Strategic management is concerned with formulation and implementation of strategy within an organization. Strategy in general refers to Business purpose, values or activities business is engaged in and the way it carries out its activities, compete or operates.
It can be described as a systematic analysis of internal factors (organization itself) and external factors (like competitors, suppliers, customers etc.) to provide the basis of rethinking the current management practices. As a discipline, strategic management developed in 1970s, but it has evolved in response to changes in organization structure and corporate culture. With a greater empowerment, strategy has become a great concern not just for the heads or higher superiors of the company but even for employees at all level. It's one of the main objectives is to achieve greater alignment in business policies and strategies. It can be used to determine the values, goals, objectives, roles, responsibilities etc. of a business. It involves the application of corporate strategy to all aspects of organization, especially to decision making.
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Major Areas: The three major areas of strategic management are strategic analysis, strategic formulation and strategic implementation.
Strategic Analysis: This area includes formulation of business vision, in depth study of internal and external environment (PESTEL) and analysis of firm's industry (task environment). The internal analysis can help in identifying the firm's strength and weakness and external analysis reveals the opportunities and threats. An industry analysis can be performed with the help of Porters Five Forces which evaluate entry barriers, suppliers, customers, substitute product and industry rivalry.
Strategic Formulation: Provided the information from the environmental scan the firm should match its strength to opportunities that has been identified in context to its weakness and threats prevailing in the environment. To gain superior profitability firm tries to seek competitive advantage over its competitors.
Strategy implementation: This is termed to be the final stage of strategy management where all the designed strategy is implied in actual manner in the real corporate world. It is implied by means of programs, budget and procedures. The way in which strategy is implemented can be of significant impact on whether it will be successful or not. So care must be taken while implementing and communicating strategy to others.
Two approaches for Strategic Management
Prescriptive Approach/Planned Strategy: Prescriptive approach views the formulation of strategic management as a systematic process of rational thinking and logical decision making. After analyzing the business environment, strategists must set well defined objectives and formulate, select and implement strategies to achieve the defined objectives. It emphasis that strategic management is a rational process analyzing where the organization is, where it wants to go and how it is going to get there. It is formal planning method and is most applicable in those organizations where conditions are stable and within complex and diversified organizations where control and coordination is from top to bottom. It has three stages and all work in a sequential manner. It includes strategy analysis, strategy development and strategy implementation.
Long term monitoring and control
Source: Lynch, 2009
Long term monitoring and control
The above diagram shows that first of all analysis of business environment and resources are done in accordance to defined organizational objectives, then different strategies are designed and best strategy is chosen among all and is implemented.
Example: Prescriptive Strategy to Build a World Airline - Singapore Airlines
(Richard Lynch, Fourth Edition, Page 42-43)
Widely regarded as one of the world's largest leading airlines, Singapore Airlines started as small regional airlines in 1972. After break away from Malaysian Federation in 1995 Mr. Lee Kuan Yew (Prime Minister at that time) realized that relatively small country like Malaysia needs a strong and distinctive strategy if it was to survive and grow. Following prescriptive strategies were under taken:
The airline decided that it would build a reputation of superior service to its rivals. Thus, it introduced free drinks, hot towels and headsets form outset in 1972- such amenities are relatively cheap and quick to introduce.
Substantial investment in staff training, employee welfare and related activities. Singapore Airlines took the view that staff were crucial both in-flight service deliver and also to aircraft safety through expertise in ground and related operations.
Always on Time
Marked to Standard
Development of a modern airport at its main base in Singapore - Changhi Airport - Coupled with related strategy of ensuring for airlines.
The investment in new fleet aircraft like for example airline introduced the new ultra long range Airbus A340-500 aircraft in 2004.
Clear objectives provide focus for the business.
Makes it possible to organize complex activities and information, set targets against which performance can be evaluated and generally increase the degree of control that can be exercised over the operation of the business.
It is often linked to Competitive Positioning approach in which analysis of the business and its environment is done to get a competitive advantage resulting in outperforming its rivals.
There are often discrepancies between planned and realized strategy.
Rigid planning in times of dynamic and turbulent business can be unproductive.
Rigid adherence to plans may mean some missed opportunities and further more it can stifle creativity as well.
Does not take into consideration fallibilities of the manager, culture, politics or the experiential learning abilities of organization.
Emergent Approach / Incremental Strategy: Emergent approach or incremental views that strategy must be evolved incrementally over a period of time. This view is based upon the premise that business is complex social organization operating in ever changing environment. Under such circumstances business will evolve its strategy by interacting between its stakeholders and its environment. In this the final objective is unclear and strategies are implemented on an incremental and continuous basis, it has no long term plans or process and there is unstructured in form. However, this approach does not completely ignore all the stages of strategy development. Strategy analysis is still important but strategy development and implementation is inseparable and is based on experience, trial and error adjustment.
Active experimenting, learning and adjusting
Active experimenting, learning and adjusting
Source: Lynch, 2009
As it can been seen in the diagram shown above that emergent strategy is somewhat similar to hit and trail method. It involves trail and experimentation of different approaches, no single approach is chosen for implementation instead strategy is build over a time period. There is no clear distinction between strategy development and its implementation and strategy keeps on changing according to prevailing circumstances.
Example: Emergent Strategy at Virgin Group (Richard Lynch, Fourth Edition, Page 47)
Richard Branson developed a small record mail order business in 1969 and two years later opened his first record shop and subsequently developed it into the Virgin Megastore. Looking for further opportunities using Virgin brand, luckily he met with an entrepreneur wishing to develop an airlines business. This eventually led to Virgin airline business and in later year's business moved into various ventures. Its business strategy is described as below:
Virgin group takes the view that there are always some opportunities available for a hungry business. They look for opportunities where they can offer new and better value for money than other companies, where other companies lack complacent like trains, insurance, banks and where new internet might deliver business opportunities. So the main thrust of the strategy has been to find new market opportunities where company believes its brand name can create competitive advantage. Contrary to what people may think, there constantly expanding and adverse empire is neither reckless nor random. Each of their business demonstrates the right picking in right market and at the right time.
Reflects reality and corresponds with what actually happens in an organization and their environment.
Flexibility of emergent strategy allows implementation to be integrated and modified as events unfold for the organization.
The downside of this approach is that no planning takes place and the organization muddles through with managers who are biased and happy to seek only satisfactory implementation rather than maximizing the objectives of the organization.
It may result in lack of purpose in strategy it can make it difficult of evaluate performance, because organization has no set objectives, performance against it cannot be measured.
Case Study of Easy Jet
Introduction: Easy Jet was founded by Stelios Haji - Ioannou, the son of Greek shipping tycoon who reputedly used to 'hate the internet'.
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