2 The Components of Strategic Management
• defining the organization’s business and developing a
strategic mission
• establishing strategic objectives and performance targets
• formulating a strategy to achieve the objectives
• implementing an executing the chosen strategic plan
• evaluating strategic performance and making corrective
adjustments
2.1 Defining the Business
“What is our business and what will it be?” is the
fundamental directionsetting question facing the senior managers of any
enterprise. Addressing this question thoughtfully compels executives:
• to think through the scope and mix of organizational
activities,
• to reflect on what kind of organization they are presently
trying to create,
• to consider what markets they believe the organization
should be in, and
• to be specific about which needs of which buyers to serve The
management’s view of what the organization seeks to do and to become over the
long-term is the organization’s strategic mission.
2.2 Establishing Strategic Objectives
Specific performance targets are needed in all areas affecting
the survival and success of an enterprise and at all levels of management from
the corporate level on down deep into the organization’s structure.
The act of establishing formal objectives not only converts
the direction an organization is headed into specific performance targets to be
achieved but also guards against drift, aimless activity, confusion over what
to accomplish, and loss of purpose.
What is establishing formal objectives?
• conversion of the target direction into specific
performance targets to be achieved
• guard against
– drift,
– aimless activity,
– confusion over what to accomplish, and
– loss of purpose
Both short-run and long-run objectives are necessary. The
strategic objectives for the organization should at minimum specify:
• the market position and competitive standing the
organization aims to achieve
• annual profitability targets
• key financial and operating results to be achieved through
the chosen activities
• any other milestones by which strategic success will be
measured
2.3 Formulating Strategy
This component of strategic management reveals how the
targeted results will be accomplished (a detailed action plan is necessary to
achieve both short-run and long-run results). Objectives are the “ends” and
strategy is the “means” of achieving them.
Strategy is a blueprint of all the important
entrepreneurial, competitive and functional area actions that are to be taken
in pursuing organizational objectives and positioning the organization for
sustained success.
General Electric opinion on the issue is: “a statement of
how what resources are going to be used to take advantage of which
opportunities to minimize which threats to produce a desired result”:
How to respond to changing conditions
• what to do about shifting customer needs and emerging
industry trends
• which new opportunities to pursue
• how to defend against competitive pressures and other
externally imposed threats
• how to strengthen the mix of the firm’s activities by
doing more of some things and less of others
How to allocate resources
• over the organization’s various business units, divisions,
and functional departments
• making decisions that steer capital investment and human
resources in behind the chosen strategic plan
How to compete
• how to develop customer appeal
• how to position the firm against rivals
• to emphasize some products and de-emphasize others
• meet specific competitive threats
What actions and approaches to take in each of the major
functional areas and operating departments to create a unified and more
powerful strategic effort throughout the business unit.
The issue of strategy goes up and down the managerial
hierarchy (it is not just something that only top management wrestles with).
Strategy formation is largely an exercise in entrepreneurship reflecting the
long-term direction of the organization.
Analysis (situational analysis) and judgement are always
factors. The right choice and strategy for one organization need not be right
for another organization. One of the special values and contributions of
managers is an ability to develop customized solutions that fit the unique
features of an organization’s situation.
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