STRATEGIC MANAGEMENT

STRATEGIC MANAGEMENT

*Shanmukha Rao. Padala  **Dr. N. V.S. Suryanarayana

INTRODUCTION:

            The managers focused on “today’s decisions for today’s business” in earlier times. However the rapid changes experienced by companies have made the managers to anticipate the future and prepare for it. They have prepared systems, procedures and manuals and evolved budgets and planning and control systems, which included capital budgeting and management by objectives. The inadequacy of these techniques has led to the emergence of long range planning which in turn gives rise to strategic planning and subsequently to strategic management.

            Strategic management deals with decision making and actions which determine an enterprise’s ability to excel, survive or die by making the best use of a firm’s resources in a dynamic environment. The main purpose of study of strategic management is to examine why some organizations succeed while fail and yet others completely change.

Evolution:

            Most of the firms were happly focusing attention on their day-to-day, short-term activities, till 1930s. In an environment characterized by very little competition, a functional orientation supported by budgeting and control systems guided the fortunes of firms. The adhoc policy making yielded ground to planned policy formulation and by 1940 the emphasis shifted to the integration of functional areas in the context of environmental demands. The period between 1960s and 1980s, was characterized by rapid environmental changes and increased complexity of business functions necessitating long range planning and comprehensive business policies aimed at placing a firm in an advantageous relationship to its environment. During the 1980s and early 1990s, interest in the role of strategy in building competitive advantage resulted in a shift of interest toward the internal aspects of the firm. Strategic management is currently the core of business policy discipline everywhere.

            Strategic management is the process by which organizations try to determine what needs to be done to achieve corporate objectives and more importantly, how these objectives are to be met. Ideally, it is a process by which senior management examines the organization and the environment in which it operates and attempts to establish an appropriate and optimal fit between the two to ensure the organisation’s success. Strategic planning is usually done over three to five time horizons by senior management or when some important event impacts the organization, such as a merger or acquisition, or its environment.

Definition of Strategic Management

There is no consensus about the concept of strategic management. Strategic management is the continuous process of relating the organization with its environment by suitable course of action involving strategy formulation, its implementation and mobilizing organizational resources for the purpose.

“Strategic management is concerned with deciding on strategy and planning how that strategy is to be put to be into effect”.

According to Samuel C. Certo and J. Paul Peter, “Strtegic management is a continuous, iterative, cross-functional process aimed at keeping an organization as a whole appropriately matched to its environment.” A series of steps that a manager must take are identified by this definition. These steps include performing an environmental analysis, establishing organizational direction, formulating organizational strategy, implementing organizational strategy and exercising strategic control.

Schellenberger and Bosenan define the term Strategic management as, “the continuous process of effectively relating the organization’s objectives and resources to the opportunities in the environment.” Strategic management is primarily concerned with relating the orgnisation to its environment, formulating strategies to adapt to the environment and assuring that implementation of strategies taken place.

The following are the features of this definition.

  1. Strategic management is basically a process. Strategic management involves establishing a framework to perform various processes.
  2. Various processes of management are:

[a]. Surveillance of environment;

[b]. Identification of various opportunities;

[c]. Evaluation of the organizations strengths and weaknesses;

[d]. Formulation of various strategies for achieving these objectives; [e]. Implementation of these strategies and

[f]. Evaluation and monitoring of the outcome of these strategies.

  1. The focus of Strategic Management is on relating the organisation to its external environment;
  2. Strategic management is basically a top management function. The environment is constantly changing providing new opportunities and threats, top management must spend more time on this aspect. There is a shift from operational management to strategic management.           

 

Nature of Strategic Management  

           strategic management is required in the complexity and sophistication of business decision making. Managing various and multifaceted internal activities is only part of the modern executive’s responsibilities. Strategic management may be defined as the set of decisions and actions resulting in formulation and implementation of strategies designed to achieve the objectives of an organisation. It covers the following nine critical areas;

  •  Determining the mission of the company;
  • Developing a company profile that reflects internal conditions and capabilities;
  • Assessment of the company’s external environment
  • Analysis of various options in matching the company profile with external environment;
  • Identifying the desired option in light of the company mission;
  • Strategic choice of a particular set of long term objectives;
  • Development of annual objectives and short term strategies in tune with long term and grand strategies;
  • Implementing strategic choice decisions based on budgeted resources. and
  • Review and evaluation of the success of the strategic process to serve as a basis for control.

                                                                                                                          

Thus, strategic management involves the planning, directing, organising and controlling of the strategy related decisions and actions of the business.           

Strategic Decision

strategic decisions is the basic emphasis of strategic management. An operational decision is related with day-to-day operation of the organisation. Such decisions are taken at lower levels in the organisation.What is operational decision in one organisation may be a strategic decision in another organisation.Strategic decision can be defined as a major choice of actions concerning allocation of resources and contribution to the achievement of organisational objectives.

Characteristics:                                                                                            

Decision is a major one, which affects the whole or part;   Contributes directly towards the realisation of organisational objectives; Strategic decision may involve major departure from the earlier ones; Strategic decision is likely to include a wide range of available alternatives to cope up with environmental demands.          

 Elements of Strategic Decision       

            Strategic decision is a major choice of actions concerning allocation of resources and contribution to the achievement of organisational objectives directly. The following are the elements of a strategic decision;

1. Result element:                                                                                                     

 Organisations are goal directed and any organisational process should be goal directed to meet the organisational objectives. The value of a decision and the associated action is related with which the goal is achieved. The result element of strategic decision is a specifically defined objective or statement of desired future accomplishment, which will contribute to the company’s overall purpose.

  The result element of strategic decision must specify what specific result is to be achieved. It is quite common to express the result in quantitative terms such as sales volume, market share, and profit margin, expense reduction etc. It can also be expressed in the form of technological leadership, market leadership, profitability, social contribution, employment, strengthening the economy etc.

2. Action Element

            A stated result or objective does not become useful until it is accompanied with an action programme. Strategic decisions are action oriented and directed towards the controlling aspects of the environment. The action element specifies what work must be done and how to get the results.

3. Commitment element

            A decision is not strategic unless it has been translated into a set of actions whereby the organization’s resources are committed for a particular course of action. Commitment of resources includes the allocation of resources on various actions and since these resources are utilized for the actions concerned, these can be back in the form of their result. Decisions regarding who will be taking action are an important aspect of commitment element of strategic decision. The commitment decision should also specify where and under what circumstance implementation is to be effected.

Timing element is the most important element of commitment principle and development and implementation of strategy.

 

Dimensions of strategic decisions.

The Strategic issues have been identified into six dimensions. Strategic issues require top management decisions- top management involvement is imperative. There is perspective for understanding and anticipating broad implications and ramifications at this level.

            Allocation of large amounts of company resources are required for involve strategic issues. Strategic issues are likely to have a significant impact of the long termrosperity of the firm Strategic issues are future oriented –based on what managers anticipate or forecast rather on what they know. Strategic issues usually have major multifunctional or multi-business consequences- A strategic decision is co-ordinate. Strategic issues necessitate considering factors in the firm’s external environment.

Levels of Strategy

            In business organizations the decision-making hierarchy typically contains three levels. At the top is the corporate level, composed principally of members of the board of directors and the chief executive and administrative officers. They are responsible for the financial performance of the corporation as a whole for achieving the non-financial goals of the firm.

            The second rung of the decision-making hierarchy is the business level, composed principally of business and corporate managers. These managers must translate the general statements of direction and intent generated at the corporate level into concrete, functional objectives and strategies for individual business divisions of SBUs.

            The third rung is the functional level, composed principally of managers of products, geographic and functional areas. It is their responsibility to develop annual objectives and short term strategies in such areas as production, operations and research and development, finance, marketing and human relations. Companies, which are in only one business, are concentrated in a single group of directors and managers.

            Some of the companies, which have a corporate structure, comprise of three fully operative levels. The superstructure is provided at the corporate level, with the superstructure at the business level giving direction and support for functional level activities.

CHARACTERISTICS OF STRATEGIC MANAGEMENT

DECISIONS AT DIFFERENT LEVELS

LEVEL OF STRATEGY

Characteristic

Corporate

Business

Functional

Type

Conceptual

Mixed

Operational

Measurability

Value judgements

Semiquantifiable

Quantifiable

Frequency

Periodic/Sporadic

Periodic/Sporadic

Periodic

Adaptability

Low

Medium

High

Relation to present activities

Innovative

Mixed

Supplementary

Risk

Wide range

Moderate

Low

Profit potential

Large

Medium

Small

Cost

Major

Medium

Modest

Time Horizon

Long range

Medium range

Short range

Flexibility

High

Medium

Low

Co-operation

Considerable

Moderate

Little

ITC’s CORPORATE STRATEGIES:

ITC is a board-managed professional company, committed to creating enduring value for the shareholder and for the nation. It has a rich organisational culture rooted in its core values of respect for people and belief in empowerment. Its philosophy of all-round value creation is backed by strong corporate governance policies and systems.

ITC’s corporate strategies are aimed at matching its core capabilities with market opportunities to produce superior shareholder value. The key corporate strategies are:

  • Continue to focus of the core businesses of Cigarettes & Tobacco, Hotels, Packaging and Paperboard.
  • Ensure that each of its businesses meets the three criteria of sustainability namely Market Standing, Profitability and Internal Vitality. Exit from businesses which do not meet these criteria with an agreed time frame.
  • Ensure that each business is internationally competitive in the Indian global market.
  • Create distributed leadership within the organisation by nrturing talented and focused top management teams for each of the businesses.
  • Institute and practice a system of corporate governance appropriate to ITC’s character and constitution. Such a system of governance must achieve a wholesome balance between the need for executive freedom for management and the requirement of a framework for effective accountability. 
  • Secure the future growth of the Company by creating new businesses which leverage the strength of its core competencies, residing in various businesses.

The Strategy Makers

            The ideal strategic management process is developed and governed by a strategic management team. The team consists principally of decision-makers at all three levels, the chief executive officer, the product managers and the heads of functional areas.

            The team relies on input from two types of support personnel: Company planning staff and lower level managers and supervisors. The latter provide data for strategic decision making and are responsible for implementing strategies.

            Strategic decisions have such a tremendous impact on a firm and because they require large commitments of company resources, top managers can only make them in the organizational hierarchy.

Benefits of Strategic Management

            The strategic management approach emphasises interaction by managers at all levels of the organizational hierarchy. As a result, strategic management has certain behavioural consequences.

  1. Strategy formulation activities should enhance the problem prevention capabilities of the firm.
  2. Group based strategic decisions are most likely to reflect the best available alternatives.
  3. Employee motivation should improve as employees better appreciate the productivity-reward relationships in every strategic plan.
  4. Gaps and overlaps in activities among diverse individuals and groups should be reduced.
  5. Resistance to change should be reduced.

Risks of Strategic Management

Managers must be trained to guard against three types of unintended negative consequences. Managers must be trained to schedule their duties to provide the necessary time for strategic activities while minimising any negative impact on organisational/ operational responsibilities.

If the formulators of strategy are not intimately involved in implementation, individual responsibility for input to the decision process and subsequent conclusions can be shirked. Strategic managers must be trained to anticipate, minimise or constructively respond when participating subordinates become disappointed or frustrated over unattained expectations.

Strategic Management Process

            The logic of management process is that particular functions are performed in a sequence through time. The term process refers to an identifiable flow of information through interrelated stages of analysis directed towards the achievement of an objective. Thus, strategic management as a process may involve a number of various elements of strategic management process and the way they interact among themselves. The process becomes quite complex in practice because of the type of interaction among these elements.

Corporate Mission and Objectives – Since organisations are deliberate creations, they have some specific mission towards which all efforts are directed. The mission of an organisation is the fundamental unique purpose that sets it apart from other organisations and identifies the scope of its operation in product and market terms. Corporate objectives are other factor, which determine the strategy. The choice of the objectives for an organization is a strategic decision because by choosing its objectives, the organization commits itself for these.

Environmental analysis – Since an organization is a social system, it operates within the environment which consists of many factors, such as, society, competitors, technology, legal framework, political framework, psychological and cultural framework. An organisation has to interact continuously with these factors.

Corporate analysis – Opportunities or threats posed by the environment and how the organisation can take advantages will depend greatly on the organisation’s strengths and weaknesses. Corporate analysis brings these strengths and weaknesses.

Identification of strategic alternatives – Interaction of organisation with its environment in the light of its strengths and weaknesses will result into various strategic alternatives. All alternatives cannot be chosen even if all of them produce the same results. Therefore, the strategic alternatives should be identified in the light of strategic threats and opportunities generated through environmental analysis, and organisational mission and objectives.

Choice of strategy – The identification of various strategic alternatives leads to the level when managers can consider some alternatives seriously. The chosen alternative should be acceptable in the light of organisational objectives. it is not necessary that the chosen alternative is the best one.

Implementation of strategy – The organisation tries to convert the strategy into something operationally effective. The strategy should be put to action because mere choice of the soundest strategy will not affect organisational activities and achievement of its objectives.

Review and control – Review and control may be treated as the last stage of strategic management process. This is an on-going process and review and control should be taken as the process for future course of action.

Summary

Strategic Management is the continuous process of relating the organisation with its environment by suitable course of action involving strategy formulation, its implementation and mobilising organisational resources for the purpose. Thus, strategic management involves the planning, directing, organising and controlling of the strategy related decisions and actions of the business.

The decision-making hierarchy of business firms contains three levels, at the top is the corporate level and in the second rung of the hierarchy is the business level and in the third rung is the functional level. For a new business or reformulating direction for an ongoing company, the basic goals, characteristics and philosophies that will shape a firm’s strategic posture must be determined. It is here that the company mission will guide future executive action. Strategic management process comprises of functions that are performed in a sequence through time.

Source by P.S.Rao., NVS.Suryanarayana

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