Strategic Management: A Comprehensive Guide for Businesses
Strategic Management
Strategist & Entrepreneur
Strategy involves adapting resources and organizational skills to the changing environment, capitalizing on opportunities, and assessing risks in relation to objectives and goals.
Formulation
Strategic planning contributes to strategy formulation, distinct from the classical stages of the administrative process. The classical process serves as a starting point for defining strategic direction.
The strategic process has two phases:
- Intelligence Phase
- Design, Evaluation, and Selection of Strategies Phase
Intelligence Phase
Objective: Detect the presence or absence of a strategic problem, also known as a strategic gap. A gap exists when future strategic objectives cannot be achieved with the current strategy.
Detecting the Gap: Conduct a strategic assessment (awareness of the external and internal environment) through a dual analysis.
Design, Development, and Selection of Strategies Phase
Strategies are designed considering the following factors:
- Industry Type
- Enterprise Lifecycle
- Competitive Advantage
Rationale:
- The chosen strategy should enable the achievement of established goals.
- The strategy must be feasible, meaning it has the necessary resources.
Implementation
Implementation involves all managers and employees. Engaging those familiar with the entire business (middle management) fosters belief in the strategy’s benefit to the company.
Aim: Enable all employees to function as a successful team and contribute to the process.
Evaluation of the Strategy
Evaluation is crucial as today’s success does not guarantee future success. A strategy should be flexible to accommodate necessary changes.
Intuition and Strategic Planning
Information management complements planning and enhances creativity.
Intuition: Employed when sufficient information is available.
Planning: Enables company success in a changing environment (adaptability).
Strategist
An individual with general knowledge and responsibility for the company’s success or failure. This could be the General Manager or other managers. They must possess leadership in a significant part of the business process.
Mission and Vision
Mission: Defines the company’s purpose. It outlines how the company will achieve its vision and differentiate itself from others.
Vision: Defines the company’s long-term aspirations.
Opportunities and Threats
These are fundamental to strategic design.
Goal: Maximize external opportunities and minimize the impact of external threats, which are beyond the company’s control.
Concept: Economic, political, environmental, social, cultural, and legal factors that can positively or negatively affect a company.
Strengths and Weaknesses
These are internal drivers of the company, identified through product and company analysis. They are classified as either efficient or impaired.
Strengths and weaknesses are specific, measurable, and quantifiable outcomes that contribute to achieving the mission and vision. They provide a roadmap for personnel, ensuring alignment with desired achievements.
Evaluation
Evaluation aids the strategic process. Objectives should be efficient, fair, and aligned with the mission and vision. They serve to motivate staff.
Short-term (annual) objectives are crucial for achieving long-term objectives and establishing the implementation process. They should be challenging, measurable, realistic, and consistent with the mission and vision.
Company Policies
Policies ensure consistency and coordination within and between departments, preventing bottlenecks and ensuring that one department’s work does not negatively impact another.
Benefits of Strategic Management
Allows the company to be proactive: React before events occur. Provides a range of decision-making options (increases creativity).
Financial Benefits: Enhanced growth, proactive performance improvement, and increased profitability.
Non-Financial Benefits: Increased productivity, improved work environment, enhanced employee satisfaction, opportunity for employee input on company direction, reduced fear of change, improved control, minimized impact of adverse changes, and more effective communication channels.
Dysfunctional Aspects
Lack of an adequate reward structure can hinder strategic plan success. A poor organizational structure is a major impediment. Addressing crises is more important than a strategic plan. Viewing strategic planning as a waste is detrimental. Strategic planning should be seen as a long-term investment.
Lack of experience with strategic planning, lengthy development processes, and resistance to planning can also be problematic. Strategists should avoid dismissing opposing viewpoints.
Business Ethics and Strategic Management
Strategists must strike a balance between comprehensiveness and detail in information gathering.
Mission and Vision
Mission: Defines the company’s desired future state.
Vision: Defines the company’s long-term goals.
Mission: Considers stakeholders such as customers, shareholders, employees, and the community.
Vision: Outlines the desired future state.
Overview: Should be comprehensive without excessive detail.
Developing the Mission Statement
- Distribute existing mission statements, analyze them, and create a single statement for the firm.
- Appoint a committee to prepare the document.
- Hold a session for review and adoption. It is recommended to involve someone familiar with the company rather than external consultants.
Facilitating Evaluation and Implementation
Creates an emotional bond between managers and employees, fostering a sense of shared mission.
Importance of Mission and Vision Statements
- Unanimity: Provides a clear direction for the company.
- Resource Allocation: Sets a standard for allocating resources effectively.
- Corporate Environment: Fosters a positive and aligned work environment.
- Employee Identification: Helps employees identify with the company’s purpose.
- Counterarguments: Provides a basis for addressing disagreements.
- Task Conversion: Translates objectives into tasks, procedures, and responsibilities.
Characteristics of Mission and Vision Statements
- Broad Scope: Avoids limiting creativity while remaining focused.
- Inclusive: Reconciles the interests of various stakeholder groups.
- Specific Purpose: Expresses clear and measurable goals (e.g., increase market share by 15%).
- Concise: Avoids excessive length.
- Customer-Oriented: Focuses on meeting customer needs.
- Dynamic: Allows for growth and adaptation.
Customer Orientation
Companies should be proactive in understanding and meeting customer needs. For example, instead of simply offering clothing, emphasize the attractive appearance it provides.
Impact of Corporate Social Responsibility
- Social Policy Statement: Outlines the company’s commitment to social responsibility.
- Societal Impact: Considers the impact of the company on society and promotes mutually beneficial partnerships. Encourages participation in socially responsible activities that generate economic benefits. Supports projects outside of working hours to increase employee engagement and identification with the company.
Components of a Mission Statement
- Customers
- Products/Services
- Technology
- Interest in survival, growth, and profitability
- Philosophy, beliefs, values, aspirations, ethical priorities
- Competitive advantages
- Market
- Public image and social responsibility
Audit Structure
- External Audit
- Vision and Mission
- Long-Term Objectives
- Internal Audit
External Audit Objective
Identify opportunities and minimize the impact of threats.
- Consumer Spending and Preferences: Study the market and balance of payments, including exports and imports of goods. Analyze the current account (goods and services, unilateral transfers, donations) and capital account (capital inflows, loans).
- Public Sector Deficit: Evaluate the government’s credit policy and its impact on the economy. Analyze economic integration policies, from basic levels (free trade agreements) to higher levels of integration (e.g., the European Union).
- Social, Cultural, and Demographic Forces: Consider population demographics (age, tastes), the value placed on leisure time, average education level, attitudes towards the government, recreation, and foreigners.
- Government Policies and Laws: Analyze government subsidies and regulations. Engage in dialogue with policymakers. Evaluate military spending.
- Technology: Assess the impact of technological advancements, such as the internet, on product lifecycles.
- Competitive Forces: Analyze the development of substitute products, bargaining power of suppliers and consumers, rivalry among competitors, and the entry of new competitors.
Rivalry among competitors increases when they are similar in size and capacity, especially when demand decreases or prices are lowered. Companies must monitor the entry of new competitors.
Development of Substitute Products: Ideally, a product has no substitutes. The emergence of substitutes limits pricing power.
Bargaining Power of Suppliers: Increases in the absence of substitutes, as suppliers become the sole providers. Backward integration (in-house production) can mitigate this.
Bargaining Power of Consumers: Increases when consumers are concentrated, can purchase in large quantities, have access to substitute products, and have access to price information (e.g., through the internet).
Forecasts
Forecasting tools, based on assumptions, are used to evaluate strategies and anticipate competitor actions.
Regression: Utilizes statistical techniques, both linear and nonlinear.
Assumptions: Managerial assumptions are based on the quality of information used for decision-making.
Global Challenge
Internationalizing production processes to reduce costs and producing goods in different countries.
Strategic Management Model
- External Audit
- Vision and Mission
- Long-Term Objectives
- Strategy Creation and Selection
- Strategic Implementation across departments
- Measurement and Evaluation
- Internal Audit