TOPIC 2
STRATEGIC MANAGEMENT MODEL
UNIT STRUCTURE
2.1 COMPONENTS AND ELEMENTS OF STRATEGIC MANAGEMENT
2.2 STRATEGIC MANAGEMENT MODEL
2.3 STRATEGIC MANAGEMENT PROCESS
2.3.1 Elements of Strategic Management
LEARNING OBJECTIVES
Upon completion of this topic, you should be able to:
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Explain the key components of strategic management
Describe the components of the strategic management model
Discuss the interrelationships in the strategic management process
2.0 INTRODUCTION
During the course of it being developed as a subject, there have been many definitions of
strategic management put forth by different authors.
Gluck and Jaunch define strategic management as ‘a set of decisions and actions that lead
to the formulation of an effective strategy to achieve the objectives of the organisation.’
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According to Pearce and Robinson, ‘strategic management is a set of decisions and actions
that lead to the formulation and implementation of a strategy so as to achieve the objectives
of the organisation.’
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Hunger and Wheelen see strategic management as ‘a set of managerial decisions and
actions which determine the long-run performance of an organisation. It also includes
environmental scanning, strategy formulation, strategy implementation, and evaluation and
control.’
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It is defined by David4 as ‘the art and science of formulating, implementing and
evaluating cross-functional decisions that enable an organisation to achieve its
objectives.’
The definitions given by Hunger and Wheelen and David are taken to be consistent with the
early definitions of strategic management. However, they have supplemented many
elements to the strategic formulation process, implementation, evaluation of strategy and the
control process with respect to strategic management.
 What Is Strategic Management?
The above definitions of strategic management make it clear that strategic management
refers to decision making and implementing actions that can help organisations achieve
their objectives by adopting a systematic way of formulating the strategy, implementing the
strategy, and evaluating and controlling the strategy implemented.
In this sense, strategic management is viewed as an integration of the various
functional areas like marketing, management, finance, accounting, human resources,
production and information systems in a formal and systematic manner consistent with the
objectives of the organisation.
This definition also suggests that strategic management comprises of four key components,
namely, environmental scanning, strategy formulation, strategy implementation and strategy
evaluation and control.
Environmental Scanning
Strategy Formulation
Strategy Implementation
Strategy Evaluation &
Control
Figure 2.1: The four key components of Strategic Management
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Strategic management is a broader term that includes not only the stages already identified
but also the earlier steps of determining the mission and objectives of an organisation within
the context of its external environment. The basic steps of the strategic management can be
examined using strategic management model.
The model developed to depict the strategic management process includes concepts and
elements of strategy, which are considered inevitable for the formulation of a strategy,
which in turn helps an organisation in achieving its mission. Over the years, many models
have been developed which advocate various normative approaches to identifying a relevant
strategy for an organisation.
2.1 COMPONENTS AND ELEMENTS OF STRATEGIC MANAGEMENT
The various components of strategic management are taken to be:
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Environmental scanning
Strategy formulation
Strategy implementation
Strategy evaluation and control
Several elements make up each of these components.
1. Environmental Scanning6
Environmental scanning refers to a process of collecting data relating to the
environment in which an organisation operates, scrutinising collected data and
providing information for strategic purposes. This would help in analysing the
internal and external factors influencing an organisation. The other elements are the
external analysis, internal analysis, industry analysis and competitive analysis. After
the completion of this first step, management should constantly evaluate it on a
continuous basis and strive to improve it.
2. Strategy Formulation
Strategy formulation refers to making a decision with respect to the best course of
action to be accepted for achieving organisational goals, which may ultimately lead
to realising the purpose of its existence. The environment scanning provides inputs
for managers to work on the corporate, business and functional strategies of the
organisation. The key components of an organisation strategy include its vision,
mission, goals and objectives. Identifying strategic alternatives and selection of the
strategic choices also form part of formulating the strategy component.
3. Strategy Implementation
Strategy implementation implies making the strategy work as intended or putting the
organisation has chosen strategy into action. Strategy implementation includes
designing the organisation’s structure, distributing resources, developing decisionmaking process, and managing human resources. In the implementation of strategy
component, there are at least three key elements that affect it. They are
organisational structure, people and leadership, and organisational systems and
processes. It is in this component where the action begins for the organisation and it
presents a major challenge for many organisations.
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 organisational strategy,
as well as its implementation, meets the organisational objectives. In the strategy
evaluation and control component, the key elements are the evaluation model and
processes, evaluation criteria, and control methods and mechanisms for improving
organisational performance and meeting the organisational objectives.
For ensuring full understanding of the elements involved in each of the above
components, it is important to know some of the basic concepts in strategic management.
Table 2.1: Components and corresponding elements of Strategic Management
COMPONENT
Environmental Scanning
Strategy Formulation
Strategy Implementation
Strategy Evaluation & control
ELEMENTS
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External analysis
Internal analysis
Industry analysis
Competitive analysis
Vision
Mission
Goals
Objectives
Organisational structure
People and leadership
Organisational systems and processes
Evaluation model and processes
Evaluation criteria
Control methods
For example, Yahoo's strategy is to obtain 80% of its revenue from advertising to
obtain more revenue from customers who pay for services. In line with this, Yahoo’s
strategy is to offer services like personalised Web pages, audio subscriptions and music
videos for a fee (David, 2003).
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Strategists are, therefore, people in the organisation who are responsible for the success or
failure of the organisation (David, 2003). They are also people who can make key decisions
affecting the survival of the organisation. These are people with job titles like the chief
executive officer, vice-chancellor, president, executive director, managing director, dean,
chairperson of the board and business owner or entrepreneur.
Another familiar term in strategic management is policy. 9Policies include guidelines, rules
and procedures that were established or created to support the efforts in achieving
organisational objectives.
Policies provide broad guidelines for managers to operate their business activities without
indicating the specific approaches or ways of doing things. In order to know how to do
things, procedures and rules are developed to ensure consistency in the way things are done.
For example, the policy of an organisation is to give a performance bonus of four months’
basic salary to employees with excellent performance record.
Figure2.2: Relationship among the major components of strategic management process
The model is widely acknowledged as being a practical way of framing, implementing,
and evaluating strategies. However, it should be remembered that the model does not ensure
full success. The model clearly depicts the relationship among the four major components
namely:
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Environmental scanning
Strategy formulation
Strategy implementation
Evaluation and control
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Strategic management is an ongoing process. Therefore, it must be realised that each
component interacts with the other components and that this interaction often happens at the
same time.
2.2 STRATEGIC MANAGEMENT MODEL
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Strategic management as indicated earlier includes four components namely,
environmental scanning, strategy formulation, strategy implementation, and strategy
evaluation and control.
The four key components that are considered as a generic model of strategic
management are at the macro level. However, at the micro level of the organisation, the
strategic management model includes many elements in the components of the strategic
management model.
Organisations pay attention to developing an effective Strategic management model
as it helps in providing the basic framework for understanding how strategic management
can be made operational at the firm level. Furthermore, it also helps managers and
strategists to have an elaborate understanding of the iterative approach in handling practical
settings in the organisation. .
An analysis indicates that the first step with respect to the strategic management model is
the formulation of the vision and mission of the organisation. Further, the organisational
vision and mission is translated into the organisational goals.
Organisation vision, mission, and goals are elements that direct and help identify
weaknesses on which attention needs to be paid. After this work has been completed, then
the role of the manager or strategist would be to make an in-depth analysis of the
organisation. This type of analysis would be of three major types namely the external
analysis of the environment, the internal analysis of the organisation, and then the industry
analysis.
Each of these analyses helps by giving inputs on the opportunities and threats, strengths and
weaknesses, and help the organisation to position itself vis-à-vis the other competing
organisations in the industry. The results of these three types of analysis would assist
managers and strategists to identify the niche areas to be focused, highlight the unique
competence of the organisation and identify the competitive position the organisation in
order to sustain its competitive advantage in its industry.
This type of strategic analysis will prove useful to managers or strategists to know the
potential alternatives available to the organisation. A selection of the appropriate strategic
choices will be made ready for implementation
While implementing the strategy, the organisation has to make sure that the elements in
strategy are relevant. To make this happen the organisational goals have to be defined at the
operational level, goals have to be translated into specific and precise objectives
Further, to ensure that these objectives are met, specific programmes or plans of action
should be prepared to ensure effective implementation of the organisational strategy.
Implementation of the strategy will not be effective unless its fundamental elements in
strategy implementation are all in place. This would also mean ensuring that the
organisation has the appropriate organisational structure, people and leadership required to
manage the implementation of the selected plan of action.
Lastly, strategy implementation also would require managers or strategists to synchronise
and interlink the many useful functions of the organisation so that the systems and processes
of managing the various multifunctional areas are synchronised with the organisational
objectives that have been set earlier.
The last component of the strategic management model comprises strategy evaluation and
control. Strategy evaluation and control require the organisation to review the implemented
strategy at regular intervals say, for example, every half-yearly or quarterly.
The strategy evaluation criteria and expected performance should be benchmarked against
the standards of the industry or firm. By comparisons performance with other competing
firms or in time dimension (against the previous year) useful analysis can be made. The
strategy control mechanisms should be one, which can assure the organisation that the
desired objectives set can be met in the next phase of implementation.
After the strategic management model is clearly defined and set, the next phase involves
understanding the processes of strategic management.
2.3 STRATEGIC MANAGEMENT PROCESS
The strategic management model is an interactive process. In other words, in trying to
operationalise the strategic management model, managers or strategists have to make sure
that they must begin the process by determining the vision of the organisation. The mission
of the organisation must also be clarified. Then, the organisational goals are defined and set
by the managers or strategists.
Operationalising the strategic management model involves a series of steps that are
continuous and ever changing with the dynamics of the environment. A change in one of the
elements can affect the other elements in the strategic management model. Thus, the strategy
formulation, implementation, evaluation and control must be done on a regular basis should
not be taken as a one-time approach. For example, in a situation where the organisation has
already set its vision, mission and goals to be achieved, the process of strategy formulation
begins by analysing the strategic situation of the organisation. In other words, analysing the
external environment, organisational strengths and weaknesses, and industry analysis
(and/or competitive analysis) should be the first stage in the strategic management process.
The organisations can also review their goals consistent with the ever-changing business
environment so that the organisation would not remain less competitive. For example, in an
airline industry, the organisation may set its mission to be the leader in the airline services
industry. However, the airline industry landscape is changing fast and apart from providing
airline service other services like a hotel, tourism, holiday packages and even car rentals can
be provided. Redefining the organisational mission becomes inevitable and a necessity to
ensure that the organisation continues to survive in a competitive environment.
At the implementation phase, the strategic management process may begin by reviewing the
organisational structure and people available in the organisation before setting the policies
and programmes or plans of action. The organisational systems and processes may also
have to be revised accordingly. Consequently, the strategy implementation process may
differ under different circumstances and situations.
Finally, at the strategy evaluation and control phase, the process may require organisations
to review the control mechanisms more than the strategy evaluation processes.
Since the strategic management model is a dynamic process and requires constant updating
and reviews, the process of strategic management practice can be as fluid as the rapid
changes in business dynamics. At this stage, it should be realised that there are, however,
several key aspects that do not change despite being fluid in the practice of strategic
management. The first is the key elements in the strategic management component, and the
second is the four major components of strategic management. These two aspects do not
change as long as the concept of strategic management is defined in a manner mentioned
earlier in this topic.
2.3.1 Elements of Strategic Management
(i) Strategic Analysis
Strategic analysis is concerned with analysing the strategic position of the organisation. It
strives to find answers to the following questions, which would help, steer the company
thereby helping it to achieve its objectives. The special aspects, which need consideration,
include:
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How do the changes in the external environment impact the activities of the
organisation
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Do the resources of the organisation have the strength to take care of such changes?
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How do the aspirations of the different classes of stakeholders of the organisation
affect the functioning of the organisation today and in the future?
The strategic analysis attempts to identify the important forces that affect the existing and
future efficiency of the organisation. It is, therefore, necessary to make a strategic choice.
The impacts as shown below can help understand how these influences are an important part
of the wider aspects of strategic management.
(a) The environment:
Every organisation is compelled to compete in an environment, which is highly dynamic and
challenging. The external environment consists of a varied number of highly interlinked
environmental factors, which could be commercial, economical, social and political. The
external environment is not the same for every organisation. For some, it may seem to be
more complex as compared to others. The past environmental impact on the business must
be analysed together with the effect of current and future estimated changes in the various
variables influencing the environment. This is challenging because the variables affecting
the external environment are not only complex but also highly volatile.
The strategy of a business depends on the relation to its environment and it becomes
necessary to have thorough exposure to the effects that the environment has on a business.
This acts as the focus of strategic analysis. Environment related variable result apart from
providing different opportunities might also prove to be a threat to the organisation.
With respect to the above, the factors the points that need to be focused upon are as follows:
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What should the company do to overcome the threats it is currently facing or would
be facing in future? This analysis would be possible only when the organisation has
an understanding on the whole about the impact of the environment.
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Given the wide range of highly volatile environmental variables to what extent will it
be possible for an organisation to identify and analyse such variables?
Figure 2.3: Strategic analysis is further divided into internal and external factors
(b) The resources of the organisation
In line with the impact of the external environment, various internal factors affect the
strategic choice of a business. The strategic capability of an organisation can be
determined by considering the strengths and weaknesses of its resources. The
resources of an organisation would include its physical assets such as plant and
machinery, land and buildings, its management, its financial/capital structure and its
products and services. The main intention of evaluating the resources of the
organisation is to get an idea about the internal influences and constraints with
respect to the strategic choice.
Figure 2.4: Expectations of different stakeholders
(c) The expectations of different stakeholders
Different expectations are to be fulfilled by the various categories of stakeholders.
The organisation’s strategy formulation is influenced by the culture of an
organisation, which in turn depends on the beliefs and assumptions of the
management. Thus, a thorough analysis of the organisation’s resources, its
expectations and objectives within the cultural and political background will help in
making the strategic analysis process more effective.
It is imperative for an
organisation to analyse the impact of its present strategy and the extent to which its
objectives are in concurrence with strategic analysis.
In all probability, there may not be a concurrence between the present strategy and
the picture as given by strategic analysis. The level to which there is no concurrence
poses itself as a strategic problem facing the strategist. Hence, many adjustments
may have to be made which in some cases will be many and in others few.
Figure 2.5: Making strategic choices
(ii) Strategic Choice
Strategic analysis forms the rationale for making a strategic choice. Strategic choice
is made by adopting the following steps:
a) Generation of strategic options
An organisation usually has many possible courses of action, which it can adopt.
For example, a company may have to take a decision whether to sell its products
within the country or go global. At a later stage, the company may have to decide to
what extent it should go global and thereby take important decisions pertaining to its
business operations internationally.
All such strategic choices, which have to be made by the company, require
careful and meticulous weighing of important and relevant factors. Thus, it can be
seen that to make a strategic choice one could generate various strategic options.
(b) Evaluation of strategic options
Examination of strategic options can be carried out in relation to strategic analysis.
This will help in evaluating the merits of each option. While pinning down on the
strategic option to be chosen the organisation should seek answers to the following
important and relevant first set of questions which are as follows:
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What are the options, which have been developed because of the strengths of
the organisation?
Which are the options that have helped the organisation to get rid of its
weaknesses and take advantage of opportunities?
Which of the options has helped the organisation in reducing the threats of
business?
The process of obtaining answers to the above first set of questions is referred to as
‘the search for strategic fit or suitability of the strategy’.
The second lot of important questions deals with the degree of feasibility and is as
follows:
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What is the extent to which a chosen strategy can be implemented or put into
effect?
What is the amount of finance that needs to be raised?
What is the stock of inventory that needs to be made available?
Will the inventory be made available at the right time and in the right place?
How many personnel are to be recruited and trained to ensure that the desired
results are achieved?
If a company were successful in meeting the above-mentioned criteria, would
it be acceptable to the stakeholders?
(c) Selection of strategy
Selecting the strategy refers to the process of choosing options which the
organisation will adopt.
The choice made could be limited to one strategy or
several strategies. It is very unlikely for the organisation to hit upon a strategy,
which is truly right or wrong. This is because every strategy has some advantages
and some disadvantages. This being so, the final choice made by the management
could just be a matter of judgement and need not necessarily be a choice based on
logical and objective thinking. In short, the choice of strategy finally made depends
on the values of the management and other groups with some stake in the
organisation. As a result, the selection of the strategy would very well show the
power enjoyed by the organisational structure.
Figure 2.6: Strategic Choices available for an organisation
(iii) Strategy Implementation
Translation of strategy into action deals with the implementation of a strategy.
Implementation has several aspects to it, which are as follows:
(a) Planning and allocating resources
Strategy implementation deals with the resource planning and allocation. It also
includes getting information regarding the important tasks that need to be performed;
changes are required in the resource mix. When is such change to be brought about
and who would be responsible for implementing the change?
Figure 2.7: Planning and allocating resources
(b) Organisation structure and design
It may also so happen that changes need to be made with respect to the
organisational structure and design to ensure easy and timely implementation of the
strategy.
(c) Managing strategic change
The process of implementing the strategy may require necessary changes to be
effected as and when required. Thus, the implementation of strategy also should
ensure that there is scope to manage any type of required strategic change. This
would be possible only if the organisation has processes that could be changed with a
mechanism in place to effect the required change. These mechanisms in place to
bring about the desired change should also be capable of concentrating on not only
an organisational redesign, but with managing day-to-day routines and cultural
aspects of the organisation, and overcoming political blockages to change.
SUMMARY
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The various components of strategic management include environmental scanning,
strategy formulation, strategy implementation, strategy evaluation and control.
Elements that make up Environmental scanning are external analysis, internal
analysis, industry analysis and competitive analysis.
The key components of Strategy formulation by an organisation include its vision,
mission, goals and objectives.
Organisations pay attention to developing an effective Strategic management model
as it helps in providing the basic framework for understanding how strategic
management can be made operational at the firm level.
The last component of the strategic management model comprises strategy
evaluation and control. Strategy evaluation and control require the organisation to
review the implemented strategy at regular intervals.
The strategic analysis attempts to identify the important forces that affect the existing
and future effectiveness of the organisation.
KEY TERMS
Strategy Implementation
Strategic options
Strategic Choice
Strategic Analysis
Strategic Management Model
Strategy Evaluation and Control
Strategy Formulation
Environmental Scanning
EXERCISE
Short Answer Questions
1. List the various components of Strategic Management.
2. Explain the elements that make up Environmental scanning.
3. Write a brief note on Strategic analysis.
Long Answer Questions
1. Describe strategic management model.
2. Discuss the process of strategic management.
3. Summarise the elements of Strategic Management.
REFERENCES
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2
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3
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4
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5
Ryszard Barnat. (n.d.). Strategic Management :: Strategy Evaluation And Control. Retrieved from
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6
Strategic Management Process - Meaning, its Steps and Components. (n.d.). Retrieved from
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7
Fathmath Juhaina Rasheed/TESLA. (2014, July 3). TESLA- STRATEGIC MANAGEMENT.
Retrieved from http://www.slideshare.net/shareslides321/tesla-moto
8
Directorate of Distance Education Maharshi Dayanand University ROHTAK. (2004).
STRATEGIC MANAGEMENT. Retrieved from
http://www.mdudde.net/books/Mcom/Mcom-f/strategic-management%28crc%29-final.pdf
9
Directorate of Distance Education Maharshi Dayanand University ROHTAK. (2004).
STRATEGIC MANAGEMENT. Retrieved from
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10
Strategic Management Process - Meaning, its Steps and Components. (n.d.). Retrieved from
http://managementstudyguide.com/strategic-management-process.htm
11
Retrieved from http://repository.lib.ncsu.edu/ir/bitstream/1840.16/5734/1/etd.pdf