The Strategic Management Process
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Published: Mon, 24 Apr 2017
Strategic management is a continuous process of formulating, implementing and controlling broad plans that facilitate an organization in achieving the set objectives. It can also refer as the art and science of formulating, implementing and evaluating cross-functional decisions that enable an organization to achieve its objective. (Bratton, n.d). Strategic management is an ongoing activity and requires an invariable modification among the three traditional poles of a strategic plan including: values of senior management, environment and the resources available. It can also be defined as the set of decisions and actions that determines the long-term performance of an organization.
The strategic management process has five steps; mission and goals, environmental analysis, strategic formulation, strategy implementation and strategy evaluation. The strategic management model starts with top management evaluation of organization’s current position with respect to its set current mission and goals. The Mission reveal what an organization wants to be and whom it wants to serve and how? Mission Statements are essential for effectively establishing objectives and formulating strategies. Goals are the desired ends sought through the actual operating procedures of the organization and typically describe short-term measurable outcome. Strategic management second step is the environmental analysis which consists of two parts internal assessment and external assessment. Strategic formulation is the third step in the strategic management model which involves making strategic choices and making strategies at three different levels corporate, business and functional. Strategy Implementation the fourth step which means involving employees and managers in order to execute the formulated strategies. It is referred as the most difficult stage of strategic management process. It requires personal discipline and commitment. The final stage in strategic management process is strategy evaluation in which management analyzes the consequences of implemented strategies and controls it by adopting corrective measures. (Bratton, n.d)
In diversified business organization, strategic management is applied on different levels of hierarchy based on their strategic needs. The hierarchy of strategy can be classified into three levels as: corporate, business and functional. Corporate-level strategy explains what business we are in? It provides the overall strategic direction in diverse areas of an organization that facilitates in smooth running of its different business units. Business-level strategy focuses on effectiveness and efficiency of a business unit. The basic purpose of this strategy is to take decisions that would make a business unit more competitive in the market place and therefore, it is primarily concern with the process of how do we compete?(Bratton, n.d). Porter (1985) (as cited in Bratton, n.d) had introduced a framework for business strategy which is based on three competitive strategies; cost leadership, differentiation and focus. These strategies are worldwide known as Michael Porter’s Generic strategies. Cost leadership strategy emphasize on producing standardized products at a very low per-unit cost for consumers who are price sensitive. Two alternative cost leadership strategies are classified as Type 1 and Type 2. Type 1 can be defined as a low cost strategy that offers products or services to a wide range of customers at a lowest price available in the market. Type 2 can be described as a best value strategy that offers of products and services to a wide range of customer at the best price value on the market. It aims to offer customers a range of products and services at the lowest price available compared to rival’s products with similar attributes. Differentiation is a strategy focused at producing products and services considered unique industry wide and intended for consumers who are relatively price insensitive. Focus strategy emphasize on producing products and services that fulfill the needs of a small group of consumers. The two alternative of Focus strategies are categorized as Type3 and Type 4. Type 4 is a low cost focus strategy that offers products or services to a small range (niche group) of customers at the lowest price available on the market. Type 5 is a best value focus strategy that offers products or services to a small range of customers at the best price value available on the market. (David, n.d). Miles and Snow (1984) (as cited in Bratton, n.d), identified four levels of business strategies that are called four modes of strategic orientation: defenders, prospectors, analysers and reactors. Defenders are companies with limited product line and management focus on improving the efficiency of their existing operations. Prospectors are companies having broad product lines that focus on product innovation, creativity and market opportunities. Analysers are companies that operate in at least two different product areas, one stable and one variable. Reactors are companies that lack a consistent strategy structure culture. Rather than defining a strategy that suit to specific environment, they respond to environmental threats and opportunities in ad hoc fashion. Functional level strategy emphasizes on continue improvement of functions within a business units including: research & development, marketing, manufacturing, finance and HR. It has been highlighted with strong emphasize in the several strategic management literature that the synergy among different levels should be present. Therefore, when the strategies at different levels are fully integrated, organization would effectively able to achieve its sets targets.
The term strategic human resource management is coined as a result of significant contribution made by management gurus in the field of HRM. Strategic human resource management has some presence in manpower planning literature. Ouchi (1981) and Peter & Waterman (1982) (as cited in Bratton n.d) have identified one of the important sources of competitive advantage that an organization can achieve by managing its people effectively. This new direction in search of competitive advantage has open new dimensions for scholars and finally the research work emphasized heavily on the significance of strategic role of human resource management. Since then the prefix “strategic” has been attached to “human resource management”
(Michael E. Poter, 1996) Competitive strategy is about being different it means consciously choosing a different set of activities to deliver a unique mix of value. Competitive advantage occurs when firm have resource heterogeneity and resources immobility. Firm resource heterogeneity this concept suggests that firms all have the different amount and kind of physical, human and organizational resources and they vary across firms. Firms resource immobility refers that competing firms are enable obtain resources from others.
(Jay Barney, 1991) Sustainable Competitive advantage is a value creating strategy not simultaneously being implemented by any current or potential competitors as well as competitors are unable to duplicate the benefits of these strategies. According to Porter, 1985 (as cited in Ulrich, n.d) competitive advantage can be defined as firm’s ability to generate unique products or services which are valued by users of those products. In search of its sources, executives have come across three traditional means of gaining competitive advantage (economic, strategic & technology capabilities). (Jay Barney 1991) Four attributes that gives potential to firm recourses to achieve sustained competitive advantage are: valuable, rareness, imitability and substitutability. Strategies are valuable when they facilitate an organization to envision of or implement strategies that improve efficiencies and effectiveness and recourses are rare when a value creating strategy not simultaneously implements by large number of other firms, the resources must be imperfectly imitable and it is possible when any firm has one or a combination of three reasons (a) unique historical condition (b) causal ambiguity (c) social complexity, the resources cannot be substituted with another resources by competing firms. (Pankaj Ghemawat, 1986) Sustainable competitive advantage has three categories: size in target market, superior access to resources and restrictions on competitors options.
Organizational survival in highly turbulent environment has become the major concern of organizations today. Since last decades, due to the extreme globalization and increased technological influences the business environment has gone through major changes and become the focus of attention. Such changes have emphasized executives to focus on means that help to create and achieve competitive advantage. (Ulrich, n.d). In order to remain competitive and perform effectively in rapidly changing environment, decision-makers need to seek out factors that provide organizations sustainable competitive advantage. (Hussain, n.d).
According to Porter, 1985 (as cited in Ulrich, n.d) competitive advantage can be defined as firm’s ability to generate unique products or services which are valued by users of those products.
In search of its sources, executives have come across three traditional means of gaining competitive advantage (economic, strategic & technology capabilities) (Ulrich & Lake 1991; Ulrich 1997). Reviews on traditional means of gaining competitive advantage highlighted that these traditional means may be necessary but not sufficient. Executives have realized that additional sustained competitive advantage lies in recognizing and creating organizational capabilities through better deployment of human resources. (Schuler & MacMilan, 1984; Ulrich 1986; Ulrich, n.d).
Organizational capability can be defined as firm’s ability to manage people to gain competitive advantage. (Ulrich and Lake, 1991). It focuses on employee commitment and competence. (Ulrich and Lake, 1991). Organization’s human resources is prove to be the key differentiating factor in developing future competiveness when traditional sources of competitive advantage are easily imitated. (Hussain, n.d). It is something that is difficult to imitate and hence it creates uniqueness. (Ulrich and Lake, 1991). There are several models to measure organizational capability that include (cited in organizational capability- what does it mean, n.d): Hase and colleagues (2000), Dill and Delahaye (2003).But one the widely used model is EFQM. The model is based on nine criteria: five enablers (leadership, people, policy & strategy, resources and processes) and four results (people result, customer result and society result). When organizational capability has become the source of competitive advantage and HR professionals are the driving force behind it, than there is a need to develop new agenda for both HR practices and HR professionals. (Ulrich, 1997). Ulrich emphasized that HR professional who contribute to CA must become strategic business partner and acquired new set of personal and professional competencies. (Ulrich, n.d).
The concept of strategic business partnering was introduced by Dave Ulrich in his famous book Human Resource Champions in the mid 1990’s. (CIPD, n.d). Human resource business partner is a new emerging role in organizations today. In this capacity HR professionals are the human resource specialists, involved in strategic planning of organization to improve business performance and develop organizational culture. (Dash et al, n.d) Lawler and Boardreu shared their views on HR as strategic business partner and highlighted that in this new role HR is a member of senior management team and is directly involved in the major business decisions of the organization, including the formation of strategy, the design of the organization and the implementation of the business model.( Lawler and Boardreu, n.d).
It has been observed that, during the past decades HR was solely viewed as administrative support function, involved in processing employee paper work, benefits, maintaining personal files. (Dash et al, n.d). Ulrich (as cited in Lawler and Morhman, 2003) has also highlighted the fact that HR function has been viewed an administrative function led by individuals who was primarily responsible to control cost and look after the administrative affairs.
As highlighted by Ulrich, HR is the key to success.( Ulrich, 1997). Several studies have highlighted that HR function has the essence to become a strategic partner and by doing so it would then be a more value-added function. Research by Becker and Huselid (1998) (as cited in Lawler and Morhman, 2003) also identified a relation between HR practices and the performance of an organization. Other studies also highlighted the need and emphasized the fact that due to the increased competition for HR talent, HR must mould itself in strategic business partner role. (Lawler and Morhman, 2003). Ulrich discussed that HR needs to become a strategic business partner. (as cited in Lawler and Morhman, 2003) He has emphasized that the HR function should become strategically proactive, that it needs to go beyond administrative expertise and try to be an expert in three important roles that are strategic business partnership, change management, and employee advocacy. (Ulrich, 1997).
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