Strategic management is a process through which organizations analyze and learn from their internal and external environments, establish strategic direction, create strategies that are intended to move the organization in that direction, and implement those strategies, all in an effort to satisfy key stakeholders.
This definition encompasses the direction in which present-day corporate entities are heading. Strategic management provides overall direction to the organization. The term 'Strategic Management' as a concept in the business world succeeded that of 'Strategic Planning'. This as a direct result of a major conference devoted to strategic management held at the University of Pittsburgh in 1977. The evolution of Strategic Management can be sectioned into four distinct eras:
The 1960s in which the main focus was the definition of strategy;
The 1970s, where the focus was conceptualizing strategic management;
The 1980s which took on an industrial organizational economics view of strategy; and
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The 1990s which had as its major focus a resource-based view of strategy.
In the succeeding sections, each of these eras will be discussed, as well as the importance of business ethics in strategic management.
In the 1960s, corporations moved from an emphasis on operations and budgeting and control areas to an emphasis in planning. At this time there was constant change and complexity in the environments in which companies had to function, which forced the top managers of companies to find solutions. These solutions necessitated future planning and a global view. Executives were concerned with the direction and long-term policies of their businesses, and so business policy lecturers encouraged their students to think systematically about companies' strategies (Schendel and Cool, 1988).
Chandler produced groundbreaking work in 1962 - Strategy and Structure - in which he posited that 'strategy' was a separate business function from finance, marketing and so on. Based on that piece of work, Chandler posited that strategy entailed deciding on the long-term goals of an organization, and the setting of courses of action and allocation of resources necessary to achieve those goals. According to him, strategic decisions were necessary for a restructuring of the enterprise that would lead to superior, competitive performance. It was also in this era that SWOT Analysis was developed. This was done by Kenneth Andrews of Harvard Business School (Learned et al., 1965). This tool was developed to understand how some environments may present opportunities and threats to the company (OT) and how the enterprise needs to adapt to its strengths and weaknesses. (SW)
As it pertains to business ethics, the pioneers of the strategy concept in the 1960s also considered social responsibility and moral values. Igor Ansoff spoke about these concepts as he discussed the non-economic influences which affect a firm's objectives. These personal non-economic influences of which he spoke included philanthropy, personal ethics, social responsibilities, reputation and social status (Ansoff, 1965). It was quite common in the 1960s to think of ethics as simply a matter 'personal values' (for example, Watson, 1963), rather than as a set of universal principles about the right thing to do. As such, integrating ethics and strategy arose from the goodwill of the decision-maker, based on his or her goodwill and personal values.
In the era of the 1970s, implementation and evaluation featured prominently as critical components of the success of the organization. It was in this era that researchers focused on strategy content or strategy process. Research was done on what is the right strategy as well as on how to develop strategies that would move the organization forward.
The business ethics movement began in the late 1970s and sought to defend existing ethical bases for corporate social responsibility. In this era, corporate social responsibility was linked to strategy and was based on long-term economic effects. The thinkers of this time sought to propose that businesses be respectful to all, defend human rights and human conditions in the workplace.
In the 1980s, strategic management again made an important contribution to the management and executive world in the form of global competition among corporations. Here, Michael Porter's books Competitive Strategy (1980) and Competitive Advantage (1985) proved very useful in guiding, analysts, managers and consultants. Through these books, Porter posited the ideas of "five forces industry analysis" and "generic strategies", which are now seen as pivotal and the most influential contributions at that time (Barney, 2002).
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Porter's posited a structure - conduct - performance model, having based his ideas on industrial organizational economics. Based on this model, performance of the organization relies upon the attractiveness of the industry's structure, which depends on five essential forces. These are threat of entry, intensity of rivalry among competitors, pressure from substitute products, bargaining power of buyers, and bargaining power of suppliers. Profit therefore relates directly to the strength of these combined forces.
In the 1990s the field of strategy and strategic management focused on the resources that would most likely lead to competitive advantage. The responsibility of the organization in this decade was seen as being set up in such a way as to deploy resources that are rare, valuable and inimitable. The resource-based view of the organization, which still holds today, maintains that the organization's ability to perform better than its competitors depends on the interplay of organizational, human and physical resources over time. In this era, organizations sought to create new products, as well as new ways of making products, beyond the external analysis of the environment in which the firms operate. The resources and capabilities of the company became really important as assets at this time. The thought was that when resources are rare, and valuable, then they could become a source of competitive advantage. There was a growing interest in social and ethical aspects of strategic management in the 1990s. Ethical issues have been considered in strategic thought, mostly in terms of its contributions to valuable future competitive advantage.
Throughout the paper, ethical considerations in business have been discussed, and its importance in strategic management cannot be underestimated. Business ethics apply not only to how the business interacts with the world at large, or with other businesses, but also with its one-on-one dealings with a single customer. The manner in which some companies conduct themselves may drive consumers of their products and services away, rather than attract them. Ethical integrity contributes to the creation of a stable competitive advantage for the organization. Ethical judgements are therefore relative to economic rationality.