Strategic Management Ch 1




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Strategic Management Process

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Strategic Management Process

Strategic management is a process whereby the managers at the top level of the organization integrate the internal and external environmental activities to achieve the organizational goals. Strategic plans are usually long-term. The CEOs usually play a vital role in any organization; they exist at the top hierarchy of the organization; effective CEOs should be great trend interpreter and they should act as a third eye to the organization. Some of the key components of strategic management process include: analyzing the external and internal business environment, establishing strategic direction and creating strategies intended to achieve organizational goals. It also involves executing the strategies to achieve organizational goals with the sole aim of satisfying the customers and other stakeholders.

IBM, a technological company that is involved in the provision of computer hardware and software services to its customers, has made it throughout the years thanks to the smart CEOs it had employed. The CEOs were able to see fundamental changes coming. Most successful organizations can acquire and manage resources and manpower that provides competitive advantages. They can also manage and satisfy a variety of components, the stakeholders. The strategic management process is associated with evaluating competitive business situations, acquiring and managing resources, developing and executing created strategies.

External and Internal Environmental Analysis

External environmental analysis usually expects the CEOs to evaluate the broad and task environments to determine trends, threats, opportunities and to find a basis for the strategic direction.

The Broad Environment

This environment consists of the domestic and global environmental forces like socio-cultural, technological, political and economic trends. It forms the context in which the firm and its task environment exist.

The Task Environment

This environment consists of external stakeholders: individuals outside the firm who have a significant impact in the welfare of the firm. Examples include customers, suppliers, government agencies, administrators and any other person or entity that has a stake in the organization. Many of them are listed in Exhibit 1.2. Also, there are internal stakeholders: managers, employees, owners and those who might represent them. This group also has an impact on the welfare of the organization. An effective internal environmental analysis should include a broader evaluation of all organization resources and capabilities to determine the strong points, flaws and opportunities for competitive advantages, identify threats to be corrected.

SWOT analysis combines the results from external and internal analysis. SWOT stands for Strengths, Weakness, Opportunities and Threats. Strengths are firms resources and capabilities that if well-managed can have a competitive advantage. Weaknesses are something that the company does not possess but what is necessary for competition. Opportunities are conditions that exist in both environments enabling the firm to take advantage of its strengths, overcome weakness and neutralize threats. Threats can be the hurdles that might block the organizations road to achievements.

Strategic Direction

An effective strategic leader has the responsibilities of establishing a strategic direction to success. Strategic direction can be contained in the companys mission statement. It defines companys operation towards achieving its goals. It also includes business ethics, the moral obligations of the firm toward stakeholders and society as a whole. They are usually discussed in terms of organizational values. When strategic directions are well-established, they provide guidance to internal stakeholders. To the external stakeholders, it can provide a greater understanding of the organization and its goals.

Strategic Formulation

Strategy is a plan of the organization intended towards the attainment desired short-term achievements. Business strategy formulation describes how business competes in the selected areas. It pertains to domain direction and navigation. Corporate strategy formulation defines the selection of competitive business area. Functional strategy formulation describes in details on how functional areas like marketing, finance, operations and RD should work.

Strategic Implementation and Control

After strategic formulation, an action plan results in leading to strategy implementation. Strategic implementation involves creation of functional strategies, systems, structures and processes that are required for organizational success.

Strategic control can refer to processes that lead to change in directions, strategies or the implementation plan. The triggers to such changes or adjustments might be the managers. Strategic control can lead to strategy restructuring. Restructuring is meant to curb competition.

Other Perspectives to Strategy Development

Resource-Based View of the Firm

In this perspective, the organization is viewed as a bundle of resources, namely financial resources, which include all monetary resources the firm can draw. It also has physical resources like plants, human resources like skills, knowledge and learning resources helping the firm remain innovative and competitive and general resources like formal reporting.

Stakeholder Analysis and Management

The organization is viewed in the perspective of internal and external components that have a strong interest in the organization. Stakeholder analysis involves identifying and prioritizing key stakeholders, while assessing their needs, collecting ideas from them and integrating these ideas into strategic management process. The information collected can be useful in the development and modification strategic directions, strategies and implementation plans. Stakeholder management includes communication, negotiation, contracting and managing relationships with stakeholders, which can lead to competitive advantage.

Global Strategic Management

It offers many new management challenges. Different countries have different economies. They provide different business opportunities through management approaches. Stakeholder perspective does not compete with resource-based view mainly because the organization is dependent on its stakeholders for most of its resources it acquires and develops. Good working relationships with stakeholders are very vital for the triumph of the firm.

A Combined Approach

It is a model, which is a combination of various approaches. In regard to the external environment factors, firms should adapt to forces if they perceive it unreasonable to change them. It applies the resource-based perspective especially in internal analysis and development of competitive advantages. The external environments analysis draws heavily from the stakeholders theory. The two approaches do not compete; rather, they complement one another. It is especially so due to the fact that the organization is reliant on the stakeholders for most of the resources that it acquires and creates. It is important for an organization to have a good working relationship with the stakeholders. The combined approach also borrows heavily from the economic theory. The balanced approach is also available to avail a set of tools that are applicable in different organizational circumstances.

Strategic Thinking and Entrepreneurship

It entails the movement of an organization from what has been tried and proved. Entrepreneurship entails the process through which individuals, groups or firms pursue opportunities to create new values. It can occur both within the firm and independently of it. Strategic thinking entails innovative aspects of strategic management. It relies on a rigid strategic planning.

Characteristics of Strategic Thinking

Intent focus: It has a focus on a vision the organization is aiming at. It leads to ideas that will assist the organization to achieve the vision.

Long-term: It focuses not only on the short-term daily activities, but also on the long-term problems facing the organization.

Consideration of the Past and Present: Although it is long-term oriented, it involves recognizing the past situation and learning from the past.

Systems perspective: The organization sits at the center of a stakeholders combination. The network also contains the social-cultural, economic, technological, political and legal environments.

Ability to seize opportunities: When managers encounter unanticipated opportunities beneficial to the organization, they seize them.

Scientific approach: It can also be called hypothesis testing. The testing can occur through analysis of the ideas in relation to the existing environment.

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