October 23, 2017

The Strategic Management Process - Review Notes

The tasks of developing  and executing company strategies are the heart and soul of managing a business enterprise and winning in the marketplace.

A company's strategy is the plan management is using to acquire a market position and  conduct its operations. This involves  attracting and pleasing customers, competing successfully against and the current and future rivals, and achieving organizational objectives.

The central thrust of a company's strategy is undertaking moves to build and strengthen the company's long-term competitive position in its chose target market segments as well as in the overall market and  gain a competitive advantage over rivals that then becomes a company's ticket to above-average profitability and performance. A company's strategy typically evolves over time as a blend of (1) proactive and purposeful actions on the part of company managers and (2) as-needed reactions to unanticipated developments and fresh market conditions.

Closely related to the concept of strategy is the concept of a company's business model.

A company's business model is management's story line for how and why the company's product offerings and competitive approaches will generate a revenue stream and have an associated cost structure that produces attractive earnings and return on investment—in effect, a company's business model sets forth the economic logic for making money in a particular business, given the company's current strategy.  Business model must have a demand model, that explains how the company's product or products sell a particular quantity at a particular price. The model has to satisfy the criterion that as price increases demand decreases for each product. The cost model is also a part of the business model. It tells how a particular quantity of a product is produced and distributed at a particular cost. Thus profit is determined from the demand model and cost model for a specified price. The company then has the option to select a price that maximizes the profit or a price that maximizes the demand given a minimum profit to be achieved.

A winning strategy fits the circumstances of a company's external situation and its internal resource strengths and competitive capabilities, builds competitive advantage, and boosts company performance.

Crafting and executing strategy are core management functions and especially the core top management functions in an organization. Whether a company wins or loses in the marketplace is directly attributable to the potential of that company's strategy and the zeal and controls with which the strategy is executed.

Managerial Process

The managerial process of crafting and executing a company's strategy consists of five interrelated and integrated phases:

Developing a strategic vision of where the company needs to head and what its future product/market/technology focus should be. This managerial step provides long-term direction, infuses the organization with a sense of purposeful action.

Objectives are derived from the  strategic mission and  vision and larger in number and they address the aspirations of all the stakeholders. Goals spell out how much of what kind of performance by when.  Companies need to both financial objectives and goals and strategic objectives and goals. A balanced scorecard approach provides the basis for both.

Crafting a strategy to achieve the objectives and move the company along the strategic course that management has charted. Crafting strategy is concerned principally with forming responses to changes under way in the external environment, devising competitive moves and market approaches aimed at producing sustainable competitive advantage, building competitively valuable competencies and capabilities, and uniting the strategic actions initiated in various parts of the company. The more that a company's operations cut across different products, industries, and geographical areas, the more that strategy making becomes a collaborative effort involving managers and company personnel at many organizational levels. The total strategy that emerges in such companies is really a collection of strategic actions and business approaches initiated partly by senior company executives, partly by the heads of major business divisions, partly by functional-area managers, and partly by operating managers on the frontlines.

The larger and more diverse the operations of an enterprise, the more points of strategic initiative it has and the more managers and employees at more levels of management that have a relevant strategy-making role.

Three Levels of Strategy

A single-business enterprise has three levels of strategy—business strategy for the company as a whole, functional-area strategies for each main area within the business, and operating strategies undertaken by lower-echelon managers to flesh out strategically significant aspects for the company's business and functional area strategies.

Four Levels of Strategy

In diversified, multibusiness companies, the strategy-making task involves four distinct types or levels of strategy: corporate strategy for the company as a whole, business strategy (one for each business the company has diversified into), functional-area strategies within each business, and operating strategies. Typically, the strategy-making task is more top-down than bottom-up, with higher-level strategies serving as the guide for developing lower-level strategies.

Implementing and executing the chosen strategy efficiently and effectively. 

Managing the implementation and execution of strategy is an operations-oriented (Marketing, Production, Sales, Distribution and Service), make-things-happen activity aimed at shaping the performance of core business activities in a strategy-supportive manner. Management's handling of the strategy implementation process can be considered successful if  the company meets or beats its strategic and financial performance targets and shows good progress in achieving management's strategic vision.

Evaluating performance and initiating corrective adjustments in vision, long-term direction, objectives, strategy, or execution in light of actual experience, changing conditions, new ideas, and new opportunities.

This phase of the strategy management process is the trigger point for deciding whether to continue or change the company's vision, objectives, strategy, and/or strategy execution methods.
A company's strategic vision plus its objectives plus its strategy equals a strategic plan for coping with industry and competitive conditions, outcompeting rivals, and addressing the challenges and issues that stand as obstacles to the company's success.

Activities -  The Managers have to do

Successful managers have to do several things in leading the drive for good strategy execution and operating excellence.

First, they stay on top of things. They keep a finger on the organization's pulse by spending considerable time outside their offices, listening and talking to organization members, coaching, cheerleading, and picking up important information.

Second, they are active and visible in putting constructive pressure on the organization to achieve good results. Generally, this is best accomplished by promoting an esprit de corps that mobilizes and energizes organizational members to execute strategy in a competent fashion and deliver the targeted results.

Third, they keep the organization focused on operating excellence by championing innovative ideas for improvement and promoting the use of best practices to ensure value creating activities are performed in a first-rate fashion.

Fourth, they exert their clout in developing competencies and competitive capabilities that enable better execution.

Fifth, they serve as a role model in displaying high ethical standards, and they insist that company personnel conduct the company's business ethically and in a socially responsible manner. They demonstrate unequivocal and visible commitment to the ethics enforcement process.

Sixth and finally, when a company's strategy execution effort is not delivering good results and the organization is not making measured progress toward operating excellence, it is the leader's responsibility to step forward and push corrective actions.

Role of The Company Board

Boards of directors have a duty to shareholders to play a vigilant role in overseeing management's handling of a company's strategy-making, strategy-executing process. A company's board is obligated to (1) critically appraise and ultimately approve strategic action plans; (2) evaluate the strategic leadership skills of the CEO and others in line to succeed the incumbent CEO; (3) institute a compensation plan for top executives that rewards them for actions and results that serve stakeholder interests, most especially those of shareholders; and (4) ensure that the company issues accurate financial reports and has adequate financial controls.

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Updated 25 October 2017,  13 August 2016,  21 May 2012