Strategic Management

What is strategic management?

Strategic management is the ongoing planning,
monitoring, analysis and assessment of all that is
necessary for an organization to meet its goals and
objectives. Changes in the business environment
require organizations to constantly assess their
strategies for success. The strategic management
process helps organizations take stock of their
present situation, chalk out strategies, deploy them
and analyze the effectiveness of the implemented
management strategies.
Analyse Internal & External Environment

● SWOT analysis

● PESTEL
● Porters’ five forces analysis
● Value Chain Analysis
● Benchmarking
Define strategic intent & mission
Strategic intent is internally focused, indicating how the firm will use its resources,
capabilities, and core competencies. It guides future actions and focuses
employees’ attention on using their talents to outdo competitors.

A firm’s strategic mission flows from its strategic intent, defining the company’s
external focus in terms of what will be produced and marketed, utilizing the firm’s
internally based core competence.
Strategy formulation
Strategy formulation is the design of an approach to achieve the firm’s mission.
An effectively formulated strategy integrates and allocates the firm’s internal
resources and makes appropriate use of external environmental information.

The idea is to formulate a mission-consistent strategy that will lead to sustained

superior performance.
Corporate level strategy
The corporation’s overall plan concerning the number of businesses the
corporation holds, the variety of markets or industries it serves, and the
distribution of resources among those businesses.

Diversification strategy : A firm’s strategic plan to create and manage a mix of

businesses owned by the firm.

Portfolio analysis : An approach to classify the processes of a diversified

company within a single framework
Diversification strategy
Concentration Strategy : A firm following the concentration strategy focuses on a
simple business operating in a single industry segment.

Vertical Integration Strategy : In vertical integration, a firm acquires businesses

that are supply channels or distributors to the primary business. Producing its own
inputs is called backward integration, and distributing its own outputs is forward
integration.

Concentric Diversification Strategy : In concentric diversification, the firm expands

by creating or acquiring new businesses related to the firm’s core business.

Conglomerate Diversification : Conglomerate diversification involves managing a

portfolio of businesses that are unrelated to each other.
Portfolio analysis
The Boston Consulting Group’s Growth-Share Matrix (BCG) is the most renowned
corporate portfolio analysis tool. It provides a graphic representation for an
organization to examine different businesses in it’s portfolio on the basis of their
related market share and industry growth rates. It is a two dimensional analysis on
management of SBU’s (Strategic Business Units). In other words, it is a
comparative analysis of business potential and the evaluation of environment.

According to this matrix, business could be classified as high or low according to

their industry growth rate and relative market share.
BCG Matrix
The strategic recommendations of the BCG Matrix approach are also quite direct
and simple:
● Dog - should be divested as soon as possible.
● Cow -should be “milked” as much as possible
With only limited additional resources
devoted to it.
● Star - should greatly invest in it to fuel
additional growth.
● Question mark - additional analysis
is necessary to decide whether or not
more resources should be channeled
its way.
Business level strategy
Once company leaders determine a diversification strategy, they must decide how
to compete in each business area or market segment each business area or
market segment. This is referred to as business-level strategy.

There are two basic choices when selecting an industry position:

● A cost-leadership strategy requires the firm to carry out its activities more
efficiently than competitors, passing along cost savings to consumers in the
form of lower prices.

● A differentiation strategy requires a firm to continuously invest in the

creation of new products or add new features to existing products so that
customers believe the products are different and better than those offered by
competitors.
Strategy Implementation
An idea is nothing until it becomes an action. Even the best conceived strategies
are of little value if they are not implemented effectively.

Strategy implementation is the translation of chosen strategy into organizational

action so as to achieve strategic goals and objectives. Strategy implementation is
also defined as the manner in which an organization should develop, utilize, and
amalgamate organizational structure, control systems, and culture to follow
strategies that lead to competitive advantage and a better performance.
Strategic leadership
Effective leadership plays a fundamental role in the relative success or failure of a
firm.

This is particularly true for top executives who are responsible for charting general
implementation plans, making key resource allocation decisions, and delegating
day-to-day operations.

“By word and/or personal example and through their ability to dream pragmatically,
effective strategic leaders meaningfully influence the behaviors, thoughts, and
feelings of those with whom they work.”
Organisation controls
An organizational control system is also required. This control system equips
managers with motivational incentives for employees as well as feedback on
employees and organizational performance.

A company’s board of directors is expected to monitor the actions and decisions

of top executives to ensure that they act in the best interest of the firm.

Accountability standards by public companies in the areas of financial reporting

and disclosure, audits, conflict of interest, and governance.
Organisational structures
Organizational structure is critical to strategy implementation because through
structure, managers largely determine what a firm does and how it completes that
work, given its chosen strategies.
Organizational structure allocates special value developing tasks and roles to the
employees and states how these tasks and roles can be correlated so as
maximize efficiency, quality, and customer satisfaction-the pillars of competitive
advantage. But, organizational structure is not sufficient in itself to motivate the
employees.

The strategic management process should be an organization-wide effort rather

than a top-down exercise.
Cooperative strategies
Cooperative strategies involve establishing partnerships or strategic alliances with
other firms.

Strategic alliances can serve a number of purposes. Firms may combine

resources, capabilities, and core competencies to gain market power, overcome
trade barriers, learn from each other, pool resources for expensive and risky
projects, compete more effectively in a particular industry, and speed up entry into
new markets. Strategic alliances also allow a firm to create and disband projects
with minimal paperwork.
Human Resource Strategies
The policies and practices of the human resource department should also support
the firm’s overall strategy.

Who gets recruited, how performance is evaluated and rewarded, how training is
conducted, and how career advancement is managed should be consistent with
the strategic mission of the firm.
Corporate entrepreneurship & innovation
Competitive pressures require firms to be innovative.
Research and development is necessary for firms in high-technology markets
such as computers, electronics, and pharmaceuticals. However, firms also need to
encourage entrepreneurship, supporting employees who are willing to take risks
and be aggressive, proactive, and creative and can see opportunities where others
perceive problems.

Innovation contributes to a sustainable competitive advantage if

(1) it is difficult or costly for competitors to imitate,
(2) customers can see a value in the innovation,
(3) the firm enjoys a time advantage over the other company,
(4) the firm is capable of commercializing the innovation.
Strategy evaluation
Strategy evaluation is the last step in the strategic management process. It is as
significant as strategy formulation because it throws light on the efficiency and
effectiveness of the comprehensive plans in achieving the desired results.

The significance of strategy evaluation lies in its capacity to co-ordinate the task
performed by managers, groups, departments etc, through control of
performance.

Company leaders should periodically assess whether the outcomes meet

expectations. This information should be used to determine whether or not
company strategies are successful.
Measurement of performance
Some of the standard measures of strategic success include:

● Profits
● Growth of sales/market share
● Growth of corporate assets
● Reduced competitive threats
● Innovations that fuel future success

It is vital for the executive team to assess both the short term and long range
when assessing strategic outcomes.

Long-term success should be the ultimate criterion when studying strategic

outcomes.
Taking corrective actions
If a deviation in performance is identified, it is essential to plan for a corrective
action.

If the performance is consistently less than the desired performance, the

strategists must carry a detailed analysis of the factors responsible for such
performance.

If the strategists discover that the organizational potential does not match with the
performance requirements, then the standards must be lowered or as a last
scenario, reformulate the strategy which requires going back to the process of
strategic management, reframing of plans according to new resource allocation
trend and consequent means going to the beginning point of strategic
management process.
Competitive advantage
What is competitive advantage?
Strategic management is all about gaining and maintaining competitive
advantage.

The term can be defined to mean “anything that a firm does especially well when
compared with rival firms”.

Note the emphasis on comparison with rival firms as competitive advantage is all
about how best to best the rivals and stay competitive in the market.
Sustained competitive advantage
A firm can have a source of competitive advantage for only a certain period
because the rival firms imitate and copy the successful firms’ strategies leading to
the original firm losing its source of competitive advantage over the longer term.
Hence, it is imperative for firms to develop and nurture sustained competitive
advantage.

This can be done by:

● Continually adapting to the changing external business landscape and
matching internal strengths and capabilities by channeling resources and
competencies in a fluid manner.
● By formulating, implementing, and evaluating strategies in an effective
manner which make use of the factors described above.