MGMT Strategic Management Concepts

profileJIO
ebookC1.pdf

Essential summary

Strategic management is the organization’s management of its overall long-term purpose. It must not be confused with strategy, which is an organization’s overall approach for directing operations to achieve the organization’s long-term purpose. An organization’s strategy must be used to guide and align the formation of sub-strategies in different parts of the organization.

Strategic planning is the process of planning sequencing activities in terms of responsibilities and resources within a given time-frame to be able to progress an organization’s purpose over time.

Strategic change is a step and transformational change that moves an organization to a new and sustainable competitive position and is likely to require changes in existing strategy.

Continuous improvement is organizational learning that sustains and incrementally improves productivity and customer value in daily management, subject to the requirements of an organization’s strategy.

Competitive strategy is a business-level strategy designed to sus- tain a competitive advantage over rivals and potential rivals.

Strategic management1

The management of an organization’s long-term purpose is called strategic management. A distinction is often made between strategic management and operations. However, the management of operations today must take account of the strategic management of tomorrow. So, strategic manage- ment is also about managing an organization in its entirety, including the extent of how operations serve the strategic needs of the organization’s strategy. The components of strategic management are shown in Figure 1.1.

Witcher, B. (2019). Absolute essentials of strategic management. Taylor & Francis Group. Created from erau on 2024-03-25 09:30:26.

C op

yr ig

ht ©

2 01

9. T

ay lo

r &

F ra

nc is

G ro

up . A

ll rig

ht s

re se

rv ed

.

Strategic management 3

Purpose is the basic reason for an organization’s long-term existence, and it is the starting point for understanding an organization in its entirety. Purpose is articulated at the top level, and it is communicated from there through purpose statements of vision, mission, and values (see chapter 2). A situation analysis evaluates an organization’s current external and internal situations (see chapters 3 and 4); these are used to develop strategic objec- tives (see chapter 5). The strategy used to achieve strategic objectives is conditioned by the scale and nature of an organization’s activities, whether single-business (see chapter 6), multi-business (see chapter 7), or global in orientation (see chapter 8). Implementation includes organizing for manag- ing change (see chapter 9) and strategic control, including feedback and learning through strategic performance management (see chapter 10). In the end, the effectiveness of an organization’s strategic management depends on the nature and commitment of top management, its strategic leadership (see chapter 11).

An organization’s top management has the ultimate responsibility for managing the components of strategic management. Of course, everybody

SITUATION ANALYSIS The External Environment The Internal Environment

Strategic Objectives

PURPOSE

STRATEGY Business-level Strategy Corporate-level Strategy

Global-level Strategy

IMPLEMENTATION Strategy Implementation

Strategic Control Strategic Leadership

Figure 1.1 The components of strategic management

Witcher, B. (2019). Absolute essentials of strategic management. Taylor & Francis Group. Created from erau on 2024-03-25 09:30:26.

C op

yr ig

ht ©

2 01

9. T

ay lo

r &

F ra

nc is

G ro

up . A

ll rig

ht s

re se

rv ed

.

4 Strategic management

must be involved to some extent, but it is the senior level that spends most of its time on strategic management (see Figure 1.2). Other levels primarily spend their time on routine management of an operational and functional character. Strategic management therefore must be a top-down directed pro- cess, but this has to be done in ways to facilitate bottom-up decision-making and feedback about the feasibility and progress of strategically related work at operational and functional levels.

A top level’s strategic objectives and strategy to achieve them must be broken down into departmental strategic objectives and strategies and trans- lated into operational objectives and strategies for daily management. This procedural order is sometimes called a strategy hierarchy, and it must be coordinated to ensure that everyone is working to the organization’s purpose.

Strategic planning Strategic planning is the sequencing of strategic management decisions in advance by an executive or senior management. It is a formal analytic pro- cess that provides an organization with a sequenced framework or orga- nizing design to move towards a long-term purpose. At its most simple, strategic planning is equated with POST: Purpose, Objectives, Strategy, and Tactics. At its most complex, strategic planning is known as long-range planning, which examines trends to forecast future events, sometimes far into the future. The high-water mark of long-range planning was during the mid-period of the twentieth century. Forecasting is notoriously difficult: a leading management consultancy, McKinsey & Company, forecast in 1984 that a million mobile phones would be in use by 2000, but the actual number was 741 million.

Strategic Management

Daily Management

Senior Managers

Managers

Supervisors & Operators

Figure 1.2 Time spent on organizational activities

Witcher, B. (2019). Absolute essentials of strategic management. Taylor & Francis Group. Created from erau on 2024-03-25 09:30:26.

C op

yr ig

ht ©

2 01

9. T

ay lo

r &

F ra

nc is

G ro

up . A

ll rig

ht s

re se

rv ed

.

Strategic management 5

Strategy scholars began to question the effectiveness of strategic plan- ning. The most well-known critic is Henry Mintzberg (1994), who argued that strategic plans are changed during their implementation as local strategy emerges. In other words, changes to strategy emerge and alter the intended strategy into a different one (see Figure 1.3) (Mintzberg and Waters, 1985). There is an implementation gap between what a top level intends and what lower levels actually achieve. This is not necessarily a bad thing if the changes are incremental and are a logical response to local conditions – a leading strategy researcher, Brian Quinn (1980), called this tendency logical incrementalism.

Mintzberg and Quinn both argue that strategy formulation (the design of objectives and strategy by top management) followed by its implementa- tion (by the rest of the organization) is really an iterative process of strategy formation. Thus, more pragmatic approaches to strategic planning – which require effective organization-wide feedback and review systems – are nec- essary to enable top management to understand how and why its organiza- tion is implementing and making changes to its strategy.

Today, strategic planning is one of the most popular management approaches, but it is typically used as a vehicle for coordinating decentral- ized strategy-making, which allows lower-level managers to step outside routine pressures to challenge thinking and to redirect their people’s time and resources to a common purpose.

Intended Strategy

�ea���ed Strategy

ded egy

Figure 1.3 Intended strategy into a realized strategy

Witcher, B. (2019). Absolute essentials of strategic management. Taylor & Francis Group. Created from erau on 2024-03-25 09:30:26.

C op

yr ig

ht ©

2 01

9. T

ay lo

r &

F ra

nc is

G ro

up . A

ll rig

ht s

re se

rv ed

.

6 Strategic management

Strategic planning is now understood to be a part of strategic manage- ment. The Baldrige Excellence Framework defines good practice in terms of a set of management principles (NIST):

1 All tasks must be planned properly. 2 Plans must be implemented so that people are working to these plans. 3 Work must be monitored and progress must be reviewed. 4 Necessary action must be taken to account for any deviation from the

plan. 5 Organizations must have structures and management systems to ensure

the above work in practice. 6 Everybody must be involved in these structures and systems.

The first four principles correspond to the order of the Deming Cycle – plan, do, check, act (see chapter 4), while the other two cover the necessary provisions of organizational support and a favourable corporate culture. In addition to these management principles, Baldrige specifies that a strategic plan should have

1 A defined strategy, 2 Action plans derived from this strategy, 3 An awareness and recognition of the differences between short- and

longer-term plans, 4 An approach for developing strategy based on an organization’s external

environment and internal strategic resources, 5 An approach for implementing action plans that considers an organiza-

tion’s key processes and performance measures, and 6 An approach for monitoring and evaluating organizational performance

in relation to the strategic plan.

While Baldrige does not specify a best way for strategic planning, the list emphasizes the parts that strategic management should have.

Strategic change Strategic change is transformational change which aims to move an orga- nization to a new position of performance. It works by focusing energy and resources on a few critical success factors or strategic priorities to achieve a new desired state and market position for an organization. So, the direction of change is guided by a strategy that is designed to achieve a vision of a future state. It requires a small number of strategic objectives which senior managers can realistically manage. Given the demands on top management

Witcher, B. (2019). Absolute essentials of strategic management. Taylor & Francis Group. Created from erau on 2024-03-25 09:30:26.

C op

yr ig

ht ©

2 01

9. T

ay lo

r &

F ra

nc is

G ro

up . A

ll rig

ht s

re se

rv ed

.

Strategic management 7

in terms of attention and time, it is important to keep strategy simple and not to get bogged down in too much detail – otherwise you can’t see the forest for the trees.

According to Jack Welch (2005), a former chief executive of General Electric, strategy is an approximate course of action that the leadership fre- quently revisits and redefines according to shifting market conditions. It is an iterative process. This is consistent with Henry Mintzberg’s view that strategy is a sense of where you are going – in other words, what direction you and your organization are taking to move your organization forward.

Making substantial strategic change should normally be episodic. It typi- cally happens when threats and opportunities in the external and sometimes in the internal environment call for urgent, radical changes to an organiza- tion’s existing strategy and business model. Otherwise, overall purpose and the strategy for achieving it should be stable enough to provide a consistent basis for decision-making in an organization as a whole. When conditions are stable, strategic change is actioned through improvement.

Continuous improvement Change that is continuous is incremental and based on making improve- ments. These are typically driven by a need to sustain and improve pro- ductivity and customer value in daily management. The principle is to stay within a stable business model of an organization’s core value- creating areas of the organization. To ensure that an organization continues to be fit for purpose, a number of key performance indicators (KPIs) along with the strategies and targets to achieve them are laid out, typically in the form of a business plan. These are often misunderstood as strategic plans, but to the extent that the KPIs drive best practice, they are really about improving operational effectiveness. While important to sustaining strategy, the substance of daily management may not be very different from that of rivals.

Competitive strategy Competitive strategy gives an organization an advantage for earning above- average profits within its industry by creating value that is unique compared with that offered by its rivals. This requires a competitive strategy that is sustainable over time. Its role is to integrate and coordinate those organiza- tion’s activities that make the organization different from rivals in what it does and what it offers. A sustainable competitive difference is not simply doing similar activities better than rivals: it is doing those activities in a way that is hard for rivals to copy at an equivalent cost.

Witcher, B. (2019). Absolute essentials of strategic management. Taylor & Francis Group. Created from erau on 2024-03-25 09:30:26.

C op

yr ig

ht ©

2 01

9. T

ay lo

r &

F ra

nc is

G ro

up . A

ll rig

ht s

re se

rv ed

.

8 Strategic management

What is strategy? The terms strategy and strategic management are used interchangeably across teaching courses and textbooks. In fact they are quite different things. The strategy concept is central to strategic management, but like strategic planning, it is only a part of strategic management. Strategy is an approach for directing an organization’s operations to ensure its direction and purpose are sustained over time. It acts as a reference framework for all organiza- tional decision-making by clarifying an organization’s overall priorities and identifying the main options to progress the direction of activities in line with its purpose.

In thinking about strategy, there are two perspectives that are consid- ered individually but which need to come together, especially for effective competitive strategy. One starts with external market positioning; the other, internal strategic resources (see Figure 1.4).

Figure 1.4 Outside-in and inside-out influences on strategy

C��� ������ ���������

������������������ �� ����������� ����������

�� ��������������

������C����

������������������ ���

�������������������

C����C����������

��������C���������

Outside-in direc�on of influence on strategic management

Inside-out direc�on of influence on strategic management

Witcher, B. (2019). Absolute essentials of strategic management. Taylor & Francis Group. Created from erau on 2024-03-25 09:30:26.

C op

yr ig

ht ©

2 01

9. T

ay lo

r &

F ra

nc is

G ro

up . A

ll rig

ht s

re se

rv ed

.

Strategic management 9

The most influential work about competitive strategy comes from Michael Porter of the Harvard Business School. His thinking belongs to a well-established industrial organization tradition dating back to the 1960s; this places an importance on the external environment as a determining influence for successful strategy. It reflects outside-in perspectives and is sometimes referred to as market-based thinking. It starts with an analysis of an industry to determine its attractiveness and the choice of a com- petitive strategy to take advantage of the opportunities. Strategy-related activities are coordinated and optimized through a value chain. The aim is to achieve and sustain a strong competitive position within an organiza- tion’s industry.

Inside-out perspectives centre on an organization’s internal environment and the resource-based view of strategy. Strategic resources are those orga- nizational attributes that combine to give a unique competitive advantage; they are typically core competencies that over time require dynamic capa- bilities to manage them. The aim is to manage an internal fit of strategic resources to create and sustain a unique competitive difference.

Big-picture strategists are perhaps more likely to take an outside-in view of strategy, compared with hands-on strategists who may be inclined to start with inside-out thinking. It is essential for strategic management to have both. While leaders must have an eye on what is happening in the world, the other eye should have a clear view of day-to-day operations – getting the mix right is absolutely essential:

You don’t want to micromanage every little thing and constrain people in your team. But at the same time, you can’t get so preoccupied with a vision or dream . . . It’s essential that I get right into the nitty-gritty of how decisions are being executed and make sure things are moving as fast as I want.

(McKinsey & Company, 2012)

The meaning of strategy is much discussed – from the viewpoint of differ- ent strategy schools (Mintzberg, Ahlstrand, and Lampel, 1998) to its history dating back to the ancient Greeks (Freeman, 2013). A leading strategy aca- demic, Richard Rumelt (2012), gives a good introduction in distinguishing between good strategy and bad strategy.

References Freeman, L. (2013), Strategy: A History, Oxford: Oxford University Press. McKinsey & Company. (2012), Leading in the 21st Century: An interview with

ICICI’s Chanda Kochhar, McKinsey Quarterly, mckinseyquarterly.com

Witcher, B. (2019). Absolute essentials of strategic management. Taylor & Francis Group. Created from erau on 2024-03-25 09:30:26.

C op

yr ig

ht ©

2 01

9. T

ay lo

r &

F ra

nc is

G ro

up . A

ll rig

ht s

re se

rv ed

.

10 Strategic management

Mintzberg, H. (1994), The Rise and Fall of Strategic Planning, London: Prentice Hall. Mintzberg, H., Ahlstrand, B., & Lampel, J. (1998), Strategy Safari, London: Prentice

Hall. Mintzberg, H., & Waters, J. A. (1985), Of strategies, deliberate and emergent, Stra-

tegic Management Journal, 6, 257–272. National Institute of Science & Technology (NIST), Baldrige Quality Framework,

https://www.nist.gov/baldrige/publications/baldrige-excellence-framework Rumelt, R. (2012), Good Strategy, Bad Strategy, London: Profile Books. Quinn, J. B. (1980), Strategies for Change: Logical Incrementalism, Homewood,

IL: Irwin. Welch, J. (with Welch S.) (2005), Winning, London: HarperCollins.

Witcher, B. (2019). Absolute essentials of strategic management. Taylor & Francis Group. Created from erau on 2024-03-25 09:30:26.

C op

yr ig

ht ©

2 01

9. T

ay lo

r &

F ra

nc is

G ro

up . A

ll rig

ht s

re se

rv ed

.