Strategic Management: Formulation, Implementation & Control
Formulation and Implementation of a Strategy
An analysis of the internal and external situation and a SWOT analysis are crucial for developing a company’s vision and mission statements. These statements inform the overall corporate objectives (both financial and strategic) and the objectives of different business units.
The implementation of the strategy involves allocating sufficient resources (financial, personnel, time, technology), establishing a functional structure, assigning responsibility for specific tasks or processes to individuals, and managing the process, including monitoring results.
Strategy formulation and implementation is a continuous process that requires ongoing reassessment and reform. Strategic management is dynamic and involves a complex pattern of actions and reactions.
Diversification Strategy
There are three types of diversification: concentric, horizontal, and conglomerate.
Concentric Diversification
This involves adding new products or services that are related to existing offerings. It is effective when:
- A firm competes in an industry with no growth or slow growth.
- The addition of new, related products can offset seasonal sales fluctuations.
- A company’s products are in the decline stage of the product life cycle.
- A company has a strong management team.
Horizontal Diversification
This involves adding new products or services that are not related to existing offerings but target new customers. It is effective when:
- Revenues from current products or services would increase significantly by adding related products.
- A firm competes in a very competitive or no-growth industry.
- A company’s existing distribution channels can be used to sell new products to existing customers.
Conglomerate Diversification
This involves adding new, unrelated products or services, often with the goal of increasing profits by dismantling acquired companies.
Unit 5
5.1 Strategic Control (Environmental, Utilities, Human Resources, Production, and Markets)
A system that sets benchmarks, rules, methods, and devices for measuring consistency, progress, efficiency, effectiveness, and efficacy in achieving strategic goals. It also allows for a better understanding of crises.
Strategic planning is a program or process that creates the future by developing a long-term plan. This plan outlines the decisions and actions needed to achieve future goals, considering the uncertainty of change, to position the organization competitively against similar entities.
Strategic control is a system based on strategic planning and comprises a set of devices (with or without computer technology) aimed at influencing the plan’s outcome.
A strategic control system answers three key questions for senior management:
- What do we have?
- What do we do?
- How and with whom do we do it?
It’s important to understand the differences between the classical concept of control and the new concept of strategic control.
Strategic Control (Classical)
This involves verifying the past to identify key problems related to achieving the strategic plan, analyzing their causes and effects, and designing corrective actions to ensure smooth progress in the future.
Strategic Control (Modern)
This approach is future-oriented and learns from the principle of error, aiming to identify critical points, pinpoint problems, and design solutions for the organization’s benefit.
Any control system involves measuring, fixing, checking, and planning, whether classical or strategic. However, the strategic control system’s objective is focused on the future.
5.1 Strategic Control (Environmental, Utilities, Human Resources, Production, and Markets)
Environmental Control
Most companies require environmental monitoring to inform their daily operations. It’s essential to know what’s happening within the organization and in the external environment.
Monitoring the Environment
This is an ongoing process in organizations, recording everything that happens and is expected to happen in the external environment. This monitoring provides the information needed to identify emerging opportunities and threats, followed by identifying strengths and weaknesses in responding to them.
This monitoring should be reviewed regularly and cover four environments:
- The macro-environment
- The industrial environment
- The competitive environment
- The internal organizational environment
Macro-environment
Changes in the economy, technological advancements, the political landscape, and society must be considered.
Industrial Environment
Changes in the industry’s structure, financing, the degree of government presence, and engineering are relevant factors.
Competitive Environment
Changes in competitor profiles, market patterns, and commitment to research and development should be considered.
The initial questions to ask are:
- Who is the competition?
- How do they compete?
Production Control
Production control involves making decisions and taking actions necessary to correct the development of a process when it deviates from the plan.
Basic questions for production control:
- What will be done?
- Who will do it?
- How will it be done?
- Where will it be done?
- When will it be completed?
Control is more than planning: Control is the application of various methods and means to ensure the execution of the desired production schedule.
Production planning determines the limits and levels that industry operations should maintain in the future.
Financial Control (Profits)
This provides information about the company’s financial situation and performance in monetary terms, including resources, departments, and activities.
5.2 Developing Contingency Plans
A contingency plan can be developed for many areas of an organization but typically focuses on information systems. It is part of a larger document that includes maintenance plans, backup policies, inventories, and training plans.
Development of a Contingency Plan
This section outlines the plan, including possible alternatives to solve the problem.
Allocation of Responsibilities
This involves identifying and assigning responsibilities to the people involved in the action plan.
Implementation Schedule
This outlines the program’s timeline and determines the appropriate time for plan implementation.
Plan Testing and Simulations
A good contingency plan involves regular testing and simulations of crises. By anticipating potential problems, the contingency plan can be improved or replaced, ensuring its success.
5.3 Analysis Approach for Solving Global Issues
Globalization has allowed companies to operate at a relatively low cost and provides an opportunity to view the world as a single economic and trade entity. It can be seen as a market, a source of inputs, and a suitable space for both production and the acquisition and commercialization of products and services.
Globalization’s most important feature is that it is a dynamic engine of economic growth, with international trade becoming increasingly large and complex.
5.4 Globalization and International Strategic Management
What is globalization? The globalization of management is a daily reality. News reports frequently discuss international trade balances and currency fluctuations. It’s common to read about Japanese companies entering U.S. markets or vice versa.
Globalization requires organizations to adopt a global perspective rather than a local focus.
Worldwide, globalization refers to the growing interdependence among countries, reflected in international flows of goods, services, capital, and knowledge.
Nationally, it concerns the relationship between a nation’s economy and the rest of the world.
Globalization is a process of international growth and global exchange of financial capital, industrial resources, commercial goods, human resources, political ideas, and various business activities between countries.