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Strategic Management

Strategic Management is the comprehensive collection of ongoing activities and processes organizations use to systematically coordinate and align resources and actions with mission, vision, and strategy. Strategic management activities transform the static plan into a system that provides strategic performance feedback to decision-making and enables the plan to evolve and grow as requirements and other circumstances change.[1] Strategic management can be divided into four main categories: strategic approaches, strategic creation, organizational structures, strategy formulation, and strategic evaluation (Fuertes et al., 2020).

Strategic management is divided into several schools of thought. A prescriptive approach to strategic management outlines how strategies should be developed, while a descriptive approach focuses on how strategies should be implemented. These schools differ over whether strategies are developed through an analytic process in which all threats and opportunities are accounted for or are more like general guiding principles to be applied. Business culture, the skills and competencies of employees, and organizational structure are important factors that influence how an organization can achieve its stated objectives. Inflexible companies may find it difficult to succeed in a changing business environment. Creating a barrier between developing strategies and their implementation can make it difficult for managers to determine whether objectives were efficiently met. While an organization’s upper management is ultimately responsible for its strategy, the strategies are often sparked by actions and ideas from lower-level managers and employees. An organization may have several employees devoted to strategy rather than relying on the chief executive officer (CEO) for guidance. Because of this, organization leaders focus on learning from past strategies and examining the environment. The collective knowledge is then used to develop future strategies and to guide the behavior of employees to ensure that the entire organization is moving forward. For these reasons, effective strategic management requires an inward and outward perspective.[2]


The Origins of Strategic Management[3]
The strategic management discipline originated in the 1950s and 1960s. Among the numerous early contributors, the most influential were Peter Drucker, Philip Selznick, Alfred Chandler, Igor Ansoff, and Bruce Henderson. The discipline draws from earlier thinking and texts on 'strategy' dating back thousands of years. Prior to 1960, the term "strategy" was primarily used regarding war and politics, not a business. Many companies built strategic planning functions to develop and execute the formulation and implementation processes during the 1960s. Peter Drucker was a prolific management theorist and author of dozens of management books, with a career spanning five decades. He addressed fundamental strategic questions in a 1954 book, The Practice of Management, writing: "... the first responsibility of top management is to ask the question 'what is our business?' and ensure it is carefully studied and correctly answered." He wrote that the answer was determined by the customer. He recommended eight areas where objectives should be set, such as market standing, innovation, productivity, physical and financial resources, worker performance and attitude, profitability, manager performance and development, and public responsibility. In 1957, Philip Selznick initially used the term "distinctive competence" in referring to how the Navy was attempting to differentiate itself from the other services. He also formalized matching the organization's internal factors with external environmental circumstances. This core idea was developed further by Kenneth R. Andrews in 1963 into what we now call SWOT analysis, in which the strengths and weaknesses of the firm are assessed in light of the opportunities and threats in the business environment. Alfred Chandler recognized the importance of coordinating management activity under an all-encompassing strategy. Interactions between functions were typically handled by managers who relayed information back and forth between departments. Chandler stressed the importance of taking a long-term perspective when looking to the future. In his 1962 groundbreaking work Strategy and Structure, Chandler showed that a long-term coordinated strategy was necessary to give a company structure, direction, and focus. He says concisely, "Structure follows strategy." Chandler wrote that: "Strategy is the determination of the basic long-term goals of an enterprise, and the adoption of courses of action and the allocation of resources necessary for carrying out these goals." Igor Ansoff built on Chandler's work by adding concepts and inventing a vocabulary. He developed a grid that compared strategies for market penetration, product development, market development, and horizontal and vertical integration and diversification. He felt that management could use the grid to prepare for the future systematically. In his 1965 classic Corporate Strategy, he developed a gap analysis to clarify the gap between the current reality and the goals and to develop, what he called "gap-reducing actions." Ansoff wrote that strategic management had three parts: strategic planning, the skill of a firm in converting its plans into reality, and the skill of a firm in managing its own internal resistance to change. Bruce Henderson, the founder of the Boston Consulting Group, wrote about the concept of the experience curve in 1968, following initial work begun in 1965. The experience curve refers to a hypothesis that unit production costs decline by 20–30% every time cumulative production doubles. This supported the argument for achieving higher market share and economies of scale. Porter wrote in 1980 that companies have to make choices about their scope and the type of competitive advantage they seek to achieve, whether lower cost or differentiation. The idea of strategy targeting particular industries and customers (i.e., competitive positions) with a differentiated offering was a departure from the experience-curve-influenced strategy paradigm, which was focused on a larger scale and lower cost. Porter revised the strategy paradigm again in 1985, writing that superior performance of the processes and activities performed by organizations as part of their value chain is the foundation of competitive advantage, thereby outlining a process view of strategy.


The Scope Of Strategic Management[4]
J. Constable has defined the area addressed by strategic management as "the management processes and decisions which determine the long-term structure and activities of the organization". This definition incorporates five key themes which are fundamental to a study of the strategic management field:

  • Management process. Management processes relate to how strategies are created and changed.
  • Management decisions. The decisions must relate clearly to a solution to perceived problems (how to avoid a threat; how to capitalize on an opportunity).
  • Time scales. The strategic time horizon is long. However, for a company in real trouble can be very short.
  • Structure of the organization. An organization is managed by people within a structure. The decisions which result from the way that managers work together within the structure can result in strategic change.
  • Activities of the organization. This is a potentially limitless area of study and normally centers upon all activities which affect the organization.


Components of Strategic Management[5]

  • Create an actionable plan or strategy. Set realistic goals at the level of individual departments and divisions. Write a company-wide mission statement. The first component of strategic management can be defined as the strategic planning portion of the overall process of creating and implementing a strategy. This is otherwise known as a general plan of action.
  • Perform a SWOT analysis to prepare for the implementation of the strategy. The acronym SWOT stands for strengths, weaknesses, opportunities, and threats. SWOT analysis takes various internal and external factors into account when considering potential challenges to a company's implementation of the strategy. For example, as Technical Notes points out, does the company have the wherewithal to undertake the full implementation as conceived in the planning process? Are there external factors that might prevent successful implementation? Such questions are considered during SWOT analysis, a major component of strategic management.
  • Design and implement the strategy. Outline actionable steps which will lead to desired outcomes of the strategy. For example, a company that includes assurance of job security and employee job satisfaction as part of its strategy might allocate resources to undersign a more comprehensive health insurance policy. Including implementation as a major component of strategic management differentiates this administrative model from strategic planning, which focuses almost exclusively on outlining an organization's mission and goals.
  • Track the progress of the implementation. Develop and execute a strategic review or audit of individual departments. Conduct employee surveys to determine the effectiveness of desired goals. This component of strategic management is important not only in the implementation process itself but also for the refinement of the overall company strategy. Effective feedback will aid leaders in shifting priorities as they polish the organization's strategic vision.


Elements of Strategic Management Framework[6]
The strategic management model identifies concepts of strategy and the elements necessary for the development of a strategy enabling the organization to satisfy its mission. Historically, a number of frameworks and models have been advanced that propose different normative approaches to strategy determination. Strategic management is a continuous and dynamic process. Therefore, it should be understood that each element interacts with the other elements and that this interaction often happens simultaneously. However, a review of the major strategic management models indicates that they all include the following elements:

  • Performing an environmental analysis.
  • Establishing organizational direction.
  • Formulating organizational strategy.
  • Implementing organizational strategy.
  • Evaluating and controlling strategy.


Figure 1
Elements of Strategic Management Framework
source: CIO Index


Different Models of Strategic Management Process[7]
There is no universal model of the strategic management process. This section illustrates and comments on 3 more well-known frameworks presented by recognized scholars in the strategic management field. More about these models can be found in the authors’ books.


Figure 2. David’s Model of the Strategic Management’s Process
David’s Model of the Strategic Management’s Process
Source: David (p. 46)


David's Model of Strategic Management Process

  • Stages
    • Strategy Formulation
    • Strategy Implementation
    • Strategy Evaluation
  • Steps
    • Develop vision and mission
    • External environment analysis
    • Internal environment analysis
    • Establish long-term objectives
    • Generate, evaluate, and choose strategies
    • Implement strategies
    • Measure and evaluate the performance
  • Benefits
    • Indicates all the major steps that must be met during the process.
    • Illustrates that the process is a continuous activity.
    • Arrows show the two-way process. This means that companies may sometimes go a step or two back in the process rather than having to complete the process and start it all over from the beginning. For example, if, in the implementation stage, the company finds out that the strategy it chose is not viable, it can simply go back to the strategy selection point instead of continuing to the monitoring stage and starting the process from the beginning.
  • Drawbacks
    • Represents only the strategy formulation stage and separates situation analysis from strategy selection stages.
    • Confuses strategy evaluation with strategy monitoring stage.


Figure 3. Rothaermel’s The Analysis-Formulation-Implementation (AFI) Strategy Framework
Rothaermel’s The Analysis-Formulation-Implementation (AFI) Strategy Framework
Source: Rothaermel (p. 20)

Rothaermel’s The Analysis-Formulation-Implementation (AFI) Strategy Framework

  • Stages
    • Analysis
    • Formulation
    • Implementation
  • Steps
    • Initial analysis
    • External and internal analysis
    • Business or corporate strategy formulation
    • Implementation
  • Benefits
    • Shows that the process is a continuous activity.
    • Separates initial analysis (in this article, it’s called initial assessment) from internal/external analysis.
    • Emphasizes the main focus of strategic management: “Gain and sustain competitive advantage.”
  • Drawbacks
    • Does not include strategy monitoring stage.
    • Arrows indicate only a one-way process. For example, after the strategy formulation, the process continues to the implementation stage, but this is not always true. Companies may go back and reassess their environments if some conditions had changed.


Figure 4. Thompson’s and Martin’s Strategic Management Framework
Strategic Management Framework
Source: Thompson and Martin (p.36)

Thompson’s and Martin’s Strategic Management Framework

  • Stages
    • Where are we?
    • Where are we going?
    • How are we getting there?
    • How are we doing?
  • Steps
    • Situation appraisal: a review of corporate objectives
    • Situation assessment
    • Clarification of objectives
    • Corporate and competitive strategies
    • Strategic decisions
    • Implementation
    • Monitor progress
  • Benefits
    • Indicates all the major steps that must be met during the process.
    • Shows that the process is a continuous activity.
    • The model is supplemented by 4 fundamental strategic management questions.
  • Drawbacks
    • Arrows indicate only a one-way process.


Strategic Management in Different Business Contexts[8]
Strategic Management Strategy and strategic management vary in different business contexts.

  • Small Business Context: The scope of operations is less strategic and more planning based. Unless the firm is a specialist in the field, it would be under heavy market pressure. Arranging resources & developing competencies may be a big problem. The firm may not have a separate strategy team. The owner is the most important stakeholder.
  • Multinational Context: Products and markets are diverse. The key strategic issues include Aspects of structure and control at the corporate level, the relationships at the various business units level, the Allocation of resources among the business units, and the Coordination of operational logistics across business units and geographies. Competitive advantage in service organizations is more related to the extent customers value less tangible features. For manufacturing organizations, physical products are central to competitive strategy, and services are merely needed to support the product.
  • Public Sector Context: The most powerful stakeholder in the case of the public sector is the government. Scope and direction are determined by political rather than market conditions. The competition is mainly for the input of resources rather than towards the market and customers. Social issues and concerns are more important environmental factors rather than business sense.
  • Not-for-Profit Sector: The values and ideologies are central to strategy development. There exist Multiple sources of income and revenue. They are more susceptible to lobbying and other political influences.


Benefits of Strategic Management[9]
There are many benefits of strategic management and they include identification, prioritization, and exploration of opportunities. 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 support from management. These firms ought to realize the benefits of strategic management and ensure their longer-term viability and success in the marketplace.

  • 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 for 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 short-term and long-term consequences and oriented their strategies accordingly. In contrast, firms that do not engage themselves in meaningful strategic planning are often bogged down by internal problems and a lack of focus that leads to failure.
  • Non-Financial Benefits: The section above discussed some tangible benefits of strategic management. Apart from these benefits, firms that engage in strategic management are more aware of external threats, have 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 rationalize, actualize, and communicate the need to change better to their employees. Finally, strategic management helps in bringing order and discipline to the activities of the firm in its both internal processes and external activities.


Challenges to Strategic Management[10]
Strategic management includes strategic planning, implementation, and review/control of the strategy of an organization. Most modern organizations engage in strategic management to ensure that they achieve the desired level of performance. But in the modern business context, strategic management faces many challenges, such as:

  • Orientation for globalization: Every aspect of the business is getting globalized, and business organizations step into global operations with MNCs (Multinational Corporations) and other foreign business operations methods. Due to the globalized operations of the business world, new orientations such as international human resource management (IHRM) and international finance are emerging. The company’s strategic management process has to be updated to cope with these new orientations.
  • Emerging e-commerce and Internet culture: With the wide expansion of the world wide web (www) and technology, businesses have moved on to e-commerce, where they conduct business electronic means such as online purchasing/selling and advertising. The strategic management process of the business should be able to accommodate e-commerce motives into the business process.
  • Cutthroat competition: With globalization, e-commerce, and other changes in the business environment, today's business world has become hyper-competitive, where the organization can no longer survive without executing proper competitive strategy. The strategic management process should generate competitive intelligence and predict the next moves of the competitors and build a competitive strategy to win the battle with competitors.
  • Diversification: With the rapidly changing business environment and increased uncertainty, business risk has increased drastically. To diversify the business risk, companies now engage in diversified operations focusing on more than one business area/industry rather than specializing in one area. Strategic management should be able to identify diversified business opportunities and manage them well.
  • Active Pressure Groups: In the modern world, active pressure groups operate, such as environmental activism and consumer protectionism. Strategic management should identify these external pressure groups and hear about their concerns.
  • Motive for Corporate Social Responsibility (CSR) and Ethics: Modern business organizations have engaged in CSR and ethics to maintain their corporate reputation and be competitive in the environment. Strategic management should look into possible CSR activities and implement those to be in line with the expectations of society.


See Also

  • Certo and Peter's Strategic Management Model: This model outlines strategic management steps and emphasizes strategic control and evaluation.
  • Wheelen and Hunger's Strategic Management Model: Known for its comprehensive approach, this model includes stages from environmental scanning to strategy implementation and control.
  • Glueck and Jauch's Strategic Management Model: This model provides insights into strategic planning, formulation, implementation, and control.
  • Thompson and Strickland's Strategic Management Model: This model focuses on crafting and executing strategy with detailed stages and practical applications.
  • Mintzberg and Waters' Strategy Model: This model highlights the concept of deliberate and emergent strategies, providing a nuanced view of strategy formation.
  • Mullins' Seven Domains Model: This model focuses on analyzing seven key domains for evaluating business opportunities and strategic planning.
  • Andrew's Model: Also known as the SWOT analysis model, it emphasizes analyzing internal and external factors for strategic decision-making.
  • The Schendel And Hofer Model: This model offers a dynamic approach to strategic management, incorporating various business and environmental factors.
  • AFI Strategy Framework: The Analysis, Formulation, and Implementation (AFI) framework is a contemporary approach to strategic management, ensuring a structured process for strategy development.
  • Business Capability: The concept of business capability is crucial as it relates to the organization’s ability to effectively perform across various strategic initiatives.
  • Corporate Strategy: Overall scope and direction of an organization and the way in which its various business operations work together to achieve particular goals.
  • Competitive Advantage: Attributes that allow an organization to outperform its competitors.
  • SWOT Analysis: Framework for identifying and analyzing the Strengths, Weaknesses, Opportunities, and Threats related to business competition or project planning.
  • PEST Analysis: A tool used to identify the Political, Economic, Social, and Technological factors that may affect an organization.
  • Balanced Scorecard: Performance management tool that provides a view of an organization's overall performance.
  • Mission Statement and Vision Statement: Statements that define the organization’s purpose and future goals.
  • Strategic Objectives: Long-term goals that help an organization achieve its mission and vision.
  • Key Performance Indicator (KPI): Metrics used to measure the success of an organization in achieving its objectives.
  • Value Chain Analysis: Process of analyzing the activities within and around an organization and relating them to the organization’s competitive strength.
  • Strategic Alignment: Ensuring that an organization's structure and resource allocation support its strategy.
  • Business Model Innovation (BMI): Developing new business models to create, deliver, and capture value.
  • Scenario Planning: Technique used to make flexible long-term plans based on different future scenarios.
  • Change Management: Processes for managing organizational change effectively.
  • Risk Management: Identifying, assessing, and mitigating risks in strategic planning and execution.
  • Leadership and Governance: Roles and responsibilities in setting and guiding the strategic direction of the organization.
  • Stakeholder Analysis: Identifying and understanding the needs and influences of stakeholders.
  • Strategic Decision Making: Process of making decisions that shape the direction and future of an organization.
  • Resource Allocation: Distribution of resources among various projects or business units to achieve strategic goals.
  • Corporate Culture: Shared values, beliefs, and behaviors that determine how a company's employees interact and handle business transactions.
  • Innovation Management: Managing processes in innovation to create new business value.
  • Performance Management: Monitoring and managing employee performance to align with strategic goals.
  • Sustainability and CSR (Corporate Social Responsibility): Strategies for sustainable development and ethical business practices.


References


Further Reading