Strategy is a multi-dimensional concept with applications in all fields of study and life.
According to Thompson and Strickland, it is the game plan for positioning the company in its chosen market arena, competing successfully, pleasing customers, and achieving good business performance targets.
Koch Richard (1995) defined a strategy as the commercial logic that defines the competitive advantage. Therefore, strategy is what a company does to position itself commercially for competitive advantage.
Johnson, Scholes &Whittington (2005) opined that Strategy is the direction and scope of an organization over the long term, which achieves advantage in a changing environment through its configuration of resources and competencies to fulfill stakeholder expectations.
According to (Pearce & Robinson, 1997), strategy is the set of decisions and actions resulting in the formulation and implementation of strategies designed to achieve the objectives of an organization.
Harvey, 1988 described strategy as the process of formulating, implementing, and evaluating business strategies to achieve future objectives.
Mintzberg (1998), Introduced the 5Ps of strategy. He stated strategy as a:
1. Strategy as a Plan
- Strategy specifies the course of action that is performed deliberately
- It is designed in advance of the actions it will govern
- It is developed deliberately/purposefully
- May be general or specific
2. Strategy as a Ploy
- Is a specific maneuver intended to outwit a competitor, e.g., expansion
- The idea is to outsmart and shed off competitor threat
3. Strategy as a pattern
- Strategy is a pattern that emerges from a stream of actions
- Is developed in the absence of intentions and without pre-conception
- Is visualized only after the events it governs (emergent)
4. Strategy as a position
- Is a means of locating an organization in the environment
- Indicates how an organization will develop a sustainable competitive advantage
5. Strategy as a perspective
- Strategy gives an organization identity and a perspective
- Reveals the way an organization perceives the outside world
- Maybe an abstraction which only exists in the mind of some interested party e.g., CEO
Characteristics of Strategy
1.Long term direction of an organization
- Where are we going?
- Organization vision
2. Organizational purpose
- Defines obligations of the organization to its stakeholders
- Defines the goals, objectives, and priorities of the organization
3. A unifying (integrating) pattern of decisions – a common thread
4. Business Domain
- Scope of an organization’s activities
- Product/market scope
- What the organization will do and what it will not do
5. Strategic fit – Matching of activities of an organization to the environment and for Organizational positioning
6. Competitive advantage, which is the basis of attracting customers
- Cost leadership
7. Others include:
- Well-defined Organizational roadmap that defines the vision, mission, goals, and objectives of an organization that aims at maximizing an organization’s strengths and minimizing the weaknesses.
- A systematic phenomenon is a unified, comprehensive, and integrated plan of action to produce a systematic behavior.
- Multidisciplinary: It takes a holistic view influencing all the organizational functional areas such as marketing, finance, human resource, and operations.
- Multidimensional: It captures various segments and areas in the organization, starting with direction setting to resource allocation, accountability, incentives linked to performance, and marketing.
- Hierarchical as at the topmost, we have corporate strategies presided by the top management, then business unit strategies by the top people of individual strategic business units, and functional strategies by the respective functional heads.
- Dynamic since it always has to create a fit between the environment and the organization’s actions. The business environment keeps on changing, and so should the strategy.
- Long-term in nature as it concerns itself with long-term developments in line with the vision rather than routine organizational operations.
- Action-Oriented to achieve the set organizational purpose, goals and winning competitive advantage.
- Purposeful– Aims at creating competence, synergy, fitness to environment, and value creation to attain vision and mission.
- Significant because the future is uncertain. Perfect foresight is necessary as the firms must be ready to deal with the uncertain events which constitute the business environment.
- Generally, strategies are about the allocation of resources in consideration of the opportunities, strengths, weaknesses, and opportunities presented for competitive advantage and goal attainment.
- The continuous process to achieve sustainable long-term competitive advantage. This is because the business environment is dynamic, and so the firm must invent new rules and new games to survive, become unique and create wealth.
- The collective decision-making process requires involvement and participation of all the stakeholder categories, especially during the environmental analysis stage.
Levels of Strategy in organizations
- Corporate strategy
- Overall purpose and scope of the organization
- Overall business domain
- Corporate resource allocation
- Value addition to the different parts of the organization ( 2+2=5, outsourcing vs. core business)
- Principal focus – effectiveness.
- Business Strategy
- Competition with other businesses in the market. How will we compete successfully
- Achievement of competitive advantage
- Principal focus is effectiveness
- Focus on the Strategic Business Units – SBU
- SBU is part of the organization for which there is a distinct market for goods and services.
- Distinct market requires different strategies
- Functional (Operational) Strategy
- How the various functional areas contribute to achieving business and corporate strategy
- Organizational processes
- Principal focus is efficiency
- Without a strategy, the organization is like a ship without a rudder, going around in circles.
- How do you know that an organization has a strategy?
- Three critical strategic questions:
- Where are we now?
- Where do we want to go? – what business positions management want to stake out, Financial outcomes to achieve, Strategic outcomes to achieve.
- How will we get there?
Formality of Strategy
- A formal strategy is defined by the extent of deliberateness in planning
- Identifiable process
- Time spend on planning
- Documented and
- Communicated to others.
- Low deliberateness in planning indicates informality.
What factors may influence the formality of strategy?
- Organizational factors including growth in size, complexity in products or markets
- External factors including technology, competition, economics,
- Performance – perception of a decline in performance or feeling that a mistake has been made in the past.
What are the benefits of the formality of strategy?
- Promotes unity of purpose, direction, and commitment
- Forces managers to deliberately think about strategy
- Requires analysis in addition to intuition
- Results in documented strategy
- Communication of strategy is more accessible.
What are the dangers of the formality of strategy?
- Lack of adaptability
- Creativity and originality may be inhibited
- Time consuming
- Inappropriate executives may be involved.
Strategic management is about the success of all organizations: It focuses on:
- The future of organizations
- The present posture of organizations
- Developing superior strategy
- Competent implementation of strategy
The key questions to ask are:-
- Where are we now? (situation analysis)
- Where do we want to be? (vision, objectives)
- How do we get there? (strategy)
- What is stopping us? (constraints analysis)
Strategic management is defined as the art and science of formulating, implementing, and evaluating cross-functional decisions that enable the organization to achieve its objectives.” Generally, strategic management is not only related to a single specialization but covers cross-functional or overall organization.
Strategic management is a broad area that covers almost all the functional areas of the organization. It is an umbrella concept of management that comprises all such functional areas as marketing, finance & account, human resource, and production & operation into a top-level management discipline. Therefore, strategic management has more importance in organizational success and failure than any specific functional areas.
“The determination of the basic long-term goals & objectives of an enterprise and the adoption of the course of action and the allocation of resources necessary for carrying out these goals”-Chandler
Scope of strategic management
Strategic Management requires a clear focus on the “big picture” and a rational assessment of the future options. It offers strategic direction endorsed by the team and stakeholders, a clear-cut business strategy, a governance structure with its accountability framework at the different levels, a logical framework to handle risks to guarantee business continuity, and the capability to exploit opportunities on ongoing strategic decisions.
The following five phases define strategic management.
- The strategic intent involves developing vision and mission statements for direction, goals, objectives, and values.
- Environmental analysis – Concerns an understanding of the organization’s external opportunities and threats, strengths, and weaknesses.
- Strategy formulation – Choice of a particular strategy to pursue from the various alternatives for competitive advantage and achievement of goals
- Strategy implementation- The actualization of the strategies by providing leadership, assigning resources, developing a strategy-supportive culture, creating an effective organizational structure, redirecting marketing efforts, preparing budgets, and relating employee reward to organizational performance
- Evaluation and control – An analysis of the resulting progress for corrective actions and future decision-making.
Components of strategic management
Strategic management is a highly complex and evolving subject. To more clearly understand it, its components must be examined.
- Vision statement: It is the first step in Strategic Management and answers the question “what do we want to become in the future?”
- Mission statement: Mission refers to the unique purpose that sets a firm apart from other organizations. It shows why the company exists and describes its products, market, and technological areas of emphasis.
- Goals: The results that a company seeks to achieve over a long period of time.
- Objectives: Achievements or desired results that a company seeks to achieve over a short period usually one year or less.
- Policies: General guiding principles are regarded as an integral part of the company’s success. They are practices or ways of doing things, broad, precedent-setting decisions that guide managerial decision-making. Policies guide and “preauthorize” the thinking, decisions, and actions of operating managers in implementing the business’s policies. They empower actions.
- Internal Analysis: The company analyzes its capabilities and weaknesses to help in strategy formulation and to fit in the environment. It looks at its strengths and weaknesses to devise ways of maximizing its distinctive competencies.
- External Environment: Conditions and forces outside the firm’s complete control affect its strategic options and define its competitive situation. The external environment may relate to industry forces, the remote, and operating environments of various types. It is about the opportunities and threats that the environment presents to the firm.
- Organizational Design: Creates the match between the strategic goals and purpose of the organization with the people who will do the work and the approach that will be used.
- Strategic Decisions: These are decisions of fundamental importance. They are normally such that they are irreversible or at least can only be reversed at considerable cost. The grand strategy indicates how the objectives are to be achieved.
- Strategists: These are people who influence an organization’s overall strategies. They include the board of directors, the CEO, various managers, outside planners, and consultants.
- Sustainable Competitive Advantage: Having an upper hand in terms of preference by the various stakeholders concerning its rivals and competitors that stand the test of time. This presents a position in the market such that the company earns a higher profit margin than its competitors, which is sustainable over a long period.
Strategic Management Process
The strategic management process is the step-by-step procedure that managers use to choose a set of strategies for the organization to achieve better performance. Strategic management is a continuous process that appraises the industry in which the organization is involved and fixes strategies to meet all the present and future endeavors and goals. The strategic management process has the following steps:
- Organizational Intent: The first step in strategic management begins with senior managers evaluating their position concerning its vision, current mission, and goals. These will indicate the direction in which senior management is going. It typically describes the long-term goals from which the objectives are coined to describe the short-term measurable outcomes.
- Environmental Scanning-Refers to a process of collecting, scrutinizing, and providing information for strategic purposes. It helps analyze both the internal and external factors that influence an organization. The environmental analysis process is ongoing, and as such, the management should evaluate it continuously and strive to improve it.
- Strategy Formulation-It is deciding the best course of action for accomplishing organizational objectives to achieve organizational purpose. Environment scanning allows managers to formulate corporate, business, and functional strategies.
- Strategy Implementation-Strategy implementation is the process of actualizing the strategy by making it to work as intended. It includes designing the organization’s structure, distributing resources, developing the decision-making processes, and managing human resources towards strategy accomplishment.
- Strategy Evaluation-Strategy evaluation is the final step of the strategy management process. The fundamental strategy evaluation activities are: appraising internal and external factors that are the root of current strategies, measuring performance, and taking remedial/corrective actions. Evaluation ensures that the organizational strategy, as well as its implementation, meet the corporate objectives.
Value of strategic management
- Provides direction – Vision, mission, objectives
- Framework for company actions
- Adaptation to external change
- Focus on strategic issues
- Competitive advantage
- Effective organization
- Effective resource allocation
- Focus on critical issues
Other Benefits of strategic management
- It helps identify, prioritize, and exploit strengths and opportunities and minimize weaknesses and threat effects.
- It helps minimize the effects of adverse conditions and changes posed by the ever-changing business environment.
- It allows more effective allocation of time and resources to identified opportunities enabling more output from less input.
- It provides a basis for clarifying individual responsibilities, assigning accountability, monitoring and evaluation.
- It encourages forward-thinking and pre-emptying the future.
- It gives a degree of discipline and formality to the management of a business, ensuring focus and objectivity to the core course.
- It allows major decisions to better support established objectives.
- It provides a cooperative, integrated, and enthusiastic approach to tackling problems and tapping opportunities while encouraging a favorable attitude toward change.
- It creates a framework for positive internal communication among personnel.
- It helps integrate and unify the behavior of individuals into a total, unified effort.
- Provides clarity of direction by envisioning an organization’s future.
- Strategic management would enable a company to meet competition more effectively by creating a competitive advantage.
Effective Strategic Management has the following attributes:
- Provides clear direction and purpose
- Consistency hence a pattern of behavior that positions it well in the environment.
- Continuous monitoring of the internal and external environment.
- Integration of operating budget and profit plans with a strategic plan
- Continuous monitoring of progress with revision of plan and programs as appropriate
- Creation of strategic atmosphere that fosters team spirit
- The commitment of necessary resources and the development of a system to provide essential management information.
Limitations of strategic management
Following are the fundamental limitations of Strategic Management:
- Change Dislodges Strategic Decisions: Change comes through implementation and evaluation, not through the plan. Therefore, turbulent change dislodges strategic plans rendering the strategic choice futile.
- Scarce Resources for Implementing Strategic Decisions: No organization has unlimited resources.
- Presence of Bureaucratism and rigidity: Strategic management must not become a self-perpetuating bureaucratic mechanism, If not well understood and orchestrated could end up being rigid and limited to what is in the plan.
- Closed-Mindedness of the People Involved in Strategy Implementation: This can easily lead to resistance, especially if the responsible people for strategy implementation are not ready to consider new information, Others’ viewpoints, ideas, and possibilities.
- Lack of Objectivity in Formulating Strategy: This could lead to loss of competitive posture and direction. Subjective factors e.g. attitude towards risk, concern for social responsibility among others always affect strategy formulation decisions.
- Poor or lack of coordinated integration between formulation and implementation: Common if those associated with the formulation of strategy are not intimately involved with implementing the plan.
- Based on premises/assumptions, which if not valid, the strategy or plans based on them would be unrealistic or ineffective.
- Lack of or flawed environmental analysis: if the SWOT analysis is not correct, the strategy will go awry. Without lots of expertise and information on environmental analysis, the formulation of wrong or ineffective strategies will be unavoidable.
- One of the criticisms against strategic management is that it sometimes makes the organization over-ambitious and the resultant failure to reach the goals causes frustration unrealistic strategies may land companies in severe problems.