WHAT IS STRATEGIC MANAGEMENT?
1. Defining strategic management
Strategic management consists of the decisions and actions used to formulate and
implement strategies that will provide a competitively superior fit between the organization
and its environment, to enable it to achieve organizational objectives.
It can also be described as the process of management needed to enable an organization to
move from where it is now to where it wants to be in the future. It is about a sense of
direction and aligning this with an organization’s aims.
Setting a strategic direction for an organization is the most complex task facing a
management team because:
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strategy direction is established in an unknown future;
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there are a range of choices for the management team;
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organizations operate in a volatile and dynamic environment;
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strategic management involves people, including the managers and everybody else
in the organization.
2. Operational management and strategic management
Operational management is concerned with the day-to-day activities required to produce
goods and services, while strategic management focuses on activities necessary to ensure
competitive positioning.
Operational management provides for organization, control and supervision, while
strategic management provides a sense of purpose. All organizations have a purpose,
whether this is to make profits or maintain a market share. Operational management is
essential because if these basic management functions are not carried out, productive work
is unlikely and an organization will only achieve its purpose if these aspects of management
are present.
Strategic management is ambiguous and complex because the objective of a company may
be very clearly defined, but the way to achieve it may not be obvious. A company may
have as its objective ‘to make a profit’, and this may be given greater clarity by identifying
a particular level of profit. The way to arrive at this objective may be obvious to start with
but changes in the environment, such as increased competition or government legislation,
may provide obstacles to its achievement. It is at this point that an underlying strategy is
necessary.
3. Strategy as ‘scope’, ‘fit’ and ‘stretch’
Strategy is concerned with the ‘scope’ of an organization’s activities, whether it
concentrates on one area of activity or whether it is concerned with many.
Strategic ‘fit’ is the attempt by managers to develop strategy by identifying opportunities
in the environment of the business and organizing its resources to take advantage of these,
by trying to match the resources and capabilities of the organization to the opportunities
open to it.
Strategic ‘stretch’ is the process of innovation and development involved in finding new
opportunities and creating a competitive advantage from an organization’s resources and
competencies.
Strategy is involved with matching the activities of an organization to the environment in
which it operates so that there is a ‘strategic fit’ in which there is an attempt to identify the
opportunities in the environment in which the organization works, and then tailoring the
strategy of the organization to capitalize on these.
Strategy can also be seen as ‘stretching’ an organization’s resources or applying ‘leverage’
to an organization’s resources to create opportunities or to capitalize on them. This involves
identifying the ‘core competencies’ that an organization requires in order to optimize its
ability to meet the opportunities and challenges it faces. The ‘core competencies’ are those
competencies which are necessary to underpin the organization’s competitive advantage.
This is not only a question of making sure that the correct resources are available, but also
of identifying existing resources and competencies which can be used as a basis for creating
new opportunities in the future.
4. The making of strategy
Strategy formulation has three dimensions: strategy process, strategy content and strategy
context.
The process is the manner in which strategies come about, the ‘how’ of strategy, in the
sense of how strategy is formulated, implemented and controlled. It is also about ‘who’ is
involved in this process and ‘when’ the necessary activities take place. There is usually an
‘analysis’ stage in this process when managers identify the opportunities and threats in the
environment, as well as the internal strengths and weaknesses of the company.
The content is the product of a strategy process, it is about the ‘what’ of strategy – what is
or will be the strategy for the company and its various sections and parts?
The context is the set of circumstances under which both the strategy process and the
strategy content are determined – the ‘where’ of strategy, that is in which company and
which environment.
Although it is possible to distinguish these three dimensions of strategy, they are not
different parts of strategic management. Each problem that arises in strategic management
is three-dimensional in the sense of having characteristics of process, content and context
– how, what and where. In every problem a manager has to consider how the strategy is to
be resolved, what it will be and in what circumstances is it being decided. The three
dimensions also interact in that, for example, the process may influence the content, and
the content may influence the future strategy process.
Another approach to formulating strategy is by splitting it into three stages: the analysis
stage, the formulation stage and the implementation stage.
In the analysis, strategic managers identify the threats and opportunities in the
environment, as well as strengths and weaknesses of the organization.
At the formulation stage, managers decide which strategic options are open to them,
evaluate each and choose one.
At the implementation stage, the selected strategy is translated into a number of specific
activities.
5. Levels of strategy
Three levels of strategy can be distinguished: corporate, business and functional.
Corporate strategy applies to large companies which are divided into a number of fairly
autonomous units. Holding companies are typical of this type of organization in which a
number of companies are grouped together, usually for financial reasons such as the
efficient allocation of capital and investment. Corporate strategy is the responsibility of the
corporate head office, with the fundamental issue based on the reason for the different
businesses being collected together. Corporate strategy may be based around investment,
the economies of scale or the sharing of core competencies, and in particular what should
be its portfolio of businesses.
Business strategy is concerned with issues related to which markets to focus on, the critical
factors required in order to compete successfully, the organization of the business and
overall competitive strategy.
Functional strategies are those which involve the functional departments or divisions of
organizations. Most companies have some elements of a functional or divisional structure
in which people focus on a particular specialization such as finance, marketing,
manufacturing, quality assurance, information systems, customer care, or a specialization
such as a product or market.
The overall business strategy has to be reflected and linked into the functional level
strategies, such as marketing strategies, human resource strategy and financial strategies.
This is why the Divisional Product Manager should understand the overall company
strategy because it will affect his division, and he needs to make sure that the way his
division is managed supports this company strategy if the company and his division within
it are to be successful.
6. So what is strategic management?
Strategic management is about a sense of purpose, looking ahead, planning, positioning,
strategic fit, leverage and stretching. It is the creative part of management, the part which
makes sense of organizing, supervising and controlling – it is the result of innovative
thinking. It is about the purpose of the organization, the direction it is to take and the way
it forms and prepares itself to face competition. It informs and influences every aspect of
management from leadership, to marketing, to financial control, to organizational culture.
Strategic management consists of elements of analysis, of choice and of implementation.
Strategic analysis is concerned with the organization itself, its environment, its
expectations and purposes, and its resources and capabilities. Strategic choice is a question
of considering options and evaluating and selecting, while strategic implementation is
about the organizational structure and design, resource allocation and control, and
managing strategic change.
In order to analyze its strategy effectively, an organization has to understand itself and to
understand the market, or situation, in which it is working; it then has to make choices
between a variety of options for meeting the needs of its customers and maintaining a
competitive advantage. It has to be able to implement strategy in relation to all these factors
and its own organizational culture, and it has to manage the constant changes it faces in its
attempts to be successful.