Strategic Management

2009-01-09T19:27:00.000-08:00

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Definition and Explanation

The term strategy is derived from the Greek word strategies that means general.
Strategy is the process of determination of organization's mission (purpose), vision, values and (long term) objectives of an enterprise.
It is also adoption of courses of action and allocation of resources necessary to achieve these aims.
It is needed to unify and give direction to plans.
It consists of competitive moves and business approaches to produce successful performance.
It is management's game plan to: 1. run the business, 2. strengthen firm's competitive position, 3. satisfy the customers and 4. achieve performance targets.

General Understanding of Strategy (as per Henry Mintzberg)

Strategy as plan- a direction, guide, course of action- intention rather than actual.
Strategy as ploy- a maneuver intended to outwit a competitor.
Strategy as pattern- a consistent pattern of past behaviour- realized rather than intended
Strategy as position- locating of brands, products or companies within the conceptual framework of consumers or other stakeholders- strategy determined primarily by factors outside the firm.
Strategy as perspective- strategy determined primarily by a master strategist.

Three Main Strategic Questions

Where are we now?
Where do we want to go in terms of business positions, financial outcomes and strategic outcomes?
How will we get there?

Principle of Strategy Framework

The more strategies and policies are clearly understood and implemented in practice, the more consistent and effective will be the framework for enterprise plans.
Example: If a company has a major strategy of developing only those new products that fit its marketing organization, it will avoid wasting it's energy and resources on new products that do not meet this test.

Need for Operation Planning i.e. Tactics

To be effective, strategies must be put into practice by means of plans, increasing in detail until they get down to the nuts and bolts of operations.
Tactics, then, are the action plans through which strategies are executed. Strategies must be supported by effective tactics.
Since strategies affect planning, they also greatly affect all the areas of managing.

Strategy Hierarchy

The strategies have to be made at three levels as given below and they must be telescoped with each other.

Corporate strategy: It is the top level strategy of a company at the corporate or head office level. It decides for the company it's businesses areas and how does being in these business areas help the corporation as a whole in competition?
Business strategy: It is the strategy of a single business firm or a strategic business unit (SBU) of the company. The business strategy is derived from corporate strategy.
Functional strategy: It is the strategy of each function of the SBU. Therefore, it includes marketing strategy, new product development strategy, financial strategy, supply chain strategy, manufacturing strategy, human resource strategy, information technology strategy etc. These functional strategies are derived from the business strategy.

Integration

Strategies and tactics integrates the three levels of management which are strategic management, operations management and transactions management.

Five Tasks of strategic Management

Defining business, stating mission and forming vision for the company.
Setting measurable objectives.
Crafting strategy to achieve objectives.
Implementing strategy
Evaluating performance, reviewing new developments and initiating corrective adjustments.

TOWS Matrix of Strategy Formulation

SO Strategy (Maxi-Maxi): Potentially the most successful strategy utilizing organization's strengths to take advantages of opportunities.

ST Strategy (Maxi-Mini): Use of strengths to cope with threats or to avoid threats.

WO Strategy (Mini-Maxi): Developmental strategy to overcome weaknesses to take care of the opportunities.

WT Strategy (Mini-Mini): Retrenchment, liquidation, joint venture etc.

Growth-share Matrix

Possible avenues of future development can be identified by examining the relative growth prospects of a company's line of products. It also helps the company to manage its cash flow or funds to best advantage.

Matrix considering the sales growth of the products of the company and their relative market share with reference to the competitors with throw up four possibilities as given below:

Products or activities that have high market share but a low growth rate (called cash cows)
Products or activities that have both, a high market share and a high growth rate (called stars)
Products or activities that currently have a low market share but a high growth rate (called question marks)
Products or activities that have low market share and also, a low growth rate (called dogs)

This matrix facilitates the strategic management to consider their range of products and services to determine the product mix and to determine where to use cash to best advantage to invest in future. With this analysis a company can decide:

Which of its SBUs (strategic business units) or product lines should be maintained
In which of the SBUs or product lines it should invest more
Which SBUs or product lines should be divested, closed or sold.

Strategic Planning Failures

Managers are inadequately prepared for strategic planning.
Information for preparing the strategic plans is insufficient.
Organizational objectives are too vague to be of value.
Business units are not clearly defined.
Lack of communication of strategies to all key decision making managers.
Reviews of strategic plans of business units are not done effectively.
Link between strategic planning and control is insufficient.

For More Guidance, Assistance, Training and Consultation

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