectives, but also the way to achieve them. So, it implies that the organization should possess the resources and competencies appropriate for implementation of strategy as well as strong performance culture, with clear accountability and incentives linked to performance. 4. BY ITS STRUCTURE, IT IS HIERARCHICAL: On the top come corporate strategies, then come business unit strategies, and finally functional strategies. Corporate strategies are decided by the top management, Business Unit level strategies by the top people of individual strategic business units, and the functional strategies are decided by the functional heads. 5. By relationship, it is dynamic: Strategy is to create a fit between the environment and the organization’s actions. As environment itself is subject to fast change, the strategy too has to be dynamic to move in accordance to the environment. Success of Microsoft appears to be very simple as far as software for personal computers are concerned, but Microsoft strategy required continuous decisions in a turbulent and dynamic environment to remain leader. 6. The purpose of strategy is to create competence (things firm does better than competitors), synergy (between different parts of the organization and their activities) and value creation so as to attain vision and mission. An organization can reach its destiny (vision) only if it can create value for the firm and its stakeholders (mission). Value creation involves economic value addition (profits for the company), customer value addition (Value customers perceive in relation to competitors), people value addition (Value gained from enabling employees to be most productive resource.) so as to fulfil the needs of all concerned. 7. Strategy requires searching for new sources of advantage: To achieve sustainable long term competitive advantage the firm must invent new rules and new games to become unique and create wealth. Simply copying the leader means value is destroyed for all the firms. Thus to look different, strategy differentiation is a must. 8. Strategy is almost always the result of some type of collective decision-making process: Part II. What is Strategic Management? Strategic Management is basically the systematic organization and execution of major targets and initiatives that are taken by the top management on behalf of the owners, after going through a careful study of all the available resources and assessment of all the internal and external paradigms to reap the best possible results for the business. Strategic management works as a tool for ensuring the establishment of stable business machinery which conforms to all the vital factors that are essential for effective management. It is the study of various management techniques and procedures which are focused on the integration of cross-functional decisions, which are formed after thorough examination and are implemented to facilitate the achievement of a business’ objectives. To put it simply, STRATEGIC MANAGEMENT is concerned with the application and formation of judicious decisions which are to strengthen a business’ management, ultimately leading towards the achievement of its goals and objectives. Why Strategic Management? Strategic management practices are greatly focused on bringing into coherence the corporate policies of a business with its strategic priorities. It is used as a directive guideline to establish a harmonious connection between various internal and external factors that may affect a business’ management and a business’ objectives, ranked in term of their priority of achievement. Strategic management provides a unified platform for the integration of various vital factors that jointly work towards a business’ success. These factors that are actively combined through the implementation of theories of strategic management include appraisals of various internal and external factors and aspects of a business setup, formulation of viable management and organisational policies, and application of feasible measures that provide a business with a competitive edge over others. Approaches Strategic management specifically stresses on the present and future endeavours of a business entity. It includes the examination and appraisal of the current strategic position of a business organisation, ensuring the proper implementation of all the practical managerial procedures and selection and formation of fruitful strategic policies for the future. https://entrepreneurhandbook.co.uk/what-is-strategic-management/ Benefits of strategic management Strategic management is generally thought to have financial and nonfinancial benefits. A strategic management process helps an organization and its leadership to think about and plan for its future existence, fulfilling a chief responsibility of a board of directors. Strategic management sets a direction for the organization and its employees. Unlike once-and-done strategic plans, effective strategic management continuously plans, monitors and tests an organization's activities, resulting in greater operational efficiency, market share and profitability. https://www.techtarget.com/searchcio/definition/strategicmanagement#:~:text=Strategic%20management%20is%20generally%20thought,of%20a%20board%20of%20di rectors. Part III. History and Evolution of Strategic Management The history of the evolution of strategic management can be traced back to 400 BC when the term ‘strategia’ was used in the GREEK ARMY to imply science, art, and quality of being efficient army general. Subsequently, this term was taken as a synonym of the present-day term ‘strategy. Strategic management is not a very old phenomenon in the corporate world. The concepts and techniques have evolved over the years beginning in the 1970s in a lukewarm way. Part III. History and Evolution of Strategic Management Initially, the concept of long-range planning was used in a few large companies in the USA. The two most admired companies that began using long-range planning are General Electric Company and Boston Consulting Group (a consulting firm). General Electric Company led the transition from ‘strategic planning’ to ‘strategic management’ during the 1980s. The concept of strategic management got worldwide attention in the 1990s. It may be pertinent to mention here that ‘strategic planning’ seeks increased responsiveness to markets and competition by trying to think strategically. On the other hand, strategic management seeks competitive advantage and sustainable market growth by effectively managing all resources of the organization. The strategic management process entails several pertinent issues that need clarification for better understanding. https://www.iedunote.com/strategic-management Part IV. Importance of Strategic Management Strategic management is primarily concerned with the formulation and implementation of feasible and viable management strategies. The feasibility of a management strategy is measured through its effectiveness to increases a business’ ability to adapt to its external environment and the achievement of strategic goals, as ranked on the basis of achievement preferences. As the external environment of a business is likely to change after a specific period, a business consistently modifies its management strategies to be able to cope up with the altering trends of its external environment. However, despite these modifications, basic objectives of a management strategy remain same which confer with the principles of the development of competencies, synergy and cost value for the consumers. Core Competencies Strategic management also focuses on the recognition and enhancement of core competencies of a business, to improve its position in the market. It may be used to distinguish and highlight the core competencies of a business to that it may be provided with a competitive edge over others. Synergy Integration of various managerial functions and decisions is one of the prime focuses of strategic management and planning. It stresses on the development of synergy to enhance a business’ functional efficiency and contribute towards the achievement of its objectives. Part V. Role of Strategic Management in Present Age Strategic management has been under a continual process of transformation and modification to increase its effectiveness with evolving business and market needs. Growing competition in the international markets has also contributed towards the incorporation of new trends and applications, into strategic management activities. One of the most prominent shifts in the paradigms of strategic management in the recent time is highlighted as the shifting of focus on the efforts to excel in the provision of premium quality services and products. In fact, in the present times, strategic management is not only about achieving excellence in the quality of products and services, but in general, it is regarded as one of the fundamentals of business management that are to improve the efficiency and value of various business endeavours and operations. It has come a long way from theoretical studies, and today, strategic management is more about the practical implementation of judiciously formed decisions and diligently devised strategies. It has adopted a more practical and pro-active approach towards the achievement of business objectives. Moreover, today strategic management gives due importance to the deliverance of value to the consumers. It is largely driven by factors which are concerned with the optimum consumer satisfaction and effective consumer interaction. Part VI. Challenges in Strategic Management Today, increasing market competition and various obstacles faced in the way of the growth of a business entity is one of the major challenged that is being faced in the field of strategic management. Businesses are particularly focused on growth objectives amid highly saturated consumer markets, and they feel the need to deploy highly effective and efficient strategic management strategies in order to ensure their survival in the present ear of increasing global competition. Moreover, it is necessary that businesses focus the development of management strategies towards value creation. It is one of the most significant factors that lead to the growth and progress of a business. Frequently evolving business needs have made it extremely difficult for the businesses to work in accordance with a consistent management strategy and they continuously modify their strategies to be able to establish a viable linkage between strategic application and profits and costs. Hence, in order to meet all the objectives of value creation and eventual growth, it is recommended that strategic planning is to be focused on the appraisal of all the active participants of strategic procedures, and their feasibility towards reducing costs and increasing benefits. https://entrepreneurhandbook.co.uk/what-is-strategic-management/ ADDITIONAL Strategic Management: Explanation of Strategic Management Process Strategic management is the process of decision making and planning which leads to the development of an effective strategy to help achieve organizational objectives. In this process, the strategists determine objectives and make strategic decisions. Strategic Management can be defined as a decision-making process that leads to the development of the strategic position i.e. which helps to determine the future sustainability and the profitability of the organization, simultaneous with the integration of managerial capabilities, responsibilities, motivation and reward system. Lesson 2 STRATEGIC MANAGEMENT PROCESS What is a strategic management process? A strategic management process is a documented set of steps that you'll go through to turn the “concept” of strategic management into reality for your organization. It’s how organizations define the business outcomes they want to achieve and how they will utilize their resources to achieve them. The strategic management process covers strategic planning, implementation, and strategy iteration. To simplify the strategic management process further, we like to think of it as follows: Plan >> Execute >> Track (Control). https://www.cascade.app/blog/strategic-management-process Rationale for the Strategic Management Process The foregoing discussion makes it clear that in contemporary organizations managers face the challenge of ensuring sustainability and profitability amid many unpredictable and novel circumstances emanating from the external environment. In the 1950s, 60s, and 70s the conditions for business were more benign. The demand for products and services was escalating. At that time businesses were required to focus on raising productivity, setting up multiple plants and strengthening channels of distribution to serve largely homogenous markets governed by similar regulations. The functioning of business was impacted more by concern for meeting escalating demand in the developed world. Business organizations could meet those challenges posed by the demands of the external environment by initiating forecast-based planning and command and control-based internal processes. The complexity in the external domain of business has increased and forecast-based planning may no longer be feasible or reliable. Disruptive technologies, changing geopolitical situations, the emergence of Japan as a manufacturing powerhouse followed by China as a factory to the world, depletion of natural resources/fossil fuels/contamination of aquifers/land as result of businesses’ activity and consumption, disenchantment with bad governance, and emergence of the global village assisted by the ICT technologies and with shifts in economic power structure (BRIC countries Brazil, Russia, India, and China emerging as a dominant economic force) compel managers to develop such systems for decision making that enable them to capture the uncertainties to the extent possible in their decision process. Not only do they need to factor in major unpredictable changes in decision making they also have to change the way people’s commitment to their organization is sought. Instead of controlling, empowerment has to be practiced and collaborations and partnerships between departments developed. Many organizations flounder because they make errors in anticipating the impact of the environment or because they do not have the requisite resources to make good of opportunities and by the time they create resources competition overtakes them or because the mindsets do not allow them to step out of the existing comfort zone. These are but a few reasons for organizations either failing or for showing sub-par performance. What contemporary organizations and managers need is a process that: Facilitates strategic thinking enabling the exploration of environment opportunities and analysis of threats in a holistic manner. Enables the initiation of strategic change (such as changes that affect an organization’s culture, structure, mindsets, or processes). Provides for the integration across different managerial processes, business units, and functions. Delineates, yet links the operational with the strategic among process systems and managers of organizations. Allows cross over from the strategic to the operational orientation in specific situations. Facilitates pragmatic resource allocation among competing segments of the organization such as SBU’s, divisions, functions, and new businesses and reduces conflict that is inherent in resource allocation among competing entities. Integrates administrative processes, decision making, leadership and motivation along with rigorous analysis. https://www.iedunote.com/strategic-management Part I. Who Perform the Tasks of Strategic Management? The CEO must perform in many roles, requiring an almost holographic capability – as a change agent, communicator, the public face of the company; as a decider, facilitator, teacher, and mentor as well as a leader. The senior managers assist the CEO in articulating and assimilating strategy-related information and ideas. The mid-level managers play supporting roles and do some or most of the strategy-making for their units. The lower-level managers and employees assist in formulating and implementing a strategy in the workareas they are directly involved with. Levels of Management » Refers to the line of authority, line of action, and the relationship between or among managerial positions in an organization. » The term “Levels of Management’ refers to a line of demarcation between various managerial positions in an organization. The number of levels in management increases when the size of the business and work force increases and vice versa. » It determines a chain of command, the amount of authority & status enjoyed by any managerial position. » It can be classified in three broad categories: 1. Top level / Administrative level » It consists of board of directors, chief executive or managing director. » The top management is the ultimate source of authority and it manages goals and policies for an enterprise. » It devotes more time on planning and coordinating functions. Roles of the top management: a. Top management lays down the objectives and broad policies of the enterprise. b. It issues necessary instructions for preparation of department budgets, procedures, schedules etc. c. It prepares strategic plans & policies for the enterprise. d. It appoints the executive for middle level i.e. departmental managers. e. It controls & coordinates the activities of all the departments. f. It is also responsible for maintaining a contact with the outside world. g. It provides guidance and direction. h. The top management is also responsible towards the shareholders for the performance of the enterprise. 2. Middle level / Executory » The branch managers and departmental managers constitute middle level. » They are responsible to the top management for the functioning of their department. » They devote more time to organizational and directional functions. » In small organization, there is only one layer of middle level of management but in big enterprises, there may be senior and junior middle level management. Their role can be emphasized as a. They execute the plans of the organization in accordance with the policies and directives of the top management. b. They make plans for the sub-units of the organization. c. They participate in employment & training of lower level management. d. They interpret and explain policies from top level management to lower level. e. They are responsible for coordinating the activities within the division or department. f. It also sends important reports and other important data to top level management. g. They evaluate performance of junior managers. h. They are also responsible for inspiring lower level managers towards better performance. 3. Low level / Supervisory / Operative / First-line managers » Lower level is also known as supervisory / operative level of management. It consists of supervisors, foreman, section officers, superintendent etc. » According to R.C. Davis, “Supervisory management refers to those executives whose work has to be largely with personal oversight and direction of operative employees”. In other words, they are concerned with direction and controlling function of management. Their activities include a. b. c. d. e. f. g. h. i. j. k. l. m. Assigning of jobs and tasks to various workers. They guide and instruct workers for day-to-day activities. They are responsible for the quality as well as quantity of production. They are also entrusted with the responsibility of maintaining good relation in the organization. They communicate workers problems, suggestions, and recommendatory appeals etc to the higher level and higher-level goals and objectives to the workers. They help to solve the grievances of the workers. They supervise & guide the sub-ordinates. They are responsible for providing training to the workers. They arrange necessary materials, machines, tools etc for getting the things done. They prepare periodical reports about the performance of the workers. They ensure discipline in the enterprise. They motivate workers. They are the image builders of the enterprise because they are in direct contact with the workers. https://www.managementstudyguide.com/management_levels.htm Part II. What is Strategic Management Process? The strategic management process means defining the organization’s strategy. It is also defined as the process by which managers make a choice of a set of strategies for the organization that will enable it to achieve better performance. Strategic management process has following four steps: Environmental Scanning- Environmental scanning refers to a process of collecting, scrutinizing and providing information for strategic purposes. Strategy Formulation- Strategy formulation is the process of deciding best course of action for accomplishing organizational objectives and hence achieving organizational purpose. Strategy Implementation- Strategy implementation implies making the strategy work as intended or putting the organization’s chosen strategy into action. Strategy Evaluation- Strategy evaluation is the final step of strategy management process. The key strategy evaluation activities are: appraising internal and external factors that are the root of present strategies, measuring performance, and taking remedial / corrective actions. Strategic Decisions 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 of Strategic Decisions Strategic decisions have major resource propositions for an organization. These decisions may be concerned with possessing new resources, organizing others or reallocating others. Strategic decisions deal with harmonizing organizational resource capabilities with the threats and opportunities. 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. Strategic decisions involve a change of major kind since an organization operates in ever-changing environment. Strategic decisions are complex in nature. Strategic decisions are at the top most level, are uncertain as they deal with the future, and involve a lot of risk. Strategic decisions are different from administrative and operational decisions. Part IV. Nature of Strategic Management Strategic management involves making decisions about the future. The future is uncertain. A manager can’t be sure about the future. Therefore, strategic management involves a high degree of uncertainty. Managers in different departments in an organization have different priorities. They must reach an agreement to ensure an. integrated approach. Strategic management needs an integrated approach, which is difficult to achieve. Strategic management involves major multifarious changes in the organization. It heeds changes in organizational culture, leadership, organization structure, reward system, etc. All this makes strategic management complex. Strategic Management - An Introduction Strategic Management is all about identification and description of the strategies that managers can carry so as to achieve better performance and a competitive advantage for their organization. An organization is said to have competitive advantage if its profitability is higher than the average profitability for all companies in its industry. Strategic management can also be defined as a bundle of decisions and acts which a manager undertakes and which decides the result of the firm’s performance. The manager must have a thorough knowledge and analysis of the general and competitive organizational environment so as to take right decisions. They should conduct a SWOT Analysis (Strengths, Weaknesses, Opportunities, and Threats), i.e., they should make best possible utilization of strengths, minimize the organizational weaknesses, make use of arising opportunities from the business environment and shouldn’t ignore the threats. Strategic management is nothing but planning for both predictable as well as unfeasible contingencies. It is applicable to both small as well as large organizations as even the smallest organization face competition and, by formulating and implementing appropriate strategies, they can attain sustainable competitive advantage. It is a way in which strategists set the objectives and proceed about attaining them. It deals with making and implementing decisions about future direction of an organization. It helps us to identify the direction in which an organization is moving. Strategic management is a continuous process that evaluates and controls the business and the industries in which an organization is involved; evaluates its competitors and sets goals and strategies to meet all existing and potential competitors; and then reevaluates strategies on a regular basis to determine how it has been implemented and whether it was successful or does it needs replacement. Strategic Management gives a broader perspective to the employees of an organization and they can better understand how their job fits into the entire organizational plan and how it is co-related to other organizational members. It is nothing but the art of managing employees in a manner which maximizes the ability of achieving business objectives. The employees become more trustworthy, more committed and more satisfied as they can co-relate themselves very well with each organizational task. They can understand the reaction of environmental changes on the organization and the probable response of the organization with the help of strategic management. Thus the employees can judge the impact of such changes on their own job and can effectively face the changes. The managers and employees must do appropriate things in appropriate manner. They need to be both effective as well as efficient. One of the major role of strategic management is to incorporate various functional areas of the organization completely, as well as, to ensure these functional areas harmonize and get together well. Another role of strategic management is to keep a continuous eye on the goals and objectives of the organization. Strategic Management - An Introduction Strategic Management is all about identification and description of the strategies that managers can carry so as to achieve better performance and a competitive advantage for their organization. An organization is said to have competitive advantage if its profitability is higher than the average profitability for all companies in its industry. Strategic management can also be defined as a bundle of decisions and acts which a manager undertakes and which decides the result of the firm’s performance. The manager must have a thorough knowledge and analysis of the general and competitive organizational environment so as to take right decisions. They should conduct a SWOT Analysis (Strengths, Weaknesses, Opportunities, and Threats), i.e., they should make best possible utilization of strengths, minimize the organizational weaknesses, make use of arising opportunities from the business environment and shouldn’t ignore the threats. Strategic management is nothing but planning for both predictable as well as unfeasible contingencies. It is applicable to both small as well as large organizations as even the smallest organization face competition and, by formulating and implementing appropriate strategies, they can attain sustainable competitive advantage. It is a way in which strategists set the objectives and proceed about attaining them. It deals with making and implementing decisions about future direction of an organization. It helps us to identify the direction in which an organization is moving. Strategic management is a continuous process that evaluates and controls the business and the industries in which an organization is involved; evaluates its competitors and sets goals and strategies to meet all existing and potential competitors; and then reevaluates strategies on a regular basis to determine how it has been implemented and whether it was successful or does it needs replacement. Strategic Management gives a broader perspective to the employees of an organization and they can better understand how their job fits into the entire organizational plan and how it is co-related to other organizational members. It is nothing but the art of managing employees in a manner which maximizes the ability of achieving business objectives. The employees become more trustworthy, more committed and more satisfied as they can co-relate themselves very well with each organizational task. They can understand the reaction of environmental changes on the organization and the probable response of the organization with the help of strategic management. Thus the employees can judge the impact of such changes on their own job and can effectively face the changes. The managers and employees must do appropriate things in appropriate manner. They need to be both effective as well as efficient. One of the major role of strategic management is to incorporate various functional areas of the organization completely, as well as, to ensure these functional areas harmonize and get together well. Another role of strategic management is to keep a continuous eye on the goals and objectives of the organization. Components of a Strategy Statement The strategy statement of a firm sets the firm’s long-term strategic direction and broad policy directions. It gives the firm a clear sense of direction and a blueprint for the firm’s activities for the upcoming years. The main constituents of a strategic statement are as follows: 1. Strategic Intent An organization’s strategic intent is the purpose that it exists and why it will continue to exist, providing it maintains a competitive advantage. Strategic intent gives a picture about what an organization must get into immediately in order to achieve the company’s vision. It motivates the people. It clarifies the vision of the vision of the company. Strategic intent helps management to emphasize and concentrate on the priorities. Strategic intent is, nothing but, the influencing of an organization’s resource potential and core competencies to achieve what at first may seem to be unachievable goals in the competitive environment. A well expressed strategic intent should guide/steer the development of strategic intent or the setting of goals and objectives that require that all of organization’s competencies be controlled to maximum value. Strategic intent includes directing organization’s attention on the need of winning; inspiring people by telling them that the targets are valuable; encouraging individual and team participation as well as contribution; and utilizing intent to direct allocation of resources. Strategic intent differs from strategic fit in a way that while strategic fit deals with harmonizing available resources and potentials to the external environment, strategic intent emphasizes on building new resources and potentials so as to create and exploit future opportunities. 2. Mission Statement Mission statement is the statement of the role by which an organization intends to serve it’s stakeholders. It describes why an organization is operating and thus provides a framework within which strategies are formulated. It describes what the organization does (i.e., present capabilities), who all it serves (i.e., stakeholders) and what makes an organization unique (i.e., reason for existence). A mission statement differentiates an organization from others by explaining its broad scope of activities, its products, and technologies it uses to achieve its goals and objectives. It talks about an organization’s present (i.e., “about where we are”). For instance, Microsoft’s mission is to help people and businesses throughout the world to realize their full potential. Wal-Mart’s mission is “To give ordinary folk the chance to buy the same thing as rich people.” Mission statements always exist at top level of an organization, but may also be made for various organizational levels. Chief executive plays a significant role in formulation of mission statement. Once the mission statement is formulated, it serves the organization in long run, but it may become ambiguous with organizational growth and innovations. In today’s dynamic and competitive environment, mission may need to be redefined. However, care must be taken that the redefined mission statement should have original fundamentals/components. Mission statement has three main components-a statement of mission or vision of the company, a statement of the core values that shape the acts and behaviour of the employees, and a statement of the goals and objectives. Features of a Mission a. b. c. d. e. f. g. Mission must be feasible and attainable. It should be possible to achieve it. Mission should be clear enough so that any action can be taken. It should be inspiring for the management, staff and society at large. It should be precise enough, i.e., it should be neither too broad nor too narrow. It should be unique and distinctive to leave an impact in everyone’s mind. It should be analytical,i.e., it should analyze the key components of the strategy. It should be credible, i.e., all stakeholders should be able to believe it. 3. Vision A vision statement identifies where the organization wants or intends to be in future or where it should be to best meet the needs of the stakeholders. It describes dreams and aspirations for future. For instance, Microsoft’s vision is “to empower people through great software, any time, any place, or any device.” Wal-Mart’s vision is to become worldwide leader in retailing. A vision is the potential to view things ahead of themselves. It answers the question “where we want to be”. It gives us a reminder about what we attempt to develop. A vision statement is for the organization and it’s members, unlike the mission statement which is for the customers/clients. It contributes in effective decision making as well as effective business planning. It incorporates a shared understanding about the nature and aim of the organization and utilizes this understanding to direct and guide the organization towards a better purpose. It describes that on achieving the mission, how the organizational future would appear to be. An effective vision statement must have following featuresa. b. c. d. e. It must be unambiguous. It must be clear. It must harmonize with organization’s culture and values. The dreams and aspirations must be rational/realistic. Vision statements should be shorter so that they are easier to memorize. In order to realize the vision, it must be deeply instilled in the organization, being owned and shared by everyone involved in the organization. 4. Goals and Objectives A goal is a desired future state or objective that an organization tries to achieve. Goals specify in particular what must be done if an organization is to attain mission or vision. Goals make mission more prominent and concrete. They co-ordinate and integrate various functional and departmental areas in an organization. Well made goals have following features- a. b. c. d. e. These are precise and measurable. These look after critical and significant issues. These are realistic and challenging. These must be achieved within a specific time frame. These include both financial as well as non-financial components. Objectives are defined as goals that organization wants to achieve over a period of time. These are the foundation of planning. Policies are developed in an organization so as to achieve these objectives. Formulation of objectives is the task of top level management. Effective objectives have following featuresf. g. h. i. These are not single for an organization, but multiple. Objectives should be both short-term as well as long-term. Objectives must respond and react to changes in environment, i.e., they must be flexible. These must be feasible, realistic and operational. Importance of Vision and Mission Statements One of the first things that any observer of management thought and practice asks is whether a particular organization has a vision and mission statement. In addition, one of the first things that one learns in a business school is the importance of vision and mission statements. This article is intended to elucidate on the reasons why vision and mission statements are important and the benefits that such statements provide to the organizations. It has been found in studies that organizations that have lucid, coherent, and meaningful vision and mission statements return more than double the numbers in shareholder benefits when compared to the organizations that do not have vision and mission statements. Indeed, the importance of vision and mission statements is such that it is the first thing that is discussed in management textbooks on strategy. Some of the benefits of having a vision and mission statement are discussed below: Above everything else, vision and mission statements provide unanimity of purpose to organizations and imbue the employees with a sense of belonging and identity. Indeed, vision and mission statements are embodiments of organizational identity and carry the organizations creed and motto. For this purpose, they are also called as statements of creed. Vision and mission statements spell out the context in which the organization operates and provides the employees with a tone that is to be followed in the organizational climate. Since they define the reason for existence of the organization, they are indicators of the direction in which the organization must move to actualize the goals in the vision and mission statements. The vision and mission statements serve as focal points for individuals to identify themselves with the organizational processes and to give them a sense of direction while at the same time deterring those who do not wish to follow them from participating in the organization’s activities. The vision and mission statements help to translate the objectives of the organization into work structures and to assign tasks to the elements in the organization that are responsible for actualizing them in practice. To specify the core structure on which the organizational edifice stands and to help in the translation of objectives into actionable cost, performance, and time related measures. Finally, vision and mission statements provide a philosophy of existence to the employees, which is very crucial because as humans, we need meaning from the work to do and the vision and mission statements provide the necessary meaning for working in a particular organization. As can be seen from the above, articulate, coherent, and meaningful vision and mission statements go a long way in setting the base performance and actionable parameters and embody the spirit of the organization. In other words, vision and mission statements are as important as the various identities that individuals have in their everyday lives. It is for this reason that organizations spend a lot of time in defining their vision and mission statements and ensure that they come up with the statements that provide meaning instead of being mere sentences that are devoid of any meaning. Strategic Management Process - Meaning, Steps and Components The strategic management process means defining the organization’s strategy. It is also defined as the process by which managers make a choice of a set of strategies for the organization that will enable it to achieve better performance. Strategic management is a continuous process that appraises the business and industries in which the organization is involved; appraises it’s competitors; and fixes goals to meet all the present and future competitor’s and then reassesses each strategy. Strategic management process has following four steps: 1. Environmental Scanning- Environmental scanning refers to a process of collecting, scrutinizing and providing information for strategic purposes. It helps in analyzing the internal and external factors influencing an organization. After executing the environmental analysis process, management should evaluate it on a continuous basis and strive to improve it. 2. Strategy Formulation- Strategy formulation is the process of deciding best course of action for accomplishing organizational objectives and hence achieving organizational purpose. After conducting environment scanning, managers formulate corporate, business and functional strategies. 3. Strategy Implementation- Strategy implementation implies making the strategy work as intended or putting the organization’s chosen strategy into action. Strategy implementation includes designing the organization’s structure, distributing resources, developing decision making process, and managing human resources. 4. Strategy Evaluation- Strategy evaluation is the final step of strategy management process. The key strategy evaluation activities are: appraising internal and external factors that are the root of present strategies, measuring performance, and taking remedial / corrective actions. Evaluation makes sure that the organizational strategy as well as it’s implementation meets the organizational objectives. These components are steps that are carried, in chronological order, when creating a new strategic management plan. Present businesses that have already created a strategic management plan will revert to these steps as per the situation’s requirement, so as to make essential changes. Components of Strategic Management Process Strategic management is an ongoing process. Therefore, it must be realized that each component interacts with the other components and that this interaction often happens in chorus. Environmental Scanning - Internal & External Analysis of Environment Organizational environment consists of both external and internal factors. Environment must be scanned so as to determine development and forecasts of factors that will influence organizational success. Environmental scanning refers to possession and utilization of information about occasions, patterns, trends, and relationships within an organization’s internal and external environment. It helps the managers to decide the future path of the organization. Scanning must identify the threats and opportunities existing in the environment. While strategy formulation, an organization must take advantage of the opportunities and minimize the threats. A threat for one organization may be an opportunity for another. Internal analysis of the environment is the first step of environment scanning. Organizations should observe the internal organizational environment. This includes employee interaction with other employees, employee interaction with management, manager interaction with other managers, and management interaction with shareholders, access to natural resources, brand awareness, organizational structure, main staff, operational potential, etc. Also, discussions, interviews, and surveys can be used to assess the internal environment. Analysis of internal environment helps in identifying strengths and weaknesses of an organization. As business becomes more competitive, and there are rapid changes in the external environment, information from external environment adds crucial elements to the effectiveness of long-term plans. As environment is dynamic, it becomes essential to identify competitors’ moves and actions. Organizations have also to update the core competencies and internal environment as per external environment. Environmental factors are infinite, hence, organization should be agile and vigile to accept and adjust to the environmental changes. For instance - Monitoring might indicate that an original forecast of the prices of the raw materials that are involved in the product are no more credible, which could imply the requirement for more focused scanning, forecasting and analysis to create a more trustworthy prediction about the input costs. In a similar manner, there can be changes in factors such as competitor’s activities, technology, market tastes and preferences. While in external analysis, three correlated environment should be studied and analyzed — immediate / industry environment national environment broader socio-economic environment / macro-environment Examining the industry environment needs an appraisal of the competitive structure of the organization’s industry, including the competitive position of a particular organization and it’s main rivals. Also, an assessment of the nature, stage, dynamics and history of the industry is essential. It also implies evaluating the effect of globalization on competition within the industry. Analyzing the national environment needs an appraisal of whether the national framework helps in achieving competitive advantage in the globalized environment. Analysis of macro-environment includes exploring macro-economic, social, government, legal, technological and international factors that may influence the environment. The analysis of organization’s external environment reveals opportunities and threats for an organization. Strategic managers must not only recognize the present state of the environment and their industry but also be able to predict its future positions. Steps in Strategy Formulation Process Strategy formulation refers to the process of choosing the most appropriate course of action for the realization of organizational goals and objectives and thereby achieving the organizational vision. The process of strategy formulation basically involves six main steps. Though these steps do not follow a rigid chronological order, however they are very rational and can be easily followed in this order. 1. Setting Organizations’ objectives - The key component of any strategy statement is to set the long-term objectives of the organization. It is known that strategy is generally a medium for realization of organizational objectives. Objectives stress the state of being there whereas Strategy stresses upon the process of reaching there. Strategy includes both the fixation of objectives as well the medium to be used to realize those objectives. Thus, strategy is a wider term which believes in the manner of deployment of resources so as to achieve the objectives. While fixing the organizational objectives, it is essential that the factors which influence the selection of objectives must be analyzed before the selection of objectives. Once the objectives and the factors influencing strategic decisions have been determined, it is easy to take strategic decisions. 2. Evaluating the Organizational Environment - The next step is to evaluate the general economic and industrial environment in which the organization operates. This includes a review of the organizations competitive position. It is essential to conduct a qualitative and quantitative review of an organizations existing product line. The purpose of such a review is to make sure that the factors important for competitive success in the market can be discovered so that the management can identify their own strengths and weaknesses as well as their competitors’ strengths and weaknesses. After identifying its strengths and weaknesses, an organization must keep a track of competitors’ moves and actions so as to discover probable opportunities of threats to its market or supply sources. 3. Setting Quantitative Targets - In this step, an organization must practically fix the quantitative target values for some of the organizational objectives. The idea behind this is to compare with long term customers, so as to evaluate the contribution that might be made by various product zones or operating departments. 4. Aiming in context with the divisional plans - In this step, the contributions made by each department or division or product category within the organization is identified and accordingly strategic planning is done for each subunit. This requires a careful analysis of macroeconomic trends. 5. Performance Analysis - Performance analysis includes discovering and analyzing the gap between the planned or desired performance. A critical evaluation of the organizations past performance, present condition and the desired future conditions must be done by the organization. This critical evaluation identifies the degree of gap that persists between the actual reality and the long-term aspirations of the organization. An attempt is made by the organization to estimate its probable future condition if the current trends persist. 6. Choice of Strategy - This is the ultimate step in Strategy Formulation. The best course of action is actually chosen after considering organizational goals, organizational strengths, potential and limitations as well as the external opportunities. Strategy Implementation - Meaning and Steps in Implementing a Strategy Strategy implementation is the translation of chosen strategy into organizational action so as to achieve strategic goals and objectives. Strategy implementation is also defined as the manner in which an organization should develop, utilize, and amalgamate organizational structure, control systems, and culture to follow strategies that lead to competitive advantage and a better performance. Organizational structure allocates special value developing tasks and roles to the employees and states how these tasks and roles can be correlated so as maximize efficiency, quality, and customer satisfaction-the pillars of competitive advantage. But, organizational structure is not sufficient in itself to motivate the employees. An organizational control system is also required. This control system equips managers with motivational incentives for employees as well as feedback on employees and organizational performance. Organizational culture refers to the specialized collection of values, attitudes, norms and beliefs shared by organizational members and groups. Following are the main steps in implementing a strategy: Developing an organization having potential of carrying out strategy successfully. Disbursement of abundant resources to strategy-essential activities. Creating strategy-encouraging policies. Employing best policies and programs for constant improvement. Linking reward structure to accomplishment of results. Making use of strategic leadership. Excellently formulated strategies will fail if they are not properly implemented. Also, it is essential to note that strategy implementation is not possible unless there is stability between strategy and each organizational dimension such as organizational structure, reward structure, resource-allocation process, etc. Strategy implementation poses a threat to many managers and employees in an organization. New power relationships are predicted and achieved. New groups (formal as well as informal) are formed whose values, attitudes, beliefs and concerns may not be known. With the change in power and status roles, the managers and employees may employ confrontation behaviour. Strategy Formulation vs Strategy Implementation Following are the main differences between Strategy Formulation and Strategy ImplementationStrategy Formulation Strategy Implementation Strategy Formulation includes planning and decision- Strategy Implementation involves all those means related to making involved in developing organization’s strategic goals executing the strategic plans. and plans. In short, Strategy Formulation is placing the Forces before In short, Strategy Implementation is managing forces the action. during the action. Strategy Formulation is an Entrepreneurial Activity based Strategic Implementation is mainly an Administrative Task based on strategic and operational decisions. on strategic decision-making. Strategy Formulation emphasizes on effectiveness. Strategy Implementation emphasizes on efficiency. Strategy Formulation is a rational process. Strategy Implementation process. is basically an operational Strategy Formulation requires co-ordination among few Strategy Implementation requires co-ordination among individuals. many individuals. Strategy Formulation requires a great deal of initiative and Strategy Implementation requires specific motivational and logical skills. leadership traits. Strategic Formulation precedes Strategy Implementation. STrategy Implementation follows Strategy Formulation. Strategy Evaluation Process and its Significance Strategy Evaluation is as significant as strategy formulation because it throws light on the efficiency and effectiveness of the comprehensive plans in achieving the desired results. The managers can also assess the appropriateness of the current strategy in todays dynamic world with socio-economic, political and technological innovations. Strategic Evaluation is the final phase of strategic management. The significance of strategy evaluation lies in its capacity to co-ordinate the task performed by managers, groups, departments etc, through control of performance. Strategic Evaluation is significant because of various factors such as - developing inputs for new strategic planning, the urge for feedback, appraisal and reward, development of the strategic management process, judging the validity of strategic choice etc. The process of Strategy Evaluation consists of following steps1. Fixing benchmark of performance - While fixing the benchmark, strategists encounter questions such as - what benchmarks to set, how to set them and how to express them. In order to determine the benchmark performance to be set, it is essential to discover the special requirements for performing the main task. The performance indicator that best identify and express the special requirements might then be determined to be used for evaluation. The organization can use both quantitative and qualitative criteria for comprehensive assessment of performance. Quantitative criteria includes determination of net profit, ROI, earning per share, cost of production, rate of employee turnover etc. Among the Qualitative factors are subjective evaluation of factors such as - skills and competencies, risk taking potential, flexibility etc. 2. Measurement of performance - The standard performance is a bench mark with which the actual performance is to be compared. The reporting and communication system help in measuring the performance. If appropriate means are available for measuring the performance and if the standards are set in the right manner, strategy evaluation becomes easier. But various factors such as managers contribution are difficult to measure. Similarly divisional performance is sometimes difficult to measure as compared to individual performance. Thus, variable objectives must be created against which measurement of performance can be done. The measurement must be done at right time else evaluation will not meet its purpose. For measuring the performance, financial statements like - balance sheet, profit and loss account must be prepared on an annual basis. 3. Analyzing Variance - While measuring the actual performance and comparing it with standard performance there may be variances which must be analyzed. The strategists must mention the degree of tolerance limits between which the variance between actual and standard performance may be accepted. The positive deviation indicates a better performance but it is quite unusual exceeding the target always. The negative deviation is an issue of concern because it indicates a shortfall in performance. Thus in this case the strategists must discover the causes of deviation and must take corrective action to overcome it. 4. Taking Corrective Action - Once the deviation in performance is identified, it is essential to plan for a corrective action. If the performance is consistently less than the desired performance, the strategists must carry a detailed analysis of the factors responsible for such performance. If the strategists discover that the organizational potential does not match with the performance requirements, then the standards must be lowered. Another rare and drastic corrective action is reformulating the strategy which requires going back to the process of strategic management, reframing of plans according to new resource allocation trend and consequent means going to the beginning point of strategic management process. Strategic Decisions Characteristics - Definition and 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 Decision Making Managers of successful businesses do more than simply find a way to make money and sell stuff. Not only do they handle the day-to-day tasks of selling, they also think of the big picture and make decisions that will get the company to where it wants to go. This is called strategic decision making, where decisions are made according to a company's goals or mission. This type of decision-making guides the choices that are made, aligning them with the company objective. It requires out-of-the-box thinking as managers need to consider future scenarios that may or may not happen. It's these scenarios that will determine in which direction a company will go. For example, the manager of a dog food company notices that dog owners want more quality and fresh foods rather than kibble that lasts 10 years on the shelf, even if those kibbles provide a similar nutritional value. The company's mission statement is to be the best company that sells the healthiest dog food. To align the company with the changing needs and wants of its customers, the manager decides to shift the company's products to focus more on freshness. Yes, this means a reduced shelf life, but it does mean a higher profit margin because dog owners are more than willing to pay more for fresh quality foods. https://study.com/academy/lesson/what-is-strategic-decision-making-definition-management. The differences between Strategic, Administrative and Operational decisions can be summarized as followsStrategic Decisions Strategic decisions decisions. are Administrative Decisions long-term Operational Decisions Administrative decisions are taken daily. Operational decisions frequently taken. These are considered where The future planning is concerned. These are Decisions. based These are medium-period based decisions. Strategic decisions are taken in Accordance with organizational mission and vision. These are taken according to strategic and operational Decisions. These are taken in accordance with strategic and administrative decision. These are related to overall Counter planning of all Organization. These are related to working of employees in an Organization. These are related to production. These deal with organizational Growth. These are in welfare of employees working in an organization. These are related to production and factory growth. short-term are not Strategic, Administrative & Operating Decisions From a decision viewpoint the overall problem of the business of the firm is to configure and direct the resourcesconversion process in such way as to optimize the attainment of its objectives. Since this calls for a great many distinct and different decisions, dividing the total decision ‘space’ into several distinct categories can facilitate a study of the overall decision process. One approach is to construct three categories: Strategic-, Administrative-, and Operating decisions. Each related to a different aspect of the resources-conversion process. Operating decisions usually absorb the bulk of the firm’s energy and attention. The object is to maximize the efficiency of the firm’s resources-conversion process, or, in other words, to maximize profitability of current operations. The major decision areas are resource allocation (budgeting) among functional areas and product lines, scheduling of operations, supervision of performance, and applying control actions. The key decisions involve pricing, establishing marketing strategy, setting production schedules and inventory levels, and deciding on relative expenditures in support of R&D, marketing, and operations. Strategic decisions are primarily concerned with external, rather than internal, problems of the firm and specifically with selection of the product-mix, which the firm will produce, and the markets to which it will sell. To use an engineering term, the strategic problem is concerned with establishing an ‘impedance match’ between the firm and its environment or, in other words, it is the problem of deciding what business the firm is in and what kinds of business it will seek to enter. Specific questions addressed in the strategic problem are: What are the firm’s objectives and goals; should the firm seek to diversity, in what areas, how vigorously; and how should the firm develop an exploit its present product-market position? A very important feature of the overall business decision process becomes accentuated in the strategic problem. This is the fact that a large majority of decisions must be made within the framework of a limited total resource. Regardless of how large or small the firm, strategic decisions deal with a choice of resource commitments among alternatives; emphasis on diversification will lead to neglect of present products. The object is to produce a resource-allocation pattern, which will offer the best potential for meeting the firm’s objectives. Administrative decisions are concerned with structuring the firm’s resources in a way, which creates a maximum performance potential. One part of the administrative problem is concerned with organization flows, distribution channels, and location of facilities. The other part is concerned with acquisition and development of resource: development of raw-material sources, personnel training and development, financing, and acquisition of facilities and equipment. While distinct, the decisions are interdependent and complementary. The strategic decisions assure that the firm’s products and markets are well chosen, that adequate demand. Strategy imposes operating requirements: price-cost decisions, timing of output to meet the demand, responsiveness to changes in customer needs and technological and process characteristics. The administrative structure must provide the climate for meeting these, e.g., a strategic environment which is characterized by frequent and unpredictable demand fluctuations requires that marketing and manufacturing be closely coupled organizationally for rapid response; an environment which is highly technical requires that the research and development department work in close cooperation with sales personnel. In this sense ‘structure follows strategy’ – the environment determines the strategic and operating responses of the firm, and these, in turn, determine the structure of authority, responsibility, work flows, and information flows within the firm. As new business environment changes, different strategy opportunities became available to business. As firms took advantage of these opportunities and thus changed their previous strategies, operating inadequacies develop which dictated new forms of organization. Alfred P. Sloan in his memoirs has diagnosed one of the major requirements which strategy has imposed on structure: to organize the firm’s management in a way, which assures a proper balance of attention between the strategic and operating decisions. Such balance is difficult to achieve. In most firms everyone in the organization is concerned with a myriad of recurring operating problems. Management from top to bottom continually seeks to improve efficiency, to cut costs, to sell more, to advertise better. Problems are automatically generated at all levels of management, and those, which are beyond the scope of lower management authority, become the concern of top management. The volume of such decision is great and constant, particularly because of the need for daily supervision and control. In fact one of the major concerns of top management is to avoid overload by establishing decision priorities and by delegating as much as possible to lower managers. By contrast, strategic decisions are not self-regenerative; they make no automatic claims on top management attention. Unless actively pursued, they may remain hidden behind the operations problems. Firm are generally very slow in recognizing conditions under which concern with the operating problem must give way to a concern with the strategic. Usually when such conditions occur, operating problems neither ceases nor slacken. On the contrary, they appear to intensify. Conditions in the environment of the last decades demonstrate these competing claims on operating and strategic responses. On the one hand forces of change buffer many firms: technology obsolescence, saturation of demand, rapid obsolescence of products. On the other hand, the very same firms have to meet competition of intensity which they have never experienced before. The immediate demands on management time and effort raised by such operating problems can readily obscure the fact that the basic ills lie not in the firm but in its environment. Even when a continuous downward trend in profitability or obvious signs of market saturation strongly point to the need to revamp the entire product-market position, a natural tendency is to seek remedies in operational improvements: cost reduction, consolidation, a new advertising manager, and the most popular may be that the demand for the firm’s products is on a rapid decline. Since strategic problems are harder to pinpoint, they require special attention. Unless specific provisions are made for concern with strategy, the firm may misplace its effort in pursuit of operating efficiency at times when attention to strategic opportunities (of threats) can produce a more radical and immediate improvement in the firm’s performance. A proper balance of managerial attention requires three kinds of provisions. One is to provide management with a method of analysis, which can help to formulate the firm’s future strategy. The second provision is to provide a method by which management can determine the administrative structure, which will be needed to manage under the new strategy. The third provision is to provide a method for guiding the transformation from the present to the future strategy and from the present to the future administrative structure. The balance of management attention to strategic and operating decisions is ultimately determined by the firm’s environment. If the demands in the firm’s markets are growing, technology is stable and customer demands and preferences change slowly, a firm can remain successful by focusing its attention on the operating activities, and letting its products, markets and competitive strategies evolve slowly and incrementally. In such environments a majority of firms typically focus their attention on the operating decisions. Strategic decisions seldom find their way into the corporate office, and the strategic evolution of the firm is ‘from the bottom up initiated and implemented through cooperation among the R & D, marketing and production departments. Only a minority of firms in growing and stable environments are strategically aggressive. These are the firms led by restless and ambitious entrepreneurs who are bent on expanding the firm beyond the limits made possible by its markets. If environment turns turbulent and changeable, and/or demand approach saturation, firms no longer have the option of a dominant concern with operations. Continued success, and even survival, is possible only if management gives a high priority to the firm’s strategic activity. Sooner or later, a majority of firms have to become vigorous strategic actors. The alternative is to go bankrupt. https://www.trimitra.com/strategic-administrative-operating-decisions/ Benefits of Strategic Management There are many benefits of strategic management and they include identification, prioritization, and exploration of opportunities. For instance, newer products, newer markets, and newer forays into business lines are only possible if firms indulge in strategic planning. Next, strategic management allows firms to take an objective view of the activities being done by it and do a cost benefit analysis as to whether the firm is profitable. Just to differentiate, by this, we do not mean the financial benefits alone (which would be discussed below) but also the assessment of profitability that has to do with evaluating whether the business is strategically aligned to its goals and priorities. The key point to be noted here is that strategic management allows a firm to orient itself to its market and consumers and ensure that it is actualizing the right strategy. Financial Benefits It has been shown in many studies that firms that engage in strategic management are more profitable and successful than those that do not have the benefit of strategic planning and strategic management. When firms engage in forward looking planning and careful evaluation of their priorities, they have control over the future, which is necessary in the fast changing business landscape of the 21st century. It has been estimated that more than 100,000 businesses fail in the US every year and most of these failures are to do with a lack of strategic focus and strategic direction. Further, high performing firms tend to make more informed decisions because they have considered both the short term and long-term consequences and hence, have oriented their strategies accordingly. In contrast, firms that do not engage themselves in meaningful strategic planning are often bogged down by internal problems and lack of focus that leads to failure. Non-Financial Benefits The section above discussed some of the tangible benefits of strategic management. Apart from these benefits, firms that engage in strategic management are more aware of the external threats, an improved understanding of competitor strengths and weaknesses and increased employee productivity. They also have lesser resistance to change and a clear understanding of the link between performance and rewards. The key aspect of strategic management is that the problem solving and problem preventing capabilities of the firms are enhanced through strategic management. Strategic management is essential as it helps firms to rationalize change and actualize change and communicate the need to change better to its employees. Finally, strategic management helps in bringing order and discipline to the activities of the firm in its both internal processes and external activities. Closing Thoughts In recent years, virtually all firms have realized the importance of strategic management. However, the key difference between those who succeed and those who fail is that the way in which strategic management is done and strategic planning is carried out makes the difference between success and failure. Of course, there are still firms that do not engage in strategic planning or where the planners do not receive the support from management. These firms ought to realize the benefits of strategic management and ensure their longer-term viability and success in the marketplace. https://www.managementstudyguide.com/strategic-management-process.htm Strategic management process The five stages of the process are: setting goals or objectives, analysis, strategy formation, strategy implementation, and strategy monitoring. The 5 stages of the strategic management process The strategic management process is more than a set of rules to follow. It is a philosophical approach to business. Top management must think strategically first, then apply that thinking to a process. The process is best implemented when everyone in the business understands the strategy. 1-Goal setting How to set business goals and strategies. The purpose of setting goals is to clarify the business vision. This stage consists of identifying three facets: First, define the short- and long-term objectives. Second, identify the process of how to achieve the objectives. Finally, personalize the process according to our staff, give each member a task with which they can be successful. During this process, check that the objectives are detailed, realistic, and coincide with the values of your business vision. Typically, the final step at this stage is to make these goals and objectives known to all staff. 2-Analysis The analysis is a key stage because the information obtained in this stage will configure the following two stages. At this stage, collect relevant information and data to achieve your vision. The focus of strategic analysis should be to understand the business needs as a sustainable entity, with strategic and identify initiatives that will help the business to grow. Examine any external or internal problems that may affect your goals and objectives. Be sure to identify the strengths and weaknesses of your organization, as well as the threats and opportunities that may arise along the way. 3-Strategy formulation The first step in forming a strategy is to review the information obtained from the analysis. Determine what resources the business currently has that can help achieve defined goals and objectives. Identify any area from which external resources should be sought. The problems facing the company must be prioritized for its importance to be successful. Once prioritized, begin formulating the strategy. 4-strategy implementation The successful implementation of the strategy is essential for the success of the company. If the overall strategy does not work with the current business structure, a new structure must be installed at the beginning of this stage. Everyone within the organization must be clear about their responsibilities and duties, and how this fit in with the overall goal. In addition, all resources or funds for the company must be guaranteed at this time. Once financing is in place and employees are ready, execute the plan. 5-Evaluation and control Any successful evaluation of the strategy begins with the definition of the parameters to be measured. These parameters should reflect the goals established in Stage 1. Determine your progress by measuring actual results versus the plan. Monitoring internal and external problems will also allow you to react to any substantial change in your business environment. If you determine that the strategy is not moving the company toward its goal, take corrective action. If those actions are not successful, repeat the strategic management process. Because internal and external issues are constantly evolving, all data obtained at this stage should be kept to help with any future strategy. https://eccceg.com/what-strategic-managementprocess/#:~:text=The%20strategic%20management%20process%20is,the%20business%20understands%20the %20strategy.