Mastering Strategic Management: Key Concepts and Practices
Meaning and Nature of Strategic Management
Strategic management involves developing and implementing plans to help an organization achieve its goals and objectives. It includes identifying opportunities and threats in the market and the wider external environment.
Stages of Strategic Management
- Goal setting
- Analysis
- Strategy formation
- Strategy implementation
- Strategy monitoring
Benefits of Strategic Management
- Discharge board responsibility
- Creates a better future
- Provides an organizational perspective
- Rejuvenates human resources
- Enables measurement of progress
- Supports understanding and buy-in
- Makes better business decisions
- Forces an objective assessment
Steps in Strategic Management
- Vision
- Mission
- Objectives
- Strategy
- Approach
- Tactics
Importance of Strategic Management
- Provides direction
- Helps adapt to changes
- Optimizes resource allocation
- Improves performance
- Ensures long-term sustainability
Characteristics of Strategic Management
- Involvement of top management
- Handles long-term issues
- Offers competitive advantages
- Future-oriented
- Long-term implications
- Positively affects operational challenges
- Organization-wide impact
- Tends to be complex
Strategic Management Process
The strategic management process involves seven steps:
- Environmental scan
- Internal analysis
- Strategic direction
- Develop goals and objectives
- Define metrics, set timelines, and track progress
- Write and publish a strategic plan
- Plan for implementation and the future
Relationship Between Company’s Strategic Management and Business Model
Both involve managing resources to achieve organizational goals. Business models focus on how products and services are created and delivered, whereas business strategies focus on positioning the organization in the marketplace.
Model of Strategic Management
- Environmental scanning (Internal and External)
- Strategy formulation (Strategic or long-range planning)
- Strategy implementation
- Strategy evaluation and control
Benefits of Strategic Management
- Improved decision-making
- Increased efficiency
- Better coordination between departments
- Improved alignment with organizational goals
A business model describes how a company works and makes money. A business strategy describes how, where, and for what purpose a business model will be used. A business model defines how a company will create, deliver, and capture value.
Types of Business Models
- Business-To-Business (B2B)
- Business-To-Consumer (B2C)
- Subscription-Based Models
- On-Demand Business Model
Components of Business Models
- A customer value proposition
- A profit formula
- Key resources
- Key processes
Meaning and Process of Strategy
Strategy helps define a business, gives it a set of values, and provides purpose. A strategy outlines the actions and decisions a company plans to take to reach its goals. It is a vision for the future that outlines the organization’s overall goals and purpose, shaping the actions taken to achieve them. A strategic concept is a high-level idea guiding the direction and focus of an organization.
Levels of Strategy
- Corporate Level
- Business Level
- Functional Level
Steps of Strategy
- Define your vision
- Assess your current position
- Determine your priorities and objectives
- Define responsibilities
- Measure and evaluate results
Strategic Planning Process Steps
- Define your strategic position
- Prioritize your objectives
- Develop a strategic plan
- Execute and manage your plan
- Review and revise the plan
Phases of Strategy
- Formulation
- Implementation
- Evaluation
- Modification
Stages of the Strategy Process
- Clarify your vision
- Gather and analyze information
- Formulate a strategy
- Implement your strategy
- Evaluate and control
Strategy Formulation
Strategy formulation is the process of using available knowledge to document the intended direction of a business and the actionable steps to reach its goals.
Steps
- Value assessment
- Vision and mission formulation
- Strategy design
- Performance audit analysis
- Gap analysis
- Action plan
- Contingency planning
- Implementation
Elements
- Arenas
- Differentiation
- Vehicles
- Staging
- Economic Logic
Tools
- SWOT analysis
- PESTLE analysis
- Porter’s Five Forces
- Competition analysis
Phases
- Diagnosis
- Formulation
- Implementation
Levels
- Corporate level
- Business unit level
- Functional unit level
- Operational level
Components
- Visioning
- Objective setting
- Resource allocation
- Prioritization
Strategic Objectives
Strategic objectives are purpose statements that help create an overall vision, set goals, and define measurable steps for an organization to achieve the desired outcome. They indicate what is critical or important in your organizational strategy.
Example: Increasing Revenue
Characteristics
- Specific
- Measurable
- Achievable
- Relevant
- Time-related
Objectives
- Decrease costs
- Improve customer satisfaction
- Efficiency
- Boost revenue
Elements
- A mission statement
- A vision statement
- SWOT Analysis
- Goals and Objectives
- Strategies
- Action Plans
- Resource Allocation
- Evaluation and Control
Examples: Walmart, Dell Computer, and Amazon.
Advantages: Increased revenues and gaining a competitive advantage. A low-cost provider aims to increase profit margins primarily by reducing their costs of doing business.
Disadvantages: Financial cuts to critical areas like customer service, lack of innovation, lack of applicability to premium products, changes in consumer preferences, increased competition, and a crunch in capital availability.
Differentiation Strategy
A differentiation strategy is an approach businesses develop by providing customers with something unique and distinct from items their competitors may offer. Example: Coca-Cola.
Types
- Differentiating content
- Process
- Product
- Environment
Example: Tesla differentiates itself from other auto brands because their cars are innovative, high-end, and battery-operated.
Advantages: Effective differentiation creates an ability to obtain premiums from customers. A differentiation strategy helps create barriers to entry that protect the firm and its industry from new competition.
Disadvantage: Can burden research and development teams, product manufacturers, and even your profit margins.
Corporate Social Responsibility (CSR)
Corporate Social Responsibility is a business model by which companies make a concerted effort to operate in ways that enhance rather than degrade society and the environment.
Responsibilities
- Environmental responsibility
- Ethical/Human rights responsibility
- Philanthropic responsibility
- Economic responsibility
Purpose: Corporate Social Responsibility programs aim to structure a company’s efforts to give back to the community, participate in philanthropic causes, and provide positive social value.
Pillars
- Environmental
- Socially Responsible
- Economic
Principles
- Sustainability
- Accountability
- Transparency
Advantages/Benefits
- Increased brand recognition
- Bolstered public trust
- Improved customer loyalty
- Accreted capital growth
- Deepened competitive advantage
- Employee retention rates
- Revitalized relationship building
- Greater sustainability
Steps
- Training employees
- Identifying partners
- Creating data collection methods
- Regularly reviewing and updating your CSR strategic plan to ensure that it remains effective
Disadvantages
- Customers become impatient
- Company’s reputation may suffer
- Changes in the goal of creating a profit
- Manufacturing costs may suddenly increase, among other things
BCG Matrix
The BCG matrix is a chart created by Bruce Henderson for the Boston Consulting Group in 1970 to help corporations analyze their business units or product lines. The BCG matrix, also called the ‘Growth Share Matrix,’ is based on two variables: the rate of growth of the product-market and the market share held by the firm relative to its competitors. The Boston Consulting Group (BCG) matrix is a planning tool that uses graphical representations of a company’s products and services to help the company decide what it should keep, sell, or invest more in.
Founder: Bruce Henderson (1970)
Uses: A BCG matrix is a model used to analyze a business’s products to aid with long-term strategic planning. The matrix helps companies identify new growth opportunities and decide how they should invest for the future.
BCG Matrix Categories
- Question marks: High growth, low market share (uncertainty)
- Dogs: Low growth, low market share (less profitable)
- Stars: High growth, high market share (high competition)
- Cash cows: Low growth, high market share (most profitable)
Strategies of BCG Matrix
- Build
- Hold
- Harvest
- Divest
Advantages
- Simple to implement and easy to understand
- Helpful for managers to evaluate balance in the firm’s current portfolio of stars, cash cows, question marks, and dogs
- Indicates that the profit of the company is directly related to its market share
- Only four categories make it simple to operate efficiently
Limitations of BCG Matrix
- Classifies businesses as only low or high
- The distinction between high and low is highly subjective
- The market is not clearly defined in this model
- Problems obtaining data on market share and market growth
- The framework assumes that each business unit is independent of the others
Developing and Communicating Concise Policies
A policy is a law, regulation, procedure, administrative action, incentive, or voluntary practice of governments and other institutions. It is a set of ideas or plans used as a basis for making decisions, especially in politics, economics, or business. Policy is a system of guidelines to guide decisions and achieve rational outcomes. A policy is a statement of intent and is implemented as a procedure or protocol. Policy involves both subjective and objective decision-making.
Types of Policies
- Regulatory
- Restrictive
- Facilitating
Functions: Policies are the distillation of everything above them in the hierarchy: mission, values, and strategic objectives, along with the laws.
Objectives: Policies identify limits or boundaries for behavior and actions necessary for achieving goals.
Principle: A policy principle is required where there is a need to direct decision-making beyond existing compliance requirements.
Policy Statement: Identifies the actual guiding principles or what is to be done.
Characteristics of Policies
- Clarity and specificity
- Relevance and purpose
- Consistency and coherence
- Flexibility and adaptability
- Evidence-based and informed
- Inclusive and participatory
- Measurable and achievable
Elements/Components of Policies
- A problem definition
- Goals to be achieved
- The policy instruments to address the problem and achieve the goals
Brief Overview of Innovation
Innovation is successfully implementing a new idea and creating value for your customers and stakeholders. Innovation is the ability to conceive, develop, deliver, and scale new products, services, processes, and business models for customers. Innovation is introducing novelty in a product, service, strategy, or business model. Innovation is the process of bringing about new ideas, methods, products, services, or solutions that have a significant positive impact and value.
Purpose: To develop new ideas and technologies that increase productivity and generate greater output and value with the same input.
Importance: Innovation can lead to higher customer satisfaction and increased revenue.
Characteristics
- Relative advantages
- Compatibility
- Complexity vs. simplicity
- Trialability
- Observability
Innovation Strategy: An innovation strategy is the plan used by a company to encourage advancements in technology or services, usually by investing money in research and development activities.
Integration Strategy
Integration strategies are processes that businesses can use to enhance their competitiveness, efficiency, or market share by expanding their influence into new areas.
Types of Integration Strategies
- Backward vertical integration
- Conglomerate integration
- Forward vertical integration
- Horizontal integration
An integration strategy refers to a company’s approach to aligning its operations with another company.
Goals: The goal of strategic integration is to align the day-to-day activities of the organization with its mission statement.
Advantages
- Reduce costs and increase efficiency
- Improve the end-user experience
- Enable business agility and change
- Provide insights and situational awareness
- Build differentiation via innovation
Challenges: Strategic integration challenges leaders to think beyond strategic planning and focus on essential elements for successful strategy implementation.
Advantages
- Increasing market share
- Reducing competition
- Creating economies of scale
Disadvantages
- Regulatory scrutiny
- Less flexibility
- Potential to destroy value rather than create it
Diversification
Diversification is a corporate strategy to enter new product lines, new services, or new markets, involving substantially different skills, technology, and knowledge.
Types
- Concentric
- Horizontal
- Vertical
- Conglomerate
Importance: Diversification strategy in marketing expands your business into new markets, products, or services different from your current offerings.
Levels of Diversification
- Lower-level diversification
- Moderate-level diversification
- High-level diversification
Challenges
- Losing focus
- Diluting your brand identity
- Increasing your costs and complexity
- Facing more competition
- Failing to meet customer expectations
Turnaround Strategies
A turnaround strategy is a process of restructuring and transforming a company from loss to profitability. It is a comprehensive plan implemented by a company facing financial distress or underperformance to revitalize its operations and restore profitability.
Types of Turnaround Strategy
- Traditional asset cost surgery
- Product market pruning
- Piecemeal strategies
Aim: The primary aim of a turnaround strategy is to revive a struggling business, restore profitability, and ensure its long-term sustainability.
Role: Turnaround management transforms a declining organization into a profitable firm by recognizing its leadership, processes, and finances.
Cycle
- Vision
- Mission
- Objectives
- Strategy
- Approach
- Tactics
Turnaround Situation: A complete change from a bad situation to a good one, from one way of thinking to an opposite way of thinking, etc.
Strategy Implementation
Strategy implementation encompasses the activities within a workplace or organization designed to manage the delivery of a strategic plan. It is the process of turning your strategic plan into action.
Activities
- Strategy articulation
- Strategy validation
- Strategy communication
- Strategy monitoring
- Strategy engagement
Pillars
- Vision
- Analysis
- Target
- Plan
Killers of Strategy Implementation
- Top-down or laissez-faire senior management style
- Unclear strategy and conflicting priorities
- An ineffective senior management team
Stages
- Formulation
- Implementation
- Evaluation
Components
- Project leadership
- Communication
- Education
- Running a pilot
Operationalizing Strategy
Operationalizing strategy is how an organization decides how it will produce and deliver its goods or services. The operationalization of the strategy describes the interface between the strategy and its implementation. It is based on the overall concept, strategic goals, and the essential question about the purpose, as well as the financial and regulatory framework. An operationalization plan helps leadership make intelligent decisions about their time and investments. The strategic plan sets the direction, and all activities should be measured against, aligned with, and driven by the plan. The operation strategy is the gateway between the formulation and implementation of the strategy, based on the concepts of common or strategic goals. The main focus of this strategy is to direct action plans, and operationalization represents focus, clarity, change, and innovation.
Elements/Components of Operations Strategy
- Establish goals and objectives
- Align operations with business strategy
- Process design and optimization
- Capacity planning and resource allocation
- Supply chain management
- Quality control and continuous improvement