Strategic Management: Meaning, Definition, Evolution, process, Levels of strategy

In this article we will discuss about Introduction to Strategic Management Meaning   Definition of Strategy, Strategic Management, Evolution of Strategic Management, Strategic Management process, Levels of strategy.

Strategic Management – Meaning Definition and Important Concepts

Strategic Management Meaning – An Introduction

Strategic Management is all about identification and description of the strategies that managers can carry so as to achieve better performance and a competitive advantage for their organization.

An organization is said to have competitive advantage if its profitability is higher than the average profitability for all companies in its industry.

Strategic management can also be defined as a bundle of decisions and acts which a manager undertakes and which decides the result of the firm’s performance.

The manager must have a thorough knowledge and analysis of the general and competitive organizational environment so as to take right decisions.

The managers should conduct a SWOT Analysis (Strengths, Weaknesses, Opportunities, and Threats) in order to – make the best possible utilization of strengths, minimize the organizational weaknesses, make use of arising opportunities from the business environment and shouldn’t ignore the threats.

Strategic management is nothing but planning for both predictable as well as unfeasible contingencies. It is applicable to both small as well as large organizations as even the smallest organization face competition and, by formulating and implementing appropriate strategies, they can attain sustainable competitive advantage.

It is a way in which strategists set the objectives and proceed about attaining them.

It deals with making and implementing decisions about future direction of an organization. It helps us to identify the direction in which an organization is moving.

Strategic management is a continuous process that:

1. evaluates and controls the business and the industries in which an organization is involved;
2. evaluates its competitors and sets goals and strategies to meet all existing and potential competitors; and then
3. re-evaluates strategies on a regular basis to determine how it has been implemented and whether it was successful or does it needs replacement

Strategic Management gives a broader perspective to the employees of an organization and they can better understand how their job fits into the entire organizational plan and how it is co-related to other organizational members.

It is nothing but the art of managing employees in a manner which maximizes the ability of achieving business objectives.

The employees become more trustworthy, more committed and more satisfied as they can co-relate themselves very well with each organizational task.

They can understand the reaction of environmental changes on the organization and the probable response of the organization with the help of strategic management.

Thus the employees can judge the impact of such changes on their own job and can effectively face the changes. The managers and employees must do appropriate things in appropriate manner. They need to be both effective as well as efficient.

One of the major role of strategic management is to incorporate various functional areas of the organization completely, as well as, to ensure these functional areas harmonize and get together well.

Another role of strategic management is to keep a continuous eye on the goals and objectives of the organization.

Strategy Management Definition and Features

Strategic Management meaning definition

The word “strategy” is derived from the Greek word “strategos”; stratus (meaning army) and “ago” (meaning leading/moving).

Strategy is an action that managers take to attain one or more of the organization’s goals.

Strategy can also be defined as “A general direction set for the company and its various components to achieve a desired state in the future. Strategy results from the detailed strategic planning process”.

A strategy is all about integrating organizational activities and utilizing and allocating the scarce resources within the organizational environment so as to meet the present objectives.

While planning a strategy it is essential to consider that decisions are not taken in a vaccum and that any act taken by a firm is likely to be met by a reaction from those affected, competitors, customers, employees or suppliers.

Strategy can also be defined as knowledge of the goals, the uncertainty of events and the need to take into consideration the likely or actual behavior of others.

Strategy is the blueprint of decisions in an organization that shows its objectives and goals, reduces the key policies, and plans for achieving these goals, and defines the business the company is to carry on, the type of economic and human organization it wants to be, and the contribution it plans to make to its shareholders, customers and society at large.

Features of Strategy

1. Strategy is Significant because it is not possible to foresee the future. Without a perfect foresight, the firms must be ready to deal with the uncertain events which constitute the business environment.

2. Strategy deals with long term developments rather than routine operations, i.e. it deals with probability of innovations or new products, new methods of productions, or new markets to be developed in future.

3. Strategy is created to take into account the probable behavior of customers and competitors. Strategies dealing with employees will predict the employee behavior.

Strategy is a well defined roadmap of an organization. It defines the overall mission, vision and direction of an organization. The objective of a strategy is to maximize an organization’s strengths and to minimize the strengths of the competitors.

Strategy, in short, bridges the gap between “where we are” and “where we want to be”.

Components of a Strategy Statement

The strategy statement of a firm sets the firm’s long-term strategic direction and broad policy directions. It gives the firm a clear sense of direction and a blueprint for the firm’s activities for the upcoming years. The main constituents of a strategic statement are as follows:

1. Strategic Intent

   An organization’s strategic intent is the purpose that it exists and why it will continue to exist, providing it maintains a competitive advantage. Strategic intent gives a picture about what an organization must get into immediately in order to achieve the company’s vision. It motivates the people. It clarifies the vision of the vision of the company.

   Strategic intent helps management to emphasize and concentrate on the priorities. Strategic intent is, nothing but, the influencing of an organization’s resource potential and core competencies to achieve what at first may seem to be unachievable goals in the competitive environment.

   A well expressed strategic intent should guide/steer the development of strategic intent or the setting of goals and objectives that require that all of organization’s competencies be controlled to maximum value.

   Strategic intent includes directing organization’s attention on the need of winning; inspiring people by telling them that the targets are valuable; encouraging individual and team participation as well as contribution; and utilizing intent to direct allocation of resources.

   Strategic intent differs from strategic fit in a way that while strategic fit deals with harmonizing available resources and potentials to the external environment, strategic intent emphasizes on building new resources and potentials so as to create and exploit future opportunities.

2. Mission Statement

   Mission statement is the statement of the role by which an organization intends to serve it’s stakeholders. It describes why an organization is operating and thus provides a framework within which strategies are formulated. It describes what the organization does (i.e., present capabilities), who all it serves (i.e., stakeholders) and what makes an organization unique (i.e., reason for existence).

   A mission statement differentiates an organization from others by explaining its broad scope of activities, its products, and technologies it uses to achieve its goals and objectives. It talks about an organization’s present (i.e., “about where we are”).

   For instance, Microsoft’s mission is to help people and businesses throughout the world to realize their full potential.

   Wal-Mart’s mission is “To give ordinary folk the chance to buy the same thing as rich people.”

   Mission statements always exist at top level of an organization, but may also be made for various organizational levels. Chief executive plays a significant role in formulation of mission statement. Once the mission statement is formulated, it serves the organization in long run, but it may become ambiguous with organizational growth and innovations.

   In today’s dynamic and competitive environment, mission may need to be redefined. However, care must be taken that the redefined mission statement should have original fundamentals/components.

   Mission statement has three main components- a statement of mission or vision of the company, a statement of the core values that shape the acts and behaviour of the employees, and a statement of the goals and objectives.

   Features of a Mission

   1. Mission must be feasible and attainable. It should be possible to achieve it.
   2. Mission should be clear enough so that any action can be taken.
   3. It should be inspiring for the management, staff and society at large.
   4. It should be precise enough, i.e., it should be neither too broad nor too narrow.
   5. It should be unique and distinctive to leave an impact in everyone’s mind.
   6. It should be analytical,i.e., it should analyze the key components of the strategy.
   7. It should be credible, i.e., all stakeholders should be able to believe it.

3. Vision

   A vision statement identifies where the organization wants or intends to be in future or where it should be to best meet the needs of the stakeholders. It describes dreams and aspirations for future.

   For instance, Microsoft’s vision is “to empower people through great software, any time, any place, or any device.” Wal-Mart’s vision is to become worldwide leader in retailing.

   A vision is the potential to view things ahead of themselves. It answers the question “where we want to be”. It gives us a reminder about what we attempt to develop. A vision statement is for the organization and it’s members, unlike the mission statement which is for the customers/clients. It contributes in effective decision making as well as effective business planning.

   It incorporates a shared understanding about the nature and aim of the organization and utilizes this understanding to direct and guide the organization towards a better purpose. It describes that on achieving the mission, how the organizational future would appear to be.

   An effective vision statement must have following features-

   1. It must be unambiguous.
   2. It must be clear.
   3. It must harmonize with organization’s culture and values.
   4. The dreams and aspirations must be rational/realistic.
   5. Vision statements should be shorter so that they are easier to memorize.

   
   

   In order to realize the vision, it must be deeply instilled in the organization, being owned and shared by everyone involved in the organization.

4. Goals and Objectives

   A goal is a desired future state or objective that an organization tries to achieve. Goals specify in particular what must be done if an organization is to attain mission or vision. Goals make mission more prominent and concrete. They co-ordinate and integrate various functional and departmental areas in an organization. Well made goals have following features-

   1. These are precise and measurable.
   2. These look after critical and significant issues.
   3. These are realistic and challenging.
   4. These must be achieved within a specific time frame.
   5. These include both financial as well as non-financial components.

   Objectives are defined as goals that organization wants to achieve over a period of time. These are the foundation of planning. Policies are developed in an organization so as to achieve these objectives. Formulation of objectives is the task of top level management. Effective objectives have following features-

   1. These are not single for an organization, but multiple.
   2. Objectives should be both short-term as well as long-term.
   3. Objectives must respond and react to changes in environment, i.e., they must be flexible.
   4. These must be feasible, realistic and operational.

Importance of Vision and Mission Statements

One of the first things that any observer of management thought and practice asks is whether a particular organization has a vision and mission statement. In addition, one of the first things that one learns in a business school is the importance of vision and mission statements.

This article is intended to elucidate on the reasons why vision and mission statements are important and the benefits that such statements provide to the organizations.

It has been found in studies that organizations that have lucid, coherent, and meaningful vision and mission statements return more than double the numbers in shareholder benefits when compared to the organizations that do not have vision and mission statements. Indeed, the importance of vision and mission statements is such that it is the first thing that is discussed in management textbooks on strategy.

Some of the benefits of having a vision and mission statement are discussed below:

• Above everything else, vision and mission statements provide unanimity of purpose to organizations and imbue the employees with a sense of belonging and identity. Indeed, vision and mission statements are embodiments of organizational identity and carry the organizations creed and motto. For this purpose, they are also called as statements of creed.

• Vision and mission statements spell out the context in which the organization operates and provides the employees with a tone that is to be followed in the organizational climate. Since they define the reason for existence of the organization, they are indicators of the direction in which the organization must move to actualize the goals in the vision and mission statements.

• The vision and mission statements serve as focal points for individuals to identify themselves with the organizational processes and to give them a sense of direction while at the same time deterring those who do not wish to follow them from participating in the organization’s activities.

• The vision and mission statements help to translate the objectives of the organization into work structures and to assign tasks to the elements in the organization that are responsible for actualizing them in practice.

• To specify the core structure on which the organizational edifice stands and to help in the translation of objectives into actionable cost, performance, and time related measures.

• Finally, vision and mission statements provide a philosophy of existence to the employees, which is very crucial because as humans, we need meaning from the work to do and the vision and mission statements provide the necessary meaning for working in a particular organization.

As can be seen from the above, articulate, coherent, and meaningful vision and mission statements go a long way in setting the base performance and actionable parameters and embody the spirit of the organization.

In other words, vision and mission statements are as important as the various identities that individuals have in their everyday lives.

It is for this reason that organizations spend a lot of time in defining their vision and mission statements and ensure that they come up with the statements that provide meaning instead of being mere sentences that are devoid of any meaning.

Evolution of strategic management

 Origin – 1911- Harvard Business School – Integrated Course in Management aimed at providing general management capability.

• Hofer: Strategic Management – A Casebook in Policy and Planning: The Business Policy evolution has undergone four Paradigm Shifts. This transition is of overlapping nature.
• Development of subject of Business Policy has always followed the demands of real life business.
• 1930 -1960: Environment change: New Products: Continuously changing market: Ford Foundation recommended report, by Gordon and Howell, suggested a “Capstone” course of Business Policy which would give the students an opportunity to pull together what they have learned in the separate business fields and utilise this knowledge in the analysis of complex business problems.
• 1969: The course was made mandatory by American Assembly of Collegiate School of Business (AACSB)
• 1990: The course has become an integral part of management education curriculum.

Evolution of Business Policy has undergone four Paradigms

• Paradigm One: Ad-hoc Policy – making.
• 1900 -1930: Era of Mass Production – Maximising output, Normally a Single Product, Standardised and low cost product, catering to unique set of customers servicing limited geographical area – Informal control and co-ordination. The Strategic planning was centred on maximising output.

Paradigm Two – Integrated Policy Formulation.

1930-1940: Changes in Technology, Turbulence in Political environment, Emergence of new industries, Demand for novelty products even at higher costs, Product Differentiation, Market segmentation in increasingly competitive and changing markets. These all made investment decisions increasingly difficult. This was era of integrating all functional areas and framing policies to guide managerial actions.

Paradigm Three – The Concept of Strategy.

• 1940- 1960: Planned policy became irrelevant due to increasingly complex and accelerating changes. Firms had to anticipate environmental changes.
• A strategy needed to be formed with critical look at basic concept of Business and its relationship to the existing environment then.

Paradigm Four – The Strategic Management.

• 1980 & onwards: The focus of Strategic Management is on the strategic process of business firms and responsibilities of general management.
• Everything out side the four walls is changing rapidly and this phenomenon is called as “Discontinuity” by Mr. Peter Drucker. Past experiences are no guarantee as science and technology is moving faster. The future is no more extension of the past or the present.
• The world is substantially compressed and managing the External & Internal environment becomes crucial function.
• What to produce, where to market, which new business to enter, which one to quit and how to get internally stronger and resourceful are the new stakes.
• Strategic Planning is required to be done to endow the enterprise with certain fundamental competencies / distinctive strengths which could take care of eventualities resulting from unexpected environmental changes.

The Indian Scenario:

• However, the evolution of this fourth phase is still continuing and is yet not formed into a theory of how to manage an enterprise. But Strategic Management is a very important tool for and way of thinking to resolve strategic issues.
• The Indian Scenario:
• IIMs and Administrative Staff College of India formed in early sixties were based on American Model. IIM-A is based on Harvard Model. The All India Council of technical Education (AICTE), The Association of Indian Management Schools (AIMS) have recommended a standard curriculum including “Business Policy and Strategic Management” as a compulsory course. Business Policy is the preferred nomenclature but Strategic management is being progressively adapted.

Evolution of Strategic Management in India is divided in three periods

Till 1980: Pre-liberalisation Stage:

• Strategic management on Government fringes.
• Entwining enterprise objectives into the national Planning framework.
• Grabbing opportunities, high diversification, non- competitive scales, and weak technology.
• Secretive & one man Strategic Management Process.

Till 2000: Liberalisation Stage:

• ‘Foreign Complex’ governed strategy.
• Strategy of focus on rationalisation and operations improvement.
• Strategy of growth through acquisitions, internationalisation and product market expansion.
• Employing international consulting firms in Strategic Management.

2000-2010:Post Liberalisation Stage:

• ‘Global maverick’ mindset & Acquire professional skills in Strategic Management and synergise entrepreneurial flair.
• Portfolio rationalisation, entry into emerging sectors.
• Mobilise resources and ensure adequate growth through existing business.
• De-merge businesses as independent companies and improve market capabilities.
• Development of Technology capabilities
• Decentralize organizations, develop institutionalized control mechanism.

STRATEGIC MANAGEMENT PROCESS

The strategic management process means defining the organization’s strategy. It is also defined as the process by which managers make a choice of a set of strategies for the organization that will enable it to achieve better performance.

Strategic management is a continuous process that appraises the business and industries in which the organization is involved; appraises it’s competitors; and fixes goals to meet all the present and future competitor’s and then reassesses each strategy.

Strategic management process has following four steps:

1. Environmental Scanning- Environmental scanning refers to a process of collecting, scrutinizing and providing information for strategic purposes.

   It helps in analyzing the internal and external factors influencing an organization.

   After executing the environmental analysis process, management should evaluate it on a continuous basis and strive to improve it.

2. Strategy Formulation- Strategy formulation is the process of deciding best course of action for accomplishing organizational objectives and hence achieving organizational purpose.

   After conducting environment scanning, managers formulate corporate, business and functional strategies.

3. Strategy Implementation- Strategy implementation implies making the strategy work as intended or putting the organization’s chosen strategy into action.

   Strategy implementation includes designing the organization’s structure, distributing resources, developing decision making process, and managing human resources.

4. Strategy Evaluation- Strategy evaluation is the final step of strategy management process.

   The key strategy evaluation activities are: appraising internal and external factors that are the root of present strategies, measuring performance, and taking remedial/corrective actions.

   Evaluation makes sure that the organizational strategy as well as it’s implementation meets the organizational objectives.

These components are steps that are carried, in chronological order, when creating a new strategic management plan.

Present businesses that have already created a strategic management plan will revert to these steps as per the situation’s requirement, so as to make essential changes.

Components of Strategic Management Process

Strategic management is an ongoing process. Therefore, it must be realized that each component interacts with the other components and that this interaction often happens in chorus.

LEVELS OF STRATEGY

Strategies can be categorized into different levels based on their scope and the organizational level at which they are implemented. The most common levels of strategies are:

1. Corporate-Level Strategy: This level of strategy focuses on the overall direction and scope of the entire organization. It involves decisions related to the organization’s mission, vision, goals, and the allocation of resources across different business units or divisions. Corporate-level strategies often involve decisions about diversification, mergers and acquisitions, strategic alliances, and overall portfolio management.

2. Business-Level Strategy: At this level, strategies are formulated to achieve a competitive advantage within a specific business unit or industry. Business-level strategies focus on how the organization will compete effectively in its chosen market segment. These strategies involve decisions about pricing, product differentiation, cost leadership, target markets, and marketing approaches.

3. Functional-Level Strategy: Functional-level strategies are developed and implemented within individual functional areas or departments of the organization, such as marketing, operations, finance, human resources, and research and development. These strategies support the overall business-level strategies and aim to enhance the effectiveness and efficiency of specific functions. Functional-level strategies may involve decisions regarding resource allocation, process improvement, talent management, and technology adoption within each functional area.

4. Operational-Level Strategy: Operational-level strategies deal with the day-to-day operations and activities of the organization. They focus on improving operational efficiency, reducing costs, and optimizing processes within the organization. These strategies may involve decisions related to supply chain management, production processes, inventory management, quality control, and workforce scheduling.

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