Everything you need to know about strategic management process.
Strategic management is all about identification and description of the strategies that managers can carry so as to achieve better performance and a competitive advantage for their organisation.
An organisation is said to have competitive advantage if its profitability is higher than the average profitability for all companies in its industry.
The strategic management process defines the organization’s strategy. It is also the process which helps managers make a choice of a set of strategies for the organization that will enable it to achieve better performance.
Strategic management is a continuous process that appraises the business and industries in which the organization is involved, its competitors; and fixes goals to meet all the present and future potential competitors and then reassesses each strategy.
In this article we will discuss about the various steps, stages and phases involved in the strategic management process.
The steps, stages and phases involved in strategic management process can be studied under the following heads:
Strategic management process has following steps:
1. Developing a Strategic Vision and Business Mission 2. Setting Objectives 3. Crafting a Strategy 4. Environmental Scanning 5. Strategy Formulation 6. Strategy Implementation & 7. Strategy Evaluation and Control.
The process of strategic management consists of:
1. Defining the Mission Statement 2. Analysing the Environment 3. Organisational Self-Assessment 4. Establishing Goals and Objectives and 5. Formulating Strategy.
There are four essential phases of strategic management process. They are:-
1. Establishing Strategic Intent 2. Formulation of Strategies 3. Implementation of Strategies and 4. Evaluation of Strategies.
What is Strategic Management Process – Steps, Stages and Phases
What is Strategic Management Process – Top 5 Steps in Strategic Management Process (With Introduction)
Strategic management is all about identification and description of the strategies that managers can carry so as to achieve better performance and a competitive advantage for their organisation. An organisation is said to have competitive advantage if its profitability is higher than the average profitability for all companies in its industry.
Strategic management can also be defined as a bundle of decisions and acts which a manager undertakes and which decides the result of the firm’s performance. The manager must have a thorough knowledge and analysis of the general and competitive organisational environment so as to take right decisions.
They should conduct a SWOT analysis strengths, weaknesses, Opportunities, and Threats), i.e., they should make best possible utilization of strengths, minimize the organisational weaknesses, make use of arising opportunities from the business environment and shouldn’t ignore the threats.
Strategic management is nothing but planning for both predictable as well as unfeasible contingencies. It is applicable to both small as well as large organisations as even the smallest organisation faces competition and, by formulating and implementing appropriate strategies, they can attain sustainable competitive advantage.
Strategic management is a way in which strategists set the objectives and proceed about attaining them. It deals with making and implementing decisions about future direction of an organisation. It helps us to identify the direction in which an organisation is moving.
Strategic management is a continuous process that evaluates and controls the business and the industries in which an organisation is involved; evaluates its competitors and sets goals and strategies to meet all existing and potential competitors; and then revaluates strategies on a regular basis to determine how these have been implemented and whether these were successful or require replacement.
Strategic management gives a broader perspective to the employees of an organisation and they can better understand how their job fits into the entire organisational plan and how it is correlated to other organisational members. It is nothing but the art of managing employees in a manner which maximizes the ability of achieving business objectives.
The employees become more trustworthy, more committed and more satisfied as they can correlate themselves well with each organisational task. They can understand the reaction of environmental changes on the organisation and the probable response of the organisation with the help of strategic management.
Thus, the employees can judge the impact of such changes on their own job and can effectively face the changes. The managers and employees must do appropriate things in appropriate manner. They need to be both effective as well as efficient.
The strategic management process defines the organization’s strategy. It is also the process which helps managers make a choice of a set of strategies for the organization that will enable it to achieve better performance. Strategic management is a continuous process that appraises the business and industries in which the organization is involved, its competitors; and fixes goals to meet all the present and future potential competitors and then reassesses each strategy.
Strategic management process has following five steps:
Step # 1. Mission and Goals:
The first step in the strategic management begins with senior managers evaluating their position in relation to the organization’s current mission and goals. The mission describes the organization’s values and aspirations; and indicates the direction in which senior management is going. Goals are the desired ends sought through the actual operating procedures of the organization. It typically describe short-term measurable outcomes.
Step # 2. Environmental Scanning:
Environmental scanning refers to a process of collecting, scrutinizing and providing information for strategic purposes and helps in analyzing the internal and external factors influencing an organization. After executing the process, management should evaluate it on a continuous basis and strive to improve it.
Step # 3. Strategy Formulation:
Strategy formulation is the process of deciding best course of action for achieving organizational objectives. After conducting environment scanning process, managers formulate corporate, business and functional strategies.
Step # 4. Strategy Implementation:
Strategy implementation implies putting the organization’s chosen strategy in to action and making it work as intended. Strategy implementation includes designing the organization’s structure, distributing resources, developing decision making process, and effectively managing human resources.
Step # 5. Strategy Evaluation:
Strategy evaluation which is the final step of strategy management process involves- appraising internal and external factors, measuring performance, and taking remedial/corrective actions. Evaluation assure the management that the organizational strategy as well as its implementation meets the organizational objectives.
These steps are carried by the businesses, in chronological order, when creating a new strategic management plan. Present businesses that have already created a strategic management plan will revert to these steps as per the situation’s requirement, so as to make essential changes.
What is Strategic Management Process
Strategic management involves certain functions or activities. The systematic way of doing these functions or activities is described as strategic management process.
It consists of:
1. Strategy formulation,
3. Evaluation & control
Strategy formulation is the first phase in the strategic management process. It is concerned with devising a suitable plan of action after studying the external business environment, analysing the industry and assessing the internal capabilities of the business concern. It involves six important steps.
i. Defining the company mission,
ii. Analysis of the external business environment,
iii. Industry analysis,
iv. Internal analysis of the firm,
v. Strategic alternatives, and
vi. Strategic choice.
The steps to be followed for the formulation of a strategy are explained below:
The first step in the formulation of a strategy is a clear definition of the mission of the company. This is necessary to formulate an ideal strategy. Otherwise, the strategy will not produce the desired results. An ideal strategy is one which reflects the mission of the company. A mission is the long-term vision of what an organisation wants to be and to whom it wants to serve and what impact on the society. The mission is, thus, the basic, unique purpose that differentiates a business from others.
The second step in the formulation of a strategy is an analysis of the external business environment. It is concerned with studying or observing what is prevailing in the external business environment and what changes have taken place. Such an assessment is necessary because every incident or change will have either positive or negative impact on the business.
It involves – (a) analysis of remote environment and (b) analysis of operating environment. The external business environment thus provides opportunities or threats to the business concerns. The business concern must formulate a suitable strategy to exploit the opportunities or manage threats depending up on its strengths or weaknesses.
The third step in the formulation of a strategy is an analysis of the industry. It involves the examination of certain forces operating in an industry to understand the nature and the degree of competition in that industry. The level of competition in an industry depends on five basic forces which determine the profit potential of an industry. They are (a) the threat of new entrants, (b) The bargaining power of buyers, (c) The bargaining power of suppliers, (d) The threat of substitute products, and (e) Rivalry among the existing firms.
The study of these forces indicates the trend of industry, the strength and weakness of the company in the industry. Such a study will be useful to formulate a suitable strategy to utilise the opportunities or threats.
The fourth step in the formulation a strategy is a thorough internal analysis of the firm. It is concerned with a systematic appraisal or examination of the internal capabilities of a firm. Such an appraisal is necessary to know the strengths and weaknesses of the firm in the areas of finance, production, marketing, technology, research and development, and human resource management.
A systematic internal analysis of the firm involves (a) identification of strategic internal factors and (b) evaluation of the strategic internal factors to identify the key strategic strength and weakness. A factor is considered a strength only when a firm has a distinct competency in it than the competitors in the industry.
A factor is considered a weakness only when a firm performs it poorly than the competitors in the industry. A new strategy therefore has been formulated after considering the internal strategic strengths and weaknesses of the firm to utilise the external opportunities or minimise its activities to overcome threats.
The fifth step in the formulation of a strategy is developing strategic alternatives. They are concerned with identifying other possible ways of achieving the same strategy formulated to utilise external business opportunities or minimise the firm’s activities to overcome threats.
For example, growth strategy may be achieved by intensive growth strategy of market penetration, market development, and product development or integrative growth strategy of horizontal integration and vertical integration or diversification strategy depending upon the internal strengths and weaknesses provided the external business environment is favorable.
The last step in the formulation of a strategy is strategic analysis and choice. Strategic analysis involves a systematic evaluation of strategic alternatives with reference to certain criteria. Each alternative has its own merits and demerits but all alternatives cannot be equally appropriate.
Each alternative should be examined to determine its:
b. Feasibility and
Relevancy of a strategy refers to the examination of the appropriateness of a strategy with reference to certain aspects. So, the strategists should examine whether –
(i) The strategy is relevant to the mission of the company or not
(ii) The strategy is helpful to accomplish the long-term objectives or not
(iii) The strategy is fit to the strategic strengths and weaknesses of the company or not
(iv) The strategy exploits the external business opportunities or minimises its activities to overcome the threats or not.
Feasibility of a strategy refers to the possibility of achieving the strategy. For testing the feasibility of a strategy, the strategists should examine before the selection of a strategy whether –
(i) The availability of resources are sufficient or not
(ii) The availability of the technology is appropriate or not
(iii) The availability of inputs are sufficient or not
(iv) The organisation’s structure is suitable or not.
Acceptability of a strategy refers to the examination of the agreeableness of a strategy to certain interested parties in an organisation. So, the strategists should examine whether –
(i) The strategy satisfies the criterion of ROI to the management or not
(ii) The strategy is acceptable to the shareholders or not
(iii) The strategy will affect the present employees or not
(iv) The strategy will affect the relationship with the existing customers and suppliers or not
Strategic Choice is concerned with the selection of the best strategy among alternatives. The process of strategy formulation, thus, comes to an end with the choice of an appropriate strategy.
Strategy implementation is the second phase in the strategic management process. It is concerned with putting the strategy into operation or translating the strategy into strategic action. It necessitates three interrelated activities of (i) Determination of annul objectives, (ii) Development of specific functional strategies, and (iii) Development of policies. For the successful implementation, the strategy must be also institutionalised through structure, leadership, and culture.
Strategy evaluation and control is the last phase in the strategic management process. Strategy evaluation is concerned with examining whether the strategy implemented is working or producing results or accomplishing its objectives or not. Strategic control is concerned with continuous monitoring and tracking the strategy— putting the strategy in the right path or direction.
What is Strategic Management Process – 5 Step Process of Strategic Management Implemented by Thompson and Strickland
Firms undertake the development of strategy in a variety of ways. Businesses vary in the processes they use to formulate and direct their strategic management activities. A ‘process’ is the flow of information through interrelated stages of analysis towards the achievement of an aim.
The strategic management process can be studied and applied using a model. Every model represents some kind of process. A model of strategic management process represents a clear and practical approach for formulating, implementing, and evaluating strategies.
The ‘strategic management process’ is the full set of commitments, decisions, and actions required for a firm to achieve strategic competitiveness and earn above-average returns. The aim of the process is the formulation and implementation of strategies that work, achieving the company’s long-term mission and near-term objectives.
The gist or heart of strategic management is the formulation and implementation of strategies designed to achieve the objectives of an organisation. The strategists determine objectives and make strategic decision; to implement them effectively. According to Thompson and Strickland, there are five tasks of strategic management which are centred on strategy making and strategy-implementing process.
These are discussed below:
1. Developing a Strategic Vision and Business Mission
2. Setting Objectives
3. Crafting a Strategy
4. Implementing and Executing the Strategy
5. Evaluating Performance, Monitoring New Developments, and Initiating Corrective Adjustments.
First, the company managers need to consider a set of questions – “What is our vision for the company—where should the company be headed, what kind of enterprise we want to become?” It is important to determine about what the company’s long-term direction should be and whether and how its present business needs will change over the next five years and beyond. Managers must constitute a strategic vision for the company.
A Strategic Vision:
i. Reflects management’s aspirations for the organisation and its business.
ii. Provides a panoramic view of “where we are going”.
iii. Gives specifics about its future business plans.
iv. Spells out long-term business purpose and molds organisational identify.
v. Points an organisation in a particular direction and charts a strategic path for it to follow.
A strategic vision has a chief concern with “where we are going”, the term “mission statement” tends to deal with a company’s present business scope – “Who we are and what we do.” It also indicates where the company is headed and what its business will become in the years ahead. A strategic vision and mission have direction-setting and strategy-making value.
Thomson and Strickland write, “Companies whose managers neglect the task of thinking strategically about the company’s future business path or who are indecisive in committing the company to one direction instead of another are prone to drift aimlessly and lose any claim to being an industry leader.”
It is said that “if you want to have zero results, decide no objectives.” Objectives convert managerial statements of strategic vision and business mission into “specific performance target” —the results and outcomes the organisation wants to achieve. Setting objectives and then measuring whether they are achieved or not help managers track an organisation’s progress. Objective setting is required of all managers.
Every unit in a company needs concrete, measurable performance targets that contribute towards achieving company objectives. Companywide objectives are broken down into specific targets for each organisational unit and lower-level managers are held accountable for achieving them. Objectives build a result-oriented climate throughout the enterprise.
Strategic managers should set two types of objectives for good performance:
i. Financial Objectives:
These are related to the financial results and outcomes that the management wants the organisation to achieve.
ii. Strategic Objectives:
These aim at results that reflect:
a. Increased competitiveness and stronger business position,
b. Winning additional market share,
c. Overtaking key competitors on product quality or customer service or product innovation,
d. Achieving lower overall costs than rivals,
e. Boosting the company’s reputation with customers,
f. Winning a stronger foothold in international markets,
g. Exercising technological leadership,
h. Gaining a sustainable competitive advantage, and
i. Capturing attractive growth opportunities.
A ‘Strategy’ reflects managerial choices among alternatives. It signals organisational commitment to particular products, markets, competitive approaches, and ways of operating the enterprise. Strategy making brings into play the critical managerial issue of how to achieve the targeted results in the light of the organisation’s situation and prospects. Objectives are the “ends”, and strategy is the “means” of achieving them.
The ‘hows’ of a company’s strategy are typically a blend of:
i. Deliberate and purposeful actions,
ii. As needed reactions to unanticipated developments and fresh market conditions and competitive pressures, and
iii. The collective learning of the organisation over time.
Company strategies concern ‘how’:
i. How to grow the business,
ii. How to satisfy customers,
iii. How to outcompete rivals,
iv. How to respond to changing market conditions,
v. How to manage each functional piece of the business and develop needed organisational capabilities,
vi. How to achieve strategic and financial objectives.
The ‘hows’ of strategy tend to be company specific.
Now, we should consider, how is strategy made?’
i. A strategy is the result of managers engaging in deliberate, rational analysis.
ii. However, strategy may also emerge through adaptation to circumstances.
iii. In fact, a company’s actual strategy is partly planned and partly reactive.
The strategy-making task thus involves – (a) developing an intended strategy, (b) adapting it as events unfold (adaptive/reactive strategy), and (c) linking the firm’s business approaches, actions, and competitive initiatives closely to its competences and capabilities. In short, a company’s actual strategy is something managers shape and reshape as events transpire outside the company and as the company’s competitive assets and liabilities evolve in ways that enhance or diminish its competitiveness.
Crafting strategy is partly an exercise in entrepreneurship because it is actively searching for opportunities to do new things or to do existing things in new ways. Good strategy making is inseparable from good business entrepreneurship. One cannot exist without the other.
To implement the chosen strategy, managers will have to develop the needed organisational capabilities.
To carry out and execute it proficiently, and to produce good results, the following administrative tasks are to be performed:
i. Building an organisation capable of carrying out the strategy successfully.
ii. Allocating company resources so that organisational units have sufficient people and funds to do their work successfully.
iii. Establishing strategy-supportive policies and operating procedures.
iv. Putting a freshly chosen strategy into place.
v. Motivating people in ways that induce them to pursue the target objectives.
vi. Tying the reward structure to the achievement of targeted results.
vii. Creating a company culture and work climate conducive to successful strategy implementation and execution.
viii. Installing information, communication, and operating systems that enable company personnel to carry out their strategic roles effectively day in, day out.
ix. Instituting best practices and programmes for continuous improvement.
x. Exerting the internal leadership needed to drive implementation.
Thompson and Strickland suggest, “Good strategy execution involves creating a strong “fit” between the way things are done internally and what it will take for the strategy to succeed.” Strategy executing task is much complicated as it cuts across virtually all facets of managing and it must be initiated from many points inside the organisation.
It is management’s duty to evaluate the organisation’s performance and progress, to decide whether things are going well internally, and to monitor outside developments closely. Subpar performance or too little progress, as well as important new external conditions, will require corrective actions and adjustments in a company’s long-term direction, objectives, and strategy.
If one or more aspects of executing the strategy may not be going as well as needed, the following actions may be taken:
i. Revising budgets,
ii. Changing policies,
iv. Making personnel changes,
v. Building new competencies and capabilities,
vi. Revamping activities and work processes,
vii. Making efforts to change the culture,
viii. Revising compensation practices, and
ix. Improving organisational learning, ongoing researches, and progress reviews.
What is Strategic Management Process – 4 Major Steps: Strategic Analysis and Inputs, Strategy Formulation, Strategy Implementation & Strategic Evaluation and Control
The major steps involved in the strategic management process are as follows:
1. Strategic Analysis and Inputs
2. Strategy Formulation
3. Strategy Implementation
4. Strategic Evaluation and Control.
These steps are discussed below:
Strategy analysis may be looked upon as the starting point of the strategic management process. It consists of the “advance work” that must be done in order to effectively formulate and implement strategies. Many strategies fail because managers proceed without a careful analysis of firm’s external and internal environment. Understanding of strategic position is essential. It is concerned with identifying the impact on strategy of the external environment.
It also analyses an organisation’s strategic capability (resources and competencies) and stakeholders’ expectations.
This step includes the following types of analyses:
A firm’s vision, mission, and strategic objectives must be analysed to get competitive advantages.
Managers must monitor and scan:
(a) The general environment consisting of several elements such as demographic, technological, economic and social segments;
(b) The industry environment consisting of competitors; and
(c) Other organisations that may threaten the success of a firm’s products.
(d) The significant opportunities and threats facing the business.
Scholar Michael Porter believes that the critical issue in respect to the external environment is how it impacts competition within the industry. He offers the five forces model as a way of adding sophistication to a strategic analysis of the environment.
His framework for competitive industry analysis directs attention towards understanding the following forces:
(a) New Entrants – Threat of potential new competitors
(b) Suppliers – Bargaining power of suppliers
(c) Industry Competition – Rivalry among competing firms
(d) Customers – Bargaining power of buyers
(e) Substitute Products – Threat of substitute products or services
Behaviour in and by organisations will be affected in part by values. Through organisational cultures, the values of managers and other members are shaped and pointed in common directions. In strategic management, the presence of strong core values for an organisation helps build institutional identify. It gives character to an organisation in the eyes of its employees and external stakeholders.
In the strategic management process, the stakeholders test can be done as a strategic constituencies analysis. Here, the specific interests of each stakeholder are assessed along with the organisation’s record in responding to them.
iv. Analysis of Organisational Resources and Capabilities and Firm’s Internal Environment:
The strategic management process always involves careful analysis of organisational resources and capabilities. This can be approached by a technique known as SWOT analysis – the internal analysis of organisational Strengths and Weaknesses as well as the external analysis of environmental Opportunities and Threats.
A SWOT analysis begins with a systematic evaluation of the organisation’s resources and capabilities. A major goal is to identify core competencies in the form of special strengths that the organisation has or does exceptionally well in comparison with competitors.
The firm must analyse its strengths and weaknesses. Strengths are positive internal factors that a firm can use to accomplish its goals. Weaknesses are negative internal factors that inhibit a firm’s ability to accomplish its mission and goals.
These include knowledge workers, patents, trademarks, networks, technology, relationships, etc. These must be assessed to enhance wealth creation and collaboration.
Key success factors come in a variety of different patterns depending on the industry. These may be controllable variables that determine the relative success of market participants. They determine a company’s ability to compete successfully. These may be factors like cost, distribution, product quality supplier relationships, number of services offered, prime store locations, available customer credit, and many other factors.
Creating meaningful goals and objectives is an important part of strategic management process. Before entrepreneurs can build a set of strategies, they must first establish business goals and objectives, which give them targets to aim for and provide a basis for evaluating their companies’ performance. Without them, it is impossible to know where a business is going or how well it is performing.
Strategy formulation (strategic planning) involves making strategic decisions concerning the organisation’s mission, philosophy, objectives, policies, and methods of achieving organisational objectives. Formulating a strategy is an important step to enhancing organisational position and building competitive advantages not only in the national but also in the global arena.
Crafting or formulating a strategy involves the following points:
Thompson and Strickland state, “Strategy making brings into play the critical managerial issue of how to achieve the targeted results in light of the organisation’s situation and prospects. Objectives are the “ends,” and strategy is the “means” of achieving them.
The hows of a company’s strategy are typically a blend of (a) deliberate and purposeful actions, (b) as-needed reactions to unanticipated developments and fresh market conditions and competitive pressures, and (c) the collective learning of the organisation over time — not just the insights gained from its experiences but, more important, the internal activities it has learned to perform quite well and the competitive capabilities it has developed”.
M. E. Porter says, The essence of strategy is making choices.
Strategic choices can be distilled to two basic questions:
a. Where to compete?
b. How to compete?
The answers to these questions also define the major areas of a firm’s strategy – corporate strategy and business strategy.
Strategy describes the way in which the firm will accomplish the vision it has established and, is the theme incorporated in a set of strategic decisions. These decisions affect the long-term well-being of the organisation but are made in the present. As Drucker puts it – “One cannot make decisions for the future. Decisions are commitments to action. And actions are always in the present, and in the present only. But actions in the present are also the one and only way to make the future.”
These same two questions “Where is the firm competing?” and “How is it competing?” also provide the basis upon which we can describe the strategy that a firm is pursuing. The where question has multiple dimensions. It relates to the industry or industries in which the firm is located, the products it supplies, the customer groups it targets, the countries and localities in which it operates and the vertical range of activities it undertakes.
With regard to how, a company can pursue a differentiation strategy. It seeks market share leadership. Strategy is not simply about “competing for today”; it is also concerned with “competing for tomorrow.” This dynamic concept of strategy involves establishing objectives for the future and determining how they will be achieved. Future objectives relate to the overall purpose of the firm (mission), what it seeks to become (vision) and specific performance targets.
iii. Design versus Emergence:
One view is that strategy is the result of managers engaging in deliberate, rational analysis. However, strategy may also emerge through adaptation to circumstances. In practice, strategy making almost always involves a combination of centrally driven rational design and decentralised adaptation.
The number of strategies from which the business owner can choose is infinite.
Three basic strategies are:
(a) Cost Leadership – A company pursuing this strategy strives to be the lowest-cost producer relative to its competitors in the industry.
(b) Differentiation – A company following this strategy seeks to build customer loyalty by positioning its goods in a unique or different fashion. That in turn, enables the business to command a higher price for its products than competitors.
(c) Focus – A focus strategy recognizes that not all markets are homogeneous. It is a strategy in which a company selects one or more market segments, identifies customers’ special needs, wants, and interests, and approaches them with a good or service designed to excel in meeting those needs, wants, and interests.
The strategies a company selects depend on its competitive advantages in the market segments in which it competes.
A firm’s strategy formulation is developed at several levels. First, business- level strategy addresses the issue of how to compete in a given business to attain competitive advantage. Second, corporate-level strategy focuses on two issues – (a) what businesses to compete in and (b) how businesses can be managed to achieve synergy; that is, they create more value by working together than if they operate as stand-alone businesses.
Third, a firm must determine the best method to develop international strategies as it ventures beyond its national boundaries. Fourth, managers must formulate effective entrepreneurial initiatives.
G. H. Neilson says, “Sound strategies are of no value if they are not properly implemented.” According to Kaplan and Martin, “Strategy implementation involves ensuring proper strategic controls and organisational designs, which includes establishing effective means to coordinate and integrate activities within the firm as well as with its suppliers, customers, and alliance partners. Thus, strategy implementation is concerned with making a variety of managerial decisions such as the type of organisational structure, the type and source of information systems, leadership “fit,” and the type of control mechanism that should be employed.”
Leadership plays a central role, including ensuring that the organisation is committed to excellence and ethical behaviour. It also promotes learning and continuous improvement and acts entrepreneurially in creating and taking advantage of new opportunities. Charles W. L. Hill and Gareth Jones state, “Strategy implementation refers to how a company should create, use, and combine organisational structure, control systems, and culture to pursue strategies that lead to a competitive advantage and superior performance.”
For many firms, the challenge is ‘implementation’ rather than generating a strategy. Thompson and Strickland point out that, “The managerial task of implementing and executing the chosen strategy entails assessing what it will take to develop the needed organisational capabilities and to reach the targeted objectives on schedule. The managerial skill here is figuring out what must be done to put the strategy in place, carry it out proficiently, and produce good result.”
Managing the strategy execution process is primarily a hands-on, close-to-the-scene administrative task that includes the following activities:
i. Building an organisation structure capable of carrying out the strategy successfully. It assigns employees to specific value creation tasks and roles. It coordinates the efforts of employees at all levels.
ii. Building a control system is essential. The purpose of a control system is to provide managers with (a) a set of incentives to motivate employees to work towards increasing efficiency, quality, innovation, and responsiveness to customers and (b) specific feedback on how well an organisation and its members are performing and building competitive advantage.
iii. Creating an organisational culture is the third element of strategy implementation. It is the specific collection of values, norms, beliefs, and attitudes shared by people and groups in an organisation.
Organisational structure, control, and culture are the means by which an organisation motivates, coordinates, and “incentivizes” its members to work towards achieving the building blocks of competitive advantage.
Some other principal aspects of implementing strategy are as follows:
i. Allocating company resources so that organisational units charged with performing strategy-critical activities and implementing new strategic initiatives have sufficient people and funds to do their work successfully.
ii. Establishing strategy-supportive policies and operating procedures.
iii. Putting a freshly chosen strategy into place.
iv. Motivating people in ways that induce them to pursue the target objectives.
v. Tying the reward structure to the achievement of targeted results.
vi. Installing information, communication, and operating systems that enable company personnel to carry out their strategic roles effectively day in, day out.
vii. Instituting best practices and programmes for continuous improvement.
viii. Exerting the internal leadership needed to drive implementation forward and to keep improving on how the strategy is being executed.
ix. Strategic managers need to decide what staff are used, and whether external consultants will be utilized.
x. Leaders must create a “learning organisation” to ensure that the entire organisation can benefit from individual and collective talents.
To make the strategy plan workplace, the business owner should divide the strategy into projects, carefully defining each one by the following:
i. Purpose – What is the project designed to accomplish?
ii. Scope – Which areas of the company will be involved in the project?
iii. Contribution – How does the project relate to other projects and to the overall strategic plan?
iv. Resource requirements – What human and financial resources are needed to complete the project successfully?
v. Timing – Which schedules and deadlines will ensure project completion?
Planning without control has little operational value. Hence, managers should quickly realize the need to control results that deviate from plans. Strategic management process requires a practical control system.
It is always incumbent on management to evaluate the organisation’s performance and progress. It is management’s duty to stay on top of the company’s situation, deciding whether things are going well internally, and monitoring outside developments closely. Subpar performance or too little progress, as well as important new external circumstances, will require corrective actions and adjustments in a company’s long-term direction, objectives, business model, and/or strategy.
Evaluation and control is concerned with the evaluation systems that are to be used to ensure the operation of strategic planning to effectively achieve the organisation’s objectives. Evaluation consists of comparing the predicted results to the actual results. Strategic management is a process of appraising the corporation as a whole, taking the environment into consideration. It usually focuses on opportunities and problems related to the achievement of corporate objectives in the long run.
R. Simmons has pointed out, “Strategic control is not just about monitoring how well an organisation and its members are performing currently or about how well the firm is using its existing resources. It is also about how to create the incentives to keep employees motivated and focused on the important problems that may confront an organisation in the future so that they work together to find solutions that can help an organisation perform better over time.”
Strategic control systems are developed to measure performance at four levels in a company – Corporate, divisional, functional, and individual. Managers at all levels must develop the most appropriate set of measures to evaluate corporate, business, and functional-level performance. Strategic control helps managers to obtain super efficiency, quality, innovation, and responsiveness to customers.
What is Strategic Management Process – 6 Step Process: From Defining Business Mission to Performance Evaluation
Strategic planning is a part of the firm’s strategic management process. Strategic planning includes the first four strategic management tasks. It includes evaluating the firm’s internal and external situation, defining the business and developing a mission, translating the mission into strategic goals, and drafting the strategy or the course of action.
Strategic management includes the implementation phase. It is the process of identifying and executing the mission of the organisation by comparing the company’s capabilities with the demands of its environment.
The following steps are included in the strategic management process:
1. Definition of the Business and its Mission:
The fundamental strategic decisions which the managers face are, “Where are we now in terms of the business we’re in, and what business we want to be in?” Then the managers have to choose the strategies – courses of action such as buying competitors or expanding overseas – to get the company from where it is today to where it wants to be tomorrow. Management experts use the terms vision and mission to help define a company’s current and future business.
The company’s vision is a “general statement of its intended direction that evokes emotional feelings in organisation members”. The form’s mission is more specific and shorter term. It communicates ‘who we are, what we do, and where we are headed’.
2. Perform External and Internal Audits:
The strategic plans of the managers are based on the methodical analysis of their external and internal situations. The basic point of the strategic plan should be to choose a direction for the firm that makes sense in terms of the external opportunities and threats it faces and the internal strengths and weaknesses it possesses. For this purpose managers use the SWOT analysis. The managers by using the SWOT analysis identify the company’s Strengths, Weaknesses, Opportunities, and Threats.
3. Translate the Mission into Strategic Goals:
The Company’s mission is then translated into the specific goals. For example if the Company’s mission is “to access and act through public/private partnerships to improve energy systems” is one thing; operationalising that mission for your managers is another. The firm’s managers need long term strategic goals.
4. Formulate a Strategy to Achieve the Strategic Goals:
The firm’s strategy is a bridge connecting where the company is today with where it wants to be tomorrow. A strategy is a course of action. It shows how the enterprise will move from the business it is in now to the business it wants to be in, given its opportunities and threats and its internal strengths and weaknesses. A knowledge of and commitment to the strategy helps to ensure that employees make decisions consistent with the company’s needs.
5. Implement the Strategy:
Strategy implementation means translating the strategies into actions and results – by actually hiring people, building or closing the plants, and adding or eliminating product or product line. In other words, strategy implementation involves drawing on and applying all the management functions.
6. Evaluate Performance:
Strategies don’t always succeed. So it becomes necessary to evaluate the performance after the strategy implementation. Strategy control keeps the company’s strategy up to date. It is the process of assessing progress towards strategic goals and taking corrective action as needed. Management monitors the extent to which the firm is meeting its strategic goals and asks why deviations exist.
What is Strategic Management Process – Top 5 Stages: Defining the Mission Statement, Analysing the Environment, Organisational Self-Assessment and Few Other Stages
It is important to understand the process of strategic management, to clearly understand the role human resources play in strategically directing an organisation. Strategic management is the process of formulating and implementing strategies that will help in aligning the organisation and its environment to achieve organisational objectives.
Strategic management does not replace traditional management activities such as budgeting, planning, monitoring, marketing, reporting, and controlling. Rather, it integrates them into a broader context, taking into account the external environment, internal organisational capabilities, and an organisation’s overall purpose and direction.
There are five stages in the strategic management process.
1. Defining the mission statement
2. Analysing the environment
3. Organisational self-assessment
4. Establishing goals and objectives
5. Formulating strategy
Every organisation should have a mission statement. A mission statement should be viewed as the guiding principle for an entire business. It should tell a company, its employees, vendors, customers, investors, the goal of the organisation. Essentially, a mission statement defines a company’s values and outlines its organisational purpose and reasons for existent.
A mission statement should require little or no explanation, and its length is less important than its power. Mission statement is usually restricted to two lines, but it encompasses the basic foundation of the existence of the organisation. For example, the mission statement of Lucent Technologies is, “to provide customers with the world’s best and most innovative communication systems, products, technologies and customer support, and to deliver superior, sustained shareowner value.” Thus, a company’s vision and mission provides guidelines for general decision-making.
This is the second step in the strategic management process. It includes the external environment such as competitors, market trends, technological changes, Government regulations, economic policies, etc. By analysing the industry structure and the competitive work environment, an organisation can identify the main competitors and the strategies that have to be framed.
Some other factors that need to be considered are the barriers to entry, opportunities for mergers and acquisitions and the impact of complementary industries on the company’s products. Government regulations include the preview of laws that may have an impact on organisational performance. This involves the local laws and international laws, if the company is operating in the global business environment.
On the technological front, organisations should get themselves acquainted with new technologies. They should also decide whether they plan to adopt a new technology or invent a new technology.
While analysing market trends, organisations have to take into account the potential customers, the target group of customers and the marketing strategies required for targeting new customers. This stage also requires analysing the demographic, psychographic and other aspects concerned with the consumer’s lifestyles. Economic trends include interest rates, inflation level, fiscal and monetary policies, GNP and the economic growth of the country.
After analysing the external environment, the next step for an organisation would be to assess the internal environment. This involves identifying the strengths and weaknesses of the organisation, and working on the strengths to overcome the weaknesses. It also entails analysing the financial, physical, human, technological and capital resources. Organisation self-assessment is also about understanding the various components of change like culture, structure, power, the decision-making process and past strategy and work systems.
Let us now discuss the various resources:
i. As financial assets are the main assets through which other resources can be acquired, they have a direct impact on the organisation’s competitive advantage.
ii. Physical resources include the assets owned by the organisation, such as lands, machinery, etc. The requirement of physical assets vary from industry to industry.
iii. Human resources include the skill, knowledge, and capability of employees that can help organisations gain competitive advantage.
iv. Technological resources are the processes the organisation employs to produce goods.
v. Organisation should clearly identify the type of technology required for manufacturing the goods, irrelevant technology may add up costs for the organisation.
vi. Intangible resources include brand name, and goodwill.
Apart from the above resources, organisations also need to understand the management systems that guide the day-to-day functioning of the organisation. They include the culture, organisational structure, power dynamics, decision-making process, analysis of the organisation’s past strategy and present mode of functioning and work systems.
i. While assessing culture, an organisation clearly needs to articulate core values and philosophies that guide day-to-day activities. Hence, for a strategic planning process to be successful, an organisation needs to clearly communicate the elements of culture to the employees. Employees should clearly understand the core values that guide the culture of an organisation as this can have an impact on their performance.
ii. Organisational structures also have a major impact on the performance. The process through which the groups and departments interact for accomplishment of the organisational goals can have an impact on the performance of the employees. Effective organisational structures can achieve strategic objectives and if poorly structured can act as an impediment for the organisation.
iii. Power dynamics and politics in the organisation can hinder work, if people at any level misuse their power and authority.
iv. Decision-making constitutes an important process in an organisation that looks into aspects like the people who are involved in the decision-making process, the method of information collection, the time span of the decision-making process, and the credibility of the sources of information. By analysing the results of the decision-making process, an organisation can decide whether it is contributing to the overall performance or whether it is inhibiting performance.
v. An important part of organisational self-assessment is analysis of past strategy that helps identify the loopholes and find out why a particular strategy was not successful.
vi. Work system design is another important part of internal assessment. Work systems are concerned with the design of the jobs and the responsibilities that have to be assigned to the employees. When designing work systems, an organisation has to decide whether the job is suitable for the employee or not.
All the above-mentioned components of management systems are important for the assessment of an organisation’s internal environment.
After an organisation has assessed the internal and external environment, it has to set its goals and objectives. These goals and objectives should be specific, flexible and measurable, because of the changing business environments and the influences of the external environment. Setting goals under strict regulations is impractical, especially when a business is operating in highly volatile conditions.
The final step in the strategic management process is formulating the strategy and deciding on the implementation. The strategy that a company plans to implement has to be in alignment with the human resource strategy. This helps in developing a consistent set of policies and programmes and helps the employees to achieve organisational objectives.
There are five important variables that determine the success of strategy. They are – organisational structure, task design, employee training, reward system and information system. These five factors highlight the importance of HR in strategy implementation. Therefore, it becomes more important to align HR with the strategic goals of an organisation.
Another important change in the HR perspective is the trend towards customer orientation. Employees are trained to provide effective customer services. The HR function has to ensure that the company has a large number of employees with the desired skills. Effective control systems should be developed to align employee goals with the goals of the organisation. Tasks have to be grouped into jobs so that the performance is more effective and strategy is more successful.
Strategy formulation usually takes place with the involvement of the top management. HR and strategic management process can be linked in four ways – administrative linkages, one-way linkages, two-way linkages and integrative linkages.
Administrative linkage is the linkage where the HR executive has very little time in the strategic planning process. Therefore, there exists very little alignment between the HR department and strategic management. The HR department in this linkage handles mostly administrative work that is restricted to the company’s core business needs. The strategic goals of the organisation are not included at this level.
In one-way linkage, the HR department is given the plan after it has been developed by the firm’s strategic business planning function. The HR department does not form a part of the plan design team.
Two-way linkages make HR a part of the strategic formulation plan team.
There are three steps in two-way linkages:
i. First, the strategic planning department brings to the notice of the HR department the various strategies that the company plans to consider.
ii. Second, the HR department analyses the strategies and presents the results of the analysis to the strategic planning department.
iii. Finally, the HR department develops programmes and implements these strategies. In two – way linkages the strategic planning units and HR are interdependent.
Integrative linkage is most effective in strategy formulation and involves the HR manager in the formulation and implementation of the strategy. In this linkage, HR functions are integrated into the formulation and implementation of the strategy. This is the enterprising link as compared to other linkages as it incorporates people-related issues in strategy formulation.
What is Strategic Management Process – 4 Essential Phases: Establishing Strategic Intent, Formulation of Strategies, Implementation and Formulation of Strategies
Strategic management process normally followed in an organization. There are four essential phases of strategic management process. In different companies these phases may have different nomenclatures and the phases may have a different sequence, however, the basic content remains the same.
The four phases can be listed as below:
1. Establishing strategic intent
2. Formulation of strategies.
3. Implementation of strategies.
4. Evaluation of strategies.
Strategic management process starts with the establishment of strategic intent, where- by the firm clearly indicates the position it wants to achieve in future. This is demonstrated by defining its vision, mission goals and objectives. The next phase is related with formulation of strategy.
Here the company carries out the environmental and organisational appraisal and SWOT analysis in order to find out the different opportunities and threats as well to ascertain their strength and weaknesses so that they can avail the opportunities and ward off the threats.
This analysis gives the companies various strategic analyses and the firms choose their alternative carefully. The internal and external scan helps in selecting the strategic factors. These have to be reviewed and redefined in relation to the mission and objectives. At this stage a set of strategic alternatives are generated. The best strategic alternative is selected and implemented through programmed budgets and procedures.
The strategy implementation requires the company to divide various plans, sub- plans, project implementation, budget formulation, allocation of resources and functional plans. This phase is succeeded by evaluation of strategies. It may not be possible to draw a clear line of difference between each phase, and the change-over from one phase to another is gradual.
The next phase in the sequence may gradually evolve and merge into the following phase. An important linkage between the phases is established through a feedback mechanism or corrective action. The feedback mechanism results in a course of action for revising, reformulating, and redefining the previous phase. The process is highly dynamic and compartmentalization of the process is difficult. The changeover is not clear and there is overlap between the boundaries of different phases.
The strategic management formulation and implementation normally vary from company to company, from product to product, many times even with the changing environment within and outside the organisation, and various other factors. Often large firms use detailed strategic management models whereas smaller firms use simpler models.
Small businesses concentrate on planning steps compared to larger companies in the same industry. Large firms have diverse products, operations, markets, and technologies and hence they have to essentially use complex systems. Despite that companies have different structures, systems, product profiles, etc. Various components of models used for analysis of strategic management are quite similar.