Chapter I : INTRODUCTION TO MANAGEMENT STRATEGY

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.

Levels of 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

1. Portfolio strategy: Developing the desired risk/return balance among the businesses of the firm.
2. Business strategy: Source of competitive advantage of a particular business relative to its competition.
3. 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

1. Societal response strategy: how the firm relates to its societal constituents.
2. Mission determination strategy: the organization's field of endeavor.
3. Primary mission strategy: how the organization will achieve its primary mission.
4. Mission supportive strategies: how primary mission strategy will be supported.

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

Enterprise strategy attempts to integrate the firm with its broader non controllable environment, not in terms of product/market matches in a narrower economic sense, but in the sense of the overall role that business, as one of society's important institutions, should play in the everyday affairs of society... More explicit attention will have to be given to (societal legitimacy strategy) in the future, just as Ansoff suggests, just as it has been necessary to separate corporate and business strategy considerations from the problems of functional area interpretation, over the past two decades. However, some strategists may prefer not to institute this new strategy level, for reasons explained by Dill:⁴⁸ "There has been less turbulence in the environment for companies which have spent time over the years listening to and assessing what various internal and external constituencies have to say about the powers they are and are not willing to delegate to corporations and corporate management." Stated differently, some managers may prefer to address all social legitimacy issues within the rubric of existing strategy levels. For them social responsibility concerns would be addressed within the fabric of goals and action plans at the corporate, business, and functional levels. Our conclusion about the usefulness of enterprise strategy is that it should be employed by organizations that have particularly sensitive relationships with the environment. Firms such as utility companies, toy manufacturers, and educational institutions, for which an especially sharply focused public scrutiny has devolved, would be well suited for development of separate social-legitimacy goals and action plans. For others, whose society interaction is less controversial, matters of social responsibility might be handled more efficiently, and even effectively, within goals and action plans at the corporate, business, and functional levels alone. We have included the societal legitimacy level of goals and action plans in Exhibit 1-2. However, the advisability of their formulation for a given firm as a distinct activity is intended to be a matter of judgment depending upon whether or not sufficiently poignant social issues either confront the firm at present, or are expected to do so in the future.