Basic Concepts of Strategic management

Strategic management deals with the long term focus of an organisation usually drawn up by top executives with contributions from middle level and lower level managers. In summary it involves the formulation, implementation and evaluation of the major goals and initiatives taken by a company's top management on behalf of shareholders,taking into consideration the resources at disposal,which  can be said to be an internal analysis of its strengths and weaknesses,and also taking into consideration its external environment in which it competes which can be said to be the external analysis of the opportunities and threats in the environment.

In strategic management,the main aim is to use the organizations strengths to maximize opportunities, and use its strengths  to avoid threats and likewise, use its opportunities to deal with its weaknesses and avoid threats arising from its weaknesses.

What then is strategies management?

Strategic management  is a set of managerial decisions and actions that determines the long run performance of an organisation. It also may be defined as the art and science of formulating,implementing and evaluating cross-functional decisions that enables an organization to achieve its objectives.

PHASES OF STRATEGIC MANAGEMENT

(Phase 1) Basic financial planning: This idea of planning is basic budgeting,whereby managers are asked to prepare estimates or forecasts for the following year. Projects are proposed on the basis of very little analysis coming from within the firm.

(Phase2)  Forecast-based planning: The first phase deals with short term estimates. Has managers need more comprehensive information and insight into the affairs and of the company, they move on to the next stage which is forecast based planning.

Usually five year forecasts are derived,managers consider projects for more than a period of one year. In this phase of planning,the external environment is taken into consideration. In the preparation of forecast based planning, there might be conflicts of interests and disagreements as managers tend to compete for a larger share of the funds.

Phase 3 Strategies  planning: This is usually carried out by top management,and a lot of things are taken into consideration like the market,products,competitors and so on. The company needs to think strategically how its market share can be increased in response to changing markets.Planning in this phase is taken out of lower management and vested in senior management to develop strategic plans for the organization..

(Phase 4)  Strategic management: This is a colletive phase of management as all the levels of management is involved. They develop and integrate a series of strategic plans aimed at achieving the company's primary objectives. The sophisticated five year strategic plan is replaced with strategic thinking at all levels of the organization throughout the year.

Benefits the of  strategic  management

The key benefits of  strategic management are:

1) Clearer sense of strategy and vision for the firm.

2) Sharper focus on what is strategically important

3) Improved understanding of rapidly changing environments.

The strategic management process

It basically consists of 3 stages which are: strategy formulation,strategy implementation and strategy evaluation.Although environmental scanning is vital to successful strategic management, it is seen as a preliminary process to the other 3 strategic processes.Most people have fused environmental scanning with strategy formulation,whereby we develop mission and vision statements, identify an organizations external opportuinties and threats,determine internal strengths and weaknesses, establish long term objectives, generate alternative strategies and choose particular strategies to pursue.

Strategy implementation occurs after strategy formulation, in which the management devise policies, motivates employees and allocate resources so that formulated plans can be executed. They are various steps to successful strategy implementation, and they include: Preparing budgets, developing and utilizing comprehensive information systems, developing an organizational structure capable of achieving the goals and objectives, redirecting market efforts and rewarding employees as needed.

Strategy evaluation is the final stage of the strategic management process. In this process, management sets a benchmark of what they hope to achieve and then check the actual results with the benchmark to know when particular strategies are not working well and then take corrective actions as needed.

Three fundamental strategy evaluation activities are:

(1) Reviewing external and internal factors that are the bases for current strategies.

(2) Measuring performance

(3) Taking corrective actions.

 Adapting to change

It is believed that in life the only constant thing is change. So managers and management have to be on their toes when it comes to strategic management, as a little change to the external or internal environment may render the strategy in effective. Firms like organisms must be ‘’adept at adapting’’ or they will not survive. Various theories have been proposed to account for how organizations obtain fit with their environment. Some include:

Population  Ecology: It proposes that organizations have successfully adopted a particular environmental nicheand it would be difficult to adopt to changing conditions. This can thus lead to failure in the new environment, and the company is bought or goes bankrupt.

Institution theory: It proposes that organizations adopt to changing environments by imitating the strategies and management techniques of the market leaders or innovators in the same niche.

Strategic choice perspective: Proposes that not only do organizations adapt to a changing environment, but they also have the opportunities and power to reshape the environment.

Organization Learning theory: Says that an organization adapts defensively to changing environments and uses knowledge offensively to improve the fit between itself and the environment.

Key Terms in Strategic Management

1) Mission and Vision Statement: The mission statements can be defined as an enduring statement of purpose distinguishing a business from other similar firms. It identifies the scope of the organization in terms of markets and products. It addresses the basic question that faces all strategist, which is ‘’What is our business’’. It determines the value and priorities of a business.

Example of a mission statement is that of Ford motors which is ’’We are a global family with a proud heritage passionately committed to providing personal mobility for people around the world’’.

Vision statements answer the question ‘’What do we want to become’’. It is often considered as the first step of strategic  planning for example the vision statement of ford is ‘‘To become the world's leading consumer company for automotive products and services.’’

Competitive Advantage: When a firm can do something rivals cannot do, or owns something that other firms dont own, that can constitute competitive advantage. Normally a firm can sustain a competitive advantage for only a certain period due to the imitating strategies of rival firms.

External Opportunities and Threats

External opportunities and external threats refer to economic, social, cultural, demographic, environmental,political, legal, governmental, technologgical and competitive trends and events  that could significantly benefit or harm an organization in future. They are mostly beyond the control of the organization and can be called states of nature. Examples of opportunities and threats for a bank in Africa are:

1) Expansion into other countries in the african subregion

2) Opportunity to diversify into other areas of banking thereby reducing its perceived risk profile

3) Political stability would enhance its long term prospects and reduce its exposure .

Examples of threats include:

1) Increasing competition from banks in the top and mid tier categories.

2) Uncertainties in interest rates and other economic indicators would affect its risk exposures

3) Withdrawal of public sector funds from the banking system.

Internal strengths and weaknesses:



It can be called an internal analysis of an organization. They are an organization’s controllable activities that are performed especially well or poorly. Identifying and evaluating orgainizational strengths and weaknesses in the functional area of a business is an essential strategic management activity. Organizations tend to pursue strategies that capitalize on organizational strengths and eliminates internal weaknesses.

Objectives: Can be defined as speciific results organizations seek to achieve in pursuing its basic mission.

Long term objectives: it is the same as the definition for the one above, but it takes in to consideration longer time periods, usually greater that one year.

Strategies: Means by which long term objectives will be achieved.

Policies: Policies include guidelines, rules and procedures established to support efforts to achieve stated objectives, they are a guide to decision making. This can be defined as the means in which objectives would be achieved.

It can be called an internal analysis of an organization. They are an organization’s controllable activities that are performed especially well or poorly. Identifying and evaluating orgainizational strengths and weaknesses in the functional area of a business is an essential strategic management activity. Organizations tend to pursue strategies that capitalize on organizational strengths and eliminates internal weaknesses.

A summary of the strategic management process can be found in the Strategic management framework diagram below.