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Introduction and definition:
Strategic management is the functionality which deals with the initiatives and decisions taken by management of an organization on behalf of the owner of the company or organization keeping in mind the best possible utilization of resources and to enhance and continue the performance of the organization to meet the demands of the external environments and satisfy its customers.
This involves a clear identification and specification of the organization's mission, vision and objectives including developing policies and plans, most of the time in terms of projects and programs that are intended to accomplish these objectives, and then accordingly assign resources focusing to implement those decided policies, plans, projects and programs. An impartial score sheet is often used to take stock of the general performance of the business and evaluate its advancement towards the designed objectives.
A recent study shows that strategy should first be considered about the expectations of the stakeholders of the company and hence includes all the stakeholders. Management experts have seconded this theory and advocate a balanced approach towards achieving an overall inclusion of stakeholders. Depending on the organizational structure apart from the management members, strategic management can include the members of board of directors, other stake holders and trustees of the organization as well.
If in one word we need to describe strategic management, then it can be best described as the overall managerial activities to set and decide tactics to achieve organization goals with extreme utilization of internal and external environments. It is responsible for providing the overall direction to the organization towards the success of the same and to maintain the consistent and stable strategic alignment between the organization and its surrounding environment. To quote Arieu: 'There is strategic consistency when the actions of an organization are consistent with the expectations of management, and these in turn are with the market and the context.'
Strategic management is not a short term plan rather it is derived keeping an eye to the long term future expectations and goals of the organization. Strategic management is an ongoing process that evaluates and controls the business and the industries in the field the organization is involved. It also involves the assessment of its competitors and setting up of its goals and strategies to meet all existing and potential future competitors. The aim of strategic management is to continuously doing the assessment and re-assessment of each strategy monthly, quarterly or annually on a planned method to determine how it had been implemented and whether it has succeeded or needs replacement by a new strategy to meet new challenges.
Case Study and details on strategic management planning:
Now it is worthwhile to evaluate all the above explanation and structural theories of strategic management with regards to an Indian organization which has proven the importance of a well thought and properly executed strategy to diversify into different segment of market catering to all different levels of society and sustaining consistent growth. The company is referred to as ABC limited in the following contexts.
ABC limited is an Indian multinational company into various segments of industries with presence in almost all segment of business environment and with an estimated turnover of $30 billion. Though it already has a diversified presence in Cigarettes, Hotels, Paperboards & Specialty Papers, Packaging, Agri-Business, Packaged Foods & Confectionery, Information Technology, Branded Apparel, Personal Care, Stationery, Safety Matches and other FMCG products and is one of the outstanding market leader in its traditional businesses of Cigarettes, Hotels, Paperboards, Packaging and Agri-Exports, it is also rapidly increasing its market share even in the businesses like Packaged Foods & Confectionery, Branded Apparel, Personal Care and Stationery.
ABC limited's aspiration is to be an exemplar in sustainability practices is manifest in its status as the only company in the world of its size and diversity to be 'Carbon Positive', 'Water Positive' and 'Solid waste recycling positive.' In addition to that ABC's businesses have created sustainable livelihoods for more than 5 million people, a majority of whom represent the poorest in rural India.
Now being a conglomerate of this stature, when it decided to foray into a different and all together new segment of Foods Business, it decided to create a new benchmark of doing business with the idea of making profit but at the same time crating a brand name of its own apart from the parent company and to make it a household name. Now to implement this innovative idea, the company bound to have a very perfect and well thought and properly planned strategic management in place to realize the dream and carry forward the project big time and also keeping in mind to maintain the same legacy and goodwill of the flagship company as well.
It had to keep in mind the vision of the company which was to sustain its position as one of India's most valuable corporations through world class performance, creating growing value for Indian economy and the company's stakeholders. It has also had to keep the mission of the company in front which is enhance wealth generating capability of the enterprise in a globalizing environment , delivering superior and sustainable stakeholder values.
While ABC had been making millions in the product and other segment, the company's directors were still worried about ways to connect to the bottom line users and the largest community of the country, the younger generation of India, which has the highest number of young people across the world as per as the age of generation is concerned and who have potential to become the consumers of tomorrow and keeping in mind the fundamental truth of 'customers are the foundation to the growth of any organization'. Given the fact that it would be a huge challenge for the company to reach their level and bring them under the company umbrella through some new business which would help company to earn profit as well as set the brand itself into a successful one, the deciding authority of ABC proposed the following to achieve the best quality while finalising on its strategic planning.
To set up a high quality research team to study the market across all parts of country.
To have a dedicated team involving high skill and knowledge of handling business of foods.
To have a high quality production team.
Dedicated and skilled sales and marketing team.
Use of highest quality technology for quality control.
State of the art facilities for seamless supply.
Factors which affect an organization externally:
The external factors which externally affect an organization's strategic management are generally economic situation of the consumers, government strategies, market competition, methods of supply and geographical and social structure. Proper studies of these factors affect and help an organization to decide the chances of success and also evaluate risk factors against the organization.
To finalize on the strategic decisions the environmental analysis is measured as a precondition and the most important factor responsible for the development and progress of any business and the analysis of this is considered as a compulsory one. Today SWOT Analysis (Strength, Weaknesses, Opportunities, and Threats) is used to decide on the process. When the business house gets an idea of its strengths, weaknesses, opportunities and threats, then depending on that proper and effective decisions are taken. This type of analysis is considered unavoidable. According to Philip Kotler 'The marketing environment audit is the prime in marketing audit.'
The success of any business house depends upon the extent to which the organization handles and maintains the relations of its own qualities and skill with the environment. The success of a business is supported by the relation between its own production resources like man power, capital, machinery etc. and depending on that the environment is enhanced accordingly.
The environmental factors that affect the strategic management of any organization are its Competitors, Customers, Market, Social and cultural environments, Political environments and Technological environments.
In the case of our ABC Company, economic, governmental and political influences, along with culture, language and ever changing technology were the directly affecting factors.
Reviewing existing business plans and strategies of an organization:
To go ahead with the implementation of strategic planning the second step is to be considered is reviewing the existing business plans and strategies of an organization. It's not the finished product which the business plan actually looks into, rather it is the thought process and value which is involved in the process of research and planning about its business in a systematic and properly planned way. The act of planning helps to look at things through thoroughly in step by step detail, to study and research details in case of not being sure about the facts and to look at the planned ideas critically. Though it's bound to be a time taking process but it definitely helps to avoid costly and most importantly any disastrous outcome later.
Reviewing on the other hand involves assessing the existing plans vis-à-vis the model plans that strategists formulate for the organization.
ABC Company is a limited and stock market listed company of a hundred years in existence. Being originally a tobacco company to start with and then diversified into multiple other products, though it already had quite a few tangible goods as products, it was still limited to a certain segment of customers and the company wanted to get into the largest sector of consumer through getting into the food sector and that too with a product which can be of high potential among the kids and young generations. It has a very strong marketing and operational plans in place which made them to be successful for last 100 years. After analyzing the company's strengths and weaknesses it was found that the company's main strengths lay in its employees. The employees are thoroughly trained and are always in the process of sharpening their skill through continuous training process and are always prepared well before they are expected to take up any new assignments.
The vast size of customers of ABC Company has been grouped according to:
Type of Industry
Size and volume of the business
Price preference of the product among the customers
After analysing the target customers, the plan started looking into the nature of competition it needs to face, the already existing products in competition, a list of competitors and their strategies that were in place. The competition is assessed if it is limited to any particular product or locations or if it is mix of all. There is a second plan with details of who could be competitors in future or who the indirect competitors to the company are.
After analyzing the production and competition, whatever is unique to the company is discussed. In this case the quick solution approach of ABC is very significant to be highlighted. This company already has special knowledge of making FMCG products like wheat, rice, packed ready to cook foods, incense sticks, match boxes etc. The management and employees involved in these teams were already much focused are aggressive in approach and were great marketers. The existing business plans and strategies showed that this organization depends heavily on these groups and their marketing strategy, which had overpowered and outstayed the competitors in those sectors with its vigorous marketing policies and smooth supplying ability.
With a data base of more than 50% customers coming from these segments, the company decided to focus a lot of its funds and resources on this team. The marketing team always promote these products with overwhelming zeal and enthusiasm knowing the fact that the company's success heavily depends on these products.
Strategic planning options for an organization:
It goes without saying that if an organization has to sustain continuous success and change is important to achieve and maintain that then it is obvious that the organization needs to take some bold steps. No can except to gain smooth outcome without having to change anything in the existing process or operation. It is very common for any organization that as soon as they start thinking about any new ideas they tend to start thinking about a change at the same time. Though it does produce good result but sometime may backfire as well. Employing different buzzwords like Total Quality, Just in Time, Creating new benchmark etc. on a regular time frame often creates an alerting kind of effect that causes mass uncertainty among the employees. These buzzwords are often used like a hammer in search of a nail, decisions and techniques applied with no clear focus as to why suddenly change is required.Â
Sometime the organizations need to go further than the buzzwords into deciding what actions they need to perform that will help them grow and develop. It is important to cope with organizational change independent of buzzwords or any latest available system. Organizations must first decide on the framework of their organizational change long before they choose a buzzword to implement.
When it came to applying change in the existing groups and company decided to shuffle some of its key people responsible for earlier successes, the employees from those successful sectors started getting worried towards this sudden change to make a new product successful. Even the managers who were asked to move also started feeling little insecure as the human nature is always to find an easy going comfort zone.
ABC Company management took a stock of the entire situation evolving around the employees and then reconsidered the entire structure and started exercising the options for a strategic planning inside the organization.
Strategy Construction Plan for the organization:
While constructing the strategy plan for the organization it is utterly important that the levels of the plan is kept in mind and the plan is considered clearly and also decide at which level it is supposed to begin. To create well thought plan is generally easier than deciding on the exact level it is supposed to start, in fact it is more challenging from the organizational planning point of view and actually most difficult.
The construction of a strategic plan can be broadly divided into below mentioned stages:
Anticipating the future of the business and shaping them to suite the business in the changing environment
A proper definition of the type of businesses it is looking into and its core competencies
Constant Reinvention and improvement of the processes involved
Continuous and consistent market acquisition in an incremental fashion
Let us go through the above levels and find out at what situation and under what circumstances the business needs to perform them to make the best use of those.
Stage 1- Anticipating the future and shaping them accordingly
The basic and fundamental level of the strategically planned management is to anticipate future where every organization's begin to make few assumptions about the nature of the business, what they expect to achieve by following a certain path, what will be good for the business and finally what will be the future like. By constructing hypothetical structures for future, the management creates alternate options of the future. Based on these planned options it creates various opportunities, defines its strengths and weaknesses. Depending on the result the organization decides its next step, about redefining its vision, mission, measurement system, process etc.
Stage 2 - Defining the type of business and finding the Core Competencies
This is the level when the organization starts using assumptions like comparing the past experience similar to it's kind of business with the future, the expected future and that of the management's view are matched together, assumptions about the changes, the management needs to decide on the changes it needs to adopt at the very beginning of starting level 1, to execute all the previous the only mandate the business has to keep in mind is that of to redefine is that of what process already exists and how to go ahead with the necessary changes. After a target has been defined and a SWOT analysis is completed, an organization can then define its measures, goals, strategies, etc.
Stage 3 - Constant Reinvention and improvement of the processes involved
After the completion of above levels, the organization needs to look at the fundamental changes which will take care of the fact f the target to get accomplished. Reinvention and improvement of process take care of major structural changes with the goal of improving productivity substantially.
Stage 4 - Continuous and consistent market acquisition in an incremental fashion
It is this factor of making many small changes to existing work processes which would lead the company to leverage on continuous market acquisition and to keep on doing that consistently. Oftentimes organizations put in considerable effort into getting every employee focused on making these small changes which contribute in a big way toward achieving this goal with considerable effect.
Affect of factors on organizational strategy plan:
To make an organization to be successful it needs to develop a plan that requires to be followed and at the same time to be maintained as well. This applies from the starting of the new business to that of introducing a new product, creating a new division or any adding up of an undertaking that affects the company's future. There are a thousand factors that affect planning in an organization, so to construct an efficient plan which is effective and profitable at the same time, the organization needs to understand the factors which are involved in the planning process.
Factors which affect the Organizational planning:
The primary concerns
In the case of most business organizations, the main concern is to create revenue and this priority can sometimes hamper the planning process of any project. For example, if the organization is in the process of planning a large expansion project and the leading customer suddenly pressurizes to take the business to the organization's competitor, then it might have to shelve the expansion planning until the customer issue is resolved. When it starts the planning process for any project, it needs to assign each of these issues facing the company a priority rating. The rating would in turn determine what issues will sidetrack it from the planning of its very own project and the issues that can wait until the process is complete.
Resources of the organization
A distinctly clear and flawless idea and developing a plan for the organization can aid towards the company's nurture and success, but if the company does not have the required resources to make the plan to a successful one, it can halt the entire progress. One of the very first steps to any planning which is in progress is the evaluation of the resources, which is required to complete the project in comparisation to the resources the company has. Some of the resources which needs to be considered are finances, personnel, space requirements, access to materials and vendor relationships.
An organization should be able to constantly forecast to be prepared for the expected changes in the market. The ability to constantly and correctly forecast sales revenues, materials costs, personnel costs and overhead costs can help a company to plan for its upcoming projects. Without this it is very difficult to decide whether the plan holds any chance of success, if the company has the capabilities to pull off the plan and if the plan will in future help the company to strengthen its stand within the industry. For example, if the company's forecasting for the cost of goods is suddenly changed due to a sudden increase in material costs, then that can affect its product roll-out plan, including projected profit and the long-term commitment as well.
Pre Planning towards the unexpected emergency situation
To have a successful plan in effect, a company needs to have a contingency plan in place by default. If the company decides to pursue a new product in the existing market, it needs to have a plan that addresses the possibility towards adverse situation i.e. the failure of the product. The reallocation of company resources, acceptable financial losses and the potential public relations problems that a failed product can cause, all of these need to be taken care off as part of the organizational planning process from the beginning.
Implementation of strategic management plan for an organization:
Any business organization, after considering the above points must develop a plan which will implement strategic planning for the organization. The management of ABC Company identified the below strategic management goals to be achieved within a time frame of 4-5 years.
To become the biggest player in the foods segment of the country first and then to grow as one of the vital player in the south east Asia
To strengthen the country's industry growth and help the economy by creating new opportunities and involving more people by creating jobs
Develop innovative new ideas for products to be marketed in a whole new way
Engage with other global players in the same segment to improve upon the quality and usage of better technology in the food processing business
To create an impact on societal issues by informing and educating the public and government in complex situations
Despite having the experience, it is highly possible for organization's to turn strategies and plans into individual actions, but at the same time it is also important to produce a great business performance which is not very easy at times. There are so many instances where companies, who happen to be profound market leaders, have very often failed to truly motivate their employees to work with enthusiasm and create a successful end result towards the corporate aims.
It is obvious that most companies or organizations know their businesses and the strategies required for them to achieve success, however many such organizations - especially large ones - struggle to translate the theory into action plans that would have enabled them to use and plan strategies which could have been successfully implemented and sustained.
Now let's talk about some leading and cutting edge elements which need to be always considered and kept in mind while creating a strategic planning. These advanced principles of strategy realization are provided by the Farsighted Leadership organization and the contribution of these is highly recognised.
Unique and Motivational leadership - This factor concentrates basically on achieving sustained performance through personal growth, a values-based leadership and a proper planning that recognizes human dynamics.
Making a strategy turning into action - This entails a phase by phase approach linking identified performance factors with strategic initiatives and projects designed to develop and optimize departmental and individual activities.
Evaluation and importance of Performance Management - This involve the construction of organizational processes and capabilities which are necessary to achieve performance through people delivering optimum results.