Strategic Management

Strategic Management

Introduction

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:

Ð'* Clearly see the need for change

Ð'* Be firmly committed to the idea of changing the business planning process

Ð'* Assure that the strategic management process has credibility with everyone involved

Ð'* Make sure that final plans are realistic and reflect actual resources and capabilities

Ð'* Train all participants in the procedures essential to the strategic management process

Ð'* 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.

Ð'* 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).

Ð'* 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.

Ð'* 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).

Ð'* 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,