Strategic management is the art and
science of formulating, implementing and evaluating cross-functional decisions
that will enable an organization to achieve its objectives. It is the process
of specifying the organization's objectives,
developing policies and plans to achieve these objectives, and allocating
resources to implement the policies and plans to achieve the organization's
objectives. Strategic management, therefore, combines the activities of the
various functional areas of a business to achieve organizational objectives. It
is the highest level of managerial activity, usually formulated by the Board of directors and performed by the
organization's Chief Executive Officer (CEO) and executive team. Strategic management provides overall
direction` to the enterprise and is closely related to the field of Organization Studies.
“Strategic management is an ongoing
process that assesses the business and the industries in which the company is
involved; assesses its competitors and sets goals and strategies to meet all
existing and potential competitors; and then reassesses each strategy annually
or quarterly [i.e. regularly] to determine how it has been implemented and
whether it has succeeded or needs replacement by a new strategy to meet changed
circumstances, new technology, new competitors, a new economic environment., or
a new social, financial, or political environment.”
Strategic management is a combination of
three main processes namely;
1) Strategy formulation
2) Strategy implementation
3) Strategy evaluation
Strategy formulation involves:
- Performing
a situation analysis, self-evaluation and competitor analysis: both
internal and external; both micro-environmental and macro-environmental.
- Concurrent
with this assessment, objectives are set. This involves crafting vision
statements (long term view of a possible future), mission statements (the
role that the organization gives itself in society), overall corporate
objectives (both financial and strategic), strategic business unit
objectives (both financial and strategic), and tactical objectives.
- These
objectives should, in the light of the situation analysis, suggest a
strategic plan. The plan provides the details of how to achieve these
objectives.
This three-step strategy formulation process
is sometimes referred to as determining where you are now, determining where
you want to go, and then determining how to get there. These three questions
are the essence of Strategic planning. SWOT Analysis: I/O
Economics for the external factors and RBV
for the internal factors.
Strategy implementation involves:
- Allocation
of sufficient resources (financial, personnel, time, technology support)
- Establishing
a chain of command or some alternative structure (such as cross functional
teams)
- Assigning
responsibility of specific tasks or processes to specific individuals or
groups
- It
also involves managing the process. This includes monitoring results,
comparing to benchmarks and best practices, evaluating the efficacy and
efficiency of the process, controlling for variances, and making
adjustments to the process as necessary.
- When
implementing specific programs, this involves acquiring the requisite
resources, developing the process, training, process testing,
documentation, and integration with (and/or conversion from) legacy
processes.
Strategy evaluation involves:
- Measuring
the effectiveness of the organizational strategy.
There is wide diversity in the strategic
management literature of labels attached to the different levels of strategy
that may exist in a firm. For example, Thompson and Strickland propose four
levels: corporate strategy, business strategy, functional area support
strategy, and operating-level strategy.33 They go on to say," Each
layer [is]...progressively more detailed to provide strategic guidance of the
next level of subordinate managers."34
Lorange defines three levels for a typical
divisionalized corporation: Portfolio strategy (corporate level), business
strategy (division level), and strategic programs (functional level).35
He defines the focus of each as follows:36
- Portfolio
strategy: Developing the desired risk/return balance among the businesses
of the firm.
- Business
strategy: Source of competitive advantage of a particular business
relative to its competition.
- Strategic
programs: Bringing to bear functional managers' specialized skills on the
development of programs.
He notes that smaller firms
may involve only the last two of these, but in any firm there rarely would be
more than three.37 Hofer, et al list four levels of strategy for
business organizations.38 First, strategy at the societal level is
concerned with the definition of a firm's role in society. It would specify the
nature of corporate governance, political involvement of the firm, and
trade-offs sought between economic and social objectives. The second strategy
level is corporate strategy which addresses (1) the nature of the firm's
business and (2) management of the set of businesses necessary to achieve its
goals. Third, business strategy addresses how the firm should be positioned and
managed so as to compete in a given business or industry. Finally, functional
area strategy is the lowest level of corporate strategy. It is concerned with
their respective functional area environments.
Newman
and Logan present two levels--business strategy and functional policy--for non diversified
firms, and a total of three (with the addition of corporate strategy) for
diversified firms.39
Higgins
identifies four levels of strategy: societal response strategy (enterprise
strategy), mission determination strategy (corporate level), primary mission
strategy (business level), and mission supportive strategy (functional level).
He defines their contents as follows:40
- Societal response
strategy: how the firm relates to its societal constituents.
- Primary mission
strategy: how
the organization will achieve its primary mission.
Another
model proposes five levels of strategy but the levels are not tied to organizational
structure.41 Gluck, et al suggest that the levels of planning
activity consist of corporate, sector, shared resource unit (SRU), natural
business unit (NBU), and product market unit (PMU). The advantages of this
system are (1) it separates the strategic management process from organization
structure to a large degree and (2) pushes it farther down the organization
than traditional systems do. These characteristics stem from focusing planning
level selection on strategic issues or problems shared by the organization's
activities rather than on the organization levels of its business activities.
Corporate level planning is that which
involves identifying trends and formulating strategy in global, technical, and
market arenas, responsibility for which rests with corporate headquarters in
most cases. Sector level planning, where sectors represent national and
technological boundaries, may involve several SBU's, product categories, or
even product/service-based divisions of an organization. Shared resource unit
planning calls for the development of strategies for activities of the business
that are shared by SBU's or the various product-market focuses which the
company might have.
Natural business units, "...are largely
self-contained businesses with control over the key factors that govern their
success in the marketplace--their market position and cost structure".42
Finally, product-market unit planning is the lowest level at which planning
takes place and those activities that directly relate the company's output to
its markets.
There are many other interpretations of the
levels of strategy. They differ primarily in terms of the organizational levels
to which they apply. Those discussed above and most of the others have a number
of commonalities. First, the uppermost levels in each scheme tend to concern
the problem of fitting the organization to its environment; lower levels
address the problem of integrating functional areas in ways consistent with
upper-level strategy. Second, the topmost level tends to involve structuring
the set of acquisitions of divisionalzed firms and is usually called
corporate-level strategy. Third, they contain a business or strategic business
unit (SBU) level of strategy that applies almost equally to a firm comprised of
only one line of business and to the individual subsidiaries of multi business
corporations.
Finally, the various schemes include a
functional level of strategy that represents the ways in which functional
departments are expected to respond to business-level and, in turn,
corporate-level goals and action plans.
During the mid-1980s some authors began to
include the fourth level: enterprise or societal goals and action plans.
Societal strategy was intended to capture the essential ways in which the firm
was expected to respond to goals related to the major social issues confronting
it.
Interpreted fundamentally, then, there are
four primary levels of strategy: societal-level, corporate- level,
business-level, and functional-level. The concerns of societal-, corporate-,
and business-level strategy are clearly cross-functional. That is, they contain
implications for each of a firm's functional areas (although more distantly
removed in the case of societal-and corporate-level strategy), whatever they
may be and regardless of the type of firm. By contrast, functional area
strategies are more operationally focused than the others. The process of
determining how each functional area should be managed is a more specialized
problem, defined largely by the practice and theory applicable to each
functional (or operational) area. That is, the content of marketing strategy is
the subject of marketing texts and courses, finance strategy can be found in
finance texts and courses, personal strategy in personal texts and courses, and
so on.
Social Strategy
Social strategy consists of goals and action
plans of which the overall purpose is to guide the ways in which management
intends the organization to respond to the major social demands placed on it.
It is an explicit definition of the organization's social responsibilities: how
it is expected to react to the demands of particular groups of external
constituents. The recent emergence of this level deserves further explanation.
The idea of isolating social responsibility
in a separate (from corporate, business, and functional) strategy level was
introduced in 1979 by Ansoff and modified by Schedule and Hofer.43
Ansoff presented it as follows.44
The original concept of product/market
strategy appears as only one component of a much broader concept. We might call
it enterprise strategy, which is needed to integrate and relate the new
dimensions of the strategic problems.
The development of societal legitimacy (or
enterprise) strategy is Ansoff's proposed solution to the increasing importance
of... socio-political variables in the life of the firm.45 Included
in these variables are "new consumer attitudes, new dimensions of social
control and, above all, a questioning of the firm's role in society."46
In other words, Ansoff suggests concentrating managers' attempts to deal with
new liberal views about the social role of business, growing egalitarianism,
and the proliferation of constrictive regulation, among other social demands,
in a societal legitimacy strategy that specializes in matters of social
responsibility. Actually Ansoff's proposal for enterprise strategy goes beyond
social responsibility issues to include other sub strategy areas. Schedule and
Hofer limit its contents to social-legitimacy concerns because of their belief
that the other strategy areas are effectively addressed within prevailing
definitions of corporate-business-and functional-level strategies. Thus they
recommend,47
