Before entering into the strategic management, let's see what is strategy. Where it came from? It came from the Greek word "Strategia", which refers to the "art of the general". In older days this word is used in the war field. Later only this word was included in the western vernacular. Now a days, what does it mean?
A strategy is defined as "the determination of the basic long term goals of an enterprise and the adaption of courses of action and the allocation of resources necessary for carrying out these goals".
Thus, this definition strictly emphasizes a basic thing, i.e., long term goal. Strategy frames the long term goal which only takes an organization towards the desired results.
Now we will take the next word management. Management refers to "Coordination and oversight of the work activities of others so that their activities are completed efficiently and effectively". Efficiency refers to 'doing things right' and effectiveness refers to 'doing the right things'. It includes four basic functions - Planning, organizing, directing/leading and controlling.
Now by combining both the words we can understand the meaning of strategic management. "It is a set of managerial decisions and actions that determines the long run performance of a corporation".
Thus, it includes:
(I) Environmental scanning (both internal and external),
(II) Strategy formulation (long range planning),
(III) Strategy implementation (organizing/ set up),
(IV) Evaluation and control.
Basically the strategic planning involves a series of phases to evolve. The phases of strategic management includes:
1. Basic financial planning - First the managers initiate serious planning and propose projects (a year's budget) on the basis of very little analysis and information which mostly come from within the organization. Sales force gives only little about environmental information. This is a simplistic operational planning, which only forms the basis for strategic management. Yet it is time consuming one. Normally companies suspend the company activities for weeks together. The time horizon is usually one year.
2. Forecast- based planning - This one year planning won't help much in formulating long term planning. So, managers propose five-year plan, in which all available environmental information ( usually in ad hoc basis) is added and the trend is extrapolated for future. Endless meetings take place and involves managerial activity to make sure all the proposed budgets fit together. But the process gets political as managers compete for large share of funds. The time horizon is usually three to five years.
3. Externally oriented (strategic) planning - The five year plan becomes ineffective and so the top management takes control of planning process and initiates strategic planning. The planning is taken out from the lower level managers and the task is given to consultants who provide sophisticated and innovative techniques, which the planning staff uses and forecast future trends.
4. Strategic management - Realizing even this goes worthless without the input and commitment of lower level managers, planning groups of managers, key employees at various levels and work groups were formed. They develop and integrate a series of strategic plans directed at achieving company's primary objectives. At this point, implementation, evaluation and controlling issues are detailed . Sophisticated annual five-year plan is replaced with strategic thinking at all levels . Now, people at all levels are involved.
General Electric, is the pioneer and they only led the transition from strategic planning to strategic management during the 1980s.
Why a company should take strategic management into account? What are all the benefits a company can derive out of this? Let's see
As said before, strategic management emphasizes long-term performance. Many companies can sustain short term busts but only a few can sustain in long run. For an instance, Forbes listed top 100 companies in 1917, of which only 13 managed to survive till today.
(i) To be successful in the long-run, company must not only satisfy existing market but also adapt to new and marketing changes which is possible through strategic management.
(ii) Many research reveals that organizations that engage in strategic management generally outperform by the attainment of appropriate fit between the organization's environment and its strategy, structure and process which has positive effects on organization's performance.
(iii) Unstable environment inclines the importance of strategic management as it emphasizes on flexibility in terms of strategies and structures.
(iv) It gives clear sense of strategic vision for the firm
(v) It gives sharper focus on what is strategically important
(vi) It helps to understand rapidly changing environment
From these points we understand the benefits of strategic management. But, how to make this? It can be done by answering there simple questions
1. Where are we now?
2. If no steps have been taken, where we will be in 5,10,15 years?
3. If not acceptable, what actions we must take and what are the risks and payoffs associated with it?
By answering these three questions we can make our own strategies!
Thus, by getting all these, can we try to make what are all the features of strategic management!
1. Long term planning ( essential to bring out good results)
2. Consideration of environment (helps to take decision in accordance with environment)
3. Flexibility ( adapting to changing environment)
4. Integration ( integrates goals, objectives in cooperation with internal and external sides of organization)
5. Innovation ( demand, taste and behavioral patterns change often and it helps to frame new strategies)
6. Speed ( can quickly react to the industry changes by adopting strategic management)
7. Determination of alternatives ( can face obstacle easily with many alternatives)
8. Gives guidelines for plan ( Gives framework for plans)
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