“Strategic Management is a set of managerial skills that should be used within the organization, in a wide variety of functions” (Kotelnikov 2008). “Strategic management consists of the goal setting, analysis, strategy formation, strategy implementation, and strategy monitoring that an organization undertakes in order to create and sustain competitive advantages” (Shook, n.d.). The above definition emphasizes on following two main elements of strategic management, as such (Dess, Lumpkin, and Marilyn 2005):
“First, the strategic management of an organization entails three ongoing processes: analysis, decisions, and actions. That is, strategic management is concerned with the analysis of strategic goals (vision, mission, and strategic objectives) along with the analysis of the internal and external environment of the organization. Next, the organization must make strategic decisions.
These decisions, broadly speaking, address two basic questions:
- What industries should we compete in?
- How should we compete in those industries?”
These questions also often involve an organization’s domestic as well as its international operations. And last are the actions that must be taken. Decisions are of little use, of course, unless they are acted on.
According to Dess, Lumpkin, and Marilyn (2005):
“Firms must take the necessary actions to implement their strategies. As we will see in the next section, this is an ongoing, evolving process that requires a great deal of interaction among these processes. The essence of strategic management is the study of why some firms do better than others. Thus, managers need to determine how a firm is to compete so that it can obtain advantages that are sustainable over a lengthy period of time. That means focusing on fundamental questions how should we compete in order to create competitive advantages in the marketplace?”
These are the integral elements that, when applied together, distinguish strategic management from less comprehensive approaches, such as operational management or long term planning, Strategic management is an interactive, continuous process that involves important interactions and feedback among the five key factors, which are shown in the figure:
On the question of the Strategic Management Process, Crosby (October 1991) states, “[a]greement on and initiation of the strategic management process. Getting an agreement is the first step of the strategic management process. Not only to carry out the process but also to get agreement on how and when and by whom it will be carried out.”
“Since the strategic management process is not a one-shot exercise, commitment to the long haul is vital; without commitment, the exercise will be barren and likely regarded as a waste of time” (Dess, Lumpkin, and Marilyn 2005).
“Identification and clarification of the organization’s mission, objectives, and current strategies” (Scribner, n.d.). If an organization has agreed to involve in a strategic process, then the first task is to determine what and where the organization is, what are the needs that the organization takes actions to satisfy, and what is the value of satisfying those needs (Scribner, n.d.). Often organizations produce a product or a service and then fail to satisfy the demand. Because the organization does not know the actual demand by the market. If companies periodically conduct research on whether or not that product satisfies a demand or whether satisfaction of that demand actually matters then the organization is able to take a step to its advancement.
Identification of the organization’s internal strengths and weaknesses. These analyses can be conducted through its resource base. “Does the organization are able to accomplish its objectives? What are the levels of internal resources possessed by the organization?” (Crosby (October 1991). “The analysis of resources by itself is not sufficient; the organization must also look at its task performance” (UNDP. 20 March 1997).
Firms have to determine the sector in which he has competitive advantages and what tasks it can perform well and which does it not. “Assessment of the threats and opportunities from the external environment. Political, economic, social, and technological changes will influence the direction and shape of an organization’s policies and objectives” (Crosby (October 1991).
Firms have to identify which factors hamper performance and slow down organizational activities.
Identification of key constituents stakeholders and their expectations. The strategic management discipline has made conceptual and empirical progress “concerning the question of economic value creation primarily from a shareholder wealth perspective rather than from a broader stakeholder perspective (Mahoney, n.d., p.4). “The key ingredients for decisions about what an organization will do” (Crosby October 1991) and how it carries out its activities, is the expectations and demand of constituents. Generally, stakeholder means the groups or persons who have a direct interest and are capable to influence the results or actions of the organization. Stakeholders included beneficiaries, employees, political parties, consumers, donors, management, etc. An organization has to consider every party’s interest throughout the cautionary actions.
Identification of the key strategic issues confronting the organization. Analysis of previous steps may find some key problems regarding the organization which is a concern with the organization’s mission, products, customers, financing policies, and stakeholders. To identify the exact strategic issue or problems care must be taken. Because “strategic problems are the principal problems that must be dealt with effectively” (Crosby October 1991).
“Selection and analysis of alternatives strategy and options to manage problems which are identified in the previous step.” (Crosby October 1991).
Once problems have been identified, strategies are needed to solve the problem or issues. The firm has to analyze between the alternatives and decide which course of action will be chosen from available alternatives.
After choosing the decision, the strategy must be implemented. Several important factors are involved in the implementation of the strategy including organizational structure and climate. There are two steps in this process, the first one is the development of an action plan which tells when and how the “actions are necessary to carry out the strategy will be done. Goals and objectives will also be specified” (Crosby (October 1991). The second step of implementation concerns with assemble and utilization of resources.
“The final stage of the strategic management process is the review and evaluation of the strategy’s performance.”
These processes should be continuous and customary. Here the question arises does the strategy work as planned. If not managers should develop control mechanisms. If one were to stop after Step number 7, the process would be simply a strategic planning exercise.
Frequently, this is exactly where the process does stop, especially when management and the strategic planning functions have been de-linked.
This occurs when there is no attempt to develop a strategic mentality among line management; instead, the organization attempts to set up a special department, division, or “guru” for strategic planning rather than integrate the functions into normal line management. Without the expressed linkage it is often difficult for the line manager to see the value of the strategic plan, and there will therefore be less interest and incentive in strategically managing. In contrast, if the strategic approach is employed, or the organization is imbued with a strategic mentality, then strategic planning will be done as part of the course of normal (strategic) management functions. (Crosby October 1991).
Importance of Strategic Management
Strategic management encompasses all the decisions and actions leading to the attainment of long-range objectives. The total organization is considered as an open system is determining the allocation of resources, the direction of organizational forces, and the plan of strategic actions. The open system perspective emphasizes that an organization has a number of interacting elements and can be considered only in relation to its external environment. Without this system perspective, managers tend to see problems in isolation, often failing to recognize the dynamic interrelationship among subsystems of the organization and with other external systems.
One of the most important jobs of strategic managers is to manage the system. The strategic managers identify the relationships between the systems and subsystems; develop goals, objectives, and plans. They integrate these activities into a broad course of action. The system view recognizes the independent forces, both internal external, which directly influence the organization. These include:
- External environment
- Opportunities for growth and survival
- Internal processes, such as structure and climate
- And the degree of freedom that exists in strategic choice.
The external environment includes the economic, political, natural, cultural, and demographic environment which is becoming more unpredictable and complex affects the business directly. Some internal factors like consumers, middlemen, suppliers, shareholders also influence the business activities. Changing consumer attitudes, new legislation, and technological advancement all act on the organization to another, but all face the need for adaptation to external forces. Many of these changes are forced upon the organization, while others are generated internally. Rapid changes in all these factors put more pressure on top management. The use of the strategic management process provides a way that helps the managers to deal with the uncertain future. Strategic management provides for more decentralized and unified objectives for the organization unit and members (Love et al. 2002).
Major Schools of Strategic Management
The Design School
The design school was the dominant thought of the strategy process for its embedded influence on practice. In the design school of strategic management thoughts, strategy formation is viewed as attaining the best fit between internal strengths and weaknesses and external threats and opportunities. Simple and clear strategies are developed by top-level management in a deliberate way.
The Planning School
The planning school of thought has a great influence on management strategy. This process was formal and analytical and decomposable into distinct steps. And this process is supported by techniques with regard to operating plans, objectives, budget constraints, and programs. To accomplish the new challenges this process should be redesigned considering the real-time strategy.
The Positioning School
According to this view, strategy reduces to general positions selected through dignified analysis of industry conditions. The positioning school was advanced by professor Michael Porter in 1980 based on previous research work.
The Entrepreneurial School
The entrepreneurial school-centered the process on the chief executive and it rooted that process in the mysteries of intuition. The initial plan was applied to specific situations – private companies, niche players, start-ups, and “turnaround” conditions.
The Cognitive School
In the 1980s and continuing, today cognition is used for information processing, not for strategy making. In this view, a more subjective interpretative view of the strategy process was developed. Here cognition is used to construct strategies rather than information processing.
The Learning School
In this view, strategies are a growing process and can be found throughout the organization and the whole process of formulation and implementation strategies are interrelated.
The Power School
According to this view, strategies making are embedded as two power, micro, and macro. Micropower sees the organization inside process involving its personnel’s behavior, teamwork, and argument. Macro power sees the organization’s relationships with partners and other network relationships.
The Cultural School
In strategy formation, the cultural school focuses on social processes and common interest, and integration. It discourages significant strategic change by the influence of culture (Kotelnikov, n.d.).
The Environmental School
“The environmental school deserves attention for the light it throws on the demands of the environment” (Kotelnikov, n.d.).
The Configuration School
The configuration school is more academic and expressive which views the organization as a configuration coherent bunch of characteristics and manners. At present, the configuration school is the most wide-ranging and integrative literature and practice.
The environment school
The environmental school of strategic management considers the demand of the environment. One of the most important theories is the contingency theory that considers what reactions are expected of organizations that confront particular environmental conditions and population ecology. That limits the strategic choice.
New Business Systems Approach to Strategy Formulation
To move beyond the narrowness of each school and pay more attention to the integral beast of strategy formulation we should go through a new approach of strategic management. “The new era of systemic innovation where good in parts is no good at all. The old linear and static approaches might work well for the old era of slow, linear, and incremental change. The emerging era of rapid, systemic and radical change requires more flexible, systemic and dynamic approaches to strategy formulation” (Kotelnikov, n.d.). “Today, corporate strategy formulation should be a combination of different currently practiced approaches – judgmental designing, intuitive visioning, and emergent learning; it should be about transformation as well as perpetuation; it has to involve individual cognition and social interaction, co-operative as well as conflictive; it must include analyzing before and programming after as well as negotiating during, and all of this must be in response to what can be a demanding environment.” (Kotelnikov, n.d.).
Resource-based theory of strategic management
Resource base theory is the new model or pattern in business strategy. Currently, it is the dominating view. This model is based on two major concepts:
- Economic rent.
- The view of the company as a collection of capabilities.
The resource-based viewpoint concentrates on the need for a fit between the outside market context in which a company operates and its inside capabilities. According to this view, companies’ competitive advantages depend on the ability to accumulate and utilize an appropriate combination of resources.
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