strategic management process

strategic management process

The Strategic Management Process: A Comprehensive Guide

1. Introduction to Strategic Management

Organizing strategic management as an educational subject distinct from its related disciplines is a relatively recent development in business schools, particularly in North America. This is curious in view of the fact that most of our leading business schools also provided management education to the men and women who were primarily responsible for corporate decision-making in their MBA programs. In those MBA programs, the vast majority of courses in the first year are likely to be functional in nature. They address functional aspects of businesses, such as finance, marketing, and operations. These are classic business functions, or disciplines, long associated with business education. Despite all this focus on disciplines, the senior managers who take over the unbelievable complexity of executive responsibility for a business should, somehow, know how to integrate these disciplines to guide their firm. This integration of interdisciplinary knowledge is what strategic management is all about.

The primary objective of the course is to help you develop a structured approach to the strategic management process. Each of the course modules addresses one or more of the elements in that process. The underlying structure, enabling an approach that is analytical and systematic, is the critical component. That is the main content objective of the course. The process of strategic management can improve decision-making while helping to instill the capability for analytical thinking and promoting a broad vision of the business environment. It’s one of the more challenging and high-profile functions of management. In some measure, strategic management is a task for the entire firm rather than just the chief executive officer, top-level management team, or strategic planning department in multidivisional corporations.

2. Analyzing the External Environment

Thrift Forces – Typically Frameworks: PEST, PESTEL. PEST is short for political, economic, social and technological – the categories of key driving forces. By analyzing the key trends within and between these areas, which encompasses a broad range of external risk drivers including supply chain risks. The opportunities and threats presented by these drivers are the major factors influencing competitive conditions in all industries. These and other drivers frequently have different impacts on diverse segments within these industries. Collectively, these models provide a broad yet targeted analysis of the strategic environment – i.e., the level and implications of change.

The intent of analyzing the external environment is to understand the key drivers of change that will impact the nature and intensity of competition in any industry. Typically, these driving forces are identified by looking at major trends such as changes in global business conditions, demographic shifts, changes in societal values and attitudes, and changes in government policies or regulations. Applicable frameworks for such analysis include: (1) Thrift Forces, (2) Industry Structure, (3) Key Factors for Competitive Analysis, and, if particular industries are at issue, (4) Industry Analysis Models. When conducting analysis of the external environment and industry, analysts need to look for specific issues as well as understand the structure of and competitive situation in order to identify driving vs. mere performance factors that will determine the level of sustainable profits.

3. Assessing Internal Capabilities

A second approach to assessing a company’s internal capabilities is through the use of the VRIO framework. This framework, also known as the resource-based view of the firm, was pioneered by a group of scholars at Harvard Business School. The resource-based view focuses on the assumption of the competitive heterogeneity of the firm and the belief that the competitive advantage of the firm lies primarily in its unique bundle of internal resources. Companies try to develop and use valuable, rare, inimitable, and organized resources to achieve a sustainable competitive advantage. Companies use them to develop, manufacture, and promote differentiated products or to reduce prices and achieve a competitive edge in the market.

The resource-based view of the firm is built around the concept of economic rent and the notion that the resources that are valuable, rare, inimitable, and organized (sometimes referred to by the acronym VRIO) help companies sustain their competitive advantage. A clear understanding of a firm’s internal capabilities is a key to the formulation of clear and attainable strategies. There are two approaches to accomplishing this strategic task. The first approach, called a value chain analysis, was first introduced by Harvard Business School professor Michael Porter. This concept suggests that internal organizational activities are the basic units of competitive advantage. According to Porter, activities are performed in such a way to create economic value. Value is the amount buyers are willing to pay for a product and generally measured as the price that a product can command minus the total shipments costs involved in making and selling that product.

4. Strategy Formulation and Implementation

Once strategies have been formulated, they must be implemented. Strategy implementation includes the establishment of policies and procedures to put the formulated strategies into effect. It also includes the development of internal systems and procedures and updating of information systems to implement company-level strategies. The implementation phase of strategic management should definitely focus on putting formulated strategies into effect, but it should also consider closely related aspects such as the sequencing of workflows, assignment of accountabilities and responsibilities for the various tasks which have been formulated, how the formulation and implementation strategies for various company levels will be coordinated and how they will support each other, and on how to link the output of each company level to the respective company level of the next higher level.

Strategy formulation is the tactical aspect of strategic management decisions. This phase ultimately leads to a company’s mission, vision, values, and strategies for accomplishing long-term objectives. It involves seeking a location or a position from where a company can best exploit its strengths while minimizing its weaknesses, seek market opportunities, and avoid external threats. Undertaking this aspect of strategic management is a part of corporate management. Strategy formulation builds on company values, mission, goals, and objectives that have been determined by top management, policies formulated by middle management, plans developed by first-line management, and budgets established through the entire management team.

5. Evaluating and Adapting Strategies

In a normal environment, there is also a high degree of interdependence in their management, especially with relation to risk, performance, and value. The valuation and appraisal of investments, new business ventures, and projects require the understanding of these interdependencies. The strategic management of diverse actors involved requires adequate methodologies that are able to cope with the interdependencies.

The utilization of projects is shown to be a valid tool to explain business processes. In this context, projects are a key supporting tool to support and to underpin major business processes as well as ventures and investments. Business processes like strategic management (creation, development, and implementation) and joint ventures or co-operations require project management as a valuable tool for decision making on risk and opportunity in uncertain environments. Business ventures and investments, but also strategic management and alliances and networks, are results of strategic decision making that are most often characterized by risks and uncertainties.

Once formulated and implemented, strategies must be evaluated. Strategic management is not a clean, rational, well-designed process that provides all necessary decisions fully backed and thought out. At best, it is a learning process predicated on the premise that optimal strategies can never be formulated, that they can only be located through trial and error. In consequence, much of what is currently initially strategized is often wrong or only partially right. Actual business responses are no exception. Business responses — conditional, unkind, and based on ongoing trials and entrepreneurship activities are possible.

Various evaluation and control techniques are employed to monitor the performance of implemented strategies. These techniques are used to identify significant deviations from expectations and to probe into the causes as an aid to taking corrective actions as necessary. Ideally, the stages in the strategic management process should result in the formulation of strategies that are tailored to the situation, that are accepted by those whose cooperation is required for implementation, and that are effectively implemented.

Changing conditions can require changes in strategies. The two major instances in which strategies are altered are: (1) when an innovative idea can be turned into a new or improved strategy that capitalizes on an institutional strength, and (2) when environmental or performance changes make attention to a particular strategy most pressing. Thus, strategies are formulated in light of current situations but are open to alteration as situations change.