A STRATEGIC MANAGEMENT MODEL
OBJECTIVES:
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Describe the strategic management process;
Understand the difference between Strategic Management and Strategic Planning; and
Define and give examples of key terms in strategic management.
WHAT IS STRATEGIC MANAGEMENT?
Strategic Management is the art and science of formulating, implementing, and evaluating crossfunctional decisions that enable an organization to achieve its objectives.
WHY IS STRATEGIC MANAGEMENT IMPORTANT?
Strategic management ensures that the actions of everyone in your organization are aligned with
your major goals. It helps departments and business leaders make better, faster decisions.
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Strategic management keeps departments on the same page - Instead of every
department head making their own choices about what the company needs, a strategic
plan provides a framework for prioritizing projects.
It helps your organization find new opportunities and anticipate new challenges - Strategic
management involves an in-depth analysis of your current circumstances, the market, and
the competitive landscape. This helps you discover new opportunities for success.
Strategic management allows for more efficient organizational performance - Having a
strategy helps people in your organization make tactical decisions more quickly, and it
keeps you from wasting time on projects that don’t align with the company’s mission.
This streamlines your processes and creates greater operational efficiency.
INTRODUCTION
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Business dynamism is the process by which firms continually are born, fail, expand, and
contract, as some jobs are created, others are destroyed, and others still are turned over.
Hyper competition can be defined as organizations' use of tactics to disrupt the
competitive advantage held by industry leaders.
For organizations looking to succeed in a hypercompetitive market, there are four factors
that need to be mastered:
o Technology and innovations
o Customer changes
o Decline of boundaries
o Financial independence
Hyper competition typically occurs at a rapid pace. For example, let's say that you own a fastfood restaurant, and your items are priced slightly higher than a rival fast-food chain. If you
decide to adjust your prices to be closer to or lower than your rival, that is hyper competition.
1. Technology and Innovations
New innovations for products disrupt the competitive advantage held by others in the market.
For example, the introduction of energy drinks into the beverage industry has played a
significant part in disrupting the market leaders. This innovation has proved to be more than just
an overnight fad, as its success has also caused competitors to create their own lines of energy
drinks. These types of innovations and technology continue to cause upheaval and change in
hypercompetitive markets.
2. Customer Changes
These are changes that can't be predicted and may occur at any given time. For that reason,
these changes can dramatically affect industry leaders in a hypercompetitive market. As we all
know, the market is controlled by consumers. When they purchase, organizations succeed, and
when they don't, organizations fail. With consumers holding the ability to change their
preferences, the market is unsustainable. Simply stated, this means that you may purchase
vanilla ice cream for five months and then decide to purchase strawberry ice cream for the next
five months. Because organizations are vulnerable to trends, fads and consumers changing
their preferences, any advantages they obtain are often unable to be sustained.
3. Decline of Boundaries
Do you recall making a blanket fort or a pillow castle as a child? The idea behind building one of
these childhood structures was to keep others out of your area. With hyper competition,
however, it's important that organizations act as if there are no boundaries to entry in a
particular market.
The phrase boundaries to entry refers to just how easy or difficult it is for outside businesses to
enter a specific market. Example as a doctor it’s difficult to entry because there are many
qualifications.
4. Financial independence
It means the ability to manage your money in such a way that you have sufficient funds to live
your chosen lifestyle without assistance from others. In other words, enough money to meet all
your needs whether you work or not, because a job is really assistance from someone else as
your employer.
STRATEGIC MANAGEMENT
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Continuous process of strategy creation
It involves strategic process like strategic analysis and decision making, strategy
formulation, and implementation, and strategy control with the primary objectives of
achieving and maintaining better alignment of corporate policies, priorities and success.
A. Based on (sustainable) competitive advantage
B. To earn above-average returns
C. How to create a competitive advantage in the marketplace that is unique, valuable, and
difficult to copy
D. To act as a guide to the organization to help in surviving the changes in the business
environment.
E. A strategy is management’s game plan for
a) Strengthening the organization’s competitive position
b) Satisfying customers
c) Achieving performance targets
F. Three big questions involved in a strategy
a) Where are we now?
b) Where do we want to go?
c) How will we get there?
d) How do we know if we got there
STRATEGIC MANAGEMENT PROCESS
1) Goal Setting: The vision and goals of the organization are clearly stated.
2) Analysis: Data relevant to achieve the goals of the organization is gathered, potential
internal and external factors that can affect the sustainable growth of the organization are
examined.
Political factors
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Taxation policy
Governmental stability
Unemployment policy
Economical factors
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Inflation rate
Growth in spending power
Disposable income standards
Sociocultural factors
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Age distribution
Education levels
Income levels
Technological factors
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Internet
E-commerce
Social media
Environmental factors
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Competitive advantage
Waste disposal
Pollution monitoring
Legal factors
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Unemployment law
Health and safety
Product safety
3) Strategy Formulation: Where the plan to acquire the required resources is designed,
prioritization of the issues facing the business is done and finally the strategy is formulated
accordingly. Utilizing its resources for maximum performance and productivity.
4) Implementation: The employees of the organization are clearly made aware of their roles
and responsibilities. It is ensured that funds would be available all the time. Comparative
advantages refer to the ability to produce goods and services at a lower opportunity cost,
not necessarily at a greater volume.
5) Strategy Evaluation: In this process, the strategies being implemented are evaluated
regularly to check whether they are on track and are providing the desired results. In case
of deviations, the corrective actions are taken. Performance
STRATEGIC PLAN
A strategic plan is a tool that provides guidance in fulfilling a mission with maximum efficiency and
impact.
WHY IS THIS IMPORTANT?
Takes you outside the day-to-day activities of your organization or project and helps give you
clarity about what you actually want to achieve and how to go about achieving it rather than a
plan of action for day-to-day operations.
Articulate specific goals
Describe specific action steps
Be reviewed every 3-5 years
The “big picture” of what your agency is doing and where it is going
Helps determine where your organization is going over the next year or more
When making decisions it is always best to have the maximum amount of information
available.
G. SWOT Analysis
H. Gather inputs from stakeholders, company performance analysis of the your organization
I. internal and external limitations
J. social and economic trends
A.
B.
C.
D.
E.
F.
THREE MAIN TYPES OF PLANS
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Strategic Plan
Strategic plans look ahead to where the organization wants to be in three, five, even ten years.
Strategic plans, provided by top-level managers, serve as the framework for lower-level planning.
For example: Tommy is a top-level manager for Nino's Pizzeria. As a top-level manager, Tommy
must use strategic planning to ensure the long-term goals of the organization are reached. For
Tommy, that means developing long-term strategies for achieving growth, improving productivity
and profitability, boosting return on investments, improving customer service and finding ways to
give back to the community in which it operates.
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Tactical plans support strategic plans by translating them into specific plans relevant to a
distinct area of the organization.
Tactical plans are concerned with the responsibility and functionality of lower-level departments
to fulfill their parts of the strategic plan.
For example:
Martha, the middle-level manager, immediately begins to think about possible tactical plans to
ensure that happens. Tactical planning for Martha might include things like testing a new process
in making pizzas that has been proven to shorten the amount of time it takes for prepping the
pizza to be cooked or perhaps looking into purchasing a better oven that can speed up the amount
of time it takes to cook a pizza or even considering ways to better map out delivery routes and
drivers. As a tactical planner, Martha needs to create a set of calculated actions that take a shorter
amount of time and are narrower in scope than the strategic plan is but still help to bring the
organization closer to the long-term goal.
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Operational plans are the plans that are made by frontline, or low-level, managers. All
operational plans are focused on the specific procedures and processes that occur within
the lowest levels of the organization.
Scheduling employees each week, assessing and ordering and stocking inventory, creating a
monthly budget, creating promotional sales quarterly, or outlining employee performance by year.
Operational planning. This has a short-term scope and is specific for the working teams of any
operational unit. Its focus is achieving objectives and carrying out short-term activities.
They use the strategic plan to formulate their tactical plans. These, in turn, allow each operational
unit head and his/her working team to prepare their respective operational plans.
'Those who fail to plan, plan to fail'?
Its objectives are aimed at:
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understanding the critical aspects of a current reality in order to transform it in the future;
creating a shared vision of what the organization’s future should be and how to achieve it;
selecting the appropriate strategies to achieve the stated goals.
THE DIFFERENCE BETWEEN STRATEGIC MANAGEMENT AND STRATEGIC PLANNING
1) Strategic planning is the process of formulating a direction for an organization.
2) Strategic management is the process of determining how this direction can be achieved.
Some sources will tell you that strategic management and strategic planning are the same thing.
While this can be true, as they are both part of the same overall process, each phrase has a
slightly different implication.
Strategic planning and management are so consistently used together that they are often referred
to simply as “strategic management.” But the differences are very important for an organization
that is attempting to develop a reliable strategy.
THROUGH STRATEGIC PLANNING, ORGANIZATIONS TRY TO:
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2)
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Clearly determine where they are;
decide where they are going;
establish strategies to get there;
ensure that they are following the right path;
5)
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distinguish priority actions from non-priority actions;
allocate resources to objectives and strategies;
take advantage of available capacity; and
creatively address changes and new scenarios.
EACH STRATEGIC PLANNING STAGE COMPRISES THE FOLLOWING ELEMENTS.
Stages Elements
Situational analysis
1. Where are we?
2. Where do we want to go?
3. How do we get there?
4.
How do we make sure
we get there?
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External environment
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Internal environment
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Mission
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Vision
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Objectives
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Designing strategies
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Identification of expected results •Harmonization of
strategic plan with operational plans
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Monitoring indicators
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Means of verification
INTERNAL AND EXTERNAL ENVIRONMENTS
There are events or situations that occur that affect the way a business operates. These
events or situations can have either a positive or a negative impact on a business and are
called environmental factors.
There are two types of environmental factors
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internal environmental factors
external environmental factors.
If there is anything that is steadfast and unchanging, it is change itself. Change is inevitable, and
organizations that don't accept change and that adjust their business model to keep up with
changes are doomed to fail.
INTERNAL ENVIROMENTAL
Factors are events that occur within an organization. Generally speaking, internal
environmental factors are easier to control than external environmental factors.
Some examples of internal environmental factors are:
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Management changes
Employee morale
Culture changes
Financial changes and/or issues
EXTERNAL ENVIROMENTAL
Factors are events that take place outside of the organization and are harder to predict
and control. External environmental factors can be more dangerous for an organization given the
fact they are unpredictable, hard to prepare for, and often bewildering.
Some examples of external environmental factors are:
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Changes to the economy
Threats from competition
Political factors
Government regulations
The industry itself
VISION
Vision – It provides a destination for the organization.
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Big picture of what you want to achieve.
Vision Statement – A mental picture of what you want to accomplish or achieve.
For example, your vision may be a successful winery business or an economically active
community.
Vision of an Example Business – A successful family dairy business.
MISSION
Mission – This is a guiding light of how to get to the destination. These are critical
statements for the organization and the individuals who run the organization.
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General statement of how you will achieve the vision.
Mission Statement –The mission statement is an action statement that usually begins with the
word "to".
Mission of an Example Business – To provide unique and high quality dairy products to local
consumers.
VALUES
Core Values – How you will behave during the process.
Core Values – Core values define the organization in terms of the principles and values
the leaders will follow in carrying out the activities of the organization.
Core Values of the Example Business:
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Focus on new and innovative business ideas
Practice high ethical standards.
Respect and protect the environment.
Meet the changing needs and desires of clients and consumers.
To create successful mission and vision statements, you should keep the following
concepts in mind.
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Simple
Fluid Process
Unique and Complex Organizations
The vision and mission guide the everyday activities of every person involved in the business.
Statements of vision and mission should be simple, concise, and easy to remember. Use just
enough words to capture the essence. The statements need to capture the very essence of what
your organization or business will achieve and how it will be achieved. So, statements of vision
and mission should be a single thought that can easily be carried in the mind. This makes it easy
for everyone in the organization to focus on them. To test the effectiveness of your statements,
ask the leaders, managers, and employees to tell you the vision and mission of their organization.
If they cannot instantaneously tell you both the vision and mission, the statements are of little use.
But that doesn’t mean it will be easy to create the statements. It may require several drafts. Most
statements are too long. People tend to add additional information and qualifications to the
statements. Usually, the additional information just confuses the reader and clouds the essence
of the statement. Each successive draft of the vision and mission should be to simplify and clarify
by using as few words as possible.
– The statements are not "cast in stone". They can be updated and modified if the organization
changes its focus. It is often good to write the statements, use them for a period, and then revisit
them a few months or a year later if needed. It may be easier to sharpen the focus of the statement
at that time. Remember, the reason you are writing the statements is to clarify what you are doing.
It is usually more important to write statements for non-traditional organization where the purpose
of the organization is unique. The same is true for complex organizations where it may be difficult
to sift down to the essence of the existence of the organization.
How the mission will be utilized to achieve the vision:
A.
B.
C.
D.
Strategies
Goals
Objectives
Action Plans
Although an organization will have just one vision statement and one mission statement, it may
have several strategies.
STRATEGIES
Strategies are one or more ways to use the mission statement in order to achieve the vision
statement.
A strategy is a statement of how you are going to achieve something. More specifically, a strategy
is a unique approach of how you will use your mission to achieve your vision.
GOALS
A goal is a general statement of what you want to achieve. More specifically, a goal is a
milestone(s) in the process of implementing a strategy.
Examples of business goals are:
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Increase profit margin
Increase efficiency
Capture a bigger market share
Provide better customer service
Improve employee training
Reduce carbon emissions
A goal should meet the following criteria:
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Understandable: Is it stated simply and easy to understand?
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Suitable: Does it assist in implementing a strategy of how the mission will achieve the
vision?
Acceptable: Does it fit with the values of the organization and its members/employees?
Flexible: Can it be adapted and changed as needed?
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Be sure the goals are focused on the important aspects of implementing the strategy. Be careful
not to set too many goals or you may run the risk of losing focus. Also, design your goals so that
they don’t contradict and interfere with each other.
OBJECTIVES
An objective turns a goal’s general statement of what is to be accomplished into a specific,
quantifiable, time-sensitive statement of what is going to be achieved and when it will be achieved.
Examples of business objectives are:
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Earn at least a 20 percent after-tax rate of return on our investment during the next fiscal
year
Increase market share by 10 percent over the next three years.
Lower operating costs by 15 percent over the next two years through improvement in the
efficiency of the manufacturing process.
Reduce the call-back time of customer inquiries and questions to no more than four hours.
Objectives should meet the following criteria:
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Measurable: What specifically will be achieved and when will it be achieved?
Suitable: Does it fit as a measurement for achieving the goal?
Feasible: Is it possible to achieve?
Commitment: Are people committed to achieving the objective?
Ownership: Are the people responsible for achieving the objective included in the
objective-setting process?
Strategic objectives are, in general, externally focused. According to Peter Ducker, objectives fall
into eight major classifications:
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Market standing
Innovation
Human resources
Financial resources
Physical resources
Productivity
Social responsibility
Profit requirements
ACTION PLANS
Action plans are statements of specific actions or activities that will be used to achieve a goal
within the constraints of the objective.
Action plans may be simple statements or full blown and detailed business plans where goals and
objectives are also included. Action plans may also be used to implement an entire strategy
(called strategic planning).
TYPES OF STRATEGIC PLANNING
A. Goals-based (or vision-based) planning works from the future to the present. Planners
pick some time into the future and then suggest specific goals to be achieved by that
time.
Example: achieve to 1 million in sales revenue or a 20% profit rate at the end of the next three
fiscal years.
Goals-based planning is usually based on a rather long-range plan, at least 3-5 years into the
future.
B. Issues-based planning starts from the present and works to the future. Planners identify
major issues facing the organization right now.
Example: “How can we manage our finances much more effectively?”
Issues-based planning usually produces a plan with a short time range, for example, one year.
C. Scenario planning is making assumptions on what the future is going to be and how your
business environment will change overtime in light of that future.
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Process of visualizing
what future conditions or events are probable
what their consequences or effects would be like, and
how to respond to, or benefit from, them.
Example: Farmers use scenarios to predict whether the harvest will be good or bad, depending
on the weather. It helps them forecast their sales but also their future investments.
Hopefully, planners also associate actions plans with each goal. Action plans clarify who is going
to do what and by when in order to achieve the goal. The planning process might also include
clarifying the mission statement, and even scanning the environments external and internal to the
organization in order to identify priorities to address in the plan.