The Strategic Management Model: Businesses vary in the processes they use to formulate and direct their strategic management activities. Sophisticated planners, such as General Electric, Procter & Gamble, and IBM, have developed more detailed processes than less formal planners of similar size. Small businesses that rely on the strategy formulation skills and limited time of an entrepreneur typically exhibit more basic planning concerns than those of larger firms in their industries. Understandably, firms with multiple products, markets, or technologies tend to use more complex strategic management systems.
However, despite differences in detail and the degree of formalization, the basic components of the models used to analyze strategic management operations are very similar. Components of the Strategic Management Model This section will define and briefly describe the key components of the strategic management model. Each of these components will receive much greater attention in a later chapter. The intention here is simply to introduce them. 1. Company Mission The mission of a company is the unique purpose that sets it apart from other companies of its type and identifies the scope of its operations.In short, the company mission describes company mission.
The unique purpose that sets a company apart from others of its type and identifies the scope of its operations. 2. Internal Analysis The company analyzes the quantity and quality of the company’s financial, human, and physical resources. It also assesses the strengths and weaknesses of the company’s management and organizational structure. Finally, it contrasts the company’s past successes and traditional concerns with the company’s current capabilities in an attempt to identify the company’s future capabilities. . External Environment A firm’s external environment consists of all the conditions and forces that affect its strategic options and define its competitive situation.
The strategic management model shows the external environment as three interactive segments: the remote, industry, and operating environments. 4. Strategic Analysis and Choice Simultaneous assessment of the external environment and the company profile enables a firm to identify a range of possibly attractive interactive opportunities.These opportunities are possible avenues for investment. However, they must be screened through the criterion of the company mission to generate a set of possible and desired opportunities. This screening process results in the selection of options from which a strategic choice is made. The process is meant to provide the combination of long-term objectives and generic and grand strategies that optimally position the firm in its external environment to achieve the company mission.
Strategic analysis and choice in single or dominant product/service businesses center around identifying strategies that are most effective at building sustainable competitive advantage based on key value chain activities and capabilities—core competencies of the firm. Multibusiness companies find their managers focused on the question of which combination of businesses maximizes shareholder value as the guiding theme during their strategic analysis and choice. 5. Long-Term ObjectivesThe results that an organization seeks over a multiyear period are its long-term objectives. Such objectives typically involve some or all of the following areas: profitability, return on investment, competitive position, technological leadership, productivity, employee relations, public responsibility, and employee development. 6. Generic and Grand Strategies Many businesses explicitly and all implicitly adopt one or more generic strategies characterizing their competitive orientation in the marketplace.
Low cost, differentiation, or focus strategies define the three fundamental options. Enlightened managers seek to create ways their firm possesses both low cost and differentiation competitive advantages as part of their overall generic strategy. They usually combine these capabilities with a comprehensive, general plan of major actions through which their firm intends to achieve its long-term objectives in a dynamic environment. Called the grand strategy, this statement of means indicates how the objectives are to be achieved.Although every grand strategy is, in fact, a unique package of long-term strategies, 15 basic approaches can be identified: concentration, market development, product development, innovation, horizontal integration, vertical integration, joint venture, strategic alliances, consortia, concentric diversification, conglomerate diversification, turnaround, divestiture, bankruptcy, and liquidation. 7. Short-Term Objectives & Action Plans Short-term objectives are the desired results that a company seeks over a period of one year or less.
They are logically consistent with the firm’s long-term objectives.Companies typically have many short-term objectives to provide guidance for their functional and operational activities. Thus, there are short-term marketing activities, raw material usage, employee turnover, and sales objectives, to name just four. Action plans translate generic and grand strategies into “action” by incorporating four elements. First, they identify specific actions to be undertaken in the next year or less as part of the business’s effort to build competitive advantage. Second, they establish a clear timeframe for completion of each action.Third, action plans create accountability by identifying who is responsible for each “action” in the plan.
Fourth, each “action” has one or more specific, immediate objectives that the action should achieve. 8. Functional Tactics Within the general framework created by the business’s generic and grand strategies, each business function needs to undertake activities that help build a sustainable competitive advantage. These short-term, limited-scope plans are called functional tactics. A radio ad campaign, an inventory reduction, and an introductory loan rate are examples of tactics.Managers in each business function develop tactics that delineate the functional activities undertaken in their part of the business and usually include them as a core part of their action plan. Functional tactics are detailed statements of the “means” or activities that will be used to achieve short-term objectives and establish competitive advantage.
9. Policies That Empower Action Speed is a critical necessity for success in today’s competitive, global marketplace. One way to enhance speed and responsiveness is to force/allow decisions to be made whenever possible at the lowest level in organizations.Policies are broad; precedent-setting decisions that guide or substitute for repetitive or time-sensitive managerial decision making. Creating policies that guide and “preauthorize” the thinking, decisions, and actions of operating managers and their subordinates in implementing the business’s strategy is essential for establishing and controlling the ongoing operating process of the firm in a manner consistent with the firm’s strategic objectives. Policies often increase managerial effectiveness by standardizing routine decisions and empowering or expanding the discretion of managers and subordinates in implementing business strategies.The following are examples of the nature and diversity of company policies: A requirement that managers have purchase requests for items costing more than $5,000 cosigned by the controller.
The minimum equity position required for all new McDonald’s franchises. The standard formula used to calculate return on investment for the six strategic business units of General Electric. A decision that Sears’s service and repair employees have the right to waive repair charges to appliance customers they feel have been poorly served by their Sears appliance. 0. Restructuring, Reengineering, and Refocusing the Organization Until this point in the strategic management process, managers have maintained a decidedly market-oriented focus as they formulate strategies and begin implementation through action plans and functional tactics. Now the process takes an internal focus—getting the work of the business done efficiently and effectively so as to make the strategy successful. What is the best way to organize ourselves to accomplish the mission? Where should leadership come from?What values should guide our daily activities—what should the organization and its people be like? How can we shape rewards to encourage appropriate action? The intense competition in the global marketplace has made this traditionally “internally focused” set of questions—how the activities within their business are conducted—recast them with unprecedented attentiveness to the marketplace.
Downsizing, restructuring, and reengineering are terms that reflect the critical stage in strategy implementation wherein managers attempt to recast their organization.The company’s structure, leadership, culture, and reward systems may all be changed to ensure cost competitiveness and quality demanded by unique requirements of its strategies. 11. Strategic Control and Continuous Improvement Strategic control is concerned with tracking a strategy as it is being implemented, detecting problems or changes in its underlying premises, and making necessary adjustments. In contrast to post action control, strategic control seeks to guide action on behalf of the generic and grand strategies as they are taking place and when the end results are still several years away.The rapid, accelerating change of the global marketplace of the last 10 years has made continuous improvement another aspect of strategic control in many organizations. Continuous improvement provides a way for managers to provide a form of strategic control that allows their organization to respond more proactively and timely to rapid developments in hundreds of areas that influence a business’s success.
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