THE NATURE OF STRATEGIC MANAGEMENT

Table of Contents 1.0 Introduction ...................................................................................................................1 2.0 What is Strategic Management?....................................................................................1 3.0 Levels of Strategies........................................................................................................3 4.0 Stages in Strategic Management....................................................................................4 5.0 Benefits of Strategic Management ................................................................................7 6.0 Nature of Strategic Management ..................................................................................9 7.0 Requirements for Nature of Strategic Management....................................................10 8.0 Approaches to Nature of Strategic Management.........................................................10 9.0 Strategy formation in the Nature of Strategic Management........................................11 10.0 Role of Chief Executive Officer in Strategic Management Process..........................11 11.0 Conclusion.................................................................................................................14 12.0 References..................................................................................................................15

1.0 Introduction
This paper seeks to discuss the nature of strategic management. The paper is organised as follows: first, strategic management is explained. This is followed by a discussion on the levels of strategies then a discussion on the stages of strategic management. Then the benefits of strategic management are discussed followed by the role of CEOs in strategic management process. Then a conclusion is made.

2.0 What is Strategic Management?

A strategy is a long term plan of action designed to achieve a particular goal, most often "winning". Strategy is differentiated from tactics or immediate actions with resources at hand by its nature of being extensively premeditated, and often practically rehearsed. Strategies are used to make the problem or problems easier to understand and solve. Strategy is about choice, which affects outcomes. Organizations can often survive for periods of time in conditions of relative stability, low environmental turbulence and little competition for resources. Virtually none of these conditions prevail in the modern world for great lengths of time for any organization or sector, public or private hence the rationale for strategic management. The nature of the strategy adopted and implemented emerges from a combination of the structure of the organization (loosely coupled or tightly coupled), the type of resources available and the nature of the coupling it has with environment and the strategic objective being pursued. Strategy is adaptable by nature rather than rigid set of instructions. In some situations it takes the nature of emergent strategy. The simplest explanation of this is the analogy of a sports scenario. If a football team were to organize a plan in which the ball is passed in a particular sequence between specifically positioned players, their success is dependent on each of those players both being present at the exact location, and remembering exactly when, from whom and to whom the ball is to be passed; moreover that no interruption to the sequence occurs. By comparison, if the team were to simplify this plan to a strategy where the ball is passed in the pattern alone, between any of the team, and at any area on 1

the field, then their vulnerability to variables is greatly reduced, and the opportunity to operate in that manner occurs far more often. This manner is a strategy. Management is everywhere in our life. Day to day management is required at the personal life as well as in corporate life. Strategic management is related to the formal and organized sector, especially in corporate sectors. Furthermore, strategic level refers top-level, thus, this management process is very comprehensive. It covers all the areas of the business. It is not specific but a holistic in nature. A broad and top-level strategic management can be compared with the specific and functional management sectors. Strategic management is relatively more important than any special functional area because all the functional areas come under the strategic management focus. Strategic management gives the ideology and basic guideline to all other functional areas. Nowadays, each functional area is directed towards the strategic focus. Subjects such as finance, marketing, accounting areas are shaping into strategic finance, strategic marketing, and strategic accounting. Generally, strategic management focuses into long-term goals, relatively broad, and is also very important for the success of an organization. Hence, strategic management is concerned to whole organization whereas operational management is related to any specific functional area. Further, it is more complex and ambiguous than the operational managements. In general, strategic management covers all the areas of business and focuses into the broad organizational issues. According to David (2011), strategic management is the art and science of formulating, implementing, and evaluating, cross-functional decisions that enable an organization to achieve its objectives. The purpose of strategic management is to exploit and create new and different opportunities for tomorrow. In essence, the strategic plan is a companys game plan.

Strategic Management can be defined as the art and science of formulating, implementing and evaluating cross-functional decisions that enable an organization to achieve its objective. It is the on-going process of formulating, implementing and controlling broad plans guide the organizational in achieving the strategic goods given its internal and external environment. This can be interpreted as follows: 1. On-going process: Strategic management is a on-going process which is in existence throughout the life of organization. 2. Shaping broad plans: First, it is an on-going process in which broad plans are firstly formulated than implementing and finally controlled. 3. Strategic goals: Strategic goals are those which are set by top management. The broad plans are made in achieving the goals. 4. Internal and external environment: Internal and external environment generally set the goals. Simply external environment forced internal environment to set the goals and guide them that how to achieve the goals?

3.0 Levels of Strategies

Strategies exist at several levels in any organisation - ranging from the overall business (or group of businesses) through to individuals working in it. Corporate Strategy - is concerned with the overall purpose and scope of the business to meet stakeholder expectations. This is a crucial level since it is heavily influenced by investors in the business and acts to guide strategic decision-making throughout the business. Corporate strategy is often stated explicitly in a "mission statement". Business Unit Strategy - is concerned more with how a business competes successfully in a particular market. It concerns strategic decisions about choice of products, meeting needs of customers, gaining advantage over competitors, and exploiting or creating new 3

opportunities. Operational Strategy - is concerned with how each part of the business is organised to deliver the corporate and business-unit level strategic direction. Operational strategy therefore focuses on issues of resources, processes, people etc. In general, strategic management process comprises basically formulating strategies and their effective implementation for organizational success. Here, the word strategy covers all the components of end and means. Ends or target of an organization are the set of vision, mission, goals, and objectives whereas the means are corporate strategy, business strategy, and plan-policies of an organization. Strategic management is also known as business policy and corporate planning. Business Policy concept was very popular in 1970s and Corporate Planning approach was commonly used during 1980s. Later, strategic management concept overlapped both of these concepts.

4.0 Stages in Strategic Management

There are three stages of strategic management process. These are: i. ii. iii. Strategy formulation Strategy implementation Strategy evaluation

The firm must engage in strategic planning that clearly defines objectives and assesses both the internal and external situation to formulate strategy, implement the strategy, evaluate the progress, and make adjustments as necessary to stay on track. Strategic planning process involves the formulation of company mission and objectives, environmental scanning, strategy formulation, strategy implementation, and evaluation and control. Mission and Objectives

The mission statement describes the company's business vision, including the unchanging values and purpose of the firm and forward-looking visionary goals that guide the pursuit of future opportunities. Guided by the business vision, the firm's leaders can define measurable financial and strategic objectives. Financial objectives involve measures such as sales targets and earnings growth. Strategic objectives are related to the firm's business position, and may include measures such as market share and reputation. Environmental Scan The environmental scan includes the following components: i. ii. iii. Internal analysis of the firm Analysis of the firm's industry External macro environment

The internal analysis can identify the firm's strengths and weaknesses and the external analysis reveals opportunities and threats. A profile of the strengths, weaknesses, opportunities, and threats is generated by means of a SWOT analysis. An industry analysis can be performed using a framework developed by Michael Porter known as Porter's five forces. This framework evaluates entry barriers, suppliers, customers, substitute products, and industry rivalry.

4.1 Strategy Formulation

Strategic formulation involves the formulation of long-term objectives after a SWOT analysis is performed. Given the information from the environmental scan, the firm should match its strengths to the opportunities that it has identified, while addressing its weaknesses and external threats. The process involves identification of alternative strategies and selecting strategy in order to match the strategy with the objective of the organisation. To attain superior profitability, the firm seeks to develop a competitive advantage over its rivals. A

competitive advantage can be based on cost or differentiation. Michael Porter identified three industry-independent generic strategies from which the firm can choose. There are a number of issues that a business must grapple with during strategy formulation. Such issues are: i. ii. iii. iv. v. vi. vii. Businesses to enter Businesses to abandon Allocation of resources Expansion or diversification International markets Mergers or joint ventures Avoidance of hostile takeover

4.2 Strategy Implementation

The selected strategy is implemented by means of programs, budgets, and procedures. Implementation involves organization of the firm's resources and motivation of the staff to achieve objectives. The way in which the strategy is implemented can have a significant impact on whether it will be successful. In a large company, those who implement the strategy likely will be different people from those who formulated it. For this reason, care must be taken to communicate the strategy and the reasoning behind it. Otherwise, the implementation might not succeed if the strategy is misunderstood or if lower-level managers resist its implementation because they do not understand why the particular strategy was selected. The steps in strategy implementation are: i. ii. iii. iv. v. vi. Developing a strategy-supportive culture Creating an effective organizational structure Redirecting marketing efforts Preparing budgets Developing and utilizing information systems Linking employee compensation to organizational performance

The issues in strategy implementation are: 6

i. ii. iii.

Mobilization of employees & managers Most difficult stage Interpersonal skills critical

4.3 Evaluation & Control

The implementation of the strategy must be monitored and adjustments made as needed. Evaluation and control consists of: 1. Defining parameters to be measured 2. Defining target values for those parameters 3. Performing measurements 4. Comparing measured results to the pre-defined standard 5. Making necessary changes

5.0 Benefits of Strategic Management

Strategic management becomes important due to the following reasons: Globalization: The survival for business First, global considerations impact virtually all strategic decisions! The boundaries of countries no longer can define the limits of our imaginations. To see and appreciate the world from the perspective of others has become a matter of survival for businesses. The underpinnings of strategic management hinge upon managers' gaining an understanding of competitors, markets, prices, suppliers, distributors, governments, creditors, shareholders, and customers worldwide. The price and quality of a firm's products and services must be competitive on a worldwide basis, not just a local basis. The distance between the business sectors are becoming less due to the provisions of certain facilities. Although political boundaries are there but in order to become successful in business it is essential to laid stress on globalization. E-Commerce: A business tool A second theme is that electric commerce (e-commerce) has become a vital strategicmanagement tool. An increasing number of companies are gaining competitive advantage 7

by using the Internet for direct selling and for communication with suppliers, customers, creditors, partners, shareholders, clients, and competitors who may be dispersed globally. E-commerce allows firms to sell products, advertise, purchase supplies, bypass intermediaries, track inventory, eliminate paperwork, and share information. In total, electronic commerce is minimizing the expense and cumbersomeness of time, distance and space in doing business, which yields better customer service, greater efficiency, improved products and higher profitability. The Internet and personal computers are changing the way we organize our lives; inhabit our homes; and relate to and interact with family, friends, neighbors, and even ourselves. The Internet promotes endless comparison shopping which enables consumers worldwide to band together to demand discounts. The Internet has transferred power from businesses to individuals so swiftly that in another decade there may be "regulations" imposed on groups of consumers. Politicians may one day debate the need for "regulation on consumers" rather than "regulation on big business" because of the Internet's empowerment of individuals. Buyers used to face big obstacles to getting the best price and service, such as limited time and data to compare, but now consumers can quickly scan hundreds of vendors offerings. Or they can go to Web sites such as CompareNet.com that offers detailed information on more than 100,000 consumer products. The Internet has changed the very nature and core of buying and selling in nearly all industries. It has fundamentally changed the economics of business in every single industry worldwide. Earth environment has become a major strategic issue A third theme is that the natural environment has become an important strategic issue. With the demise of communism and the end of the Cold War, perhaps there is now no greater threat to business and society than the continuous exploitation and decimation of our natural environment.

The resources are scarce but the wants are unlimited. In order to meet the wants of the world, the resources should be efficiently utilized. For example, the use of oil resources or energy resources will make the people to use these resources for a long time. There are a number of nonfinancial benefits of strategic management. These are: i. ii. iii. iv. v. vi. Enhanced awareness of threats Improved understanding of competitors strategies Increased employee productivity Reduced resistance to change Clearer understanding of performance-reward relationship Enhanced problem-prevention capabilities

6.0 Nature of Strategic Management

The strategic-management process does not end when the firm decides what strategy or strategies to pursue. There must be a translation of strategic thought into strategic action. This translation is much easier if managers and employees of the firm understand the business, feel a part of the company, and through involvement in strategy-formulation activities have become committed to helping the organization succeed. Without understanding and commitment, strategy-implementation efforts face major problems. Implementing strategy affects an organization from top to bottom; it impacts all the functional and divisional areas of a business. It is beyond the purpose and scope of this text to examine all the business administration concepts and tools important in strategy implementation. Even the most technically perfect strategic plan will serve little purpose if it is not implemented. Many organizations tend to spend an inordinate amount of time, money, and effort on developing the strategic plan, treating the means and circumstances under which it will be implemented as afterthoughts! Change comes through implementation and evaluation, not through the plan. A technically imperfect plan that is implemented

well will achieve more than the perfect plan that never gets off the paper on which it is typed.

7.0 Requirements for Nature of Strategic Management

It requires specifying the organisations mission, vision and objectives. Then developing policies and plans towards the mission, vision and goals of the organization. Often it is usually in terms of projects and programs which are designed to achieve these objectives. The programs are then allocated resources to implement the policies and plans, projects and programs. A benchmark is often used to evaluate the overall performance of the business and its progress towards objectives. Recent studies and theorists have advocated that strategy needs to start with stakeholders expectations and use a modified rating performance scale which includes all stakeholders approaches of strategic management.

8.0 Approaches to Nature of Strategic Management

There are various approaches to Strategic Management approaches to strategic management. It all depends on the organization structure. The specific approach adapted to strategic management can also depend on the size of an organization, and the proclivity to change of its business environment. They include Global organizations may employ a more structured strategic management model, due to their size, scope of operations, and need to encompass stakeholder views and requirements. Small and Medium Enterprise may employ an entrepreneurial approach. This is due to its comparatively smaller size and scope of operations and possessing fewer resources. An SMEs top management may simply outline a mission, and pursue all activities under that mission.

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9.0 Strategy formation in the Nature of Strategic Management

The initial task in strategic management is usually the compilation and dissemination of a mission statement. This outlines in essence, the raison dtre of an organization. It also specifies the scope of activities an organization wishes to undertake together with the markets a firm wishes to serve. Strategic formation is a combination of three main processes situation analysis, selfevaluation and competitor analysis. Then objectives are set. A vision statement comes in at this point. The strategy evaluation phase then comes in. Factors which affect the business either internally or externally are identified. The business then identifies areas to capitalize on and areas not to put in any investments. The organization then lays down how it would want to produce its products against what the competitors offer. Here a differentiation or cost based approach may be used. At this stage now the effectiveness of a given strategy is then measured. A SWOT analysis may be carried out. The products acceptability, sustainability is checked and then a desired course of action is taken. Strategy is then implemented and controlled as appropriate.

10.0 Role of Chief Executive Officer in Strategic Management Process

Chief executive officer is the most important figure in strategic management process. S/he plays many roles in an organization. Planning, organizing, leading, and controlling are the major parts of management activities that a manager performs. Actually, strategic management is the top-level management. It covers all the management functions because it starts from planning such as environmental analysis and strategic choice, associated with organizing and leading in implementation phase, and lastly also evaluates and controls the results. Similarly, CEO also uses his or her conceptual, human relation, and technical skills in strategic management process. CEO is the head of employees and major executive representative of board of directors. He or she plays vital role to make amicable relationship with customers, competitors, suppliers, and other stakeholders on the behalf of organization. Generally there are many

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other titles used for this position such as managing director, executive chairman, vice chairman, and executive director. Generally, chief executive performs general management functions namely planning, organizing, leading, and controlling. It is a never ending and cyclic process. Chief executive requires various types of skills such as conceptual, human relation, and technical skills. Top-level managers require more conceptual skills whereas bottom level employees require more technical skills. Nevertheless, a CEO requires all the skills to be an effective manager. Mintzberg listed role of CEO in ten points and grouped them into three. A CEO generally plays many roles such as figurehead, leader, and liaison as the interpersonal role. S/he collects information, circulates information, and provides information to media as the part of informational role. Further, s/he also takes part in decision making, negotiating, disturbance handling and resources allocation as the part of decision-making role. A CEO not only attends many ceremonies being a figurehead but links insiders with outsiders and guides his or her followers. Informational role is related to monitoring information, collecting information, and disseminating information. A CEO regularly verifies what is going on outside and inside. Similarly, s/he gathers all the useful and relevant information. If required, CEO also supplies information to the insiders and publicize the information officially to the outsiders. In this context, it is necessary to review role of CEO in strategic management process. Strategic management is top-level management that covers all the functional areas. Strategic management defines vision, mission, objective, and strategies. It analyzes environment to find strength, weakness, opportunities, and threats so that various alternatives could be developed and one best strategic option could be selected for implementation. Getting the real outcome and comparing the same with the targeted standard to is the major step for feedback process.

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Once we search the role of CEO in strategic management process one can find the role of CEO in each and every step. Setting vision, mission, objective, and strategies are the major roles of a chief executive officer. It is top-level management that focuses into these areas. It is the task of defining what organization is about, what the organization stands for, whom the organization supports, and uses what sort of means. Therefore, setting strategies includes vision, mission, and goals setting. It can be an integral part of managerial functions listed in entrepreneurial role by Henry Mintzberg. Analyzing environment to search internal strength and weakness as well as external opportunity and threats is another major role of a CEO. Information collection and its analysis is the major function that is also listed by Mintzberg in his list of managerial role. Finding the real situation and to report the situation into the profile or report can be another function that a CEO should perform. A CEO searches various alternative strategies, evaluates them, and chooses the best alternative for implementation. This role is very similar to decision making role described by Mintzberg. Selected strategy requires effective implementation that is to design effective resources, leadership, and organizational structure. A CEO not only implements strategies in his or her leadership but also allocates resources, defines organizational structure, and operationalizes the strategic elements. The CEO also removes disturbing factors and activates the process of evaluation, control, and feedback. Therefore, a manager performs many multiple roles in an organization in the various stages of strategic management process. The CEO is at the top-level in organizational hierarchy and formulates not only strategy but also implements. Mobilizing resources, guiding other members, and overcoming the disturbances are other important tasks of a CEO. Hence, the role of CEO is very important and vital in strategic management process to make organization effective and efficient.

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11.0 Conclusion
In order to achieve sustained competitive advantage, firms must continually adapt to changes in external trends and events and internal capabilities, competencies, and resources. They must also effectively formulate, implement, and evaluate strategies that capitalize on those factors

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12.0 References
Ansoff, H.I., and McDonnell, E.J. (1990) Implanting Strategic Management, Prentice Hall, Cambridge, United Kingdom, David, F (2011). Strategic Management: Concepts & Cases, 13th Edition, Prentice Hall: New York Johnson G., and Scholes, K. (1999) Exploring Corporate Strategy, Prentice Hall Mintzberg, H. (1987), Crafting strategy. Harvard Business Review Pearce, J.A. and Robinson, R.B. (1991) Strategic Management: Strategy Formulation and Implementation, Third Edition, Richard D. Irwin Inc. Porter M. E. (1985) Competitive Advantage, Creating and Sustaining superior Performance, The Free Press New York

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