Back To: BUSINESS STRATEGY
What is strategic planning and management?
Remember, strategy entails planning the orientation of company resources and activities toward achieving company goals and objectives. Business strategic management is the art, science, and craft of formulating, implementing and evaluating cross-functional decisions that will enable an organization to achieve its long-term objectives. It is the process of specifying the organization’s mission, vision and objectives, developing policies and plans, often in terms of projects and programs, which are designed to achieve these objectives, and then allocating resources to implement the policies and plans, projects and programs.
The process for developing a strategy is known as “strategic planning”. The process for implementing a strategic plan through daily operations (actions and decisions) is known as “strategic management”.
Strategic Management Process
Strategic management process has the following four steps:
- Environmental Scanning – Identifying and assembling information with the purpose of using it to develop a short or long-term strategy. Managers begin by identifying the current mission and vision of the organization. This will guide the direction in developing goals, objectives, and tactics for pursuing the mission. Next, managers will examine the firm and the competitive environment. The most common tool for doing so is the “SWOT Analysis”. The acronym SWOT stands for internal Strengths and Weaknesses and external Opportunities and Threats. Strengths and weaknesses refer to the status of internal resources and liabilities, internal competencies, capabilities, etc. In other words, it relates to things that could provide some competitive advantage to the business or serve as a weakness in meeting competitive needs. Opportunities relate to potential in the market to achieve some advantage over competitors with existing business lines or to enter into new lines of business. A threat refers to some aspect of the competitive market that can harm the organization’s current operations in a given line of business (such as luring away customers) or prevent the ability to enter new lines of business. The manager will draw upon acquired and available information about the company (its resources, capabilities, and goals), its (actual or potential) customers, it’s (actual or potential) competitors, and the (current or future) market for the value proposition it provides. When managers undertake to develop strategy, they examine the internal characteristics of the organization and the external characteristics of the market.
- Strategic Formulation – Managers will take the results of the SWOT Analysis and formulate the type of strategies necessary to further the company’s mission. The main types of strategies are organizational, competitive and function. There are, however, various types of strategies within the primary categories. There are numerous tools and techniques associated with developing a strategy. Most of these tools help the manager in understanding the internal and external environments. Another useful tool in evaluating the external environment is the PESTEL analysis. The acronym stands for political, economic, social, technological, environmental, and legal spheres of an organization’s external environment. Using the information collected during the environmental scan to develop a method and approach toward achieving the short and long-term objectives.
- Strategic Implementation – The process of translating the strategic methods and objectives into an operational plan. It will include any specific techniques used as part of business operations. Implementing the strategy is part of the Organizing and Leading functions of management. It involves Organizational Design, Human Resource Planning, Operational Design, and Managerial Decision-Making.
- Strategic Evaluation – Once the strategy is being executed, the manager is primary charged with the Controlling function. Measuring the effectiveness of the business strategy and the plan of implementation. How effective is the strategic plan in achieving short and long-term objectives? This includes measuring efficiency of the individuals in carrying out the strategy and the effectiveness of the strategy in achieving the mission’s objectives.
Of course, there are varying views of how strategies truly develop, including Mintzberg’s Intended, Deliberate, Realized, and Emergent Strategies.
Tools and Methods for Strategic Planning
Researchers and practitioners have developed a number of tools and methods to aid the manager in carrying out this planning task. Examples of these methods include:
- PEST Analysis – Another tool of strategic management is the “PEST analysis,” which looks at the environment to find out the political, economic, social, and technological (PEST) factors that may facilitate or disrupt efforts to achieve corporate goals.
- SWOT Analysis – The concept of juxtaposing the typical inherent strengths and weaknesses of a company with the opportunities and threats in its environment is known as a SWOT (strengths, weaknesses, opportunities, and threats) analysis. A SWOT analysis indicates to the decision-makers the chances of a company reaching its goals by overcoming hurdles, and spurs them to improve their strategic management.
- Porter’s Five Forces – Porter’s five-forces analysis identifies five forces that shape all segments of industry. The five forces are (1) Competition; (2) Threat of new entrants; (3) Power of suppliers; (4) Power of customers; and (5) Threat of substitute products. The analysis helps managers set their expectations of profitability.
- BCG Matrix – This approach focuses on operations and productions of businesses, or units or sectors of a business. It divides the sectors into four cells based upon the market share of the business and the potential growth. It helps companies plan for the efficient allocation of resources into any business unit.
- GE-McKinsey Matrix – This method focuses on the strength of the business unit and the opportunities within the industry. It divides business unites into nine-block grids and plots the position of the business unity.
In employing these tools to develop a strategy, managers will evaluate whether current operations and activities are consistent with strategic objectives (goals and priorities). They must then look beyond current operations toward long-term objectives. This might include consideration of potential market changes, customer shifts, operational demands (such as labor or materials), and the competitive landscape.
Strategic Planning and Competitive Advantage
The ultimate objective of strategic planning and management is to identify, create, foster, and exploit any advantage that the company may have in delivering its value proposition. That is, the business seeks to identify some quality or characteristic of the company or its value proposition (goods, services, information, etc.) that provide it an advantage over other competitors or competitor value propositions. Several important theoretical constructs for creating a competitive advantage through strategy are:
- Porter’s Generic Strategies – Porter’s Generic strategies says that a company can obtain an advantage through differentiation of value proposition, cost advantages in providing the value proposition, and niche market advantages based upon differentiation or cost.
- Bowman’s Clock of Strategies – This clock expanded upon the areas of strategic advantage that a company may enjoy over competitors.
- Blue Ocean Strategy – This theory posits that companies can create new markets for a value proposition (known as “blue oceans”). This avoids competing in existing markets that may be crowded or highly competitive (known as “red oceans”).
Strategic Management and Implementation
In addition to developing a strategic plan, managers must supervise and take part in carrying out the plan. This means efficiently allocating resources in accordance with the plan, charting progress toward obtaining company goals, and making necessary decisions and changes along the way. A strategic plan must remain fluid and evolve with the changes in the company, customer, market, competitors, etc. To manage or map the progress of the corporation, the manager will employ any number of tools or approaches, such as:
- Strategy Map & Action Plan: Generally a visual map of strategic objectives and individual tasks associated with carrying out the objectives.
- Balanced Scorecard – This approach divides strategic objectives into financial, customer, operations, and employee. It will identify key performance indicators (KPIs) in each of these categories and track the progress of completing them.
See our lecture series on strategy and strategic management to understand to learn more about these tools and techniques.