Introducing strategy and strategic management

Prepared by Rohan Wickremasinghe AIB (SL), Dip Mgt., MBA (SGU), Dip B. (BPUSL) Introducing strategy Strategies are the means to an organizations objectives. Whilst an organization will have an existing strategy, it may not be explicit. Whilst established objectives may be used to determine strategies to achieve them (what we know as intended strategies) the actual strategies being pursued and the level of success determines the level of overall achievement. Generally speaking, both strategies and objectives evolve and emerge as problems are identified and resolved, and opportunities are identified and exploited. Research suggests that existing strategies frequently evolve incrementally with decisions and changes in various parts of the organization rather than changes being the result of a formal planning system, i.e. strategic change in reality is often a gradual process. There is likely to be, however, an overall strategic direction dictated by top management and this will aim to create and sustain a match or fit between the organization and its environment. Environmental crises or changes at the top may well cause a change in the overall direction. The direction is often reflected in corporate mission and vision statements. Formal planning or corporate planning does have a useful role in helping carry out strategic analyses, and in assessing alternative course of action, but, quite simply, there is more to strategic management than planning. The courses followed by an organization are heavily influenced by the values held by people within the organization. Logically, these values come from the top. Levels of strategy: corporate competitive and functional strategies It is important to distinguish between: Corporate strategy which is deciding what businesses the organization should be in and how the overall group should be managed. It can be defined as: the overall plan for a diversified company and it represents the total perspective of the business.

Competitive strategy which is concerned with creating and maintaining a competitive advantage in each and every area of business a clear and defensible edge which distinguishes an organization from its rivals. It must be looked at from the position of individual products or services or business units. Competitive advantage can be achieved from any one or a combination of the functions of the organization, for example technology lead, quality management, distribution system, low borrowing costs. Functional strategies designed also to inter-relate and contribute to the organizational whole, are an important third level. The three levels are linked and inter-dependent. Whilst changes to the corporate strategy are typically senior management decisions, all managers can influence change at the competitive and functional levels hence all managers are strategy makers. The strategic management process Strategic management is the process by which an organization establishes its objectives, formulates actions designed to achieve these objectives in the desired timescale, implements the actions and assesses progress and results. At the heart of it is strategic awareness: Understanding the organizations strengths and weaknesses normally relative to any competition. Appreciating threats and potential threats to the organization and competitive opportunities for it within its environment. This, in turn, requires an understanding of the relative power and influence of the various stakeholders in the business. Being able to identify and evaluate suitable changes again, ahead of competitors. There is also the element of management The way the organization is structured to harness, co-ordinate and control resources. The way people are treated and managed.

Effective strategic management requires an organization to be (always) considering the following issues: Where are we now? Where do we want to go? How are we going to get there? Getting There. What do we have to do? Have we got there? If not, why not?

Issues and challenges There are a number of major issues or challenges for organizations in the twenty-first century, including the following:

The need for many businesses to develop a culture of change orientation without losing internal cohesion and stability. This implies an explicit and shared vision of where the organization is heading. The need to improve performance continually with existing competitive strategies (continuous change) whilst looking for opportunities to create (radically) new competitive strategies ahead of competitors (discontinuous change). The need to decentralize and give managers more delegated authority whilst not losing sight (at chief executive level) of the changes they are introducing. The trade-off between such empowerment (designed to make the business more effective in its relations with all its stakeholders) and the greater efficiencies often yielded by centralized control and the systems which harness the latest information technology. The need to act quickly in response to opportunities and threats, but not at the expense of product and service quality achieving high quality at the same time as cutting costs and improving efficiencies.

These five challenges are all related. Finally, the dilemma of economic recessions. Organizations must cut back, control their costs and accept lower margins as supply potential exceeds demand in many industries. Profits fall. Paradoxically, those organizations which are able to consolidate and invest strategically during the recession will be best prepared for the economic upturn. Three analytical frameworks Strategic management involves: awareness choice of new strategies implementing current and new strategies

All of the decisions are affected by the strategic leadership and organization culture. Strategic effectiveness depends upon: strategic awareness and learning (affecting strengths, weaknesses, opportunities, threats); strategy content the ability of the organization to exploit its resources and competencies to add value for customers, create and sustain competitive advantage; processes for managing change encapsulating strategic vision (frequently driven by the strategic leader), planning, and responsiveness in a dynamic competitive environment.

The challenge facing organizations involves changing strategies (content) both continuously and discontinuously (process) whilst dealing with the important issues or challenges they face. Visionary leadership and entrepreneurialism It is not essential for leaders to be visionary but many argue that the most entrepreneurial organizations have visionaries at their head. These organizations are the ones which are growth-oriented and willing to take risks, at least up to a certain level. Ineffective leadership Poor strategic leadership is typically reflected by low competitiveness (the organizations marketing is relatively weak), inadequate financial strengths (low profitability through costs which are too high; or a poor cash flow) and inappropriate decisions which can range from not making changes when strategies have drifted from being relatively strong to relatively weak, to the pursuit of over-ambitious strategies which stretch the organizations resources too far.