Strategic Management and Its Importance In Modern Business
The term ‘Strategy’ dates back to at least a couple of hundred centuries and the concept is derived from texts that date back to more than a thousand years ago. There have been countless scholars and philosophers that have debated upon this over the past years and different theories and concepts have developed along the way and all these have gradually contributed to the development of the discipline ‘strategic management’ which has now become indispensable and integral part of doing businesses of the enterprises in the modern business world where everything has to be planned beforehand to achieve the organizational objectives (Karami, Jones and Kakabadse, 2008).
With the change of the nature of business from a somewhat stable environment to a competitive environment, in the post World War II, strategic management gradually become a vital tool for achieving the organizational objectives set by the mission and vision of the enterprises(Thite, 2004). Thereafter many authors and research scholars have forwarded various theories and concept about strategic management and the way of using the strategic management process so as to optimally utilize the resources of the firms to accomplish their business goals and objectives.
The importance of bringing the different managerial activities and coordinating the same under one roof of strategy was first emphasized by Alfred Chandler. Before he advocated the above concept various activities of management related to different functions was lacking one vital aspect of strategic management and that is coordination (Proenca and de Oliveira, 2008). Instead of coordination a communication system was in vogue to coordinate the various departments, where few managers, at the boundary line of their respective divisions, were entrusted with the task of exchanging information required to operate the functions of the business. Chandler also proposed to leave behind the short term perspective and to adopt a long term future oriented vision and mission for the development of successful strategy for an organisation. It was in 1962, when Chandler advocated for strategy which should be strongly coordinated between various managerial functions so as to provide the organisation a well defined strategic structure, a sense of direction enough to make the organizational activities focused to achieve its objective (Kluemper and Rosen, 2009).
According to William F. Gluek, strategy could be defined as “A unified, comprehensive and integrated plan designed to assure that the basic objectives of the enterprises are achieved.”
Coordinating the functions and combining them systematically in order to get the competitive edge by adding value to the activities of the value chain to satisfy the end users of the products and services offered by the business and to accomplish the objectives of the organisation in accordance with the vision and mission are what the strategy of a company should look for (Markova and Ford, 2011).
Strategic thinking involves orientation of the firm’s internal environment with the changes of the external environment. The economic and technical components of the external environment are considered as major factors leading to the new opportunities for the organization as well as threats to its survival (Armstrong, Brown and Reilly, 2011). The broader expectation of the society in which the organization operates, is again an important factor to be considered at the time of defining the competitive strategy on the basis of the strength and weakness of the organization.
So strategic management encompasses the way of creating a vision, deciding on the strategy to set objectives and goals to achieve that vision, putting the strategy into operational action so as to make the optimal use of the scarce organizational resources and thereafter comparing those actions against standards to make corrective adjustments to keep the value creating functions in line with the decided strategic goal and thereby achieving it (Coleman and Ingram, 2004).
In short, it is the evaluation, calculation and optimal utilization of all available resources of a business/firm so as to produce an efficient and effective decision for the company to achieve its objective. Usually, a balanced scorecard is used to prevent any imbalance in the evaluation and to maintain proper balancing in the entire evaluation process (Beausaert, Segers, Fouarge and Gijselaers, 2012). Recent studies have suggested that when evaluation takes place, strategy shall be at par with the expectation of the stakeholders' and will include every expectation of them so that the scorecard is rather balanced and no imbalance occurs in the evaluation and strategy planning.
Strategic management starts with developing a company mission (to give it a direction), objectives and goals (to give it means and methods for accomplishing its mission), and functional plans (plans to carry out various operations from different functional disciplines so as to achieve the goals and objectives) (Alatrista and Arrowsmith, 2004). The overall objective of the strategic management is twofold, to create a competitive advantage so that the organization can outperform its competitors and to guide the organization successfully towards the achievement of its mission through the challenges of the turbulent and continuously changing external environment.
While taking the strategic decisions, the strategic management should be extremely informed as strategic decisions, by their nature, may be characterized by considerable risk and uncertainty (McDermott and Keating, 2011). Unpredictable environmental changes can quickly threaten well-conceived plans. Most strategic decision makers clearly recognize this danger and learn to adapt.
Bernard Food Industries Inc. is a fifty-three-year-old family-held business of more than 1,500 sugar-free, low-fat, and low-calorie food products. At first, the company sold most of its products to hospitals, nursing homes, and other such institutions. In 1996, however, Steve Bernard, the founder’s son, decided to expand the market (Edgley-Pyshorn and Huisman, 2011). Although only a handful of companies were marketing such products at that time, Bernard viewed the Web as the future. The firm’s online subsidiary, eDietShop performed extremely well and quintupled retail sales in the first two years and has continued to grow, developing into one of its industry’s leaders by the mid-2000s. As Bernard put it, “We didn’t turn to the Web because other people were doing it but because we knew where we wanted our business to go.”
There are several approaches to strategic management and these generally apply upon a company in accordance with its size and the type of business the firm is involved in. There are two main approaches and these are Industrial Organizational Approach and the Sociological Approach (Caldwell, 2011). Both of these approaches are rather very different in nature when compared to each other but are very important and indispensable.
Industrial Organizational Approach takes into account the analysis of the available resources, market competition, the economics of scale such as the canon/scale of feasibility, the scale of economic development etc. and considers things such as the maximization of profit, organizational structure, allotment of resources etc. etc. It may or may not offer its shares to the public but is more concerned with and concentrated on making as much profit as it can (Caruth and Humphreys, 2008). This approach is usually implemented in most firms for it yields a lot of profit even if the business is on a small-scale because this ensures minimum cost and maximum profit and there is usually a single proprietor. In some cases, there may be more than a single proprietor but this does not stop this approach for it has more guarantee and less distribution when compared to the sociological approach (Elbanna and Naguib, 2009).
Sociological Approach is a rather open approach which is not limited to the industry itself and considers worthy people who may apply for it and invest in it on a return-investment basis i.e. they get their share when the industry earns money. A fine example of this kind of company is Google and it is evident how Google does its business (Karami, Jones and Kakabadse, 2008). People apply for investment usually with Google Adsense on a return-investment basis meaning that if they get accepted, they earn their share on a weekly/monthly basis depending upon how much they earn for Google. In short, the method applies the utilization of human interactions with the business and assumes a profit-sharing investment. If done on a small-scale, this approach isn't as effective but a firm as big as Google enjoys credibility and profit, both because of this approach (Thite, 2004).
Moreover, in most businesses and firms, there are usually three levels of offices responsible for the day-to-day business dealings and while these are mainly related to managing the business, strategic management takes place there as well. The three main levels in the strategy hierarchy are functional, corporate and business (Proenca and de Oliveira, 2008). Corporate strategy is basically the growth design of the firm. It decides as to where it should invest, how much it should invest and takes into account factors such as diminishing marginal returns, economics of scale, reliability etc. and furthermore, decides when a partnership shall be dissolved and the investment taken out. Business strategy takes in consideration as to how the business shall be run and this includes the analysis of the available resources to satisfy the needs of the business and this is rather an economical process(Kluemper and Rosen, 2009). This sector usually makes sure that the day-to-day business dealings are dealt with smoothly and strategies are implemented so that the business earns maximum profit while lowering the cost of production, transportation and other, irrelevant expenses. Functional strategy mainly does the outsourcing work. It helps the firm by linking it to the consumers so that it knows if there is any improvement needed in the product (Markova and Ford, 2011). It also ensures that the product is released into the market and information about it is spread through marketing and advertising. In addition, functional strategy also handles the legal formalities of the firm. This sector is vast and divided into different subsections. The highest among all these three or under which all three levels in the strategy is Strategic Management in the strategy hierarchy for the decision they make applies at every level whether corporate, business or functional however different actions may be taken for different levels (Armstrong, Brown and Reilly, 2011).
Strategic Management, as previously mentioned, is a rather new concept though it is only perceived as one because it was put in black and white after thousands of years of practice. Since the PIMs Study in the 1960s, the subject matter was studied and strategy was put to practice, surveys were taken and observations took place for a period of about 20 years. New theories and understandings developed as the years passed (Coleman and Ingram, 2004). The Japanese have been a major competitor to all the world in terms of business since the 1980s and it seems they exploited when they saw the opportunity. Ever since, the Japanese have been operating for US companies through license agreements and this was made possible because the Japanese agreed to produce in bulk for the US at a very reasonable rate. Nowadays though, it is observed that China has moved up in the market by a lot and this is due to the low-cost manufacturing of the product without any difference in the quality (Beausaert, Segers, Fouarge and Gijselaers, 2012).
Much of the subject matter is being studied these days about strategic management and a lot of research is being carried out though it seems that in the past years, much of it has failed for a lot of crisis has been faced by the world from a financial point of view. Also, International Strategic Management allows for domestic/local businesses to move into the international market so that they are able to earn foreign exchange but there are a lot of complexities in this because there is a difference when looked upon from a political, lingual, cultural, governmental level etc (Alatrista and Arrowsmith, 2004). and this hinders the process of trading with other countries at times. In addition, for the time being, there is a limited scope of strategic management for there are complexities that are not fully understood by man to take actions accordingly and this limits us from fully exploring the subject.
A critical challenge facing organizations is the reality that strategies are not always implemented as originally planned. Henry Mintzberg introduced two terms to help clarify the shift that often occurs between the time a strategy is formulated and the time it is implemented. An intended strategy, that which management originally planned, may be realized just as it was planned, in a modified form, or even in an entirely different form (McDermott and Keating, 2011). Occasionally, the strategy that management intends is actually realized, but the intended strategy and the realized strategy, which is what management actually implements, usually differ. Hence, the original strategy may be realized with desirable or undesirable results, or it may be modified as changes in the firm or the environment become known. The gap between the intended and realized strategies usually results from unforeseen environmental or organizational events, better information that was not available when the strategy was formulated, or an improvement in top management’s ability to assess its environment (Edgley-Pyshorn and Huisman, 2011). Although it is important for managers to formulate responsible strategies based on a realistic and thorough assessment of the firm and its environment, things invariably change along the way. Hence, it is common for such a gap to exist, creating the need for constant strategic action if a firm is to stay on course. Instead of resisting modest strategic changes when new information is discovered, managers should search for new information and be willing to make such changes when necessary. This activity is part of strategic control, the final step in the strategic management process (Caldwell, 2011).
Also, it seems that the implementation of strategic management sometimes does not have as much of an impact as we expect and rather fails at times for one of the critique of strategic management is that it is based upon trial and error and one, if led to a wrong decision suffers. Moreover, this method is said to be best effective only when the person implementing it or taking the decisions is rather experienced at it. It’s true that the strategic direction should be focused enough to achieve the strategic objectives by guiding the enterprise through the turbulent macroeconomic environment. But the limitation is that, the strategic management, if strictly implemented, may restrict the flow of creativity within the organisation (Caruth and Humphreys, 2008). In this dynamic and continuously changing global business world, a sense of creativity, flexibility and dynamism could often be proved to be more important than a well defined and well directed strategy. When a strategy becomes internalized into a corporate culture, it can lead to group think. It can also cause an organization to define itself too narrowly.
In conclusion, Strategic Management is a rather complex and vast subject which has continued to grow ever since it was first practiced and continues to grow. There is much to explore and though, there may be a lot of criticism upon the subject itself, it is very helpful in managing one's business for it helps keep things organized and on-track (Elbanna and Naguib, 2009). It provides superior guidance to the organization on the crucial juncture of its path, provides framework for all major business decisions and at the same time serves as a corporate defense mechanism against external threats as well as own mistakes and pitfalls. Over a period of time strategic management helps organization to evolve certain core competencies and competitive advantages that assist in the fight of survival and growth (Alatrista and Arrowsmith, 2004). Being proactive rather than reactive in dealing the future of the organization it facilitates and helps the organization to work within vagaries of environment and remain adaptable with the turbulence or uncertain future thereby making it able enough to control its destiny in a better way so as to achieve its mission, vision and objectives.
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