Emergence of strategic management
Successful managers (efficient and effective) have always devised good strategies, but it was not until recent times (1962) that management scholars recognized strategy as a key factor in organizational success. This delay in recognition was mainly due to changes in the environment since the 1940s (World War II).
What is administration?
It is a process that consists of the activities of planning, organization, direction and control to achieve the established objectives using for them economic, human, material and technical resources through systematized tools and techniques.
Strategy definition
Chandler proposed that "strategy" be defined as: "the determination of long-term goals and plans, the actions to be taken and the allocation of resources necessary to achieve this."
Certo S. defines it this way: "It is the process followed to ensure that an organization has an organizational strategy and benefits from its use."
Stoner J. defines it this way: "Management process that implies that the organization prepares strategic plans and then acts according to them."
Administration and Strategic Planning
Peter Drucker proposes that a manager's performance be judged by the double criteria of effectiveness, the ability to do the "right" things, and efficiency, to do them "correctly". Of these two criteria, Drucker suggests that effectiveness is more important since not the highest possible degree of efficiency can compensate for a wrong selection of goals.
These two criteria parallel the planning aspects: setting the right goals, and then choosing the "right" means to achieve those goals. Both aspects of planning are vital to the administrative process.
The importance of goals
We all dream of finding fame and fortune and earning the respect and admiration of others. For our dreams to come true, however, it is necessary to set specific, measurable goals with realistic achievable dates.
The same is true for organizations; Goals are important for at least 4 reasons:
1. Goals provide a sense of direction
Without a goal, individuals like organizations tend to be confused, react to changes in the environment without a clear sense of what they really want to achieve. By setting goals, people and organizations strengthen their motivation and find a source of inspiration that helps them overcome the inevitable obstacles they encounter.
2. Goals allow us to focus our efforts
The resources of any person or organization are always limited, which can be used to achieve various goals. By selecting only one goal or a series of related goals, we commit to using our scarce resources in a certain way and begin to prioritize. This is particularly important for an organization, which has to coordinate the actions of many individuals.
3. Goals guide our plans and decisions
The answers to these questions will shape both your long and short term plans and help you make many key decisions. Organizations face similar decisions, which are simplified by asking, what is our goal? Would this action bring the organization closer to or further from its goal?
4. Goals help us evaluate our progress
A clearly stated, measurable, and time-bound goal easily becomes a performance standard that allows individuals, as well as managers, to assess their progress. Therefore, the goals are an essential part of the control, they ensure that the actions undertaken correspond to the goals and plans created to achieve them. If we find that we are leaving the designated course or if we face unforeseen contingencies, we can take corrective actions by modifying our plan. Rethinking, in fact, is sometimes the key factor in an organization's ultimate success.
The importance of planning
Planning can be seen as the primary function of management. Although this approach also fails to capture the magnitude of the importance of planning in the administration.
It would be best to think of planning as the locomotive that drives a train of organizational, leadership, and control activities.
Without plans, managers cannot know how to organize people and resources; They may not even have a clear idea of what they need to organize. Without a blueprint, they cannot confidently lead or expect others to follow. And without a plan, managers and their followers are unlikely to achieve their goals or know when and where they are straying from their path. Control becomes a futile exercise. Often the wrong plans affect the health of the entire organization.
Definition of strategic management
Strategic management is the art and science of formulating, implementing, and evaluating cross-functional decisions that enable the organization to achieve its objectives. This involves integrating management, marketing, finance and accounting, production and operations, research and development, and computerized information systems to achieve organizational success.
The strategic management process
The Strategic Management process can be divided into five different components, which are:
- Selection of the Mission and the main corporate goals. Analysis of the organization's external competitive environment to identify opportunities and threats; Analysis of the internal operating environment to identify the organization's strengths and weaknesses; Selection of strategies based on the organization's strengths and that correct your weaknesses in order to take advantage of external opportunities and counter external threats; Implementation of strategies.
Strategic Management Process - Phase I: Basic Purpose, External and Internal Analysis
1. Mission and main goals
The mission explains the why of the organization's existence and what it must do. For example, the mission of a national airline could be defined as: to satisfy the needs of individuals and business travelers regarding fast transportation, at a reasonable price and to the main centers of the country.
The main goals specify what the organization expects to achieve in the medium to long term. In general, for-profit organizations operate based on a hierarchy of goals, at the top of which is the maximization of shareholder profit. Others operate with the secondary goal of occupying the first or second place in the market where they compete (General Electric). Another organization may consider it important to make its product available to any consumer in the world (Coca Cola). Nonprofits typically have a more diverse set of goals.
2. External analysis
The second component of the strategic management process is the analysis of the external operating environment. Its objective is to identify opportunities and threats. At this stage three interrelated environments must be examined:
- The immediate, or industry where the organization operates, The national environment, and The macro environment.
Analyzing the immediate environment involves an assessment of the organization's industrial competitive structure, which includes the competitive position of the central organization and its biggest rivals, as well as the stage of industrial development.
Because many markets are now global, examining this environment also means evaluating the impact of globalization on competition within the industry.
Studying the national environment requires evaluating whether the national context within which a company operates facilitates the achievement of a competitive advantage in the world market. Otherwise, the company could consider moving a significant part of its operations to countries where the national context facilitates the achievement of a competitive advantage.
Analyzing the macro environment consists of examining macroeconomic, social, governmental, legal, international and technological factors that may affect the organization.
Main factors of the external environment
A) Competition
The greater the competition, the less force, the greater the risk and the lower the profits to face establishing strategies with a GLOBAL vision.
- Increasingly intense rivalry. Increasingly faster changes. Increasing price war. Quality and service with increasing demands. Shorter life cycles.
B) The market
- Increasing segmentation. Mass production changes to small and specific lots, with greater added value. Changes in habits and purchasing power.
C) Social factors
- Demography, culture, alcoholism, ideology, style and quality of life, moral health, etc.
How do I anticipate changes?
Create an information system that allows me…
- Define and monitor indicators Have a global and detailed vision Be creative and sensitive
What is the purpose of this analysis?
In threats:
- EvadeNullifyMinimizeTransformAdjustControlModify
On opportunities:
- CreateModifyMaximize
3. Internal analysis (Critical success factors, FCE)
Internal analysis makes it possible to pinpoint the strengths and weaknesses of the organization. Such an analysis includes identifying the quantity and quality of resources available to the organization.
In this part, we observe how companies achieve a competitive advantage, as well as the role of distinctive skills (the only strengths of a company), resources and capacities in the formation and maintenance of the firm's competitive sale.
For a company, the generation and maintenance of a competitive advantage requires achieving superior efficiency, quality, innovation and compliance capacity by the customer.
Strengths enable superiority in these areas, while weaknesses translate into inferior performance.
Analysis:
- Defining the Business Concept
- What is it? …….. What should it be? What does it do? …………..What should I do? How do I do it? ………………… How should I do it
- Is the course defined? Is it the agreement? Is it defined where the organization wants to go? What is important for the organization?
- Utilities.Profitability.Liquidity.Learning.
- Profile knowledge. Positioning. Segments.
- Leadership. Power management. Decision making process. Attitudes. Commitment. Consistency. Coherence. Motivation. Technology. Innovation. Flexibility. Mental ability of the bosses, etc.
Procedure for the development of the DOFA Matrix
- Successively relate each opportunity to each of the strengths and weaknesses. Successively link each threat to each of the strengths and weaknesses. The detailed analysis shows four strategic positions, depending on the combinations:
- Opportunities / Strengths (FO): Strongest offensive position Opportunities / Weaknesses (DO): Weakest offensive position. We must correct our weaknesses if we want to take advantage of opportunities or take advantage of them simply to reduce weaknesses. Threats / Strengths (FA): Strong defensive position Threats / Weaknesses: strategy of withdrawal so as not to waste resources
DOFA Matrix - Strategic positions
4. Strategic selection
The next component involves generating a series of strategic alternatives, given the companies' internal strengths and weaknesses, along with their external opportunities and threats.
The purpose of the strategic alternatives, generated by a SWOT analysis, must be based on strengths in order to exploit opportunities, counter threats and correct weaknesses.
In order to choose among the alternatives generated by a SWOT analysis, the organization must evaluate them by confronting them with each other regarding their ability to achieve important goals.
The generated strategic alternatives may contain strategies at the functional, business, corporate and global levels. The strategic selection process requires identifying the respective set of strategies that best enable you to survive and prosper in the fast-changing, global competitive environment typical of most modern industries.
Strategic Management Process - Phase II: Strategy Selection
4.1 Levels of strategies
4.1.1. Strategy at functional level:
Competitive advantage comes from a company's ability to achieve a higher level of efficiency, quality, innovation, and customer satisfaction.
Strategies at the functional level are those aimed at improving the effectiveness of functional operations within the company, such as: manufacturing, marketing, material handling, research and development of human resources.
Human relations strategies, operations management strategies can be mentioned, for example, total quality management, flexible manufacturing systems, "just in time" inventory systems and techniques to reduce the time of development of new products.
4.1.2. Business-level strategy:
This strategy includes the general competitive theme selected by a company to emphasize how it is positioned in the market to gain a competitive advantage and the different positioning strategies that can be used in different industrial environments.
The pros and cons of three generic business-level strategies are reviewed:
- Cost leadership, Differentiation, Focusing on a particular market niche.
4.1.3. Global strategies:
In today's world of global markets and competition, achieving a competitive advantage and maximizing performance increasingly requires a company to expand its operations beyond its country. Consequently, a firm must consider the various global strategies it can pursue.
The benefits and costs of global expansion can be assessed, and four different strategies are examined: multi-domestic, international, global, and transnational. Also to be considered here are the exploration of the benefits and costs of strategic alliances between global competitors, the various modes of entry that can be used to penetrate a foreign market, and the role of host government policies in influencing the selection of the global strategy of a company.
4.1.4. Strategy at corporate level:
This type of strategy in an organization should solve this question: in which businesses should we locate ourselves to maximize the long-term utility of the organization? For most companies competing successfully, it often involves vertical integration, either backwards in the production of inputs for the main operation of the company or forwards within the distribution of products of the operation.
Beyond this approach, companies that succeed in establishing a sustainable competitive advantage may find that they are excessively generating resources relative to their investment needs within their primary industry. For such organizations, maximizing long-term profit can lead to diversification within new business areas. Therefore, the costs and benefits of different diversification strategies must be carefully examined.
Furthermore, the role of strategic alliances as alternatives for diversification and vertical integration should be studied. The different instruments used by companies to achieve vertical integration and diversification should be reviewed; this includes acquisitions and new operations. It also considers how diversified companies can restructure business portfolios in order to improve their performance.
5. Implementation of the strategy
The topic of strategic implementation is divided into four main components:
- Design of appropriate organizational structures. Design of control systems. Appropriateness of strategy, structure and controls. Management of conflict, policy and change.
Strategic Management Process - Phase III: Implementation of the Strategy
5.1 Design of the organizational structure
To achieve the operation of a strategy, regardless of whether it is attempted or emerging, the organization needs to adopt the correct structure.
Designing an organizational structure involves assigning responsibility for tasks and decision-making authority within an organization. The aspects covered include:
- How to better divide an organization into subunits, How to distribute authority among the different hierarchical levels, and how to achieve integration between subunits.
The options to be analyzed should question whether an organization should operate with a flat or tall structure; the degree of centralization or decentralization of authority in decision making; the maximum point to divide the organization into semi-autonomous subunits (divisions or departments) and the different mechanisms available to integrate those subunits.
5.2 Design of control systems
In addition to selecting a structure, a company must also establish appropriate organizational control systems. The latter must decide how to best evaluate the performance and control the actions of the subunits. Options are classified from market and production controls to bureaucratic and control alternatives through organizational culture.
5.3 Adequacy of strategy, structure and controls
If the company wants to be successful, it must adjust its strategy, structure and controls. Because different strategies and environments establish different demands on an organization, they demand different responses and structural control systems. For example, a cost leadership strategy requires that an organization be kept simple (so as to reduce costs) and that controls emphasize production efficiency. On the other hand, a product differentiation strategy, due to its unique technological characteristics, generates the need to integrate activities around its technological core and to establish control systems that reward technical creativity.
5.4 Conflict management, policies and change
Although in theory the strategic management process is characterized by rational decision making, in practice organizational policy plays a key role. Politics is endemic to organizations. The different subgroups (departments or divisions) within an organization have their own agendas and typically these conflicts. Thus, departments can compete with each other for greater participation in the organization's scarce and finite resources. Such conflicts can be resolved through the relative distribution of power among the subunits or through a rational assessment of relative need. Similarly, individual managers frequently engage in discussions with each other about the correct political decisions.
The power struggles and the formation of coalitions constitute the greatest consequences of these conflicts and are, in fact, part of the strategic administration. Strategic change tends to highlight such struggles, since by definition any modification causes the alteration of the distribution of power within the organization. For this reason, the sources of power and organizational conflict must be analyzed, and study how these factors can cause organizational inertia, which can inhibit the necessary strategic change. Finally, you must examine how an organization can handle conflict to accomplish its strategic mission and implement change.
5.5 The feedback loop
The feedback loop indicates that strategic management is an ongoing process. Once the strategy is implemented, its execution should be monitored in order to determine to what extent the strategic objectives are actually achieved. This information is returned to the corporate level through feedback loops. The next phase of strategy implementation and formulation is provided at this level. It serves either to reaffirm existing corporate goals and strategies or to suggest changes.
For example, when implemented, a strategic objective may be overly optimistic, and therefore more conservative objectives are set the next time. Alternatively, the feedback may reveal that the strategic objectives were achievable, but implementation poor. In this case, the next phase in strategic management may focus more on implementation. Because feedback is an aspect of organizational control, this is a chapter of significant interest, so it is recommended to study and design control systems neatly, and if possible, implement a Control Board.
Conclusions
Those who have the responsibility to lead the organizations must try to anticipate future changes in the environment and design flexible plans and structures that allow adaptation, innovation and face any unforeseen situation.
Strategic Management implies being aware of the change that occurs in the day-to-day environment, it means not only stating intentions but setting measurable and achievable objectives, proposing specific actions and knowing the needs of resources (human, physical, financial and technological) to carry out those actions.
It also means solidity at work, since the entire organization will move in search of common objectives applying common strategies.
Bibliography
- STRATEGIC MANAGEMENT. An integrated approach. Charles Hill and Gareth Jones. Mc Graw Hill.http: //html.rincondelvago.com/administracion-estrategica_1.htmlhttp: //www.capacinet.gob.mx/work/resources/LocalContent/9840/1/temaI.html
