Strategic management process model
The Strategic Management process can be divided into five different components, which are:
1. Selection of the Mission and the main corporate goals.
2. Analysis of the external competitive environment of the organization to identify opportunities and threats;
3. Analysis of the internal operating environment to identify strengths and weaknesses of the organization;
4. Selection of strategies based on the strengths of the organization and that correct its weaknesses, in order to take advantage of external opportunities and counteract external threats;
5. Implementation of strategies.
Mission and main goals:
The mission explains why the organization exists and what it should do. For example, the mission of a national airline could be defined as: to satisfy the needs of individuals and business travelers in terms of fast transportation, at a reasonable price and to the main centers of the country.
The main goals specify what the organization hopes to achieve in the medium to long term. In general, for-profit organizations operate on the basis of a hierarchy of goals, at the top of which is the maximization of shareholder profit. Others operate with the secondary goal of ranking first or second in the market where they compete (General Electric). Another organization may consider it important to place its product within the reach of any consumer in the world (Coca Cola). Nonprofits typically have a more diverse set of goals.
External analysis:
The second component of the strategic management process is the analysis of the external operating environment. Your goal is to identify opportunities and threats. At this stage, three interrelated environments should be examined:
1. The immediate, or the industry where the organization operates, 2. The national environment, and
3. The macroenvironment.
Analyzing the immediate environment involves an evaluation of the organization's industrial competitive structure, which includes the competitive position of the central organization and its major 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 macroenvironment consists of examining macroeconomic, social, governmental, legal, international and technological factors that may affect the organization.
Internal analisis:
The internal analysis makes it possible to accurately determine the strengths and weaknesses of the organization. Such analysis includes the identification of the quantity and quality of resources available to the organization.
In this part, it is observed how companies achieve a competitive advantage, in addition to analyzing the role of distinctive skills (unique strengths of a company), resources and capacities in the formation and maintenance of the competitive sale of the firm.
For a company, the generation and maintenance of a competitive advantage requires achieving superior efficiency, quality, innovation and compliance capacity on the part of the client.
Strengths make it possible to obtain superiority in these areas, while weaknesses translate into inferior performance.
Strategic selection:
The next component involves the generation of a series of strategic alternatives, given the company's internal strengths and weaknesses, along with its external opportunities and threats.
The purpose of strategic alternatives, generated by a SWOT analysis, must be based on strengths in order to exploit opportunities, counteract threats and correct weaknesses.
In order to choose among the alternatives generated by a SWOT analysis, the organization must evaluate them against each other regarding their ability to achieve important goals.
The strategic alternatives generated can contain strategies at a functional, business, corporate and global level. The strategic selection process requires identifying the respective set of strategies that will best allow you to survive and thrive in the fast-changing and global competitive environment typical of most modern industries.
Strategy at a functional level:
Competitive advantage comes from a company's ability to achieve a higher level of efficiency, quality, innovation, and customer satisfaction capabilities.
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, eg total quality management, flexible manufacturing systems, “just-in-time” inventory systems, and techniques to reduce time to develop new products can be mentioned.
Business level strategy:
This strategy includes the general competitive theme selected by a company to emphasize the way 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 strategies at the business level are reviewed:
- Cost leadership, Differentiation, Focus on a particular market niche.
Global strategies:
In today's world of global markets and competition, achieving 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 may pursue.
The benefits and costs of global expansion can be evaluated, and four different strategies are examined: multidomestic, international, global, and transnational. The exploration of the benefits and costs of strategic alliances between global competitors, the various modes of entry that can be used in order to penetrate a foreign market, and the role of host government policies in influencing the selection of the overall strategy of a company.
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 often involves vertical integration, either backward in the production of inputs for the company's main operation or forward within the distribution of products from the operation.
Beyond this approach, companies that are successful in establishing a sustainable competitive advantage may find that they are generating resources in excess of their investment needs within their primary industry. For such organizations maximizing long-term profit can lead to diversification into new business areas. So the costs and benefits of different diversification strategies should be carefully examined.
In addition, 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.
Strategy implementation:
The topic of strategic implementation is divided into four main components:
- Design of appropriate organizational structures, Design of control systems, Adequacy of strategy, structure and controls, Management of conflict, politics and change.
Design of the organizational structure:
To make a strategy work, regardless of whether it is attempted or emergent, the organization needs to adopt the correct structure.
Designing a structure involves assigning responsibility for tasks and decision-making authority within an organization. The aspects contemplated include:
- how best to divide an organization into subunits, how to distribute authority among different hierarchical levels, and how to achieve integration between subunits.
The options to be analyzed must question whether an organization should function with a flat or tall structure; the degree of centralization or decentralization of decision-making authority; the maximum point to divide the organization into semi-autonomous subunits (divisions or departments) and the different mechanisms available to integrate these subunits.
Design of control systems:
In addition to selecting a structure, a company must also establish appropriate organizational control systems. It must decide how to best assess performance and control the actions of the subunits. The options range from market and production controls to bureaucratic and control alternatives through organizational culture.
Adequacy of strategy, structure and controls:
If the company wants to be successful, it must achieve a fit between its strategy, structure and controls. Because different strategies and environments place 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 (in order 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.
Managing conflict, 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. Different subgroups (departments or divisions) within an organization have their own agendas and typically, these conflicts. Thus, departments can compete with each other for a greater share of the organization's finite and scarce resources. Such conflicts can be resolved through the relative distribution of power among subunits or through a rational assessment of relative necessity. Similarly, individual managers often engage in discussions with each other about the correct policy decisions.Power struggles and the formation of coalitions are the major consequences of these conflicts and are, in fact, part of strategic management. 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 organizational power and conflict must be analyzed, and how these factors can cause organizational inertia, which can inhibit the necessary strategic change. Finally, it is necessary to examine how an organization can manage conflict to fulfill its strategic mission and implement change.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 organizational power and conflict must be analyzed, and how these factors can cause organizational inertia, which can inhibit the necessary strategic change. Finally, it is necessary to examine how an organization can manage conflicts to fulfill its strategic mission and implement change.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 organizational power and conflict must be analyzed, and how these factors can cause organizational inertia, which can inhibit the necessary strategic change. Finally, it is necessary to examine how an organization can manage conflicts to fulfill its strategic mission and implement change.Finally, it is necessary to examine how an organization can manage conflict to fulfill its strategic mission and implement change.Finally, it is necessary to examine how an organization can manage conflict to fulfill its strategic mission and implement change.
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 being achieved. This information is returned to the corporate level through feedback loops. At this level the next phase of strategy implementation and formulation is provided. It serves either to reaffirm existing corporate goals and strategies or to suggest changes.
For example, when implemented, a strategic objective may be too optimistic, and therefore more conservative objectives are set the next time. Alternatively, feedback may reveal that the strategic objectives were achievable, but the implementation was 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 carefully design control systems, and if possible, implement a Control Board.
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