Strategic management process

Strategic management process is a method by which managers conceive of and

implement a strategy that can lead to a sustainable competitive advantage
Strategic management process has following four steps:

1. Environmental Scanning- Environmental scanning refers to a process of

collecting, scrutinizing and providing information for strategic purposes. It helps in
analyzing the internal and external factors influencing an organization. After
executing the environmental analysis process, management should evaluate it on a
continuous basis and strive to improve it.
2. Strategy Formulation- Strategy formulation is the process of deciding best
course of action for
accomplishing organizational objectives and hence achieving organizational
purpose. After conducting
environment scanning, managers formulate corporate, business and functional
strategies.
3. Strategy Implementation- Strategy implementation implies making the
strategy work as
intended or putting the organizations chosen strategy into action. Strategy
implementation includes
designing the organizations structure, distributing resources, developing decision
making process, and
managing human resources.
4. Strategy Evaluation- Strategy evaluation is the final step of strategy
management process. The
key strategy evaluation activities are: appraising
internal and external factors that are the root of present strategies, measuring
performance, and taking remedial / corrective actions. Evaluation makes sure that
the organizational strategy as well as its implementation meets the organizational
objectives.

Corporate Governance and Social Responsibility

Corporate governance is a mechanism established to allow different parties to
contribute capital, expertise and labour for their mutual benefit the investor or
shareholder participates in the profits of enterprise without taking responsibility for
the
operations. Management runs the
company without being personally
responsible for providing the funds. So as representatives of the shareholders,
directors have both the authority and the responsibility to establish basic corporate
policies and to ensure they are followed.
The board of directors has, therefore, an obligation to approve all decisions
that might affect the long run performance of the corporation. The term corporate
governance refers to the relationship
among these three groups (board of
directors,
management and shareholders) in determining the direction and
performance of the corporation
Responsibilities of the board
Specific requirements of board members of board members vary, depending on
the state in which the corporate charter is issued. The following five responsibilities
of board of directors listed in order of importance
1. Setting corporate strategy ,overall direction, mission and vision
2. Succession: hiring and firing the CEO and top management
3. Controlling , monitoring or supervising top management
4. Reviewing and approving the use of resources
5. Caring for stockholders interests
Role of board in strategic management
The role of board of directors is to carry out three basic tasks
1. Monitor
2. Evaluate and influence
3. Initiate and determine

SWOT Analysis
SWOT is an acronym for Strengths, Weaknesses, Opportunities and Threats. By definition,
Strengths (S) and Weaknesses (W) are considered to be internal factors over which you have
some measure of control. Also, by definition, Opportunities (O) and Threats (T) are considered
to be external factors over which you have essentially no control.
SWOT Analysis is the most renowned tool for audit and analysis of the overall strategic
position of the business and its environment. Its key purpose is to identify the strategies that
will create a firm specific business model that will best align an organizations resources and
capabilities to the requirements of the environment in which the firm operates.
In other words, it is the foundation for evaluating the internal potential and limitations and the
probable/likely opportunities and threats from the external environment. It views all positive
and negative factors inside and outside the firm that affect the success. A consistent study of
the environment in which the firm operates helps in forecasting/predicting the changing trends
and also helps in including them in the decision-making process of the organization.
An overview of the four factors (Strengths, Weaknesses, Opportunities and Threats) is given
below1. Strengths - Strengths are the qualities that enable us to accomplish the organizations
mission. These are the basis on which continued success can be made and
continued/sustained.
Strengths can be either tangible or intangible. These are what you are well-versed in or
what you have expertise in, the traits and qualities your employees possess (individually
and as a team) and the distinct features that give your organization its consistency.
Strengths are the beneficial aspects of the organization or the capabilities of an
organization, which includes human competencies, process capabilities, financial
resources, products and services, customer goodwill and brand loyalty. Examples of
organizational strengths are huge financial resources, broad product line, no debt,
committed employees, etc.
2. Weaknesses - Weaknesses are the qualities that prevent us from accomplishing our
mission and achieving our full potential. These weaknesses deteriorate influences on
the organizational success and growth. Weaknesses are the factors which do not meet
the standards we feel they should meet.
Weaknesses in an organization may be depreciating machinery, insufficient research
and development facilities, narrow product range, poor decision-making, etc.
Weaknesses are controllable. They must be minimized and eliminated. For instance - to
overcome obsolete machinery, new machinery can be purchased. Other examples of

organizational weaknesses are huge debts, high employee turnover, complex decision
making process, narrow product range, large wastage of raw materials, etc.
3. Opportunities - Opportunities are presented by the environment within which our
organization operates. These arise when an organization can take benefit of conditions
in its environment to plan and execute strategies that enable it to become more
profitable. Organizations can gain competitive advantage by making use of
opportunities.
Organization should be careful and recognize the opportunities and grasp them
whenever they arise. Selecting the targets that will best serve the clients while getting
desired results is a difficult task. Opportunities may arise from market, competition,
industry/government and technology. Increasing demand for telecommunications
accompanied by deregulation is a great opportunity for new firms to enter telecom
sector and compete with existing firms for revenue.
4. Threats - Threats arise when conditions in external environment jeopardize the
reliability and profitability of the organizations business. They compound the
vulnerability when they relate to the weaknesses. Threats are uncontrollable. When a
threat comes, the stability and survival can be at stake. Examples of threats are - unrest
among employees; ever changing technology; increasing competition leading to excess
capacity, price wars and reducing industry profits; etc.

Advantages of SWOT Analysis

SWOT Analysis is instrumental in strategy formulation and selection. It is a strong tool, but it
involves a great subjective element. It is best when used as a guide, and not as a prescription.
Successful businesses build on their strengths, correct their weakness and protect against
internal weaknesses and external threats. They also keep a watch on their overall business
environment and recognize and exploit new opportunities faster than its competitors.
SWOT Analysis helps in strategic planning in following mannera. It is a source of information for strategic planning.
b. Builds organizations strengths.
c. Reverse its weaknesses.
d. Maximize its response to opportunities.
e. Overcome organizations threats.
f.

It helps in identifying core competencies of the firm.

g. It helps in setting of objectives for strategic planning.

h. It helps in knowing past, present and future so that by using past and current data,
future plans can be chalked out.
SWOT Analysis provide information that helps in synchronizing the firms resources and
capabilities with the competitive environment in which the firm operates.
SWOT ANALYSIS FRAMEWORK

Limitations of SWOT Analysis

SWOT Analysis is not free from its limitations. It may cause organizations to view circumstances
as very simple because of which the organizations might overlook certain key strategic contact
which may occur. Moreover, categorizing aspects as strengths, weaknesses, opportunities and
threats might be very subjective as there is great degree of uncertainty in market. SWOT
Analysis does stress upon the significance of these four aspects, but it does not tell how an
organization can identify these aspects for itself.
There are certain limitations of SWOT Analysis which are not in control of management. These
includea. Price increase;
b. Inputs/raw materials;
c. Government legislation;
d. Economic environment;
e. Searching a new market for the product which is not having overseas market due to
import restrictions; etc.

Internal limitations may includea. Insufficient research and development facilities;

b. Faulty products due to poor quality control;
c. Poor industrial relations;
d. Lack of skilled and efficient labour; etc

Strategy Formulation
Strategy formulation is the development of long-range plans for the effective management of
environmental opportunities and threats, in light of corporate strengths and weaknesses
(SWOT). It includes defining the corporate mission, specifying achievable objectives, developing
strategies, and setting policy guidelines.
Mission
An organizations mission is the purpose or reason for the organizations existence. It tells what
the company is providing to societyeither a service such as housecleaning or a product such
as automobiles. A well-conceived mission statement defines the fundamental, unique purpose
that sets a company apart from other firms of its type and identifies the scope or domain of the
companys operations in terms of products (including services) offered and markets served.
Research reveals that firms with mission statements containing explicit descriptions of
customers served and technologies used have significantly higher growth than firms without
such statements.
A mission statement may also include the firms values and philosophy about how it does
business and treats its employees. It puts into words not only what the company is now but
what it wants to becomemanagements strategic vision of the firms future. The mission
statement promotes a sense of shared expectations in employees and communicates a public
image to important stakeholder groups in the companys task environment.
Some people like to consider vision and mission as two different concepts: Mission describes
what the organization is now; vision describes what the organization would like to become. We
prefer to combine these ideas into a single mission statement. Some companies prefer to list
their values and philosophy of doing business in a separate publication called a values
statement
One example of a mission statement is that of Google:
To organize the worlds information and make it universally accessible and useful

Objectives
Objectives are the end results of planned activity. They should be stated as action verbs and tell
what is to be accomplished by when and quantified if possible. The achievement of corporate
objectives should result in the fulfilment of a corporations mission. In effect, this is what society
gives back to the corporation when the corporation does a good job of fulfilling its mission. For
example, by providing society with gums, candy, iced tea, and carbonated drinks, Cadbury
Schweppes, has become the worlds largest confectioner(a shop that sells sweets and
chocolates.) by sales.
One of its prime objectives is to increase sales 4%6% each year. Even though its profit margins
were lower than those of Nestl, Kraft, and Wrigley, its rivals in confectionary, or those of Coca
Cola or Pepsi, its rivals in soft drinks, Cadbury Schweppes management established the
objective of increasing profit margins from around 10% in 2007 to the midteens by 2011.
The term goal is often used interchangeably with the term objective. In this book, we prefer to
differentiate the two terms. In contrast to an objective, we consider a goal as an open ended
statement of what one wants to accomplish, with no quantification of what is to be achieved
and no time criteria for completion. For example, a simple statement of increased profitability
is thus a goal, not an objective, because it does not state how much profit the firm wants to
make the next year. A good objective should be action-oriented and begin with the word to. An
example of an objective is to increase the firms profitability in 2010 by 10% over 2009.
Some of the areas in which a corporation might establish its goals and objectives are:

Profitability (net profits)

Efficiency (low costs, etc.)
Growth (increase in total assets, sales, etc.)
Shareholder wealth (dividends plus stock price appreciation)
Utilization of resources (ROE or ROI)
Reputation (being considered a top firm)
Contributions to employees (employment security, wages, diversity)
Contributions to society (taxes paid, participation in charities, providing a needed
product or service)
Market leadership (market share)
Technological leadership (innovations, creativity)
Survival (avoiding bankruptcy)
Personal needs of top management (using the firm for personal purposes, such as
providing jobs for relatives)

Strategies
A strategy of a corporation forms a comprehensive master plan that states how the
corporation will achieve its mission and objectives. It maximizes competitive advantage and

minimizes competitive disadvantage. For example, even though Cadbury Schweppes was a
major competitor in confectionary and soft drinks, it was not likely to achieve its challenging
objective of significantly increasing its profit margin within four years without making a major
change in strategy. Management therefore decided to cut costs by closing 33 factories and
reducing staff by 10%. It also made the strategic decision to concentrate on the confectionary
business by divesting its less-profitable Dr. Pepper/Snapple soft drinks unit. Management was
also considering acquisitions as a means of building on its existing strengths in confectionary by
purchasing either Krafts confectionary unit or the Hershey Company.
The typical business firm usually considers three types of strategy: corporate, business, and
functional.
1. Corporate strategy describes a companys overall direction in terms of its general attitude
toward growth and the management of its various businesses and product lines. Corporate
strategies typically fit within the three main categories of stability, growth, and retrenchment.
Cadbury Schweppes, for example, was following a corporate strategy of retrenchment by selling
its marginally profitable soft drink business and concentrating on its very successful
confectionary business.
2. Business strategy usually occurs at the business unit or product level, and it emphasizes
improvement of the competitive position of a corporations products or services in the specific
industry or market segment served by that business unit. Business strategies may fit within the
two overall categories, competitive and cooperative strategies. For example, Staples, the U.S.
office supply store chain, has used a competitive strategy to differentiate its retail stores from
its competitors by adding services to its stores, such as copying, UPS shipping, and hiring
mobile technicians who can fix computers and install networks. British Airways has followed a
cooperative strategy by forming an alliance with American Airlines in order to provide global
service. Cooperative strategy may thus be used to provide a competitive advantage. Intel, a
manufacturer of computer microprocessors, uses its alliance (cooperative strategy) with
Microsoft to differentiate itself (competitive strategy) from AMD, its primary competitor.
3. Functional strategy is the approach taken by a functional area to achieve corporate and
business unit objectives and strategies by maximizing resource productivity. It is concerned
with developing and nurturing a distinctive competence to provide a company or business unit
with a competitive advantage. Examples of research and development (R&D) functional
strategies are technological followership (imitation of the products of other companies) and
technological leadership (pioneering an innovation). For years, Magic Chef had been a
successful appliance maker by spending little on R&D but by quickly imitating the innovations of
other competitors. This helped the company to keep its costs lower than those of its
competitors and consequently to compete with lower prices. In terms of marketing functional
strategies, Procter & Gamble (P&G) is a master of marketing pullthe process of spending
huge amounts on advertising in order to create customer demand. This supports P&Gs
competitive strategy of differentiating its products from those of its competitors.
Policies

A policy is a broad guideline for decision making that links the formulation of a strategy with its
implementation. Companies use policies to make sure that employees throughout the firm
make decisions and take actions that support the corporations mission, objectives, and
strategies.
For example, when Cisco decided on a strategy of growth through acquisitions, it established a
policy to consider only companies with no more than 75 employees, 75% of whom were
engineers.67 Consider the following company policies:
3M: 3M says researchers should spend 15% of their time working on something other than
their primary project. (This supports 3Ms strong product development strategy.)
Intel: Intel cannibalizes its own product line (undercuts the sales of its current products) with
better products before a competitor does so. (This supports Intels objective of market
leadership.)
General Electric: GE must be number one or two wherever it competes. (This supports GEs
objective to be number one in market capitalization.)
Southwest Airlines: Southwest offers no meals or reserved seating on airplanes. (This
supports Southwests competitive strategy of having the lowest costs in the industry.)
Exxon: Exxon pursues only projects that will be profitable even when the price of oil drops to a
low level. (This supports Exxons profitability objective.)
Policies such as these provide clear guidance to managers throughout the organization.

Strategy
The word strategy is derived from the Greek word stratgos; stratus (meaning army) and
ago (meaning leading/moving).
Strategy is an action that managers take to attain one or more of the organizations goals.
Strategy can also be defined as A general direction set for the company and its various
components to achieve a desired state in the future. Strategy results from the detailed strategic
planning process.
A strategy is all about integrating organizational activities and utilizing and allocating the scarce
resources within the organizational environment so as to meet the present objectives. While
planning a strategy it is essential to consider that decisions are not taken in a vaccum and that
any act taken by a firm is likely to be met by a reaction from those affected, competitors,
customers, employees or suppliers.

Strategy can also be defined as knowledge of the goals, the uncertainty of events and the need
to take into consideration the likely or actual behavior of others. Strategy is the blueprint of
decisions in an organization that shows its objectives and goals, reduces the key policies, and
plans for achieving these goals, and defines the business the company is to carry on, the type of
economic and human organization it wants to be, and the contribution it plans to make to its
shareholders, customers and society at large.

Features of Strategy
1. Strategy is Significant because it is not possible to foresee the future. Without a perfect
foresight, the firms must be ready to deal with the uncertain events which constitute the
business environment.
2. Strategy deals with long term developments rather than routine operations, i.e. it deals
with probability of innovations or new products, new methods of productions, or new
markets to be developed in future.
3. Strategy is created to take into account the probable behavior of customers and
competitors. Strategies dealing with employees will predict the employee behavior.
Strategy is a well-defined roadmap of an organization. It defines the overall mission, vision
and direction of an organization. The objective of a strategy is to maximize an organizations
strengths and to minimize the strengths of the competitors.
Strategy, in short, bridges the gap between where we are and where we want to be.

Evolution Of Strategic Management

Several researchers in the field of strategic management have developed models

describing the evolution of strategic management. In this section I present Ansoff's
model.

H. Igor Ansoff analyzed the changing environmental challenges facing organizations

during this century and the managerial responses, competitive strategies, and
entrepreneurial strategies employed to cope with them.

According to Ansoff, during the twentieth century, two different types of system
have evolved:

* positioning systems (long range planning, strategic planning, strategic position

management) which direct the firm's thrust in the environment;

* real-time systems (strong signal issue management, weak signal issue

management, surprise management) which respond one at a time to rapid and
unpredicted environmental developments.

The systems can be grouped into four distinctive stages of evolution, that were
responsive to the progressively decreasing familiarity of events and decreasing
visibility of the future:

1. Management by (after the fact) control of performance, which was adequate

when change was slow.

2. Management by extrapolation, when change accelerated, but the future

could be predicted by extrapolation of the past.

3. Management by anticipation, when discontinuities began to appear but

change, while rapid, was still slow enough to permit timely anticipation and
response.

4. Management through flexible/rapid response, which is currently

emerging, under conditions in which many significant challenges develop too
rapidly to permit timely anticipation.

Strategy implementation
Strategy implementation is the sum total of the activities and choices required for
the execution of a strategic plan. It is the process by which objectives, strategies,
and policies are put into action through the development of programs, budgets, and
procedures. Although implementation is usually considered after strategy has been
formulated, implementation is a key part of strategic management. Strategy
formulation and strategy implementation should thus be considered as two sides of
the same coin.
Poor implementation has been blamed for a number of strategic failures. For
example,
studies show that half of all acquisitions fail to achieve what was expected of them,
and one
out of four international ventures does not succeed.4 The most-mentioned problems
reported

in post-merger integration were poor communication, unrealistic synergy

expectations, structural problems, missing master plan, lost momentum, lack of top
management commitment, and unclear strategic fit.
To begin the implementation process, strategy makers must consider these
questions:
1. Who are the people who will carry out the strategic plan?
2. What must be done to align the companys operations in the new intended
direction?
3. How is everyone going to work together to do what is needed?
A survey of 93 Fortune 500 firms revealed that more than half of the corporations
experienced
the following 10 problems when they attempted to implement a strategic change.
These problems are listed in order of frequency:
1. Implementation took more time than originally planned.
2. Unanticipated major problems arose.
3. Activities were ineffectively coordinated.
4. Competing activities and crises took attention away from implementation.
5. The involved employees had insufficient capabilities to perform their jobs.
6. Lower-level employees were inadequately trained.
7. Uncontrollable external environmental factors created problems.
8. Departmental managers provided inadequate leadership and direction.
9. Key implementation tasks and activities were poorly defined.
10. The information system inadequately monitored activities.
Strategy Implementation
A local hardware store recently experienced a slump in sales and had to lay off two
of its employees. The owner/manager is attempting to come up with a new business
strategy to improve his situation and once again become a market leader. Strategy
implementation consists of putting plans in place by formulating a strategy to
achieve the organization's goals and objectives. It can also be described as the way
a business might develop, use, integrate the organizational hierarchy, systems, and
culture to pursue strategies that will result in competitive advantage and improved
performance. In the example, the organization's goal is increase in sales and
regaining its market position. The strategy will be specific actions that will realize
the goals.
But what is a strategy?
In the hardware store, the overall objective is known: attract and keep customers,
increase sales and improve performance. The strategy describes how these
objectives can be achieved. For the hardware store it could be increasing
promotional events or becoming involved in the local community through public
relations. The strategy is an action plan.
Why do we need a strategy?

As with our local hardware store, organizations need strategies, which assist them
with answering specific questions regarding the goals of a business. There are three
main questions:
Who are the people that make up our target market? This could be local building
contractors, handymen and home owners, for the hardware store.
What is the value proposition that we will use to differentiate our products and
services from our competitors? This could be the high end brands that we carry and
the quality perception associated with them. Or it could be our on-time delivery
systems and after-sales service.
What are the capabilities we have that will assist us with being the best in the
market at delivering that value proposition? This could be our well-trained
employees who are also experts in the construction industry.
Programs:
Purpose is to make the strategy action-oriented.Compare proposed programs and
activities with current programs and activities. It include following factors.
1. Matrix of change
2. Feasibility
3. Sequence execution
4. Location
5. Pace and nature of change
6. Stakeholder evaluations

Budgets
After programs have been developed, the budget process begins. Planning a budget
is the last
real check a corporation has on the feasibility of its selected strategy. An ideal
strategy might
be found to be completely impractical only after specific implementation programs
are coasted
in detail.
As an example, once Cadbury Schweppes management realized how dependent
the
company was on cocoa from Ghana to continue the companys growth strategy, it
developed
a program to show cocoa farmers how to increase yields using fertilizers and by
working with
each other. Ghana produced 70% of Cadburys worldwide supply of the high-quality
cocoa
necessary to provide the distinctive taste of Dairy Milk, Crme Egg, and other
treats. Management
introduced the Cadbury Cocoa Partnership on January 28, 2008, and budgeted
$87 million

for this program over a 10-year period.

Procedures
After the program, divisional, and corporate budgets are approved, procedures must
be developed.
Often called Standard Operating Procedures (SOPs), they typically detail the various
activities that must be carried out to complete a corporations programs. Also
known as
organizational routines, procedures are the primary means by which organizations
accomplish
much of what they do.12 Once in place, procedures must be updated to reflect any
changes in
technology as well as in strategy.
For example, a company following a differentiation competitive
strategy manages its sales force more closely than does a firm following a low-cost
strategy.
Differentiation requires long-term customer relationships created out of close
interaction
with the sales force. An in-depth understanding of the customers needs provides
the foundation
for product development and improvement.13
In a retail store, procedures ensure that the day-to-day store operations will be
consistent
over time (that is, next weeks work activities will be the same as this weeks) and
consistent
among stores (that is, each store will operate in the same manner as the others).
Properly
planned procedures can help eliminate poor service by making sure that employees
do use not excuses to justify poor behaviour toward customers. Even though
McDonalds, the fast-food
restaurant, has developed very detailed procedures to ensure that customers have
high quality
service, not every business is so well managed.

Follwoing are the main steps in implementing a strategy:

Developing an organization having potential of carrying out strategy successfully.

Disbursement of abundant resources to strategy-essential activities.
Creating strategy-encouraging policies.
Employing best policies and programs for constant improvement.
Linking reward structure to accomplishment of results.
Making use of strategic leadership.