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Chapter 1: Introduction

Defining Strategic Management:


Modern organizations need a long term horizon to cope with environmental changes. Globalization is making the world one big market. It has brought competition everywhere. Advancements in information communication technology and transportation have made world one small village. Economics grouping in countries are increasing. Businesses have to respond to a dynamic and often hostile environment for pursuit of their mission. Organizations need strategic orientation to achieve their objectives effectively. A companys strategy is the is game plan that management is using to stake out market position, conducts its operation, attract and please customers, compete successfully and achieve organizational objectives. It is a long term approach of doing business whichs major thrust is to seek competitive advantages. It is concerned with where the organization wants to be and how it is going to get there. Few examples of strategies are cost leadership, expansion through acquisitions, differentiation etc. Now, strategic management can be defined as the art and science of formulating, implementing, and evaluating cross-functional decisions that enables an organization to achieve its objectives. As this definition implies, strategic management focuses on integrating management, marketing, finance and accounting, production and operations, research and development, and computer information system to achieve organizational success. It involves strategic decisions and actions of top management. It turns strategies into actions. Thus, Strategic management refers to the managerial process of forming strategic vision, setting objectives, crafting a strategy, implementing and executing the strategy, and then over times initiating whatever corrective adjustments in the vision, objectives, strategy and execution are deemed appropriate.

Strategic Management Model (Process) and its components:

The strategic management process can be best studied and applied using a model. Every model represents some kind of process. The framework illustrated below is the widely accepted, comprehensive model of the strategic management process. This model doesnt guarantee success but it does represent a clear and practical approach for formulating, implementing, and evaluating strategies. Relationships among major components of the strategic management process are shown in the figure.

Following are the major components of the strategic management model (process): 1. Mission, Vision statements: Every organization has mission, vision, objectives and strategy even if these elements are not consciously designed, written or communicated. The answer to where an organization is going can be determined largely by where the organization has been. Thus identifying an organizations existing mission, vision, objective and strategies is the logical starting point of strategic management. 2. External and Internal Environment Analysis: Strategic management process is dynamic and continuous. A change in any one of the major components in the model can necessitate a change in any or all of the other components. For instance a change in a economy could represent a major opportunity and require a change in long term objectives and strategy. So an organization needs to analysis the environment, especially SWOT analysis. Internal Analysis: The Company analyzes the quantity and quality of the companys financial, human and physical resources. It also assesses the strength and weakness (SW) of the companys management and organizational structure.

External Analysis: A firms external environment consists of all the condition and forces that affects its strategic options and define its competitive situation. It analyzes the opportunities and threats. External environment can be remote, industry and operating environment. 3. Identify goals and objectives and formulate strategies: After the SWOT analysis, manager, at this stage identify realistic goals or objectives and, then, formulate strategies at corporate level, business and functional level. A goal or objectives is a desired future state that an organization attempts to realize from the execution of strategies. Some of the area in which a corporation might establish its goals or objectives are productivity, product quality, innovation, profitability, customer satisfaction etc. After setting the goals or objectives, the next job is to generate strategy alternatives, evaluate them and to make a final choice. It is done at all levels: corporate, business and functional level and all levels strategies should be congruent. 4. Draft Policies and Action Plans Creating policies that guides the thinking, decisions, and action of operating managers and their subordinates in implementing the business strategy is essential. Action plans specify how corporate level, business level and functional level strategies will be put into effect. Action plan consist sub goals, roles and responsibilities, time lines and financial budgets. 5. Strategic evaluation and control Strategic control is concerned with tracking a strategy as it it being implemented, detecting problems and changes in its underlying premises and making necessary adjustments. In this stage actual performance is compared with predetermined target performance and if deviation is found then corrective action is taken.