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Strategic management is the process of specifying an organization's objectives, developing policies and plans to achieve these objectives, and allocating resources
so as to implement the plans. It is the highest level of managerial activity, usually performed by the company's Chief Executive Officer (CEO) and executive team. It provides overall direction to the whole enterprise. An organization’s strategy must
be appropriate for an organizations resources, circumstances, and objectives. The process involves matching the companies'
strategic advantages to the
business environment the organization faces. One
objective of an overall corporate strategy is to put the organization into a position to carry out its mission effectively and
efficiently. A good corporate strategy should integrate an organization’s goals, policies, and action sequences (tactics)
into a cohesive whole.
Strategy formulation and implementation
Strategic management can be seen as a combination of strategy formulation and strategy implementation. Strategy
formulation involves:
- Doing a situation analysis: both internal and external; both micro-environmental and macro-environmental.
- Concurrent with this assessment, objectives are set. This involves crafting vision statements (long term), mission statements
(medium term), overall corporate objectives (both financial and strategic), strategic business unit objectives (both financial
and strategic), and tactical objectives.
- These objectives should, in the light of the situation analysis, suggest a strategic plan. The plan provides the details of
how to obtain these goals.
- This three-step strategy formation process is sometimes referred to as determining where you are now, determining where you
want to go, and then determining how to get there. These three questions are the essence of strategic planning.
Strategy implementation involves:
- Allocation of sufficient resources (financial, personnel, time, computer system support)
- Establishing a chain of command or some alternative structure (such as cross functional teams)
- Assigning responsibility of specific tasks or processes to specific individuals or groups
- It also involves managing the process. This includes monitoring results, comparing to benchmarks and best practices,
evaluating the efficacy and efficiency of the process, controlling for variances, and making adjustments to the process as
necessary.
- When implementing specific programs, this involves acquiring the requisite resources, developing the process, training,
process testing, documentation, and integration with (and/or conversion from) legacy processes.
Strategy formation and implementation is an on-going, never-ending, integrated process requiring continuous reassessment and
reformation. Strategic management is dynamic. See Strategy dynamics. It involves a complex pattern of actions and reactions. It is partially planned
and partially unplanned. Strategy is both planned and emergent, dynamic, and interactive. Some people (such as Andy Grove at Intel) feel that there are critical points at which a strategy must take
a new direction in order to be in step with a changing business environment. These critical points of change are called
strategic inflection points.
Strategic management operates on several time scales. Short term strategies involve planning and managing for the present.
Long term strategies involve preparing for and preempting the future. Marketing strategist, Derek Abell (1993), has suggested
that understanding this dual nature of strategic management is the least understood part of the process. He claims that balancing
the temporal aspects of strategic planning requires the use of dual strategies simultaneously.
The strategy hierarchy
In most (large) corporations there are several levels of strategy. Strategic management is the highest in the sense that it is
the broadest, applying to all parts of the firm. It gives direction to corporate values, corporate culture, corporate goals, and
corporate missions. Under this broad corporate strategy there are often functional or business unit strategies.
Functional strategies include marketing
strategies, new product development strategies, human resource strategies, financial strategies, legal strategies, and
information technology management strategies. The emphasis is on short and medium term plans and is limited to the domain of each
department’s functional responsibility. Each functional department attempts to do its part in meeting overall corporate
objectives, and hence to some extent their strategies are derived from broader corporate strategies.
Many companies feel that a functional organizational structure is not an efficient way to organize activities so they have
reengineered according to processes or strategic business units (called
SBUs). A strategic business unit is a semi-autonomous unit within an organization. It is usually responsible for
its own budgeting, new product decisions, hiring decisions, and price setting. An SBU is treated as an internal profit centre by
corporate headquarters. Each SBU is responsible for developing its business strategies, strategies that must be in tune with
broader corporate strategies.
The “lowest” level of strategy is operational strategy. It is very narrow in focus and deals with
day-to-day operational activities such as scheduling criteria. It must operate within a budget but is not at liberty to adjust or
create that budget. Operational level strategy was encouraged by Peter
Drucker in his theory of management by
objectives (MBO). Operational level strategies are informed by business level strategies which, in turn, are informed by
corporate level strategies.
Since the turn of the millennium, there has been a tendency in some firms to revert to a simpler strategic structure. This is
being driven by information technology. It is felt that knowledge management systems should be used to share information and create common goals. Strategic
divisions are thought to hamper this process.
Historical development of strategic management
Birth of strategic management
Strategic management as a discipline originated in the 1950s and 60s. Although there were numerious early contributors to the
literature, the three most influencial pioneers were Alfred Chandler, Igor Ansoff, and Peter Drucker.
Chandler recognized the importance of coordinating the various aspects of management under one all-encompassing strategy.
Prior to this time the various functions of management were separate with little overall coordination or strategy. Interactions
between functions or between departments were typically handled by a boundary position, that is there were one or two managers
that relayed information back and forth between two departments. Chandler also stressed the importance of taking a future looking
long term perspective. In his groundbreaking work Strategy and Structure (1962), Chandler showed that a long term
coordinated strategy was necessary to give a company structure, direction, and focus. He says it concisely, "structure follows
strategy". Today we recognize that this is only half the story: strategy also follows from structure (see Tom Peters
Liberation Management)
Ansoff built on Chandlers work by adding a range of strategic concepts and inventing a whole new vocabulary. He developed a
strategy grid that compared market penetration strategies, product development strategies, market development strategies and
horizontal and vertical integration and diversification strategies. He felt that management could use these strategies to
systematicly prepare for future opportunities and challenges. In his classic Corporate strategy (1965) he developed the
"gap analysis" still used today in which we must understand the gap between where we are currenty and where we would like to be,
then develop what he called "gap reducing actions".
Drucker was a prolific strategy theorist, author of dozens of management books, with a career spanning five decades. His
contributions to strategic management were many but two are most important. Firstly, he stressed the importance of objectives. An
organization without clear objectives is like a ship without a rudder. As early as 1954 he was developing a theory of management
based on objectives. This evolved into his theory of "management by objectives" (MBO). According to Drucker, the procedure of
setting objectives and monitoring your progress towards them should permiate the entire organization, top to bottom. His other
seminal contribution was in predicting the importance of what today we would call intellectual capital. He predicted the rise of
what he called the "knowledge worker" and explained the consequences of this for management. He said that knowledge work is
nonhierarchical. Work would be carried out in teams with the person most knowledgable in the task at hand being the temporary
leader.
Portfolio theory
In the 1970s much of strategic management dealt with portfolio theory. In the previous decade Harry Markowitz and other
financial theorists developed the theory of portfolio
analysis. It was concluded that a broad portfolio of financial assets could reduce systemic risk. In the 1970s marketers
extended the theory to product portfolio decisions and managerial strategists extended it to operating division portfolios. Each
of a companies operating divisions were seen as an element in the corporate portfolio. Each operating division (also called
strategic business units) was treated as a semi-independent profit center with its own revenues , costs, objectives, and
strategies. Several techniques were developed to analyze the relationships between elements in a portfolio. B.C.G. Analysis, for example, was developed by the Boston Consulting Group in
the early 1970's. Shortly after that the G.E.
Multi factoral model was developed by General Electric. Companies continued to diversify until the 1980s when it was realized
that in many cases a portfolio of operating divisions was worth more as separate completely independent companies.
The Japanese challenge, vision, and competitive advantage
1980s Tom Peters Michael Porter Richard Pascale Kenichi Ohmae Collins
The military theorists
In the 1980s some business strategists realized that there was a vast knowledge base stretching back thousands of years that
they had barely examined. They turned to military strategy for guidance. Military strategy books like “The Art of
War” by Sun Tzu, “On War” by von Clausewitz, and “The Red Book” by Mao Tse Tung became instant business classics. From Sun Tzu they learned the tactical side of military
strategy and specific tactical proscriptions. From Von Clausewitz they learned the dynamic and unpredictable nature of military
strategy. From Mao Tse Tung they learned the principles of guerrilla warfare. The main marketing warfare books were:
- Business War Games by Barrie James, 1984
- Marketing Warfare by Al Ries and Jack Trout, 1986
- Leadership Secrets of Attila the Hun by A Weiss, 1987
Philip Kotler was a well known proponent of marketing warfare strategy. By the turn of the century marketing warfare
strategies had gone out of favour. It was felt that they were limiting. There were many situations in which non-confrontational
approaches were more appropriate. The “Strategy of the Dolphin” was developed in the mid 1990s to give guidance as to
when to use aggressive strategies and when to use passive strategies. The marketing warfare literature also examined leadership
and motivation, intelligence gathering, types of marketing weapons, logistics, and communications.
Change and technology driven strategy
1980s 90s and 00s J. Carlos Jarillo (Strategic networks / Strategic Logic); Gilbert J. Probst (Change Management / Knowledge
Management); Tofler; Noel Zuboff; Regis McKenna;
Also see
Finding related topics
External sources
- Abell, D. (1993) Managing with dual strategies, The Free Press (Macmillan Inc.), New York, 1993, ISBN 0-02-900145-5
- Ansoff, I. (1957) Strategies for diversification, Harvard Business Review, Boston, 1957
- Ansoff, I. (1962) Corporate Strategy McGraw Hill, New York, 1962
- Ansoff, I. Declerck, R. and Hayes, R. (1976) From Strategic Planning to Strategic Management, John Wiley, New York,
1976
- Chandler, A. (1962) Strategy and structure: Chapters in the history of industrial enterprise, Doubleday, New
York
- Drucker, P. (1954) The Practice of Management, Harper and Row, New York, 1954
- Drucker, P. (1969) The Age of Discontinuity, Heinemann, London, 1969
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