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Saturday, July 27, 2019

What is Strategic Management? (Part 2 of 4)

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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