To deal effectively with the wide array of factors affecting the ability of a business to grow and prosper, managers need advanced processes they feel will facilitate the optimal positioning of the business in its competitive environment. Such positioning is possible with strategic management because this process improves preparedness for unexpected internal or competitive demands. Therefore, strategic management is an all-encompassing approach for formulating, implementing and evaluating managerial decisions in a way that permits the business to reach its objectives.
For a strategic management plan to be successful, however, every manager should: Clearly see the need for change Be firmly committed to the idea of changing the business planning process Assure that the strategic management process has credibility with everyone involved Make sure that final plans are realistic and reflect actual resources and capabilities Train all participants in the procedures essential to the strategic management process Develop concise and well-organized plans
One of the world’s best performing natural resources companies created a unique organizational structure that combines the advantages of small business units with “virtual structures” – groupings of these business units – that can address different strategic issues and competitive environments. Overview The formality of the strategic management process varies widely. Formality refers to the degree to which membership, responsibilities, authority and discretion in decision making are specified.
It is an important consideration in the study and application of strategic management because the degree of formality is usually positively correlated with the cost, comprehensiveness, accuracy and success of planning. The requirements for small business indicate the need for a moderate degree of formality. This is consistent with the ability to communicate face-to-face (size) and the need for flexibility (changing demands). The important issue is involvement with the process, not generating reams of paperwork (Camerer, 195-219). Resistance to change should be reduced.
Businesses vary in the processes they use to formulate and direct their strategic management activities. Many using sophisticated planning techniques have developed more detailed processes than similarly sized, less formal planners. Small businesses that rely on the strategy formulation skills and limited time of an entrepreneur typically exhibit very basic planning concerns when contrasted with larger firms in their industries (Harrison, St. John, 44-59). Understandably, organizations with diverse operations due to multiple products, markets or technologies also tend to use more complex strategic management systems.
Despite differences in detail and degree of formalization, the basic components of the models used to analyze strategic management operations are very similar. The strategic management process is based on the belief that businesses should continually monitor internal and external events so timely changes can be made. To survive, firms must be able to identify and adapt to change. This involves timely planning, directing, organizing and controlling of the strategy-related decisions and actions of the firm (Camerer, 195-219).
The strategic management process is sometimes improperly perceived as a unidirectional flow of objectives, strategies and decision parameters from management to the employees. In fact, the process should be highly interactive since it is designed to stimulate input from creative, skilled and knowledgeable people working at every level of the business. Tools Used in Strategy Development This section very briefly describes several key tools that can be used during the course of strategy development and strategic planning. The list is not intended to be comprehensive but to illustrate the types of tools that are available.
Environmental scanning (or competitive intelligence) is a rigorous approach to collecting, analyzing, and communicating information about competitors’ activities, market changes that are occurring, changes related to the supply of raw materials, and other issues that could affect strategic directions. Such information is legally and ethically obtained from a wide range of sources using formalized techniques and can be factored into decision making, e. g. , to support the application of the “five-forces” model or other frameworks for developing strategy (Burgelman, 193-214).
Scenario planning and forecasting helps planners deal with an uncertain future by providing a mechanism for envisioning a range of future scenarios, examine the possible impacts of them, develop a common view of the changing world, and prepare for it. Scenarios sometimes are best used not as a basis for strategy, but as a way to improve how managers do it. For a classic example of how Royal Dutch/Shell used scenario planning and was prepared for the eventuality, if not the timing, of the oil crisis of 1973. Capital planning and budgeting is the process by which unit managers (e. g. division directors) propose individual projects up the hierarchy for approval. This usually involves cost/benefit assessment of each proposal (combined into a return-on-investment measure), allowing senior managers to compare and rank them, and accept only as many as the capital funding allows. This is sometimes called “bottom-up” strategic planning. Most proposals with sponsorship from a division director have more or less free passage (a “rubber stamp”), that the analysis is rarely unbiased, and that the hard-to-quantify costs and benefits are excluded (Harrison, St. John, 44-59).
Portfolio analysis is a technique, similar in some respects to capital budgeting but usually at the business rather than project level, used to examine the relative value of the various businesses, subsidiaries, or other units within a company, and to determine if a balanced “mix” has been achieved. This helps corporate-level planners reach a better understanding of the competitive position of the overall portfolio of businesses, to suggest strategic alternatives for the businesses, to understand the value of acquiring new businesses, and, overall, to develop priorities for resource allocation.
Often, this is done through use of portfolio matrices, a set of graphic displays that help managers visualize the portfolio along two dimensions: usually an external dimension related to the overall attractiveness of the industry, and an internal one that relates to the strength of the business within that industry. Road mapping is a technique used by many companies, including high-tech firms such as Motorola to plan new product development. Lately, the term “road mapping” has been broadly applied to many kinds of planning activities underway in industrial firms, industry collaborative groups, and government agencies.
These organizations are producing many types of roadmaps, including product or product line roadmaps, sales roadmaps, industry roadmaps, and technology roadmaps (Burgelman, 193-214). Game theoretic modeling is the analysis of rational behavior in situations involving interdependence of outcomes, a technique sometimes used to improve development of a competitive strategy by addressing such microeconomic issues as the importance of first mover advantages and the role of commitment, reputation formation and exploitation, signaling, and the strategic control of information.
Game theory involves looking forward and reasoning backward to formulate a strategy that has the best chance of leading to the desired outcome in situations where that outcome is dependent upon the decisions of others as well as one’s own. It provides a way to analyze key strategic decisions concerning cooperation, coordination, and differentiation. However, the applicability of the assumptions underlying game theoretic modeling, especially the degree of rationality, complex reasoning, and learning of the participants, has been challenged, raising questions about the usefulness of game theory in dynamic, real-life situations.
Consequently, game theory has been found more useful as a metaphorical tool that can provide insights into patterns of behavior likely to occur under different circumstances than as a literal analytic model (Harrison, St. John, 44-59). Stakeholder analysis and engagement is related to game theory in that it emphasizes the importance of identifying, understanding, building relationships with, and satisfying key stakeholders, both inside and outside the boundaries of the organization.
Stakeholders has been categorized into those within the organization (owners/board of directors, managers, and employees) and within the operating environment (customers, suppliers, government agencies and administrators, unions, competitors, financial intermediaries, local communities, and activist groups), all operating within the broader environment subject to socio-cultural, global economic, and global political/legal forces and technological change. Stakeholder analysis involves understanding the interests and concerns of the various stakeholders relative to the potential strategies and activities of the organization.
Stakeholder analysis is usually coupled with an effort to engage stakeholders in a way that builds relationships, meets disclosure of information requirements in a positive way, and maximizes the potential to motivate behavior beneficial to the organization (Harrison, St. John, 44-59). Decision science and decision analysis was developed as a recognized field of study in the 1960s and 1970s at Harvard, Stanford, MIT, Chicago, Michigan, and other major universities. It is generally considered a branch of the engineering discipline of Operations Research, but also has links to economics, mathematics, and psychology.
The theoretical foundations of decision analysis are a set of axioms that imply that the desirability of alternative courses of action depends on the likelihood of possible outcomes and the preferences for those outcomes. Likelihood is estimated using probability distributions and desirability is measured using utility functions. Probabilities and utilities are used to calculate the expected utility of each alternative. Alternatives with higher expected utilities should be preferred.
Subjective judgments by subject area experts are often used to determine probabilities and utilities and an effort is made to deal explicitly with uncertainty. Discussion Like the complex, formalized processes in the private sector, many government attempts at rigorous, formal planning have met with limited success (some would more bluntly characterize them as failures). Other efforts have been more successful. The federal benchmarking study on customer-focused strategic planning offers good advice for avoiding many of the pitfalls of strategic planning.
It recommends that the focus of strategic planning in governmental organizations should be on better understanding the “customers” of government and developing strategies to meet their needs. These strategies should be developed through a structured, if not always routinized, process and based on sound principles, such as development of core values, strong leadership from senior executives, a focus on the urgency of customer service, and good internal communication.
Public science management will have to also address the extent to which their strategies may need to be creatively innovative, flexible, learning-oriented, stakeholder-oriented, and/or collective (Harrison, St. John, 44-59). Concept of core competencies could be applied, along with the idea that those competencies should be developed in directions needed by the market’ (in this case, society’s science needs). Analysis of “competitors,” per Michael Porter, could provide another direction for strategic development.
One could consider industry competition (and potential collaboration) with the federal science “industry” (i. e. , federal agencies vying for Congressional appropriations in competition), and conduct a “Five Forces” analysis that examines the power of customers (e. g. , offices within the agency who use research results or Congress itself), the power of suppliers (e. g. , National Laboratories, Universities), the threat of new entrants (new government agencies or new areas of science that might compete for research dollars), and the threat of substitute products (e. . , health care substituting for science in the federal agenda). Analysis The concepts of organizational design and the resource theory of the firm have greatly influenced recent discussions of strategy. It is generally recognized that a good fit between strategy, organizational design, and external opportunity creates a competitive advantage for an organization. An appropriate organizational design is generally viewed as enabling “an organization to execute better, learn faster, and change more easily”.
An organization’s design comprises multiple, interrelated elements, frequently categorized as structure, people, processes, rewards, and tasks or work systems that together can create unique organizational capabilities that provide competitive advantage. Although the classic bureaucratic form may be the form of choice in a stable environment with low complexity, research has shown that rapid change and increased complexity require greater lateral mechanisms and a more organic form.
In hypercompetitive industries, organizations increasingly compete on the basis of being “good at combining difficult-to-combine organizational capabilities” and being able to adjust its strategies to take advantage of or create new opportunities. Agile organizational designs are being emphasized, such as team-based organizations, competency based organizations, and the notion of generalized product platforms that effectively manage product portfolios, shortened product life cycles and the need for more rapid new product development.
Strategy is a deadly serious operational tool because the livelihood, and indeed the lives, of all depend upon how and with what results it is achieved. Similarly, in business, strategic management is a process whereby the organization is optimally positioned in its competitive environment to ensure both the survival and growth of the organization. Most researchers view strategic management as a process consisting of various components. The researchers differ with regard to the components that are included in the strategic management process and the order in which the components should be implemented.
There appears to be general agreement, however, that strategy formulation and implementation constitute the core of the strategic management process. Few researchers specifically include organizational culture as a major component of the strategic management process. This reflects the lack of understanding about the concept of organizational culture within the context of strategic management (Astley, Fombrun, 576-587). Senior managers in organizations tend to follow the trends established by strategic management theorists and researchers.
They therefore fail to take the prevailing culture of their organizations into account in formulating and implementing organizational strategy (Galbraith, 12-15). The difficulties executives experience in implementing strategies formulated for their organizations may partially be attributed to the fact that the organisation’s prevailing culture does not support the strategy formulated for the organization. Organizational culture should therefore form a component of the strategic management process (Harrison, St. John, 44-59). Problems with Strategic Planning
While most authors agree that a well-formulated strategy provides direction, helps focus efforts, and provides consistency to employees, and hence gives the organization advantages, another school of thought contends that a deliberate absence of strategy may promote creativity and flexibility in an organization. Tightly controlled organizations with high reliance on formalized procedures and a passion for consistency may lose the ability to innovate and may hence become less successful. One example of the deliberate absence of strategy is the company Nucor, which has no written strategic plan, no written objectives, and no mission statement.
Their absence is symbolic of the non-bureaucratic, flexible, learning organization Nacor has worked hard to become. So, at one end of the spectrum, some people believe strategy itself is deleterious to an organization’s success. But focusing on strategy does not necessarily have to prevent creativity and flexibility. Developing an innovative strategic competency is the critical factor for ensuring future organizational success (Burgelman, 193-214). Although criticism has been directed at almost all theories or models of strategy development, most criticism has focused on the formalized, strategic planning processes that Mintzberg et al. lassify as the “planning school” approach. These criticisms can be summarized as follows: Products of planning often aren’t used. For example, a 1997 survey of 50 companies found that over 20 had developed a SWOT analysis, yet “no one subsequently used the outputs within the later stages of the strategy process”, prompting the researchers to write an article entitled, “SWOT Analysis: It’s Time for a Product Recall. ” Planning processes can dominate the staff. Methodologies can become very elaborate and time consuming, with too much emphasis on analysis and too little on true strategic insights.
The implementers are often excluded from the process. New organizations are sometimes created just to conduct the planning, often cutting executives out of the strategy development process (Astley, Fombrun, 576-587). Planning processes often fail to develop true strategic choices. Planners sometimes adopt the first strategy that meets certain basic conditions in an acceptable manner. They make no real effort to search for or analyze an array of strategy alternatives before making a decision. Forecasts are invariably wrong. Strategic planning requires stability during, and predictability following, strategy making.
However, disruptions and discontinuities are a fact of life. Planning cannot do much other than extrapolate the present trends and hope for the best (Galbraith, 12-15). “Hard” data used in strategic planning lack the richness needed to make strategic decisions. The strategic planning “system” is supposed to be detached and objective and relies on detailed “facts” about the organization and its context. But hard information is often limited in scope and fails to encompass important non-economic and non-quantitative factors.
It can be too aggregated for effective use, often arrives too late to be of use, and is sometimes unreliable and subject to biases. Innovation cannot be institutionalized. Strategic planning is not always viewed as an aid to strategic thinking or strategy making (as perhaps it should be), but as a replacement for intuition and creative thinking. The thinking of genius entrepreneurs is hard to replicate in a formalized, institutionalized process. Strategy making is “a complex process involving the most sophisticated, subtle, and at times subconscious of human cognitive and social processes”.
Strategic planning is not strategy making, “Planning, rather than providing new strategies, could not proceed without their prior existence (Galbraith, 12-15). Strategic planning has been misnamed. It should have been called strategic programming. ” Despite the pitfalls and constraints of detailed and routinized strategic planning, most academicians, industry analysts, and corporate executives believe that organizational strategy is important. The thing to keep in mind is that strategy cannot be reduced to strategic planning processes, especially at the upper levels of the organization.
Strategic planning is better used to ensure strategic alignment and coordination across levels and groups, than to develop innovative strategy directions. Conclusions & Recommendations A crucial point recognized by successful managers is that success occurs when the management option is exercised at the point when planning and opportunities meet. These opportunities are often defined by both financial and behavioral benefits. The principal appeal of any managerial approach is the expectation that it will lead to increased profits for the business. This is especially true of the strategic management process.
Several studies of various businesses have measured the impact of strategic management process on the bottom line. These studies suggest that this will improve managerial ability and the ability to generate greater profits (Astley, Fombrun, 576-587). Strategic management has behavioral consequences that are characteristic of participatory decision making. By using group-based decision making, a business’s strategic plan is more likely to reflect the best available alternatives. In addition, employee motivation improves as employees appreciate the productivity-reward relationships inherent in every strategic plan.
As participation in strategy formulation leads to clarification of employee roles, gaps and overlaps in activities among diverse individuals and groups should be reduced. The resulting cohesiveness in the strategy formulation process will greatly enhance overall problem prevention capabilities. Business strategic management practitioners and researchers should include the concept of organizational culture as a key component of the strategic management process, due to the extensive interaction that takes place between the organizational strategy and culture in the implementation of strategy (Camerer, 195-219).
In view of the complex environmental conditions confronting organizations and the rapid changes taking place within this environment, many organizations will no longer be able to rely on traditional ways of managing themselves. The importance of strategic management will increase dramatically and organizations need, as a matter of urgency, to implement strategic management systems within their respective organizations.
Organizations that have done so without considering the cultural dimensions of their organizations in formulating and implementing organizational strategy need to ensure that the cultures of their organizations are taken into account in both business strategy formulation and implementation. Managers, in particular, need to develop a cultural awareness in their management of their organizations, due to their important role in the culture formation and preservation process. They need to be continually aware of the cultural values espoused through their behavior and actions.